Type: Unit trust
Aim: Growth of 3.25 per cent a year above the Bank of England base rate
Minimum investment: Lump sum £1,000
Investment split: 20% UK bonds, 15% global property, 12.5% UK equities, 12.5% absolute return funds, 7.5% overseas equities, 7.5% private equity, 5% emerging markets equities, 5% overseas bonds, 5% high yield bonds, 5% cash
Isa link: Yes
Pep transfers: Yes
Charges: Initial 4%, annual 1.25%
Commission: Initial 3%, renewal 0.5%
Tel: 020 7203 3333
Swip is showcasing its management skills across different asset classes with the launch of the Swip diversified assets fund.
Arch Financial Planning director Arthur Childs thinks Swip has positioned this fund as an attractive alternative to the huge amount of money that is still being held in under-performing with profits funds.
Discussing the background to the fund launch, Arch Financial Planning director Arthur Childs says: “Swip has taken advantage of the wider range of investment asset classes under Ucits III to revamp its already successful managed portfolio trust. The existing fund is small in size at £14m, but has a four star S&P rating and a two star Lipper rating for both total return and consistent return. The newly positioned fund will include private equity, commodities and absolute return funds. This additional diversification will move the fund down the risk scale from the IMA Balanced Managed to the Cautious Managed sector.”
Childs regards this type of restructuring as useful for advisers who are looking to find investments for more cautious clients.
The fund will be managed by jointly by Swip head of balanced funds Jeff King, and head of global strategy Ken Adams. “King has been with Swip since 1994. He is an experienced UK equity fund manager and analyst, with an international background in commodities. His average monthly performance is rated highly in his sector according to Citywire,” says Childs.
He also points out that Adams is a very experienced investment professional. “Swip has found that using two managers works well – one to carry out the trading, the other to provide the strategic long-term view and research into the various asset classes. As you would expect from such a large company, each manager has a large team in support,” he says.
According to Childs, Swip is one of the companies that is fighting hard against the trend for IFAs to only use investment houses that are not owned by major banks or traditional life and pensions product providers. “For a company with £100bn under management, Swip has shown a lot of innovation that is of value to IFAs. It was the first to launch a retail multi-manager property fund, and was one of the first to launch a range of absolute return funds. I have already started using its absolute return UK equity fund.”
The back-up material on the Swip website is excellent in Childs’ view and includes an interview with the fund managers. “The material is attractive and clearly explained. The fund is already available on a number of platforms, which is increasingly important to IFAs,” he says.
Childs says this fund will start out as a fettered fund of funds and as it grows there will be direct investment in equities and bonds, together with the use of private equity trusts, exchange traded funds and absolute return funds.
“The fund has a target return of cash plus 3.25 per cent, which is cash plus 2 per cent net of the annual charge. While the fund is never going to look good in a bull market, it does offer the prospect of a reduction in the risk of large short-term losses. Many clients will find this attractive. “
Childs observes that the fund will operate within defined asset class limits, which will ensure that the managers do not get carried away with a particular asset class and forget to keep the fund fully diversified. “The allowable investment ranges do provide a good deal of flexibility to make tactical changes when necessary, and it is clear that this is their intention. While cash has an upper limit of 5 per cent, investment grade bonds could go to 100 per cent of the portfolio to cope with a severe recession,” he says.
Childs finds the initial charge very acceptable and the annual charge on the low side for a multi asset fund. “There is currently a 1 per cent discount through Cofunds, and possibly other platforms. This means that existing with-profits clients could be moved into the fund at no initial cost, if initial commission is sacrificed, and they would not be tied in for a further five years as they would be if a further life assurance bond were used,” he says.
Given the lower risk nature of the fund, Childs feels the standard level of commission offered is attractive.
Switching to the potential drawbacks, Childs says: “As a company, we are moving inexorably towards the use of various types of multi-manager funds. From this perspective, I think it is a shame that Swip has decided to launch this as a fettered fund. While it does have some very good funds, around half of those with an S&P rating only have one or two stars.. We are aware of the overriding importance of asset allocation, butthere is still outperformance to be gained by using the better fund managers available in each sector.”
Discussing possible competitors Childs says: “For lower risk, multi-asset, multi-manager funds, our benchmark is the 7IM moderately cautious or 7IM balanced portfolio. The performance of these funds to date is not particularly attractive against their peers, but this is an area where peer comparison is far less important than the total return to the investor in all market conditions. Cazenove multi manager diversity and Miton extra income portfolio are also in strong competition, as will be the newly launched HSBC Open global distribution fund.
Childs concludes: “The asset allocation of the fund at launch included 32.5 per cent in all types of equities. We need to make potential investors aware that if the current bull market in equities turns out to be more sustained than many are predicting, their returns are likely to be much less than those of a typical UK or international equity fund, or even a traditional managed fund.
“This is certainly a fund to watch and use as part of a portfolio for our more cautious clients, but I do feel that there has been a missed opportunity.”
Suitability to market: Average
Investment strategy: Good
Adviser remuneration: Good