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Threadneedle fuses bonds with equities

THREADNEEDLE

DEFENSIVE BOND AND EQUITY FUND

Type: Unit trust

Aim: Growth and income by investing in Threadneedle funds

Minimum investment: Lump sum £2,000

Investment split: Bonds 75%, equities 25%

Yield: 4.27%

Isa link: Yes

Pep transfers: Yes

Charges: Initial 3.75%, annual 0.25%

Commission: Initial 3%, renewal 0.5%

Tel: 0800 06840005

The panel: Bruce Bulgin, partner, Chadney Bulgin,
Alan Lakey, partner, Highclere Financial Services,
Philip Milton, managing director, Philip J Milton & Co.

Suitability to market 4.4

Investment strategy 5.4

Past performance 6.0

Company&#39s reputation 8.4

Charges 4.4

Commission 6.0

Product literature 5.0

The Threadneedle defensive bond and equity fund that consists of a defensively managed portfolio of funds managed by Threadneedle Investments. It will invest mainly in bonds, with a small percentage in equities.

Looking at the market suitability of the fund Lakey says: “It is a marketing-driven product aimed at the cautious market.” Bulgin says:: “It is another lowish risk income or growth fund with a small amount of equity exposure.”

Milton says: “At the present time, with low interest rates creating a relatively high risk premium for products backed to a large degree by government bonds. I would say that this type of product is not really suitable in the current market at all. As investment advisers, we are of the opinion that yields are at an all time high at the moment and that with the present level of management buy backs, there is considerable value in shares and that future levels of the UK stockmarket should improve.”

Identifying the type of client the fund could suit Milton says: “It is important to consider the current economic situation and the levels of interest rates at present. Although the product is deemed low risk, as an adviser I would suggest that this is probability not the case. Consequently I would not recommend this as an investment for clients at all.”

Bulgin says: “Relatively cautious income seeking investor. It is also for growth investor using reinvested income to boost growth.” Lakey says: “One who has been scared by recent market falls. This looks like a direct sales force product rather than something that would appeal to an independent adviser.”

Assessing the fund&#39s marketing potential Bulgin says: “There are some possibilities for direct mail but this is a crowded sector so opportunities are limited.” Lakey says: “None for me. However, I can envisage the bucket shop brigade pushing the defensive concept.” Milton says: “I would not propose to market this product in any way at the present time.”

Highlighting the main useful features and strong points of the product, Lakey says: “The low equity content is a major focus, although the astute may be returning to equities. The 4.27 per cent yield will also appeal within an Isa.” Bulgin says: “It is useful to combine a range of bonds with a small equity underpin. Most of Threadneedle&#39s underlying bond funds are top performers in their sectors.”

Milton says: “The ability to use the fund for Pep and Isa transfers and the high proportion of UK bonds and fixed interest securities which provides extra security of capital. There is also the ability to gain exposure to both UK and international investment markets as well as fixed interest investments.”

Evaluating the fund&#39s investment strategy Lakey says: “It is structured around the defensive nature of bonds and fits the current mood. However, following the fad is never as profitable as anticipating it.” Bulgin says: “It appears entirely sound for the type of fund and its objectives.”
Milton says: “Our view of an investment strategy based largely on UK corporates and Government bonds is that this is a high-risk strategy, despite being marketed as lower risk. The yields from such a strategy can be equalled by yields currently available through investment into equities. The risk in the investment is largely dependent on the type of bonds that comprise the majority of the bond holdings.”

Considering the fund&#39s drawbacks Milton says: “The company is well established and has a strong market presence in the market sectors of investment and pensions and I have no concerns on using certain of the company&#39s products as such.” Lakey mentions the generally below average performance of Threadneedle funds. Bulgin says: “The fact that it&#39s neither a bond fund nor an equity fund could be considered a disadvantage.”

Turning to the company&#39s reputation Lakey thinks it is generally well thought of and believes its image is improving. Bulgin says: “Threadneedle has a strong reputation for its bond funds, many of which are top performers in their sectors.” Milton says: “The company is well established and has a strong market presence in investment and pensions. I have no concerns about using some of the company&#39s products.”

Moving to Threadneedle&#39s investment past performance record Milton says: “Having looked at various past performance tables, I was impressed by the appearance of the emerging markets bond, the dollar bond and the American growth fund which appear in Standard & Poor&#39s top 10 funds over the last five years. The funds are also four-star rated which is encouraging.” Bulgin says: “A number of Threadneedle&#39s bond funds are Standard & Poor&#39s AA and AAA rated, as are the UK equity funds.” Lakey says: “Two or three funds are standout performers, such as the cash fund. But others, like the European bond fund, are struggling.”

Identifying which products could provide the main competition, Lakey says: “In the hybrid bond and equity sector, Jupiter high income and Edinburgh monthly income.” Bulgin says: “Henderson&#39s managed income fund has a similar make-up and allows the investor to select levels of income.” Milton says: “More direct stock exchange linked investments such as Isas and fund of funds. Also, if proposing the use of bonds as an investment, defensively managed insurance bonds.”

Assessing the charges Milton says: “When compared to that of an Isa, I should say that the charges seem rather high.” Bulgin regards the charges as mid range to a little on the high side. Lakey thinks the charges appear on the high side for a fund limited to just one investment house.
The panel view the commission as the industry standard.

Casting an eye over the product literature, Bulgin says: “It could give much more detail, it&#39s really rather basic.” Lakey says: “The specific fund brochure is brief to the point of uselessness whereas the key features document is very detailed. Milton says: “Normally I would expect to see information on the underlying components and the security grading of the bonds concerned, something ore enlightening than no exposure to below investment grade bonds.”

Summing up, Lakey says: “It is unlikely to be a big hit with the discerning adviser but a good one for the postal boys. Bulgin concludes: “The fact that the underlying funds are so good means that many advisers may risk this fund.”

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