Fund Times: 5 – 9 October
F&C implements expanded powers for Phil Doel’s UK Equity Income fund; Standard Life removes withdrawal restrictions on its property funds; Blue Sky launches FTSE 100 structured product; New absolute return bond fund from T. Rowe Price; Hugh Yarrow to manage Evenlode Income fund; Morningstar qualitative ratings and reports issued this week.
F&C implements expanded powers for Phil Doel’s UK Equity Income fund
The F&C UK Equity Income fund managed by Phil Doel has had its investment mandate widened to allow up to 10% in non-UK equities and up to 20% in fixed income. The fund will also be able to sell covered call options, which generates income but limits upside potential. We generally prefer to see equity managers remain focused on managing equities, although if a new strategy is within a manager’s skill set and there is a sound argument, it can make sense. F&C has sizeable fixed income and equity capabilities, and they point out that the fund’s objective has not been changed. So far F&C has not indicated how Doel plans to select corporate bonds, non-UK equities and covered call options.
Standard Life removes withdrawal restrictions on its property funds
In January 2009 Standard Life introduced a queuing system for redemptions from its unit-linked life and pension property funds. The queue has now been cleared and Standard Life has reverted to their usual service standards. They have not ruled out the possibility of returning to a queuing system if required by market conditions in the future, although they point out that conditions in the commercial property market have improved. The number of requests to withdraw money from the funds had also reduced. The problems in property markets are a reminder of the clear risks of investing primarily in illiquid assets in a fund format that provides daily liquidity. Open-ended property funds over the last two years experienced redemption suspensions, forced sales of properties into a weak market, and downward spikes in the unit price when funds switch to bid (redemption) pricing on the back of fund outflows.
Blue Sky launches FTSE 100 structured product
Blue Sky has launched a structured product that aims to provide positive returns whether the FTSE 100 moves up or down. According to Blue Sky, the fund will provide a minimum return of 45% as long as the FTSE 100 is above its starting level after six years. Structured products can be attractive, particularly for institutional investors who want a particular exposure to a given market. However, retail structured products have been plagued by high fees, counterparty risk, and a lack of transparency and understanding among investors of the potential risk and return. Blue Sky has announced that there will be a single A rated counterparty to this product which will be disclosed at the point of marketing.
New absolute return bond fund from T. Rowe Price
T. Rowe Price has launched their Luxembourg domiciled Global Fixed Income Absolute Return fund which we first mentioned here. The fund will use relative value strategies, sector allocation, bond selection using actual bonds, derivatives and long and short positions. While absolute return funds can play a role in a diversified portfolio and some managers’ have displayed a talent in this area, the experience for a large proportion of investors historically have been poor. The question lingers how much have these decisions been motivated by playing on investors’ fears after the tumultuous market events over the last couple of years, and how well these funds will do in the long term.
Hugh Yarrow to manage Evenlode Income fund
Wise Investments has announced that Hugh Yarrow, former manager of the Rathbone High Income fund, will manage their new Evenlode Income fund. The fund will be an unconstrained, concentrated portfolio of 20 – 30 income stocks, with 80% in UK shares and up to 20% in overseas shares or cash. In his former role at Rathbones, Yarrow was appointed lead manager of the High Income fund in April 2008, having done most of the day-to-day management of the fund over the difficult prior 18 months which we covered here. Wise Investments staff involved with the Evenlode fund will be co-investors. We like to see this because it provides an alignment of incentives between the fund managers and the investors in the fund.
Morningstar qualitative ratings and reports issued this week
Morningstar issued new qualitative ratings and reports on a number of funds available to UK investors this week, including Invesco Japanese Equity, Invesco Perpetual Japan, Schroder ISF European Smaller Companies, Invesco Perpetual European Equity, and Invesco Continental European Equity. Click here to see the full list.
