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The long and the short of it

South African investment banking group BoE International has introduced a fund of hedge funds that will initially invest in 12 hedge funds.

The BoE International market neutral fund is an open-ended investment company based in the Isle of Man.

It aims to provide high-net-worth investors with high returns and low volatility by investing in funds that use a long and short hedging strategy.

Long and short selling is the most popular hedging technique. The fund manager buys stocks that look likely to increase in value when the stockmarket is on the up and can also sell short. This is where the fund manager borrows shares from a broker for a fee and sells them with the intention of buying them back when the price falls.

Although the fund invests in hedge funds that use the same strategy, diversity is achieved through a blend of fund managers who have their individual management styles. Each fund may also focus on different sectors and regions.

No single fund will take up more than 20 per cent of the overall portfolio, which means that it is less risky than investing in a single hedge fund.

However, the flip side of lower risk is that the experienced high-net-worth individuals who are attracted to hedge funds would get higher returns from riskier investments in a single hedge fund.

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PDAT: 160801

SCTN: Financial Product Reference

PGNO: 35

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HDLN: Schroders goes West

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Schroder Property Investment Manage-ment has introduced the West End of London Property Unit Trust (Welput).

Based in Jersey, the fund is a unit trust aimed at investors who consider property as a safer form of investment than an equity-based investment.

Managed by Schroders, Welput will take over eight properties formerly owned by Benchmark. These include properties in Mayfair, Soho, Covent Garden and Knights-bridge, which are freehold or leasehold, and which have a present combined market value of just under £300m. It is hoped to increase the property portfolio over the next three years to a value of £1bn. Specialist property company Benchmark Group will be providing property advice on which properties to buy in which areas.

According to property services and rentals company FPDSavills, the average cost of renting a two-bedroom flat in the West End of London has risen from £600 a week in June 1996 to £800 a week in June 2001.

Many investors who have been put off the stockmarket by almost a year of instability, have been turning to property investment instead. The fact that Welput will invest in properties in the West End, an area where demand for property has traditionally been high, should appeal to many. However, this is a highly specialist fund and will require careful management in selecting and buying new properties in these areas to fulfill the hopes for growth.

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SCTN: Financial Product Reference

PGNO: 35

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HDLN: Wealth of ideas

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A wealth management service provides advice and assistance in three areas – creating wealth, preserving wealth and transferring wealth.

You are quite right in saying that many banks are now offering this type of service. What you need to do is look carefully at each offering to establish how independent it is. Make sure it is not just a slick way for a bank or other provider to sell its own investment and insurance products.

An independent wealth management service is a tailor-made service designed to assist you in achieving your financial goals from one central point of control. It has three main areas of operation.

The first stage is wealth creation. This involves identifying your needs and goals, gathering data on your existing situation, analysing and evaluating your financial position and developing a personal wealth plan.

The second stage is wealth preservation. This is the core of the service and is centred on the design of a strategic asset allocation strategy based on your own risk profile and goals. A personal portfolio is created, including a wide selection of investments from a range of investment houses.

Depending on your objectives, a variety of sophisticated investment strategies can be employed to maximise portfolio performance within an acceptable level of risk.

A risk management programme is developed to ensure your portfolio has sufficient diversification, protection and liquidity. This will ensure you are able to preserve the wealth that you have. In addition, tax-planning strategies are adopted to ensure maximum after-tax performance is achieved.

The third stage is wealth transfer. This involves a comprehensive estate planning service incorporating administration services and inheritance tax planning strategies.

This all differs from a more traditional approach to wealth management in that it takes a holistic view in an attempt to provide the most efficient recommendations in

the circumstances.

For example, modern portfolios build and protect your wealth by distributing investments across a wide range of assets and, by and large, this works well so long as you do not want to change anything. Change can be difficult and

tiresome as each investment comes with its own fees and charges, its own paperwork and endless administration, and its own levels of service and reporting.

If an adviser sells you an investment product rather than builds a personalised portfolio, he will often have no time or incentive to monitor your investment and advise you of any reasons to make changes. Smart advisers restructure their clients&#39 portfolios to exploit change instead. If you have access to a wealth management adviser who has the necessary expertise to continually update your portfolio and make sure it is constructed in the most tax-efficient way, the rewards can be great.

You get more choice, easier access to information, a more efficient service, better value for money and benchmarked performance.

All your various assets are aggregated in a central point of control, providing a portfolio built to your own precise requirements, a dealing service and a tracking device. Wealth management consolidates every activity and procedure into one investment process which can then be tracked and documented in an integrated report.

You choose from an extensive range of asset options and specialised tax wrappers to create a portfolio that meets your precise requirements.

You should also get comprehensive six-monthly statements and total documen-

tation of all purchases, sales, deposits and withdrawals, as well as secure internet access to daily valuations and fund information.

The fund managers and/or stockbrokers who supply the assets for your portfolio will charge fees. However, it is often possible for an adviser to negotiate discounts and savings on these costs across a wide range of funds, particularly if they are a big player. All these savings are passed on to you in the form of lower charges, cash refunds or additional investments.

There is also a fee charged for the design, establishment and maintenance of your portfolio. This payment acknowledges the provision of ongoing monitoring of the portfolio and financial planning advice.

Over time, a wealth management portfolio could cost broadly the same as if you managed your portfolio yourself but with all the added benefits of a simple and responsive approach to investment.

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HDLN: Customisation is always right

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BYLN: TONY WICKENDEN

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Last week, I remarked on some phrases which are currently in vogue. These include 1 per cent world, added value and disintermediation. The world described by those phrases is, of course, that in which advisers operate and there is no getting away from the fact that, if you are an adviser, your “product” is the advice that you give.

There is nothing new in this but, given the other market dynamics, it is perhaps truer today than it has ever been.

Providing advice is an essentially one-to-one issue. No two clients are the same, are they? Well, maybe not, but the tools used by advisers to deliver advice can be used on more than one occasion.

Once acquired and committed to the tool box, a technique, product, document or trust can be used in any particular case where it is appropriate to do so, usually in combination with other such techniques, products, and so on. Drawing on an appropriate combination of these standard tools enables the adviser to deliver a solution that is a one-off for a particular client. When the solution constructed is capable of being applied to a reasonably wide category of individuals, mass customisation will have taken place.

A classically simple example is the customisation of an ordinary life protection plan with a particular trust to meet the needs of a particular individual or family. While the product is usually simple, with little scope for personalisation, the trust can enable true customisation to take place by ensuring that not only will funds be produced at the right time but also that they will be paid for the benefit of the right person or persons, often highly tax-effectively.

This combination thus enables the particular client&#39s specific objectives to be achieved in the most tax-effective manner. The mass customisation for the provider of the product and trust takes place by virtue of market understanding of the trust types needed to meet the needs of particular categories of individuals with the same or similar circumstances and objectives.

In building a range of mass customised solutions, it is essential to have access to real market experience and detailed knowledge in a form that can be clearly articulated so as to set down the particular client types one is focusing on and the variations on the theme that one could expect by reference to circumstances and objectives.

As I said earlier, leaving aside the smaller proportion of more complex cases, there will only be so many variations on the theme that one will emerge with in any particular area of advice. The next step is to ensure that one has the appropriate components in the shape of products, ancillaries (trusts, agreements and so on) and services available to deliver the solutions that will be recommended for particular clients.

In competitive markets, a key driver, along with differentiation, demonstrable understanding and customisation, is proactivity. As I have said many times, merely serving the stated needs of existing clients will inevitably lead to a stagnating and declining business.

Taking the initiative, in other words being proactive, is the only way to secure a greater share of wallet in respect of any particular client and most certainly if one is to secure new clients. The great thing about tax is that it changes so often. Proactivity prompts are therefore frequent and often highly relevant for those offering financial advice incorporating tax planning.

Tax is almost always very high on the political agenda. It certainly was in the run up to the general election and is likely to continue to be. At a high level, the debate is substantially around the extent to which tax needs to be charged to fund increased public expenditure or the extent to which tax is cut to leave more choice with individuals.

Of particular interest will be whether and, if so, to what extent inheritance tax is addressed in the new Parliament. Whatever happens, there will be a need to be proactive. Clients will want to know what any changes mean to them or whether plans already put in place can continue unchanged.

At certain times of the year, scope for tax proactivity increases immensely. One of these is in the lead up to and immediately after the Budget. Another is the end of the tax year. Yet another is the end of the calendar year. Also, bearing in mind the value placed on customised services, planning for businesses at any time leading up to their accounting year end will be valued highly.

While any particular business ought to feel that the service it receives is customised, in that it is a direct response to its specific needs, it is likely that the solutions and strategies that work for one business may well be appropriate for others and are therefore capable of mass customisation. The trick to making this work cost effectively while retaining the perception of customisation (note, perception not deception) is to anticipate all the client needs and then to categorise client types so that recognition of client type and likely solutions is a relatively straightforward process.

In providing even the more sophisticated financial planning solutions, there may well be room for well developed “neural systems” to lead to justifiable answers. These systems can be built from an organised “brain-dump” from experts since a neural system ought to be nothing more than a replication of the thinking process of an experienced practitioner in the field being addressed. Such systems, while not cutting out the need for creation and customisation, can also give valuable regulatory credibility to advice and recommendations made.

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SCTN:BROKER REVIEW

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HDLN: Star quality

SBHD: Broker Rating

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New Star Asset Management&#39s UK growth fund is an open-ended investment company designed to achieve capital growth by investing in UK companies. It is managed by Alan Miller, who previously ran Jupiter&#39s special situations fund.

Assessing the market suitability of the fund, Davies says: “The fund has a good role to play, considering the confidence at present in the market, especially regarding tracker funds. Clients are now looking for funds with a proven fund manager at the helm. Alan Miller has the experience and the track record in the UK market to achieve above-average growth.”

Barton says: “UK investment seems to be the favourite of UK investors, despite it being only about 10 per cent of the world market. This will be a new favourite due to the rarity of the company management and past performance.”

Colin Shaw says: “One could say there are enough unit trusts and Oeics out there already but most tie fund managers&#39 hands in some way. Here, they are given complete flexibility.”

Karen Shaw says: “The investment strategy projected is fresh and should encourage investors to buy in. Clients are looking for good returns on their growth funds, which have been badly affected by the performance in the last few years on the stockmarkets.”

Identifying potential clients for the fund, Colin Shaw says: “It is probably for the risk-

taking client. Often, new funds get off to a flying start but the opposite can also occur.”

Davies believes most equity investors could be attracted by the fund. “It is a strong fund to have as part of a portfolio as I feel that it could follow the UK all companies sector. The fund is also ideal for clients who are looking at equities for the first time and do not want any exposure to Europe or the US,” he says.

Karen Shaw cites “those wanting longer-term capital growth with a balanced view of the risk profile – also, clients who are disappointed in tracker funds tracking downward trends.”

Moving on to the marketing opportunities the fund is likely to provide, Barton says: “It has an experienced fund manager with exceptional, well-structured past performance managing a new fund in a relatively low-priced market. This should provide opportunities to market this fund.”

Davies says: “It is ideal for newsletters to existing clients who are equity-based investors to keep them up to date about the launch of a new fund if we, as advisers, believe it offers great growth potential for our clients. It is an excellent time for clients to invest as the markets are low.”

Colin Shaw says: “It will allow an extra choice for those clients looking to put more money into equity-based funds. The Isa option is there, especially for clients with shares who may use up their annual capital gains tax allowance.”

Turning to the useful features and strong points of the fund, Karen Shaw mentions the pedigree of the fund manager and the open investment strategy.

Davies says: “The main useful feature is the freedom given to Alan Miller to manage the fund as he sees fit and not have any restrictions imposed on him. That is the most important aspect for any investor – to know that the fund is properly managed.”

Discussing the investment strategy, Colin Shaw says: “It gives a good alternative to tracker funds, which have had a dreadful time over the past 15 months.”

Davies says: “I like the concept that the investment decisions are down to the fund manager and not tied down by weightings in different sectors. This, I believe, could be an important issue not just in prosperous times but also in a negative market where cash exposure can be taken to help protect investors.”

Barton says: “In seeking long-term capital growth, Miller has set his sights similar to his old fund, the Jupiter special situations fund. The option to move across most of the UK market gives him ample opportunity to switch perspective to achieve his stated aim.”

Looking at the drawbacks of the fund, Davies says: “The only disadvantage I see is that there are no income units available with the fund. Clients always like the opportunity of preserving some income from their investment. It would also be good to see the initial

charge down to a maximum of 4 per cent.”

Colin Shaw says: “It could be viewed as being a bit too spicy. These days, individual shares can drop like a stone on profit warnings. Two or three of these would hit performance.”

Barton says: “Some of Miller&#39s old favourites from the Jupiter fund will no doubt be purchased. He will have a smaller team behind him and may lose out without that additional research and advice.”

Considering the reputation of New Star, Colin Shaw says: “It is too early to establish one but John Duffield is a big name in the industry and has attracted fund managers with excellent performance records.”

Davies says: “It is a new beginning for John Duffield and his team and their reputation will count for nothing if the fund does not perform. It is very important for the fund to have a good start in the market as it will be closely monitored by the press.”

Karen Shaw says: “From a standing start, to have in excess of £1bn under management and attract high calibre fund managers puts New Star in an enviable and strong position.”

Turning to the issue of past performance, Davies says: “Past performance of funds previously managed by Alan Miller has been very impressive. They have achieved top-quartile performance over the past four years. This is important now, especially as clients are looking closely at the fund manager&#39s track record.”

Karen Shaw says: “So far, so good – in fact, so far, so wonderful. Time will give us more of an overall picture of past performance. However, as we all know, there is more to past performance than just the figures. The past performance of the fund managers, the administration and efficiency of the company

are all important.”

Barton says Miller and his team are replicating styles with proven performance.

Identifying the main competitors to the fund, Colin Shaw says: “As usual, there are Fidelity, Invesco Perpetual and Schroders with fine performances in recent years.”

Karen Shaw says: “Sour grapes from the companies which have had their star performers taken from them, such as Jupiter, mean they will probably make a concerted effort to outperform past colleagues. And perhaps some from the stables of Gartmore, ABN Amro and Artemis.”

Barton selects the ABN Amro growth fund, Jupiter special situations fund and Fidelity aggressive fund.

On the issue of charges, Barton and Colin Shaw think the annual charge is high but Karen Shaw and Davies think the charges are standard.

The panel agree that the commission is in line with the market.

Looking at the product literature, Colin Shaw says: “I like the literature. It gives the impression of a spaceage company.”

Karen Shaw says: “It is well laid-out, easily understandable and looking for information

is easy.”

Davies says: “It is very good, clear and easy to read from a client&#39s viewpoint. It has good background on the fund managers involved and the reasons behind the launch of the company.”

Barton says: “There are too many separate leaflets and it is weighty for postage. The information is clear and well presented. Being a new fund, it is good to have details of

the fund managers.”

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