Type: Capital-protected Oeic fund of funds
Aim: Growth and the protection of 80 per cent of the fund’s highest share price by moving between risky assets including funds investing in global equities, property, bonds and commodities and lower-risk assets including bond funds, bonds, cash and near cash
Minimum investment: Lump sum £1,000, monthly £50
Investment split: 100% in risky assets comprising funds investing in global equities, property, bonds and commodities and/or in lower-risk assets including bond funds, bonds, cash and near cash
Isa link: No
Charges: Initial up to 4%, annual 1.8%
Commission: Initial up to 3%, renewal 0.5%
Tel: 0207 562 4900
The Architas Multi-Manager diversified protector 80 fund of funds aims for a degree of capital protection through a time invariant portfolio protection investment strategy. Using this strategy, the fund aims to protect 80 per cent of its highest ever share price. The firm also offers the diversified protector 70 fund, which aims to protect 70 per cent of the fund’s highest ever share price using the same Tipp strategy.
Discussing how the funds work, Chadney Bulgin partner Bruce Bulgin says: “This new Architas funds are multi-manager offerings with a difference in that there is either 70 per cent or 80 per cent protection. This is designed to give protection at a defined level of the investment based on the highest level of the share price.”
Bulgin says Tipp is an investment strategy where the asset allocation shifts between the riskier asset classes and lower risk assets that can protect the portfolio in line with market conditions.
“Architas is part of the Axa Group and the Tipp process is carried out by AXA Investment Managers Paris. Unlike other protected investments, there is no specific use of derivatives, as would be the case with other funds that set out to provide a degree of investor protection.” He adds that there are no guarantees with the Architas funds.
Bulgin thinks that in many ways the Architas funds resemble cautious managed funds, with the asset allocation varying according to market conditions.
“As is the case with most Axa-backed products the literature is clear and comprehensive. It explains the way in which the protection works well,” says Bulgin.
He feels the adviser remuneration is consistent with similar investments from other providers. “However, with the advent of platforms and customer agreed remuneration, commission is becoming increasingly irrelevant,” he says.
For Bulgin, the charges are a different matter and he says they are at an eye-watering level, with a total expense ratio of 2.4 per cent. “Bearing in mind the TER does not take account of trading costs, stamp duty, some other expenses and initial charges, then the true running cost is enormous,” he says.
Summing up the positive aspects of the diversified protector 80 fund, Bulgin says: “It is of use and appeal probably for smaller portfolios where the adviser wants to outsource the investment process and is keen to build in some downside protection for clients.”
Considering the potential drawbacks of the fund, Bulgin says: “Investing should be long term and many pundits feel that it is simply not possible to call the market. Over the long term, equities provide growth in excess of bonds or cash, so if you asset allocate and stick with it then you can expect positive returns.
“We all know of investors that sell at the bottom and buy at the top. Is Architas in danger of falling into this trap? Time will tell and it could turn out to be the case that the Tipp process is truly amazing and will deliver tremendous returns to investors.”
Bulgin adds that new funds, in common with most multi-manager offerings are extremely expensive and need to deliver above average returns to outperform a low cost asset allocated and rebalanced portfolio. “It is possible to buy trackers at no more than a 0.25 per cent annual management charge, with low TERs. So are the Architas funds worth the extra cost?” says Bulgin.
He points out that many advisers will use their own processes where they understand client risk and objectives, then build and rebalance portfolios accordingly.
“The new Architas funds do give some protection but it is not true capital protection,” says Bulgin.
Considering funds that could provide the main competition, Bulgin says: “There is nothing quite like this in the market but there are other multi-manager funds such as the 7IM AAP range, where asset allocation varies in accordance with the views of an investment committee. Each fund is also risk rated – unlike the Architas funds – and the underlying assets are primarily low cost exchange traded funds.”
Aside from 7IM, Bulgin thinks established multi-manager funds from names such as Swip, Jupiter, Cazenove, Henderson and Thames River could also compete.
Bulgin concludes: “The Architas diversified protected funds are an interesting new addition to a crowded market. It will be interesting to see how they sell.”
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Average