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Swip takes on DFM

Scottish Widows Investment Partnership – Swip Multi-Manager Optimal Multi-Asset Fund

Type: Oeic fund of funds

Aim: Growth by investing globally in equities, absolute return funds, funds of hedge funds, commodities, commercial property, fixed income, private equity and cash

Minimum investment: Lump sum £1,000

Investment split: 40% equities, 24% absolute return strategies/funds of hedge funds, 14% property, 10% commodities, 6% fixed income, 5% private equity, 1% cash

Isa link: Yes

Charges: Initial 5%, annual 1.35%, performance fee 15%

Commission: Initial 3%, renewal 0.5%

Tel: 020 7203 3333

The Swip multi-manager optimal multi-asset fund of funds aims for growth above cash, with a target of 6 per cent above the three-month Libor, by investing in funds which provide global exposure to a range of asset classes such as commodities, commercial property, absolute return strategies and private equity.

Putting the fund in to its market context, Chadney Bulgin partner Bruce Bulgin says: “The fund is designed to fill the space between a cautious managed fund and an equity based managed fund.  As such, the pure equity content is around 40 per cent and is widely diversified with holdings in a broad range of asset classes, including property and commodities, which account for a further 32 per cent.

He adds that there is also exposure to absolute return funds, which in many ways are akin to hedge funds, as well as 6 per cent in straightforward bond funds. “Initially, there is virtually 10 per cent in cash which will be delivering low returns, but the fund managers state that this proportion will fall over time,” he says.

Bulgin says that the fund managers Mark Harries and Simon Wood have an excellent track record with other funds, but there is no comparative data for this fund because it is new.

Bulgin points out that the fund is benchmarked against the three-month Libor plus 6 per cent and is in the IMA balanced managed sector. “The fund will appeal to advisers looking for a broadly based offering, which invests in some holdings the advisers would not usually be able to access as well as in sectors which do not usually feature on many advisers’ radar. So on this basis it is a welcome addition to the multi-manager space,” he says.

Turning to the less attractive aspects of the fund Bulgin says there is a performance fee payable when there are positive returns, in the event that the fund outperforms the benchmark and exceeds the hurdle rate. 

“This is relatively complex stuff, but essentially the performance period runs from January 1 to December 31.  As stated, the benchmark is currently 6 per cent above three- month Libor but this could be changed.

 “As an example, if the benchmark goes up by 10 per cent, the hurdle rate is exceeded and the net asset value goes up by 20 per cent, then there is a performance fee of 1.5p per share. Simple isn’t it?”

He adds that there is a lively debate in the adviser world as to whether active or passive strategies are best; how much store should be placed on the effect of charges; and what should be the input of the adviser in terms of asset allocation and fund selection. He thinks the Swip fund fits the space where the adviser is prepared to outsource the process.

“Charges are on the high side and it needs to be borne in mind that in addition to the 1.35 per cent annual charge, there is the underlying fund charges. To put matters in perspective, the fund managers should be buying at favourable terms, but even so, the total cost is likely to be well in excess of 2 per cent.”

Discussing the main competition Swip could face, Bulgin says: “At first sight it would seem that the main competition would come from other multi-manager offerings, such as those available from Jupiter, Henderson and Thames River.”

However, he notes that the reality may not be as simple as there are now a growing number of firms where funds are run on platforms. “There are also strategies of buying mainly passive funds as cheaply as possible and using asset allocation models with regular re-balancing. 

“By using this model, advisers can bring the total cost to the client down to little more than 1 per cent including a 0.5 per cent pay away for trail fees. So life has become more complicated – is it active or is it passive?  If it is active, is the extra cost of multi-manager warranted?”

Summing up, Bulgin thinks there is likely to be a case for multi-managers and many advisers will use the Swip fund as an alternative to discretionary fund managers.

“The Swip fund fits for smaller portfolios and for parts of bigger portfolios where an active strategy is being adopted. Also many advisers will rightly state that not only do Harries and Wood have far more expertise in terms of fund picking and research, the extra cost will be justified in terms of performance and access to a wide range of diversified assets,” he says.

He concludes that the Swip has picked an interesting market niche for this fund, where it is positioned as a genuine choice for the adviser looking for a balanced portfolio with maximum diversification.

 BROKER RATINGS

Suitability to market: Good

Investment strategy: Good

Charges: Good

Adviser remuneration: Good

Overall 8/10

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