Type: Oeic fund of funds
Aim: Growth by investing in a range of asset classes
Minimum investment: Lump sum £5,000
Investment split: 32% equities, 15% fixed interest, 7% structured products, 13% cash, 18% hedge funds, gold 3%, 12% commercial property
Isa link: Yes
Pep transfers: Yes
Charges: Initial 5%, annual 1.25%, performance fee 15%
Commission; Initial 3%, renewal 0.5%
Tel: 0118 9528 900
CF Miton arcturus is a multi-asset multi-manager fund from MitonOptical UK
Arch Financial Planning director Arthur Childs believes the unusual name of this fund gives an insight into its purpose. “Arcturus is one of the brightest stars in the sky. Its name in Greek apparently means ‘bear watcher’. I note that Arcturus is also the name of an avant-garde Norwegian heavy metal band whose latest release is ‘Shipwrecked in Oslow’. Let us hope that this absolute return fund will show some of its forerunners how it should be done so that there is no need to call out the lifeboats,” says Childs.
Childs observes that this is a multi manager fund which is specifically designed to cope with bear market conditions. “But it is not simply a fund which has to wait for a bear market to perform, as it is targeted to deliver an annual return of cash plus 3 per cent in all market conditions. That is currently about 8.2 per cent a year,” he says.
Childs points out that clients need to understand that this is a target return over the medium term and not a minimum return in any one year. “The fund will attempt to achieve this by using a wide range of asset classes to include commercial property, hedge funds, private equity and structured products as well as equities, bonds and cash. This could be particularly useful where investors are seeking to achieve set objectives within a timescale, such as in school fees planning or in Sipps as the expected retirement date draws near,” he says.
According to Childs, many IFAs have been disappointed to see their preferred multi manager offerings falling as far and as fast as the FTSE 100 during a market downturn. “This is a fund that offers the prospect of being able to shore up values at such times and I can see that it would make sense to include this fund when recommending various multi manager products to our clients,” says Childs.
Childs notes that the short history of other absolute return or total return funds has not been encouraging. “They have usually promised much and delivered little but that may be because they were seen as a marketing opportunity by the investment houses concerned. In the case of Miton Optimal, the management of downside risk seems to be part of its core values. “It has been clear for some time that those running the Miton funds have not been slow in moving to substantial amounts of cash when they thought it was called for.”
The Arcturus fund aims to generate excess return, or alpha, without increasing risk. “It will do this by a combination of a top-down investment process which begins at the macro level in combination with choosing best of breed fund managers. I am a little concerned about how much of this can really be carried out with a team of just three fund managers and four other investment support staff,” says Childs.
Last month the fund held just 32 per cent in equities, while 18 per cent was in hedge funds, 12 per cent in property, 7 per cent in structured products, 15 per cent in bonds, 3 per cent in gold 13 per cent in cash. Childs thinks it is easy to see how such a combination would be sustaining capital values as markets have taken a breather.
Childs also highlights the quarterly withdrawal feature for funds above £20,000. He thinks the literature currently available is fine, although clearly aimed at advisers rather than their clients.
In terms of the charges, Childs points out that the annual charge is 1.25 per cent but the fund will also feature a performance fee of 10 per cent for returns above Libor, regardless of whether the plus 3 per cent target is met. “However, the estimated total expense ratio at 2.04 per cent is quite acceptable,” he adds.
Discussing the negative aspects of the fund, Childs says: “Miton has not yet moved any of its funds onto Cofunds or FundsNetwork. I know this can be expensive but it does seem somewhat short-sighted when many IFAs, ourselves included, transact over 90 per cent of Isas, Oeics and unit trusts through these platforms.”
He also complains that the fund is only to be valued weekly. “This is no doubt to allow for some of the asset classes used but that is not particularly investor friendly. Also, performance fees have their place it does seem to be unnecessarily generous to the fund managers to have them start at such a low level. On the other hand it will focus the mind of the managers on not losing capital rather than trying to make a spectacular return,” he says.
Identifying potential competitors, Childs says: ‘The Merrill Lynch UK absolute alpha fund has got off to a good start. However, this is a single fund rather than a multi manager fund. There are no other absolute return funds I would recommend at present. Miton will have to work hard to attract money away from the likes of the new Fidelity multi -manager distribution Fund.
Childs concludes: “We have not previously used Miton funds but I think this might be the one that gets us involved with the company.”
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Average