Chelsea Financial Services
Isa season should be in full swing by now but it seems a bit muted. Has the Isa season been as busy as you would have expected so far?
McDermott: We are only two months in but I would suggest we are about 40 per cent up on this time last year. This is a nice and noticeable increase on last year but I would not say it is going crazy.
Lowcock: Compared with last year you had a big, big push from Fidelity because of the China special situations fund and I think a few of the fund management groups followed on that and it gave a focus to the whole season. This year, we do not have anything so big and dominant.
What we have seen from investors is the season has started quite early. We had a bigger level of interest from the start of the year than perhaps in previous years. We normally see things ratchet up from here on in.
Bamford: We do not tend to have a condensed Isa season. We meet with our clients throughout the year and a lot tend to put their money in at the start of the tax year rather than the end.
But I have to say a lot of the fund management groups have been quiet. By now, you expect them to be in full flow and putting lots of special offers in your face. Maybe that is down to the new environment we are moving towards, where special offers and higher commission are not necessarily going to influence a new model adviser.
The focus is going to be a lot more on the process that advisers follow and the quality of the management group rather than lower charges or higher commission.
Schroders is to launch of a low-cost, actively managed fund designed to compete with and outperform traditional passive funds. This follows the announcement last month that JP Morgan Asset Management have launched a similar “RDR- ready” fund. Do you expect to see the launch of many more similar funds? What do you think investor appetite for these funds will be?
McDermott: I do, Henderson’s intentions have already been written about and I expect to the groups that are doing them to increase their range, from UK equities, through the standard range of US equities, Asian equities, etc. The pricing looks about right to me.
As for demand, if there is demand for lower cost index-type products why shouldn’t there be? It has been widely regarded that there will be a demand for ETFs and the like and the Schroders’ product, particularly, is priced very comparatively with ETFs, if not cheaper.
Lowcock: There will be more of these funds coming out and there may be more ways and different ways of looking at how to service clients. The key is this very
much focuses on charging structure and what we need to see is how it ultimately feeds through to servicing for the clients, either through an adviser or direct or in performance as well.
Investors’ appetite depends on access to these funds. If they are direct with Schroders, then investors are not going to have access to a wide range of funds. They are a good company but they do not cover the whole market and are not good in every area.
Bamford: Between now and the end of next year we will see a lot more transparency on fund pricing. Investors and adviser want to know where that money is going, where the annual management charge is going.
They know some goes to the manager, some goes to the adviser, some goes to the platform but they want to know how much. I think we will see plenty more cleanly priced funds.
There is quite possibly demand for this type of fund. They have named it quite well. It could form the core of an equity holding in a portfolio with satellite holdings round the edge. It should be quite a popular holding.
Neil Woodford says it will take three years before full recovery of banking sector. Given that Lloyds is now back in profit, do you agree with this analysis?
McDermott: I am certainly not going to argue with Neil Woodford when it comes to the banks, given his track record on them. He was calling the demise of the banks and their overleverage for many years before it happened. I bow to his greater knowledge.
Lowcock: A lot of that will depend on economic recovery. The unwinding of all the debt and gearing was always going to be a multi-year process. We are getting towards the end of that timescale, so once that has unwound, yes, you could start to see the banks perform.
Bamford: I would not want to put such a precise timescale on it but that is his job as a manager to take a more precise view of it. Yes, it does seem to be returning to health but I do not think, from a reputation point of view, the UK banking sector has managed to repair the damage it did.
People are becoming a lot more aware about where profits are coming from. They are coming at the expense of customers often and they way they have managed to rebuild their financial strength has been at the expense of mortgage lending.