Aim: Income and growth by investing globally in a portfolio of bonds, equities and real estate investment trusts
Minimum investment: Lump sum £1,000, monthly £50
Investment split: 25% index-linked bonds, 25% US high yield, 10% UK Reits, 9% European equities, 8% US investment grade bonds, 8% US equities, 5% global Reits, 5% EU investment grade bonds, 3% UK equities, 2% UK investment grade bonds
Charges: Initial 4%, annual 1.25%
Commission: Initial up to 3%, renewal 0.5%
Tel: 0800 587 2111
UBS Global Asset Management’s multi-asset income fund aims to produce a stable level of income that should rise over time, plus the potential for growth, from a range of asset classes.
The fund pays income quarterly and hedges exposure to overseas currencies back into sterling to reduce exchange rate risk. It diversifies globally as well as across and within asset classes. Asset classes are accessed through other investment funds, exchange-traded funds and Reits, while UK index-linked gilts are held directly to protect against inflation. The fund can also use derivatives to enhance income.
Considering how the fund could be useful for IFAs and their clients, Michael Philips proprietor Michael Both says: “This UBS fund aims to deliver a stable income through what it describes as a diversified, risk-efficient, balanced portfolio of investments. Capital growth is not a primary consideration but we hope that capital preservation is.”
Both observes that the fund’s aim is shared by many shell-shocked investors and examines the weightings given to each asset class at launch. “The 15 per cent invested in Reits does not seem excessive and one can only hope the illiquidity in that particular sector does not reappear for some considerable time,” he says.
Both adds that a 25 per cent allocation to index linked bonds indicates that UBS anticipates inflation will not be that long in coming, possibly as a consequence of the unprecedented levels of government debt. “This should ensure investors a safe, real return. The composition of the fund is in some ways similar to a with-profits fund, relying principally on the same three asset classes but without any prospect of insurance underwriting profits and also lacking the not always benevolent interventions of a company actuary,” he says. Quarterly dividends are a feature that Both thinks will certainly appeal to investors.
Turning to the potential drawbacks of the fund, Both says: “The fund’s diversification at launch is limited to US and UK equities, bonds and global Reits, except for 9 per cent in European equities. UBS probably knows plenty that we do not, but a lack of exposure to emerging markets – for example by way of mining, commodity and infrastructure companies – and apparently private equity does seem surprising.”
Both points out that the fund sits in the IMA Cautious Managed sector but he takes issue with the investment parameters UBS has set for it in relation to the cautious risk profile. He says: “Investors are unlikely to be very reassured to learn that over 35 per cent of this fund may be invested in securities issued by any one body, or that the fund may enter into swaps. Swaps may sometimes be more illiquid than bond markets and may require UBS to sell other more favoured assets to meet repurchases.”
Both also thinks that the 25 per cent invested in high yield US bonds, sometime know as junk bonds, may also leave some widows, orphans and their advisers feeling more than a little queasy, especially if the dollar falls against Sterling. “Why no emerging market debt which has both high yield and potentially stronger currencies?,” he says.
Scanning the market for funds that could compete with the UBS product Both suggests Cazenove multi manager diversity, Investec cautious managed and JPM cautious total return. “All of these funds have very credible long term track records,” he says.
Summing up, Both says: “ This is a potential, and more transparent alternative, to a with-profit fund, but one cannot help wondering who will readily purchase this three-way diversified, not very cautious fund. Or why UBS waited until October 2009 to launch it, considering the demand for an income above currently derisory deposit rates has existed for some time. It would be very uncharitable to even think that a lack of track record covering the recent market turmoil could have been any part of its motive.”
Suitability to Market Good
Investment Strategy Average
Adviser remuneration Average