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X marks the spot

In the two months since laun ching our X-share class, Hen-d erson Global Investors has undertaken an extensive timetable of IFA roadshows across the country, designed to explain more about the share class that we believe will eventually become the standard fare of UK fund management houses.

For anyone who missed the initial post-launch press coverage, the X-share class was launched at the same time as Henderson converted a host of its retail, exempt and unauthorised unit trusts into sub-funds of open-ended inv estment companies. In addition to the standard retail A-share class, and institu-tional I-share class, Hender son offered a third, the X-share class.

Designed with IFAs in mind, the X-share class adopts a structure common in the US but rare in the domestic market. The shares pay 3 per cent initial commission but inv estors pay no initial charge, meaning that all their money is invested from day one. To fund the initial commission, there is an additional 0.5 per cent annual management fee above that payable on the A shares. There are also exit fees for the first six years of investment, starting at 4 per cent in years one and two and reducing to 1 per cent in years five and six.

The most immediate benefit of the no-load structure is the fact that the client&#39s investment is not diminished by any initial charge.

Henderson&#39s research suggests that investors are att racted to products which get their money working for them immediately. Especially in a high-growth equity fund, the benefit of owning more shares early on in the life of the inv estment makes the absolute advantage of X shares over A shares highly apparent.

On a standard key features projection for the Henderson global technology fund, at a growth rate of 7 per cent, after 10 years a £163;7,000 X-share Isa would be worth £163;14 more than the equivalent in A shares. However, if the same projection is made on the fund&#39s average annual growth rate since launch of 27.8 per cent (Standard & Poor&#39s Micropal November 1, 1984 to Nov ember 1, 2000 on an offer-to-bid basis with net income reinvested), that advantage is £163;80 in favour of X shares.

It is important to note that these figures are based on a 10-year projection. The exit fees on X shares expire after six years so the canny inv estor who switches into A shares on the first day of the seventh year will be even better off as they will then take advantage of the lower annual management fees.

Henderson does not currently have the capability to automate these switches but this facility forms part of our longer-term plans.

Henderson Global Invest ors believes the share class will appeal to IFAs who are attracted to the no-load structure but who need initial commission to pay for the cost of their advice.

Most IFAs who we have spoken to have welcomed the innovation and are not overly concerned with the exit fees because they know they can switch between funds free of charge without restarting the exit fee period.

IFAs also see no-load products as ideal for Pep transfers, particularly for big portfolios, where the amount of a normal initial charge would be hard to take.

In the US, the equivalent B-share class accounts for around 50 per cent of mutual fund sales, up from just 3 per cent 10 years ago. This is the sort of growth that Henderson expects to see in the UK, and we aim to take full advantage of the trend.


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