Type: Oeic fund of funds
Aim: Growth by investing in a portfolio of closed-ended investment funds that focus on absolute returns including hedge funds, Ucits III absolute return funds and life settlement funds
Minimum investment: Retail share class lump sum £1,000, monthly £100, institutional share class lump sum £50,000
Investment split: 100% in closed-ended funds that focus on absolute returns
Isa link: Yes
Charges: Initial up to 5.25%, retail share class annual 1%, institutional share class annual 0.5%, performance fee 10% for performance of 5-15%, 20% for performance above 15%
Commission: Initial 3%, renewal 0.5% on retail share class
Tel: 01202 890 895
This fund of funds is managed for Way Fund Managers by absolute return and hedge fund specialist Roderick Collins, a founding member of Hasley Investment Management.
Putting the fund in to its market context, Chelsea Financial Services managing director Darius McDermott says: “There are two serious concerns for investors at the moment – volatility and income – or more precisely, the lack of it. Unsurprisingly, we have seen a deluge of new absolute return products in the last year as fund managers try to come up with products that will smooth out volatility and at the same time deliver a return that will beat the miserly rates currently doled out by the banks. Among the slew of these products is the latest offering by specialist investment house, Way Fund Managers.”
McDermott points out that the fund will invest in quoted hedge funds and investment trusts of hedge funds with a range of strategies, as well as in some distributor-status hedge funds and the growing range of absolute return funds available under Ucits III. “The absolute return portfolio fund has been outsourced to Roderick Collins, a founding member of Hasley Investment Management, who specialises in absolute return funds and hedge funds. He is focusing particularly on closed-ended funds that have a large discount to net asset value, which he expects to narrow or come under pressure to do so.”
McDermott notes that Collins’ strategy is not to rely on a single manager in the absolute return market, but to employ a range of carefully selected managers, many of which will have non-correlated performance, to minimise portfolio volatility. “For an adviser this fund could be employed as alternative for lower-risk asset classes such as bonds and cash, potentially offering better diversification,” he says.
One area that instantly concerns McDermott is fees. He says: “Performance fees are my major bugbear with the industry at the moment, but Way says this fund will assuage the grievance of charge-weary IFAs. Its staggered charging structure for the fund is designed to reflect investor unease at management levies charged regardless of whether the vehicle has performed well or not. “
MCDermott observes the fund has a basic annual management charge of 0.5 per cent and a tiered performance fee. The performance fee starts at 10 per cent for returns of between 5 per cent and 15 per cent a year. “Growth of more than 15 per cent a year will carry performance fees of 20 per cent under the model. I feel that Way should cap the performance fee at a sensible level especially when taking into account that the underlying vehicles will also have some fees attached,” says McDermott.
He feels that Way’s charging structure is not exactly no win no fee, but rather now win, low fee. “This is still not ideal, but it is at least a step in the right direction. My real concern is that when the performance fees are factored in, the total expense ratio is likely to rise higher than stated. Also with this fee structure it is not readily suited to most platforms, but more suited to wrap platforms.”
Summing up McDermott says: “A fund like this gives retail access to a complicated asset class. With so many Ucits III absolute return funds available, why would one choose a fund of fund of hedge funds structure with potentially an extra layer of fees?”
Suitability to market: Average
Investment strategy: Good
Adviser remuneration: Average