Black hole – the final days for New Star
Fund manager news
Recent fund news has been dominated by uncertainty over New Star Asset Management’s future. Already suffering from investor outflows following poor performance on some funds, 2008’s stock market falls led to failure servicing its large debt obligations. Whilst New Star
was able to reach agreement with the banks on restructuring this debt, at the time of writing its future remains unclear. As a result, our ratings on our previously recommended New Star funds – UK Property, Sterling Bond, High Yield Bond – remain suspended. Very importantly,
investors should rest assured that assets in the group’s funds are ring-fenced and therefore entirely safe from the problems affecting the company.
NEW FUND LAUNCHES
Investors have been redeeming and closures have outweighed new funds as investment groups consolidated their ranges. The planned launches of European absolute return funds from two prominent managers - Gartmore’s Roger Guy and Ignis’ Argonaut team - were shelved during the market
turmoil. However, with the success of BlackRock UK Absolute Alpha and Cazenove UK Absolute Target, we expect to see more absolute return funds launched this year.
One that did launch was the IFSL Privalto Stabiliser Protected fund,managed by BNP Paribas. This targets absolute returns by blending resources between different asset classes including equities, property, currency, commodities and cash. With the ability to go short in adverse market
conditions and capital protected over its six year lifespan, the fund is suitable for retail investors seeking an alternative to hedge funds and we have awarded it three stars.
RATING CHANGES
New on to our buy list is SG Japan Core Alpha fund. Soc Gen’s Stephen Harker has bucked the negative Japanese trend with a successful 14 year track record and seems happy with new owners GLG Partners. GLG is a leading global investment manager and currently manages $17.3bn in
clients assets. We’ve also added M&G’s suite of bond funds - Corporate Bond, Strategic Corporate Bond and Optimal Income - to our buy list. All three are run by Richard Woolnough, who has demonstrated top quartile performance at both M&G and his previous employer, Old Mutual.
We’ve taken the decision to downgrade Jupiter Undervalued Assets, a fund we had rated since 2002. Run by Edward Bonham-Carter, the fund’s style of targeting unfashionable companies makes periods of underperformance inevitable. However its barren run, stretching back several years, has been
exacerbated recently by unwise banking exposure. We’re also concerned that Bonham-Carter’s managerial commitments – he is Jupiter’s CEO and CIO – may be a distraction. The fund’s rating has been reduced to hold.
We recently suspended the rating on Newton International Bond following manager Stewart Cowley’s departure to Old Mutual. The fund, which invests primarily in overseas Government bonds, has been one of the few bright spots of a dark year, rising by more than 25% as investors rushed to the
safety of Government-backed assets.
WHERE TO PARK YOUR CASH
With interest rates plunging to 350 year lows in the UK, savers are really struggling to find a home for risk free assets that generates a reasonable return. At the time of writing,National Savings products are amongst the most competitive, with Fixed Interest Savings Certificates offering 2.95% net of tax over two
or five years but each person is limited to £15,000 per issue. Amongst bank accounts, ICICI continues to offer a high rate at 4.65% gross for one year but we recommend exposure is capped at £50,000 per person,the Financial Services Compensation Scheme limit. Yields on conventional gilts after tax are negligible or even negative for higher rate
taxpayers. Index linked gilts are offering higher yields than seen for a while but don’t forget that if RPI inflation is negative (quite likely during next year) then the capital values actually decline
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