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Tilney makes tracks

TILNEY INVESTMENT MANAGEMENT

TILNEY UK EQUITY FUND

Type: Oeic

Aim: Growth by investing in UK companies

Minimum investment: Lump sum £500, monthly £100

Investment split: 100% in UK companies

Isa link: Yes

Pep transfers: Yes

Charges: Initial 4%, annual 1.25%

Commission: Initial 3%, renewal 0.5

Tel: 0808 100 8878

The Panel: David Cowell, Partner, Andrews Gwynne & Associates,

Eric Woodward, Managing director, EP Ward & Co,

Arthur Childs, Managing director, Arch Financial Planning

Suitability to market 4.5

Investment strategy 4.5

Past performance 5.5

Company&#39s reputation 5.5

Charges 6.5

Commission 4.5

Product literature 7.5

Tilney Investment Management has made its UK equity fund available to retail investors. It invests in a portfolio of large, medium and small UK companies benchmarked against the FTSE All Share index.

Assessing the fund&#39s suitability to the retail market Childs says: “The fund is placed in the UK All Companies sector, which is easily the most crowded sector. With a less than outstanding track record, a fund size of less than £20m and a name that I suspect is not readily recognised by the majority of IFAs, the fund is all too easy to miss in such a large sector.” Woodward says: “Here is a middle of the road UK equity fund, which I imagine is sold mainly to Tilney&#39s own clients. It is comparatively small in size but beat its benchmark over one, three and four years.” Cowell says: “This is a growth fund currently not in a particularly popular sector of the UK market.”

Suggesting appropriate clients for the fund Woodward says: “I think Tilney must distribute mainly to its own clients as the fund is suitable for UK equity exposure for clients wishing to stay close to the FTSE All Share index.” Cowell says: “Someone wanting a fairly low volatility fund. Although why anyone would want a growth fund with volatility equivalent to a FTSE tracker escapes me.”

Identifying marketing opportunities for the fund Cowell says: “There are very few opportunities. It appears to be an average performer in a very large sector. There are over 300 funds in the UK All Companies sector and according to Standard & Poor&#39s figures to July 21, 2003, this fund has returned 9.5 per cent over three months when the average is 10.3 per cent. Over one year, the fund returned -0.8 per cent compared with an average of &#451.4 per cent and over three years it returned &#4531.8 while the average was &#4532 per cent.”

Childs says: “The coming months will present a good opportunity to promote funds in the UK All Companies sector. However, for this fund to be considered at all by an increasing number of IFAs, it needs to be available via one or more of the fund supermarkets.” Woodward thinks it doesn&#39t have much marketing potential. He cannot think of a compelling reason to buy this fund in preference to the U.K. equity funds he currently buys.

Assessing the company&#39s reputation, Childs says: “There is likely to be greater recognition of the Tilney name among higher-net-worth clients. Often such clients are looking for something other than the usual suspects when it comes to the choice of investment funds. Many of the smaller unit trust groups have outperformed the larger established names in recent times. A number of the best performing funds in the UK All Companies sector are now the wrong side of £1bn and in danger of looking like tracker funds. On the other hand, the Tilney fund should shortly break through the £20m level which many IFAs regard as a minimum before they will use it. The fund size should be helped along by an IFA sales force that has grown from three to 10 in the last year.”

Woodward says: “It has low charges compared with most of its competitor funds and steady, if not spectacular, performance by outperforming the benchmark index.” Cowell says: “It is a regional stockbroker which has taken in more capital and is starting to market its management services to IFAs and the public.”

Evaluating the investment strategy Woodward thinks it seems typical for this sort of fund, which is not straying too far from its benchmark. Cowell says: “This fund has less than £20m invested for a growth objective. I would have thought it might be somewhat more adventurous. It seems to me that one could get double the yield or equivalent performance from some income funds.”

Childs says: “This is an investment strategy seems to incorporate a bit of everything without going overboard in any one direction. As an IFA I find this a bit disappointing. It sounds very likely that my clients will be buying into a tracker and I want more for them than that.”

The panel are asked to highlight the fund&#39s positive features. Childs says: “It has no outstanding features in a sector that has its fair share of star funds. Peter Botham, the fund manager, is obviously very experienced but he does not figure in Citywire&#39s fund manager ratings.” Woodward says: “Not much to distinguish it from other offerings from larger groups. The question I ask myself is what would make me buy this fund? I can&#39t think of a compelling reason.”

Cowell says: “In following the benchmark so slavishly, it is never going to be able to produce good absolute performance in a range of market conditions.”

Childs says: “Much of the performance record will be on the institutional side and will not easily be available to IFAs. Of the retail investments, the two portfolios &#45 growth portfolio and income & growth portfolio &#45 have past performance worthy of note, both having four star S&P ratings. The manager, Grahame Exton, also gets an A in the Citywire fund manager ratings.” Woodward says: “It is sound enough although not widely supported by IFA s.”

Suggesting likely competitors for the fund Childs says: “In the UK All Companies sector, our preferred funds in order of preference are Schroder UK Mid 250, Rathbone special situations, Artemis UK growth, Merrill Lynch UK value and Investec UK value.”

Woodward says: “For this fund I would think a number of the funds like Schroder alpha plus and a number of UK growth funds like Fidelity special situations are likely to be stronger contenders for IFA business.”

Cowell sees competition coming from focus funds or aggressive funds with small numbers of stocks and fleetness of foot.

Discussing the charges the panel agree these are lower than many competitors. Childs says: “The initial charge is 4 per cent and that puts it at the low end when compared to its peers. But there is strong competition at this level from the likes of Fidelity, Threadneedle and Invesco Perpetual all offering below 4 per cent. The annual management charge of 1.25 per cent is again at the low end but I would be concerned at the room that Tilney has left itself in its prospectus to increase its charges up to 7 per cent initial and 2 per cent annual. One particular niggle is the £50 plus VAT charge made for transferring funds away from Tilney. This could be a real bone of contention with clients and makes pro-active servicing of client portfolios more difficult.”

The panel feel the commission is standard.

Looking at the product literature Childs says: “It would be fine in a face-to-face client interview but would be too heavy to post to clients.” Woodward says: “The literature is quite well presented and does a fair job of trying to deal with questions that retail investors might have also quite clearly presented.” Cowell thinks it is high quality.

Summing up Cowell says: “It&#39s not an investment house which is likely to appear on many top 10 lists.”

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