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Wise men may follow the star

At times, it seems as if Best Investment is one of the few advisers prepared to recommend a switch out of an investment we previously rec-ommended. However, we do not do so frivolously.

When we recommend an equity fund to a client, it is our intention that they should hold it for the long term, typically, five years or more. We also encourage investors not to overreact to a short-term period of poor performance. Even the best fund managers are entitled to make a few mistakes every now and then.

However, we do believe the days of buying a fund and forgetting about it are over. We live in a fast-changing world and the case for hold-ing a fund clearly needs to be reassessed if a major change occurs such as the resignation of the management team.

City mergers and takeovers are at record levels, as is turnover among individual fund managers. If you feel you are fit enough to take a view on why an investor should buy a fund in the first place, then surely, if those reasons have changed fundamentally, you must have the courage to take a view on whether they should continue to hold it?

When a fund we have recommended does experience a major change, we believe we have a duty to our clients to make a level-headed assessment of whether or not they should take action. Every case has to be judged on its merits.

For example, some fund companies have a very strong house discipline or quantitative model where the influence of an individual manager may not be decisive.

However, in other cases, the fund style is clearly very focused on a particular person. A current example is the resignation of Andrew Gibbs from M&G European smaller companies.

In most cases where a fund manager changes, our advice will be to continue to hold and wait for the dust to settle while our analysts watch the fund closely for signs of the impact.

Occasionally, though, especially where we perceive a risk to our clients from disruption or uncertainty, we believe it is better to exit the fund and move to a more settled team than to sit around.

Recent events at Henderson, where the three most senior members of a five-man team have decided to set up their own shop, represent a very dramatic change to the company&#39s major strategic advantage in the tech fund area.

Our clients pay us to try and identify drivers that may lead to underperformance before their wealth has been hit. We believe it is better to help reduce the risks to our clients&#39 money than to cross our fingers and hope for the best.

Many IFAs never seem to recommend exiting a fund they have previously recommended nor provide tangible evidence of ongoing monitoring despite picking up a trail commission on their clients&#39 funds. I disagree with those advisers who have the gall to try and make a virtue of their inactivity and imply that advisers who do recommend a switch may be doing this for the purpose of churning to generate new commission.

At Best Investment, we discount all initial commission so our clients can take comfort from the fact that, if we recommend a switch, we are not doing it to generate profits. In fact, processing a switch and explaining our reasoning to clients is a considerable cost to our company and it is a pain when we feel we have to do it.

This may explain why so many other discount brokers prefer to sit on the fence.

The investing public are sadly deeply sceptical about IFAs. I am sure that in part this is because, while many IFAs are for ever bombarding them with junk mailshots and trying to sell new products to them, clear advice never seems to emerge as to what to do with existing investments.

Given the fact that IFAs are receiving ongoing renewal commission on most Peps, Isas and many unit trusts, the public are entitled to expect more and steadily they are beginning to demand more.


Yorkshire Building Society – FTSE 100 Trigger Bond

Tuesday, 17th October 2000.Type: Income bond.Aim: Income by investing in the FTSE 100 index.Minimum-maximum investment: £5,000-£500,000.Term: Until September 1, 2003.Guarantee: Original investment returned in full after three years even if the FTSE 100 index falls during the term.Interest rate: 8.25 per cent a year gross if the FTSE 100 index rises during each &#39trigger year&#39 […]

Cheltenham & Gloucester – Two Year Fixed Rate Bond

Tuesday, 17th October 2000.Type: High interest account.Minimum-maximum investment: £500 – £3 million.Interest rates: 6.25 per cent gross.Term: Two years.Offer period: Until further notice.Withdrawal penalties: 120 days&#39 gross interest on amount withdrawn.Tel: 0800 717505.

HSAM is ditched as TUFM picks RAM

Trade Union Fund Managers has ditched Hill Samuel Asset Management as its investment manager in favour of Rothschild Asset Management.The switch follows growing concerns over HSAM&#39s capability since its merger with Scottish Widows Investment Management and the departure of most of its senior fund managers earlier this year. It ends a 39-year relationship between TUFM […]

HSBC Asset Management – Global Technology Fund

Monday, 16th October 2000.Type: Sicav.Aim: Growth by investing in global media, technology and telecommunications.Minimum investment: $1,000.Investment split: 80 per cent blue chip companies, 20 per cent mid and small cap stocks and shares.Place of registration: Luxemburg.Yield: Nil.Charges: Initial 5.25 per cent, annual 1.5 per cent.Commission: Initial 3 per cent.Tel: 0800 181 890.


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