Aberdeen Asset Management – Progressive Growth Unit Trust
Aim: Growth by investing in zero-dividend preference shares.
Minimum investment: Lump sum £500, monthly £50.
Investment split: 100 per cent zero-dividend preference shares.
Isa link: Yes.
Pep transfers: Yes.
Charges: Initial 4.25, annual 1.25 per cent.
Commission: Initial 3 per cent, renewal for Isas & Pep transfers 0.5 per cent.
Tel: 0800 592487.
Bruce Macfarlane – Partner, Capital Trust Financial Management
Eric Woodward – Managing director, EP Ward Investment Services
Derry Fleming – Sole trader, Derry Fleming Insurance Consultants
Mike Ferguson – Managing director, Ferguson Oliver
Suitability to market: 8.5
Investment strategy: 8.3
Past performance: 7.5
Company's reputation: 8.3
Product literature: 7.5
Aberdeen Asset Management's progressive growth unit trust aims for growth by invest-ing in zero-dividend preference shares of investment trusts.
Looking at how the fund fits into the market, Ferguson says: “As the UK stockmarket continues to fluctuate, zeros, which are less volatile, could be an attractive option for many investors.”
Woodward says: “There are not many funds of this type although there has been one launch in the last year from Investec Asset Management.”
Fleming feels the fund fills a niche for the cautious investor. Macfarlane says: “The fund fits well into what would be considered a niche market. Aberdeen's excellent reputation and track record in the investment and unit trust industry should serve it well in a fund such as this.”
Turning to the types of client for whom the fund is suitable, Fleming says: “This will be for the low-risk investor in the main but also, in many people's eyes, will be a welcome addition to a general portfolio of funds.”
Woodward says: “There are two types of client here. First, the private client who is looking for a higher return than available from a building society but who does not want extreme fluctuations in capital. At present, buyers of with-profits bonds show there is an appetite for investments which appear to offer the prospect of better returns than a building society where the buyer does not have the risk profile to buy pure equity funds.
“The second category is clients who have self-invested personal pensions and, as they approach retirement, want to reduce some of the risk profile.”
Macfarlane says: “The fund is well suited to the lower-risk investor who requires reliable, steady capital growth or a regular and tax-efficient income. For those who are wary of the stockmarket or first-time investors looking for an alternative to deposit accounts, the progressive growth fund provides an ideal way of gaining exposure to the stockmarket.”
Examining the types of marketing opportunities that the product provides, Ferguson says: “As equities continue to prove to be rather neutral, IFAs seeking to plan a client's affairs could look to promote this trust to selective clients who are known to require financial planning for specific projects.”
Macfarlane suggests: “The fund will be a useful investment tool for those requiring a high regular income by utilising their annual capital gains tax allowance in this current low-interest-rate environment.
Focusing on the main useful features of the product, Fleming points to its safety and security.
On the other hand, Ferguson says: “By offering a gross redemption yield, investors can identify with potential returns that compare favourably with deposit-based investments for both basic- and higher-rate taxpayers.
Careful use of the CGT allowance could make this investment tax-efficient.”
Macfarlane says: “This is a low-risk product with an excellent investment manager. Zeros are an excellent class of share for providing investors with an income by utilising their CGT allowances. By investing via a collective investment, investors need not worry about when individual zeros are wound up. The product also has a good investment spread across a portfolio of about 20 different zeros.”
Examining the drawbacks of the product, Woodward says: “The disadvantages lie in the charges and could obviously lead to some disappointment if full commission is taken. One only has to look at the charges disclosure to see how the fund might not look great after one year.
“I realise it would have added greatly to Aberdeen's costs but a back-end-charged fund might have proved much more attractive. You can see strong evidence of this in the single-premium investment bond market, where most players have moved away from having a spread but charge exit penalties on a sliding scale. This strategy has led them to increase their share of the market.”
Ferguson says: “One disadvantage is that this is a specialised, focused market. Also, regular withdrawals of capital are only available on investments exceeding £150,000.”
Macfarlane says: “Public perception of zeros is limited, therefore, this fund is only likely to be sold via the IFA community. Also, there is a limited market for zeros and there may be a liquidity problem within the fund should the fund manager try to trade his portfolio.”
Looking at the investment strategy, Woodward says: “I think the market could stand another issue like this and Aberdeen's name is probably better known than the other players on the market.”
Macfarlane says: 'The investment strategy is as expected for this type of low-risk fund. The investment trusts to which the zeros relate can afford to fall in value and the holders of the zeros will still be paid. The market for zeros is quite limited and, therefore, issues of liquidity must be taken into account.”
Turning to Aberdeen's reputation in the market, Flem-ing says: “It has an excellent, long-term reputation as an established player with a good track record.”
Ferguson says: “Aberdeen has accrued an excellent reputation in the fixed interest and specialised markets. Its recent high-profile marketing campaigns have made it a name that is recognised by clients.”
Macfarlane says: “Its reputation is excellent within the financial community but it is not so well known in the public arena. However, this is getting better through successful funds like its technology fund.”
However, the panel have a few qualms about the charges. Ferguson says: “The costs are reasonable, albeit slightly on the high side compared with other unit trusts. Advisers may have to sacrifice a por-tion of commission to make it competitive.”
Macfarlane thinks the annual management charge is a little high for this type of fund, while Woodward thinks that a lower initial charge could make the product more attractive.
Examining the product literature, Ferguson says: “It is in keeping with Aberdeen's bland literature. The brochure explains zeros in an easily read and understandable manner.”
Woodward thinks it is very well made and presented, and conveys the key points well.
Macfarlane says: “The literature is informative but a little repetitive. However, this may be due to the low public awareness of this class of share and, as such, greater explanation is required.”
Fleming says: “As with all Aberdeen literature, it is clear, concise and gives answers to all the questions.”
Looking at the product as a whole, Woodward says: “I like this product but I think, if Aberdeen had done a little market research with advisers before launching this, it could have made it very good.”
Ferguson sums up: “The launch of this type of fund by a well-known name could help promote the use of zeros as an acceptable form of investment.”