Aim: Growth by investing in UK equities with the prospect of recovery in the medium to long term
MInimum investment: Lump sum £500
Investment split: 100% in UK equities
Isa link: Yes
Charges: Initial 4%, annual 1.6%
Commission: Initial 4%, renewal 0.5%
Tel: 0845 6060062
The UK equity recovery fund from Standard Life Investments is designed to benefit from a recovery in the share prices of oversold UK stocks when the equity market improves as the economy recovers. It will focus on sectors that are more sensitive to changes in the economy such as retail, media, travel and financials.
Chadney Bulgin partner Bruce Bulgin says: “As the name suggests, the Standard Life UK equity recovery fund is targeted at investors who believe in a recovery. The underlying investments are primarily shares in large and medium size UK companies and at present there are around 63 holdings. Some successes to date are Segro, Xstrata and Barclays.”
He adds that as a big fund management group, SLI has a huge resource in terms of research and controls almost 2 per cent of the UK stock market.
Bulgin observes that the fund manager is SLI head of UK equities David Cumming. “This is the first time that Cumming has managed a retail fund of this type. He will have access to Standard Life’s UK equities team which can demonstrate returns that are significantly above the average of most other fund managers. “
Charges are reasonable in Bulgin’s view but he feels the commission paid to IFAs may be irrelevant. “Many IFAs will buy the fund through platforms where commission may be rebated and the adviser will have switched to customer agreed remuneration, so commission is in many ways irrelevant.” he says.
This is likely to be a cyclical fund in Bulgin’s view. He notes that there may be periods of outperformance and under-performance depending on the success of the fund manager as well as cyclical issues. “The aim is to generate capital growth so is not really suited to investors seeking income distributions. All equity funds carry a degree of risk but this fund is likely to be more volatile than many other broadly based UK equity funds.” says Bulgin.
Discussing the potential drawbacks of the fund Bulgin says: “Many advisers have moved to asset allocation modelling, often using proprietary systems such as that which is available from Standard Life. Bearing in mind that asset allocation delivers around 90 per cent of the returns, it can make sense to opt for a core range of low cost trackers replicating the various asset classes and markets. “
He says that the tracker approach he outlined is cheaper. “It is likely that the fund will have periods of outperformance, but experience has shown that over the long-term few fund managers outperform consistently. It is also a crowded sector and SLI is going against the trend with a new fund launch in an overcrowded market,” says Bulgin.
Identifying the main competition Bulgin highlights other recovery funds. “The flagship of recovery funds must be the M&G recovery fund, which has not only been around since the year dot, in recent times it has delivered well above average returns,” he says.
Bulgin adds that the way in which many IFAs work means SLI’s fund will not be on their radar until there is a published track record. “Even so, SLI’s investment process is so robust and it has won many awards.This is likely to mean a greater take up than might have been the case had a similar fund been launched by a fund manager with a less successful track record.”
Bulgin feels that over time it may be the case that the fund will be an insured pension fund option through other providers,. “It could well be bought by holders of life bonds and personal pensions with a wide range of providers,” he says.
Summing up Bulgin says: “It seems as if SLI has taken this opportunity to add to its armoury of UK funds, which includes more broadly based offerings, with those that provide an income as well as those that focus on investing in smaller companies. On this basis the new fund is to be welcomed.
“The fact that David Cumming, who up to now has only been available to institutional investors, is runniing this fund a positive move which should attract IFAs and their clients.”
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Good