10 Differences between investment trusts and unit trusts

By Danny Cox on Wednesday, 7 May 2014 at 15:16
Article from http://www.everyinvestor.co.uk

Here are 10 facts for investors to bear in mind when researching funds

1)    Closed-ended rather than open-ended

Investment trusts are ‘closed-ended’ investments, usually with a fixed number of shares in issue. This effectively means investment trust managers have a fixed pool of money to invest, unlike unit trusts that create or cancel units depending on demand, depending upon whether money is flowing into or out of the fund.

2)     Premiums/discounts

A consequence of being ‘closed-ended’ is that the price of an investment trust is driven by supply and demand. If a trust is popular with investors, its price can be driven higher than its net asset value (NAV) – the value of the underlying investments. This is known as trading at a premium. Conversely if supply exceeds demand the price can be driven lower than the NAV – known as trading at a discount. This is in contrast to unit trusts and open-ended investment companies (OEICs), whose price is solely dictated by the NAV.

3)    Pricing

Shares in investment trusts are traded on the London Stock Exchange and the price will vary throughout the trading day. Unit trusts/OEICs are valued once a day, in most cases at 12.00 noon.

4)    Exposure to areas not covered by unit trusts

The closed-ended structure makes it easier for investment trusts to focus on less well-known and niche areas, where investments can be harder to buy and sell in large quantities. Examples include trusts that invest in private equity, property, or more obscure stock markets such as those in developing countries.

5)   Gearing

Investment trust managers have the flexibility to borrow money in order to purchase investments – this is referred to as ‘gearing’. If the total assets of a trust are worth £100 million, and the manager borrows £10 million, this is expressed as 110% gearing. This can enhance returns if the manager makes the right decisions, but magnify losses if the opposite were true. The increased risk plus the cost of borrowing the money need to be factored in.

6)    Performance

In a rising market, as we have seen over the past five years, gearing can help generate superior returns for investment trusts compared to unit trusts as the manager has more capital invested in the stock market. However, during 2008′s crisis, heavily geared investment trusts suffered significantly higher losses than comparable unit trusts, which do not use gearing.

7)    Smoothed dividends

Investment trust managers can hold back up to 15% of the income generated by the underlying investments each year. This creates a cash reserve that can be used to boost dividends in tougher times. Trusts that use this facility therefore often have more consistent dividend records – in some cases delivering many consecutive years of dividend growth for their investors.

8)    Choice

There are approximately 400 investment trusts compared to around 2,500 unit trusts/OEICS.

9)    Charges

Investment trusts and unit trusts carry similar charging structures, but investment trusts are more likely to have performance fees.

10)   Information

Knowing a fund or trust’s underlying holdings is a key factor when analysing and deciding whether to invest. This information is usually widely available from unit trusts and some larger investment trusts. However, it is not always readily available from smaller trusts.

Danny Cox on Wednesday, 7 May 2014 at 15:16
Article from http://www.everyinvestor.co.uk

How to invest in funds, investment trusts and ETFs - and save money as a DIY investor

By Simon Lambert
CREATED: 12:36 GMT, 13 January 2010 UPDATED: 09:09 GMT, 14 April 2014
Article from http://www.thisismoney.co.uk/money/

Investing in funds is the route often recommended to small investors by the experts - allowing them to

pool their money with others to access a range of investments and avoid putting all their eggs in one basket.

There are a variety of ways to do this, from the most popular 'fund' options, to investment trusts and exchange traded funds.

Some tap into professional's expertise while others simply track a certain index, some follow popular markets while others allow access to obscure and adventurous corners of the world.

We explain what funds are, how to invest, and how to save money by becoming a DIY investor and using a fund supermarket or platform.

What are funds?

When investors talk about funds they are typically referring to either unit trusts, or open-ended investment companies, Oeics.

These may sound complicated but they are essentially just funds where investors' money is pooled to invest in shares, bonds or other funds.

The idea is that as the fund invests in lots of different companies' shares or bonds, the risk of you losing all your money is less than it would be if you were in a single company's shares.

Similarly, most funds will have a fund manager. This will be someone, typically with substantial investing expertise and experience, who will aim to beat the market and provide the best return for investors (although, often they do not manage to do so.)

When times are good a fund manager aims to do make higher gains than their peers, when times are bad a good manager will come into their own by continuing to make money, or just not losing as much as their peers.

Investors have to make a minimum investment, usually £500 to £1,000 to access a fund, and their investment will either go up or down in value depending on how the fund has performed.

Investment funds, the typical term for Oeics and unit trusts, carry two sets of charges - an initial charge, which can take a chunk of your money when you put it in, and annual management charges, which go towards the cost of paying the fund manager and running the fund.

Initial charges can be up to 5 per cent but are easily avoidable through a good broker or platform. You do not want to be paying these. Annual management charges vary, but have traditionally been around 1.5 per cent with half of that going to financial advisers and platforms that sold the fund.

This is changing due to new financial regulations stopping these payments and new clean funds have been brought in, which typically charge 0.75 per cent to 1 per cent and pay no commission back to advisers or platforms

Investment trusts have typically had lower charges and did not pay any commission to advisers or platforms.

Annual management charges are taken from your investment every year and act as a drag on its performance.

The annual management charge is not the true cost of investing, however, a closer estimate is the total expense ratio or its replacement measure ongoing charges.

A good DIY fund or Isa investing platform will slash these charges [Read more: The best (& cheapest) Isa investing platforms]

The best way to invest is through an Isa wrapper which shields your investments and their growth from the taxman.

Passive or active funds

To complicate matters funds are typically divided into two categories active and passive.

Around one in four funds is passive, there is no stock picking involved, it simply buys the shares or market represented and therefore tracks it, ie a fund that mirrors the FTSE 100 and will deliver the same returns as that market.

An active fund on the other hand has a manager buying and selling assets, attempting to beat the market.

Some tracker funds are far more sophisticated than others. For example, Vanguard's LifeStrategy range and rivals allow investors to choose their risk levels and then buys a basket of assets that suits them, across shares and bonds around the world.

The advantage of a passive fund is that it is cheaper. These generally take two forms, either a tracker fund bought and sold in the same way managed funds are, or an Exchange Traded Fund, bought and sold in the same way shares are.

This low cost investing has become increasingly popular in recent years, especially ETFs which offer the chance to trade anything from the FTSE 100 and gold, to coffee beans and cotton.The more exotic the ETF the higher charges are likely to be.

Fund managers will tell you that the advantage of an active fund is their expertise, however, you actually have to choose the right manager to benefit from this, many actually consistently fail to beat their benchmark and still levy their fees - a handful do actually outperform year after year.

There is plenty of debate as to which side of the active vs passive argument is right.

Choosing a fund

There are thousands of funds to choose from and they are divided into different types or sectors. You can buy funds that invest in shares, corporate bonds, gilts, commodities and property, among other things, they will also typically have some form of geographical focus.

The wealth of choice means investors can target any theme they choose but can also make picking one baffling. If you are unsure of how to invest speak to an independent financial adviser

If you are comfortable going it alone, our expert fund tips provide some pointers.

Buying funds and investment trusts

If you go direct to the fund company, you'll lose up to 5% of your investment as an initial charge, that makes this one of the areas of a life where a middleman pays off.

A financial adviser can help - but you must now pay them for their time either through an upfront fee, hourly rate or percentage of your investments, which for many small investors may prove overly expensive.

If you don't want help from a financial adviser, it is cheaper and easier to go through a DIY investing platform or an 'execution-only' broker, who does not give advice. They can provide access to funds, investment trusts and ETFs.

The best way to invest is through an Isa wrapper which shields your investments and their growth from the taxman

This may sound complicated but is actually simple. Once you identify your chosen platform, you can go open an account with them, pick your investments and choose to fund them with a lump sum, regular investments or both.

Platforms are easy to use, the best have helpful customer service on the end of the phone and you can manage your investments online.

What about investment trusts?

Investment trusts are less common and have not tended to be recommended as often by advisers as they do not pay them commission.

The crucial difference between them and funds is that investment trusts are listed companies with shares that trade on the stockmarket.

They invest in the shares of other companies and are known as closed end, meaning the number of shares or units the trust's portfolio is divided into is limited. Investors can buy or sell these units to join or leave the fund, but new money outside this pool cannot be raised without formally issuing new shares.

Investment trusts can be riskier than unit trusts because their shares can trade at a premium or discount to the value of the assets they hold, known as the net asset value.

For example, a trust's price can fall below the total value of its holdings, if it is unpopular and people do not want to invest but do want to sell, thus pushing down demand and driving up the supply of its units for sale. This gives new investors the opportunity to buy in at a discount, but means existing investors holdings are worth less than they should be.

Investment trusts tend to be a lower cost option than funds, with no initial charge and lower annual fees, however, buying incurs share-dealing charges, again a good DIY investment platform will cut these.

Research has show that investment trusts have in many cases delivered better performance than funds over time. Investors should be aware, however, that buying investment trusts can carry more risk.

Firstly, the share price at which you can sell out could fall to a level below the value of what the trust holds, whereas an open-ended fund's price always reflects that underlying value. Secondly, investment trusts can borrow to boost returns, under a process known as gearing, when times are good this can deliver market beating returns but when share prices fall it can spell a bigger dip in an investment trust's value.

There is an added advantage to investment trusts, however, in that if markets fall and investors rush for the exit they are not forced to sell assets at unattractive prices to let them redeem their investment, as an open-ended fund would need to.

Instead, an investment trust can opt to sit tight and ride out the storm and those who want to sell out will simply find the market between buyers and sellers sets the price of their shares in the trust.

Simon Lambert
CREATED: 12:36 GMT, 13 January 2010 UPDATED: 09:09 GMT, 14 April 2014
Article from http://www.thisismoney.co.uk/money/

Investment trusts or unit trusts – what's your Isa money on?

Investment trusts have been shunned by financial advisers for years, but with lower costs and higher returns, what's not to like?

David Prosser

The Observer, Sunday 23 March 2014   

From http://www.theguardian.com/money/

Given a choice of two investments for your Isa, would you pick the high-performing, low-cost option or the more expensive fund with higher charges? That might seem a silly question, but for decades, sales of unit trusts have outstripped those of investment trusts that boast superior returns and lower charges.

Unit trusts have typically been the preferred option of financial advisers. However, this has started to change following an overhaul of investment charges, snappily titled the "retail distribution review", since January 2013. This banned investment companies from paying commission to financial advisers recommending their products, something investment trust providers have never been allowed to do. Research by the Association of Investment Companies suggests there has been a 53% increase in purchases of investment trusts through financial advisers since the changes.

The trend is likely to accelerate, says John Ditchfield of independent financial adviser (IFA) Barchester Green Investment. "The appeal of investment trusts has been demonstrated consistently in performance terms, and now that commission has been banned on all of these products, they will receive more attention."

What are investment trusts?

Both unit and investment trusts are run by a professional manager who picks and chooses a portfolio of assets on behalf of investors – these might include company shares, bonds, or property. Often, a fund manager may run both unit trusts and investment trusts with similar aims and almost identical portfolios.

Investment trusts are listed companies that issue a fixed number of shares quoted on a stock market – usually the London Stock Exchange. And as the number of shares is fixed, funds are "closed-ended", so their price is determined by demand and supply in the market – ie the number of investors who want to buy and sell.

Often, demand and supply falls out of line with changes in the value of the assets the investment trust owns. This means that sometimes the trust's share price may trade at a discount to the value of its underlying assets – less commonly, it may trade at a premium.

By contrast, the price of a unit trust always reflects the value of its holdings. When more investors want to buy into the fund than sell, the manager issues more units. When the opposite is true, the manager cancels units.

Advisers have often cited the issue of discounts as adding complexity – and a reason for avoiding investment trusts. However, many investors like the idea of buying exposure to assets at less than face value, even if there is a risk of the discount widening further.

And performance and cost?

Alan Brierley, analyst at stockbroker Canaccord Genuity, regularly compares the performance of similar investment and unit trusts. In 2013 Brierley looked at the five-year performance records of 19 investment trusts and the comparable open-ended fund. In many cases, the two funds were managed by the same person. All but one of the investment trusts came out on top, achieving average annual returns 2.24 percentage points higher than the equivalent open-ended funds.

"This outperformance is underpinned by a number of advantages that give investment trust managers a distinct competitive advantage," Brierley says.

The most obvious is cost. With no need to finance commissions, investment trusts have been able to undercut open-ended funds. Since the retail distribution review, many open-ended funds have begun cutting fees, but even then, investment trusts remain cheaper in most cases.

Another advantage is that investment trusts are free to take on gearing – to borrow additional money to invest. When stock markets are performing well, this provides a boost to returns – and since share prices, at least in the past, have tended to rise strongly over the longer term, gearing has helped investment trusts. However, it also adds risk. When share prices fall, the losses of geared funds are multiplied.

Why don't advisers like them?

Martin Bamford of independent financial adviser Informed Choice says: "Investors are generally best advised to avoid investment trusts because their gearing and their discount or premium pricing structure can both result in losses being magnified."

However, Brierley argues that open-ended funds can change in size quickly and dramatically, particularly during times of market stress or buoyancy, which can cause managers real problems. In extreme circumstances they may have to sell assets at knock-down prices to pay investors who want to leave, or to invest at top-of-the-market prices when new investors join.

In the end, argues Jason Hollands, of independent financial adviser BestInvest, advisers who turn their back on investment trusts are doing their clients a disservice. "In our view, the right approach to building a portfolio is to be agnostic – sometimes the right instruments will be a fund, sometimes a trust."

What to buy and where to buy

Shares in investment trusts can be bought and sold on most of the large online platforms, or through stockbrokers. There are likely to be dealing charges and platform or intermediary fees, as well as the fund's own charges, so look for the best deal. It's also possible to invest direct with investment trust managers – many offer regular savings schemes and Isas.

"Some of the large global investment trusts are ideal as long-term buy-and-hold pension investments or for children's savings," says Patrick Connolly of independent financial adviser Chase de Vere. "My own son's Junior Isa is in the Witan Investment Trust, for example."

Another option popular with investment trust specialists looking for funds investing all around the word is Edinburgh Worldwide, run by a team at Scottish fund manager Baillie Gifford that has also enjoyed excellent results with its range of open-ended funds.

For investors looking for a UK specialist, it is worth considering Perpetual Income and Growth. More specialist investment trust options include funds that buy illiquid assets, such as infrastructure and private equity, where open-ended funds' fluctuating size makes investment much less practical.

David Prosser
The Observer, Sunday 23 March 2014   
From http://www.theguardian.com/money/

Gen X to be worse off than Boomers in retirement, study finds

By Melanie Hicken @melhicken May 17, 2013: 12:39 AM ET
Article from http://money.cnn.com/2013/

NEW YORK (CNNMoney)

Boomers lost a significant chunk of their retirement nest eggs in the recession, but it was members of Generation X who were really hit the hardest, according to a report released Thursday.

If they don't start paying off debt and saving more, Gen Xers (those between the ages of 38 and 47) and younger Boomers (those in their late 40s to mid-50s) are on track to retire financially worse off than the generations before them, according to analysis from the Pew Charitable Trusts, a Washington, D.C.-based nonprofit.

"Many younger Americans were already behind in saving for retirement, and suddenly millions of them were out of work or owned homes worth far less than they had been just a few years earlier," the report said.

Including Social Security benefits, Gen Xers are projected to have enough money in retirement to replace only half of their annual pre-retirement earnings. Financial planners recommend retirement savers aim to replace 70% to 100% of pre-retirement income.

Between 2007 and 2010, members of Gen X saw their median net worth sink 45% from $75,077 to $41,600. That's compared to a drop of around 25% for both younger Baby Boomers and older Boomers, between the ages 58 and 67.

By the end of the recession, Gen X held investments, retirement plans and savings with a median value of just $14,500, down from $19,382 in 2007. Younger Boomers had median savings of $32,135 and older Boomers had $55,850, according to the report.

Money 101: Planning for retirement

And while only two-thirds of Gen Xers owned homes in 2010, those who did saw their median home equity plummet by 27% during the past three years, Pew said. In comparison, the home equity of younger Baby Boomers fell 14%, and older Boomers saw a 22% drop.

Gen Xers were also plagued by significantly higher debt levels, including mortgages, auto loans, credit card and student loan debt -- much of which was accumulated in the years leading up to the recession. In 2010, Gen X had a median debt level of more than $80,000, while younger Baby Boomers carried about $60,000 and older Boomers had less than $40,000.

Younger Boomers, between 48 and 57 years old, are slightly better off with a median expected income replacement rate of about 60%, although it pales in comparison to the roughly 80% projected for their older counterparts.

"Unless this path is altered, younger Baby Boomers and Gen Xers may face a real possibility of downward mobility in their Golden Years," said Diana Elliott, research manager for Pew's economic mobility project.

Pew's study did not look at retirement security for anyone born after 1975, which leaves out the youngest Gen Xers and Generation Y, also commonly dubbed the "Millennials," who were born between the early 1980s and early 2000s. The country's youngest workers, who are saddled with historic levels of student loan debt and are starting their careers in an unfriendly job market, likely face similar levels of retirement insecurity.  

First Published: May 16, 2013: 8:58 PM ET
Melanie Hicken @melhicken May 17, 2013: 12:39 AM ET
Article from http://money.cnn.com/2013/

Quarterly unit trust inflows rise to a near record

by Edward West, 29 April 2013, 19:57
Article from http://www.bdlive.co.za/business/financial/

UNIT trust inflows reached their second-highest quarterly level in the first quarter, owing to strong investor confidence, the Association for Savings and Investment SA (Asisa) said on Monday.

The collective investment schemes industry attracted R47bn in the first quarter, with the highest amount reported in one quarter being R63bn in the third quarter of last year. The third-highest amount was R41bn in the fourth quarter of last year.

Asisa represents most of South Africa’s asset managers, collective investment scheme management companies, linked investment service providers, multimanagers and life insurers. Among them they hold assets under management of more than R4-trillion.

Asisa senior policy adviser Peter Blohm said the record inflows meant that savers were saving more than ever and receiving a good net real return from their unit trust investments.

Three successive quarters of record-breaking net inflows for unit trusts, and other local collective investment schemes, resulted in the highest net inflows for any rolling 12-month period. Net inflows for the year to March 31 came to R166bn.

Asisa CEO Leon Campher said that at the end of the first quarter, the local collective investment schemes industry managed assets of R1.28-trillion and offered investors 988 funds. Total assets under management at the end of December stood at R1.2-trillion.

Mr Blohm said there had also been a shift from fixed-interest investments into equities, in a search for higher yields.

Mr Campher said assets under management had almost doubled over the past five years. At the end of March 2009 assets under management were R611bn.

Mr Campher said the bulk of the inflows in the 12 months to March 31 came directly from investors (27%) or were channelled via intermediaries (35%). This meant that more than 60% of inflows consisted of retail money.

Linked investment services providers generated 21% of sales, and 17% of sales were received from institutional investors such as pension and provident funds.

Investors favoured funds in the South African multi-asset category in the first quarter, said Mr Campher. At the end of March, this category held 44% of industry assets. In the first quarter of this year local multi-asset funds attracted R26.2bn in net inflows.

South Africa’s multi-asset category is made up of: the income subcategory, low equity, medium equity, high equity, and flexible.

South African multi-asset, low-equity funds proved most popular with investors, attracting R12bn of inflows in the quarter.

The South African interest bearing short-term category was favoured by investors looking for higher yields than those of cash investments in the low interest-rate environment. These funds attracted the second-highest inflows in the quarter of R9bn.

Mr Campher said only 25% of assets were invested in pure equity and real estate funds at the end of last month. "Investors prefer multi-asset funds because they make it possible to achieve diversification across asset classes within one fund," he said.

Edward West, 29 April 2013, 19:57
Article from http://www.bdlive.co.za/business/financial/

Bifm reports rush for unit trusts

MBONGENI MGUNI
Staff Writer
Article from http://www.mmegi.bw/index.php?sid=4&aid=28&dir=2013/May/Friday10

Local asset manager, Bifm says retail and institutional investors have responded strongly to its recent launch of four unit trust products, signalling the market's hunger for safe, liquid and lucrative investment pathways.

Bifm's recent launch of Money Market, Balanced Prudential, Equity Fund and Offshore Fund unit trusts also came as some retail investors licked the wounds from a recent explosion of investment scams.On Wednesday, Bifm Head of Retail Setshwano Ngope told BusinessWeek the response to the local financial market's newest products had been "overwhelming".

"We are seeing overwhelming response from both institutional and retail investors, the latter ranging from the working class, to older people who are close to retirement and others who have already retired," she said."As much as we know that financial literacy is low in the market, we also know that there are investors who have money and don't know where to go.

While some may think that those who get involved in Ponzi schemes are stupid, we see it as a cry for help from them to say 'we have money to invest but we don't know how to go about it.'"At last week's launch, Bifm CEO Tiny Kgatlwane described unit trusts as an ideal investment opportunity for Batswana, "especially those that previously could not afford to invest large amounts in blue chip shares".

Ngope said institutional investors were also drawn to the unit trusts, viewing them as an alternative investment vehicle for excess cash that would normally be deposited in call or fixed deposit accounts.The strong response to the unit trusts is important, as NBIFRA's licence for asset firms to offer such products requires that the pooled fund reach a pre-determined size within a specific time frame.

Should a fund manager fail to reach the agreed milestones, it would have to return cap in hand to NBFIRA or face the possibility of losing its licence to operate a unit trust.Ngope revealed that Bifm acquired its licence last year and had already gathered momentum in the new product.

"We received our licence last year and our shareholder invested as well as our own staff members, as a pilot," she said."The unit trusts have thus been running in the background although they had not been officially launched until last week. We will soon be publishing prices of the units in the very near future, as the legislation requires that we do so."

The Bifm executive said there was space in the local unit trust market for the new products, as there had been growth in fund managers and products, since the first unit trust was launched 11 years ago."I would be surprised if we are the last entrant in the market," Ngope said.

"As much as there's a shortage of instruments in the market, I believe we will continue to find opportunities regardless of the size or choices. Over the years, there has been a push for more funds to be invested domestically and I expect that to boost the market and for more instruments to be issued."

She added that the uptake of financial products such as unit trusts would continue rising as financial literacy levels improved. Bifm plans to engage potential investors further to educate them on the various products available to them.

MBONGENI MGUNI
Staff Writer
Article from http://www.mmegi.bw/index.php?sid=4&aid=28&dir=2013/May/Friday10

Why Unit Investment Trusts Can Be A Good Investment Alternative

Kevin Mahn, Contributor
4/22/2013 @ 1:58PM
Article from http://www.forbes.com/sites/advisor/2013/04/22/why-unit-investment-trusts-can-be-a-good-investment-alternative/

According to the Investment Company Institute (ICI), data on the market value of unit investment trusts (UITs) issued and outstanding as of year-end 2012 indicates a total of 5,787 trusts with a value of $71.73 billion. According to reports submitted by the major sponsors of UITs to ICI, at year-end 2012 there were:

• 2,808 tax-free bond trusts, with a market value of $15.76 billion
• 553 taxable bond trusts, with a market value of $4.06 billion
• 2,426 equity trusts, with a market value of $51.91 billion.

Over the last 5 years, while the number of UITs outstanding decreased from 5,984 to 5,787, total net assets invested in UITs have grown by more than 151%, starting at approximately $28 billion at the end of 2008 and finishing at the aforementioned $72 billion at the end of 2012.

Unit Investment Trust (UIT) Total Net Assets (Millions of Dollars, Year-End)

                    Source: Investment Company Institute, April 2013

The popularity of UITs in recent years can be attributed to a number of factors, one of which is that many of the more popular UITs have primary investment objectives oriented towards current dividend income.

These same UITs can invest in income producing securities that can tend to pay a higher level of current income when compared to more traditionally recognized income producing securities (i..e bonds). Such income producing securities can include, but are not limited to, closed-end funds (that may or may not employ leverage), preferred stocks, real estate investment trusts (REITs), business development companies (BDCs), master limited partnerships (MLPs) and dividend paying equities.

These strategies have been particularly appealing within an interest rate environment with persisting record low yields of fixed-income/debt securities.

For those who are not completely familiar with UITs, the following summary information may be beneficial to help better understand this product type.

• Unit Investment Trusts (UITs) are a fixed portfolio of stocks, bonds or other securities. These types of portfolios allow investors to know what securities are held within a UIT as of the date of deposit, as well as the mandatory termination date of the trust. While it is not common, a trust may terminate early as described in the prospectus.
• UITs offer an attractive opportunity for investors to own a portfolio of securities via a low minimum, typically liquid investment. As a point of contrast, while many actively managed funds continually buy and sell securities, thereby changing their investment mix, the securities held in a UIT  generally remain fixed.
• Some UIT securities are chosen according to a quantitative selection process determined by a sponsor while some are based on an index. Other UITs are chosen by experienced analysts or portfolio managers, who research the securities and screen them for various characteristics, according to specific objectives. Once securities are selected, the UIT portfolios are then supervised accordingly throughout the life of the trust.
• While it is rare, a security held in a UIT may be removed from a portfolio under certain circumstances, such as a significant decline in credit rating. By and large, securities held in a UIT remain fixed for the life of the trust, regardless of market value.
• At the maturity of a UIT, unitholders generally have three options:
• Option #1: Rollover at a reduced sales charge – At a reduced sales charge, investors  may roll over into a new series of the same trust, if available or potentially other UITs from the same of different sponsor of UITS,  available in the primary market. It should be noted that maturity rollover is considered a taxable event. Please refer to each trust’s prospectus for complete rollover option information. Investors should be aware that there is a time limit to notify the trustee of the rollover.
• Option #2: Maturity – Unitholders may do nothing and allow the portfolio units to mature. The trust will liquidate and the unitholder will receive a cash distribution of the trust’s proceeds, if any.
• Option #3: In-kind distribution - Unitholders may generally request an in-kind distribution of the securities underlying the units if they own 2,500 or more units at either the time of purchase or maturity. Please see additional provisions set forth in the prospectus of each Trust in this regard.
• Typical minimums for UIT purchases are 100 units; however, the minimums may vary based on the type of UIT. Higher minimums may also be required by each respective brokerage firm.
• Unitholders may sell all, or a portion of, their units any day the stock market is open. These unitholders will receive the then-current net asset value of the units, based on the current market value of the underlying securities in the portfolio, less any remaining deferred sales charge, as of the evaluation time. As the market fluctuates, of course, so will the value of your units. Therefore, units may be worth more or less than what the unitholder originally paid.
• UITs are priced at the end of each business day similar to mutual funds. The price is based on the market value of the underlying securities and includes cash and other assets and liabilities held by the trust.
• UITs are available in a sales charge structure for commission accounts as well as for fee/wrap accounts. It is best to check with each individual brokerage firm to see if UITs are eligible for purchase on their fee/wrap platform.
• Unit investment trusts are one of three basic types of investment companies. Investment companies are subject to stringent federal laws and oversight by the U.S. Securities and Exchange Commission (SEC). It is important to note that the SEC does not approve or disapprove of UITs or the securities within a given UIT or pass upon the adequacy of any prospectus for a given UIT. Investment companies are regulated primarily under the Investment Company Act of 1940. This federal statute is highly detailed and governs the structure and day-to-day operations of investment companies.    Investment companies are also subject to regulations of the Securities Act of 1933, FINRA, and the Securities Exchange Act of 1934.

I encourage all investors to educate themselves on all aspects of UITs, including risks and expenses, in addition to understanding each UIT’s investment strategy in particular before considering an investment.

Disclosure:  Hennion & Walsh is the sponsor of SmartTrust® Unit Investment Trusts (UITs). For more information on SmartTrust® UITs, please visit www.smarttrustuit.com.  The overview above is for informational purposes and is not an offer to sell or a solicitation of an offer to buy any SmartTrust® UITs.  Investors should consider the Trust’s investment objective, risks, charges and expenses carefully before investing. The prospectus contains this and other information relevant to an investment in the Trust and investors should read the prospectus carefully before they invest.

Kevin Mahn, Contributor

4/22/2013 @ 1:58PM

Article from http://www.forbes.com/sites/advisor/2013/04/22/why-unit-investment-trusts-can-be-a-good-investment-alternative/

Genghis Capital targets mass market with Sh500 unit trust

Genghis Capital Limited head of unit trusts Theresa Kaleja, managing director Zafrullah Khan and director Ali Cheema during the unveiling of a unit trust aiming to reach the mass market at the Crown Plaza, Nairobi. Photo/Diana Ngila 

By George Ngigi
Posted  Thursday, April 25  2013 at  18:46
From http://www.businessdailyafrica.com/


IN SUMMARY

• The Sh500 unit trust deepens competition for retail investors in unit trusts.
• Fund managers have over the past three years strived to attract small investors to unit trust schemes by lowering the minimum investment.
• Unit trusts have been a preserve of investment banks, with Genghis Capital being the first stockbroker to offer the product.

Stockbrokerage firm Genghis Capital has opened a unit trust aiming to reach the mass market with a Sh500 minimum investment plan.

The minimum investment amount deepens competition for retail investors in unit trusts, where Zimele Asset Management’s Sh250 and Old Mutual’s Sh1,000 minimum were previously the lowest entry points.

Fund managers have over the past three years strived to attract small investors to unit trust schemes by lowering the minimum investment amount from upwards of Sh100,000.

Genghis Capital will also be reaching out to Muslims with a sharia- compliant investment vehicle dubbed Gencap Imam Fund.

The stockbrokerage firm, a subsidiary of Chase Group, plans to ride on the geographical reach of its banking arm and on its micro lender Rafiki Deposit Taking Microfinance to sell unit trusts to the mass market.

“We are aware of the fixed costs but we are banking on high volumes. Most people have been asking for better rates than those being offered by the banks,” said Dr Theresa Kaleja, head of Unit Trust at Genghis Capital.

Unit Trusts provide investors an opportunity to invest in a portfolio of stocks or fixed-income securities or both, without directly going to the market themselves. The investors deposit funds with fund managers, who charge them a fee for their services.

Genghis will charge a one-off initial fee of 3.5 per cent, which it will use to settle fees charged by its service providers who include custodians, fund managers and trustees. It will also levy an annual management fee of two per cent.

Unit trusts have been a preserve of investment banks, with Genghis Capital being the first stockbroker to offer the product. The management, however, said it plans to convert the brokerage firm into an investment bank.

(Read: Genghis Capital now starts selling Shariah unit trust)

“By end of year we will have converted into an investment bank. We have to raise capital in order to comply with the regulatory requirement, which we will do from our own funds and fresh capital,” said Zafrullah Khan, the group chairman.

Initially, there were fears of entry into unit trusts due to the high administrative costs but entry of players such as Zimele Asset Management has proved that the retail segment offers a good bargain.

“That is where the potential of unit trust lies as high net worth guys have other means of accessing the market,” said Isaac Njuguna, head of investments at Zimele.

Zimele has a minimum investment option of Sh250 which can be deposited through M-Pesa.

The shariah compliant Iman Fund set up by Genghis has received exemption from the regulator to exceed the 10 per cent cap put on foreign investment.

The fund can invest up to 30 per cent of its portfolio in stocks listed on the Nairobi Securities Exchange (NSE), 60 per cent in unlisted securities and 30 per cent in offshore investments.

Unit trusts generally provide higher returns on savings than bank deposits, but equity funds can also result in losses of initial investments. Currently banks’ savings accounts are yielding an average of 1.65 per cent and 6.5 per cent for the fixed deposit account.

Unit trusts split their funds according to the risk appetite of the contributor, with money markets — composed of Treasury bills and bonds — being for those who are risk averse and equity markets for those who are willing to commit money for longer and are willing to take more risk.

Currently the returns from the money markets are above 10 per cent, with the one year T-bill closing at 12.5 per cent in the last auction. 

The equities market has also been vibrant up 15.6 per cent since the beginning of the year.

With the minimum investment in a government securities set at Sh50,000, the pooling of cash from the mass market allows them into a market that they would not access individually.

Investment of huge sums in the equities market also gives the fund managers bargaining power on fees and prices.

gngigi@ke.nationmedia.com

By George Ngigi
Posted  Thursday, April 25  2013 at  18:46
From http://www.businessdailyafrica.com/

These are SA's best unit trusts

INVESTMENT INSIGHTS

Author: Patrick Cairns|

19 February 2013 10:34

From: http://www.moneyweb.co.za/moneyweb-investment-insights/

The top performers over five, ten and fifteen years.

ORAPA – The last decade and a half has seen more than its share of market turmoil. Over this time we've seen the dot-com bubble, 9-11, the Chinese stock bubble of 2007, the financial crisis, a global recession and the sovereign debt crisis in Europe.

And yet, local equity investors have come out of it all pretty okay.

Between January 1 1998 and December 31 2012, the FTSE/JSE Shareholders Weighted All Share Index produced annualised growth of 15.6%. This is well above inflation, which averaged around 6.5% for that period.

Of course, not all local unit trusts made the most of this situation. But for the stars of this space, it's been a good ride.

Taking the view that unit trusts should be long-term investments, we have looked at the top-performing domestic equity and real estate funds over the last five, ten and fifteen years. What we found may surprise you.

Five years

Over the last 60 months, property has been the undisputed king of the JSE, and that shows in the figures. Eleven of the best 15 performers over this time have been real estate funds.

While all of these property funds have been an outstanding investments relative to other unit trusts, it is nevertheless worth noting that only two of them actually out-performed the FTSE/JSE SA Listed Property Index. Annualised, the index was up 15.89% over this period.

The Marriot Dividend Growth Fund was comfortably the best general equity fund over this time-frame. The next best was the Foord Equity Fund, which produced an annualised return of 12.90%. By comparison, the FTSE/JSE Shareholders Weighted All Share Index was up 10.60%.

Amongst the large cap funds, the Coronation Top 20 Fund completely outpaced the Absa Rand Protector Fund, which gave an annualised return of 10.55%. Both funds were, however, well above the 8.80% of the FTSE/JSE Top 40 Index.

After the Coronation and Stanlib Industrial Funds, the next best in the Industrials category was the SIM Industrial Fund. It delivered an annualised return of 12.68%. None of these funds, however beat the 16.50% of the FTSE/JSE Indi 25.

Ten years

The range of unit trusts that delivered leading performances over the last ten years is the most diverse in this analysis. Small cap funds make their mark here, with the two best funds both coming from this category and four in total making it into the top 15.

The list also includes four industrial funds, three real estate funds, two value funds, one large cap fund and one general equity fund.

The smaller companies funds have gained from having a much stronger universe of stocks to choose from in recent years and that has been one of the primary reasons for their good showing. As the quality of these companies has improved, so they have delivered the higher growth one would like to see from them.

It hasn't all been rosy for small cap funds though. While the above funds have glittered, the Stanlib Small Cap Fund was the third worst performing fund in the country over the same period.

In terms of the industrials, the Stanlib and Coronation Industrial Funds are again top of their sector here, and this time both marginally out-performed the index. The FTSE/JSE Indi 25 delivered 24.40% over this period. The performances of the Old Mutual Industrial Fund and Momentum Industrial Fund, while excellent relative to other unit trusts, came in below the index.

Again, the Coronation Top 20 Fund beat its benchmark index over this period. Annualised, the FTSE/JSE Top 40 was up 18.10%. It's also worth noting that this fund beat every general equity fund over this time frame.

Fifteen years

This is where we find perhaps the biggest surprise: although resource stocks and consequently resource funds have performed horribly over the last few years, the five best funds over the last decade and a half are all resource funds.

This is despite the fact that all five of these are in the bottom 20 funds over the last five years. The Stanlib Resources Fund, which is fourth on this list, has even delivered a negative return since 2008.

While it should be taken into account that only 38 domestic equity unit trusts have been around for this long and therefore the competitive universe is much smaller, these resource funds have nevertheless been outstanding. Every one of them has delivered annualised returns greater than 21.00%.

Source: Moneymate & moneyweb

Coming in directly after the resource funds there is one small cap fund and two value funds. It is worth noting that although value funds will now be classified as general equity funds, value investing is still a philosophy that investors may want to seek out. The Nedgroup Investments and Investec Value Funds have out-performed every general equity fund over this fifteen year period.

One of the most interesting funds on this list is the only real estate fund that appears – the Marriot Property Equity Fund. What is fascinating is that this fund is the worst performer in the real estate category over the last five years, where it has delivered an annualised return of just 7.83%. However, it's standard deviation over the last fifteen years of 10.44% is comfortably the lowest of any domestic equity or real estate fund in the country.

The Kagiso Top 40 Tracker Fund is another worth highlighting because it was one of the first index trackers in the country, pre-dating the establishment of exchange traded funds on the JSE. It slots into 14th place on this list, meaning that early adopters of the index tracking philosophy in South Africa would have beaten 63% of all managed funds over this period.

Interestingly, not a single fund appears in the top 15 over all three time frames. The closest is the Stanlib Industrial Fund, which is 15th over five years, third over 10 years, and 20th over 15 years.

The overall picture

Of the 38 funds that have been around for the full 15 years, 16 beat the FTSE/JSE Shareholders Weighted All Share Index. In other words, 42.1%. Over ten years, this figure decreases to just 31.3%, and over five years slips even further to 28.6%.

Expressed another way, the average (median) annualised return of domestic equity and real estate funds over the last five years is 8.22%. Over ten years it is 18.84% and over fifteen years 15.40%. In all three cases, the FTSE/JSE Shareholders Weighted All Share Index comes in higher – 10.6%, 20.1% and 15.6%.

For more, visit Moneyweb's Click-a-unit trust/ETF.

Topics: unit trusts, long-term investment, domestic equity, real estate

Author: Patrick Cairns|

19 February 2013 10:34

From: http://www.moneyweb.co.za/moneyweb-investment-insights/

NIT funds deliver good performance

APRIL 12, 2012 BR RESEARCH

Article from Business Recorder

The National Investment (Unit) Trust, the countrys leading fund, posted a healthy year-on-year bottom-line growth of around 30 percent during the first nine months of the current fiscal year.

The NIT has registered a net profit of Rs4.34 billion (without impairments) during 9MFY12, thereby yielding an earning per unit of Rs3.23, as opposed to Rs2.85 during the same period last year.

The bottom-line growth is symptomatic of growth in dividend income and realised capital gains.

This can be gauged from the fact that the Fund saw a hefty 37 percent year-on-year growth in its dividend income to Rs2.15 billion during 9MFY12.

At the same time, realized capital gains grew by around 63 percent to Rs891 million.

The Funds Net Asset Value (NAV) amounted to Rs30.01 per unit as on March 31, glided higher by around seven percent since the start of the current fiscal year.

With exposure in equities, NIT-State Enterprise Fund (NIT-SEF) and NIT-Equity Market Opportunity Fund (NIT EMOF) flourished at the heels of growth in capital gains and dividend income.

With the KSE-100 index up by 10.31 percent during the first nine months of FY12, NIT EMOF outperformed the market benchmark index by a whopping margin of 7.8 percent.

The NIT Government Bond Fund (NIT-GBF) recorded a slight drop in its net income, hammered by a decline in income from government securities.

This is down to redemptions and a decline in yields on sovereign instruments.

The fund holds exposure in sovereign instruments and National saving bonds and yielded an annualized return of 9.5 percent to its unit holders.

Growth in income from fixed income instruments supported the performance of the NIT Income Fund, with the funds net profit up by 19 percent, year-on-year, to Rs185 million in 9MFY12.

The fund managed to yield an annualized return of around 12.69 percent to its investors, thereby outperforming its benchmark by 19 bps.

Article from Business Recorder

Aberdeen Asian Smaller Companies Investment Trust research update

Ben Yearsley | Tue 10 April 2012

Article from Hargreaves Lansdown 

Combine the growth prospects of smaller companies with Asia's vibrant economies and I believe a tremendous long-term opportunity presents itself.

An interesting way to access this theme is through the Aberdeen Asian Smaller Companies Investment Trust. Aberdeen's expertise in Asia is well known. Their Aberdeen Asia Pacific unit trust has been on the Wealth 150 since its inception in November 2003. Smaller companies and emerging markets are both higher risk areas in which to invest and any investment can fall in value as well as rise.

Aberdeen's Asia team is headed by Hugh Young and their approach is the same on all the funds they manage. They believe their focus on "quality" companies helps steer them through volatile markets. They suggest long-term share prices reflect the quality of the underlying business, so they look to identify their best ideas, but only invest when the valuation is right.

One benefit of the investment trust structure is that money does not flow in and out of the fund on a daily basis as it does with an open-ended fund. This means the team can take positions in some of the smallest companies in the region, which can be more illiquid (harder to buy and sell). This allows them the flexibility to take a long-term view and uncover opportunities that might be off the radar of most investors. None of the top ten holdings feature in the MSCI Asia Pacific Index, but all have been in the portfolio for at least eight years.

While Asian stock markets have started 2012 positively, which is beneficial for existing holdings in the fund, Hugh Young and the team note valuations are less attractive than they were, making it harder to find new opportunities. The portfolio is currently tilted towards companies capitalising on domestic consumption in the region. Consumer businesses make up almost 45% of the portfolio compared to around 13% of the index. Top ten holdings include Siam Macro (a Thai retailer), Multi Bintang (a brewer) and Godrej (a consumer products business).

At a country level the team have found excellent opportunities in India, Malaysia, Thailand, and Indonesia; while it is harder to find high quality smaller companies in China, Taiwan and Korea. Ultimately the decision on whether to invest is based on the quality of the companies alone, not their location.

Investment trusts can borrow money, otherwise known as gearing, to enhance returns. Aberdeen takes a prudent approach and gearing over the long term has typically been no more than 10% of the trust's assets. Nevertheless, while gearing can add value in a rising market in a falling market it can magnify losses. Furthermore, the share price of an investment trust does not necessarily reflect its underlying net asset value (NAV). This trust is currently trading at or around its NAV and those considering an investment might wish to monitor the price before investing if they believe it could fall to a discount.

We believe Aberdeen's Asia team is of the highest calibre in the region. For investors looking for exposure to smaller companies in the Far East we believe this could be an excellent addition to a more adventurous portfolio.

Find out more about investment trusts including the costs associated with buying, selling and holding them in a Vantage account.

The value of investments can go down as well as up, this means you could get back less than you invested. Therefore all investments should be regarded with a long term view. No news or research item is a personal recommendation to deal. If you are unsure about the suitability of an investment please contact us for advice.

Article from Hargreaves Lansdown

Incapital Extends Diversified Suite of Products with Unit Trusts Designed in Collaboration with Leading Global Partners

April 4, 2012, 1:52 p.m. EDT

Article from Market Watch

BOCA RATON, Fla. and CHICAGO, April 4, 2012 /PRNewswire via COMTEX/ -- Incapital LLC announced Monday the launch of Incapital Unit Trusts, providing individual investors with a convenient, transparent and cost-effective way to own a professionally-selected and diversified fixed portfolio of securities.

"Incapital is pleased to extend our already robust platform of products to meet the unique needs of various investment portfolios," said Incapital Chief Executive Officer John Radtke. "Incapital Unit Trusts will integrate institutional strategies from our leading global partners into vehicles designed for 'buy and hold' investors."

Incapital will announce global institutional partners for Incapital Unit Trusts in the near future.

Incapital's Unit Trust division is directed by John Browning who previously served as Managing Director of the Unit Trust division at Guggenheim Funds Distributors Inc. and held leadership positions at Van Kampen Investments and Invesco PowerShares.

"We are hitting the ground running in this growing Unit Trust market with the top tier quality products and service Incapital's clients have come to expect," said Browning. "The ability to strategically target a particular asset class or investment methodology combined with options to build core positions make unit trusts a potential lower cost option from which to build an investment portfolio."

Incapital Unit Trusts generally remain fixed and require a low minimum purchase of $1,000. The professionally selected basket of securities may allow investors to diversify market risk without the large capital commitment and time it would require to achieve this type of diversification on their own.

Incapital Unit Trusts have a predetermined investment life which provides for regular opportunities to review and evaluate an investor's current investment needs. Additionally, the daily redemption feature provides flexibility to meet an investor's individual situation.

About Incapital

Incapital LLC is a securities and investment banking firm with offices in Chicago and Boca Raton, Florida. Incapital underwrites and distributes fixed income securities, structured notes and unit trusts through more than 700 broker-dealers, institutions, advisors and wealth managers. With a diverse range of new issue and secondary market offerings, Incapital specializes in U.S. Agency securities, corporate notes, CDs, mortgage-backed securities, municipal bonds, and market-linked notes.

Investors should consider their investment objectives as well as the risks, fees, charges and expenses of the unit investment trust(s) carefully before investing. Investors should also read the prospectus, which contains this and other information about the unit investment(s). To obtain a prospectus, please download one from the SEC's EDGAR filing system or the Unit Trust Offerings page on www.incapital.com .

More information about Incapital is available at www.incapital.com .

Incapital LLC, Member FINRA/SIPC, 200 South Wacker Drive, Ste. 3700, Chicago, IL 60606

SOURCE Incapital LLC

Article from Market Watch

Obsessing over cost

The FSA’s scrutiny of wraps and internal rebates could ultimately be to the detriment of the consumer

By Terry O'Halloran | Published Apr 04, 2012 

Article from FT Adviser

In days of yore it seemed to me that broker bonds were the absolute pinnacle of the financial adviser fund management evolution.

We had moved on from the unit trust portfolios of the 1970s and the days of Julian Gibb and other great ‘brokers’ that looked after people’s money so well.

The metamorphoses following regulation of everything other than term insurance and unit trusts led to the great Lloyds TSB partnership and the mass marketing of savings plans into unitised contracts ‘buy term and invest the rest’. The savings market, in effect, was well taken care of and the investment market suddenly found a new niche in ‘broker bonds’ which started with one advocate of the ‘investment bond’ fund management fraternity starting a trend that eventually, in 1987, brought many companies to their knees and some five or six years later to their graves. The modern manifestation of the broker bond, and unit trust fund manager that pre-dated it, is of course the wrap.

As with the downfall of previous incarnations, the wrap is now under severe scrutiny particularly by the FSA in policy statement 11/09 and has become so embroiled with detail that it is examining the supermarket funds’ internal rebates from fund managers because they “lack transparency”. The FSA concludes that it feels that rebates are undesirable. Why? The consumer cannot see the cost. But is it a cost? Well, even the FSA does not know. PS11/09 does not tell us. Indeed the document leaves us all hanging in mid-air.

The preoccupation and fetish of the FSA to look unswervingly at ‘cost’ ignores almost entirely the end benefit that is available to the consumer. The latter of course is a function of the markets and the former is an accountancy process fact and there, perhaps, is the report’s Achilles heel.

If we go back to the maximum commission agreement I spent three years working as an intermediary, with the companies that provided life assurance products, pensions and investment bonds as well as the investment houses, in order to gain an industry-wide acceptance of a level of commission that would be acceptable. I found at the 11th hour that Lord Borrie, then head of the Office of Fair Trading, declared the agreement “a constraint of trade”and said it was, in fact, “anti-competitive”.

Damage

In the years since the early 1990s I have failed to work out quite where Lord Borrie got his determination of that fact. He created a lot of damage in subsequent years by failing to allow the industry to resolve its own commercial problems without government interference.

Coincidentally, of course, there was a banking crisis (the Bank of Credit and Commerce International went bust) and the withdrawal of the maximum commission agreement allowed building societies and banks to over-egg their particular cakes by taking up to 230 per cent Life Assurance and Unit Trust Regulatory Organisation commissions while consumer-conscious intermediaries such as myself restrained our enthusiasm and stayed with 130 per cent Lautro, the norm under the agreement.

Surely, it is plain to see that the rebates that were paid back to ‘supermarket fund’ providers is merely a bulk discount, an internal mechanism acknowledging the size of the purchase? When a large supermarket such as Tesco approaches Heinz for a bulk order it expects to get a higher margin. In other words, a rebate on cost because of the volume of the product that it is buying.

How can we possibly have Lord Borrie making a decision at one point in time an agreement that offends the retail price maintenance mentality (and legislation) and here we have the FSA endeavouring to, unsuccessfully, prescribe what are basic valid commercial decisions between two commercial entities. It just does not make sense.

Of course someone will see it as unfair.

The fact that Tesco should be able to sell beans cheaper than the corner shop could also be seen as ‘unfair’, but please do not get on at me with puerile letters saying: ‘What is Mr O’Halloran doing comparing tins of beans with financial products?’ I did not make the rules.

The FSA is endeavouring to make the rules and failing at just about every hurdle. PS11/09 does not come to a conclusion, it comes to a ‘non-statement’ that leaves the market in doubt as to which way it should go and what it should do.

All that does, as it has in the past, is promote ‘the industry’ predisposition to dump the products that are under threat and innovate with new products which circumvent the problem. That actually helps nobody particularly as there is £40bn reportedly in supermarket funds that is going to find itself in a regulatory cleft stick that can only have one outcome – detriment to the consumer.

On what basis does the FSA come to these decisions, or non-decisions as is the case with PS11/09? What are the qualifications of those who are making the decision or non-decision in the first place? Are they practitioners? Do they have any idea as to how these products are put together? Have they any knowledge of commerce? Margaret Cole, the FSA’s former managing director and board member, was apparently a corporate lawyer and yet she was enabled to pass comment about life assurance products, or more precisely, investment products that involved life assurance products.

If we are going to have a regulator of any genuine credibility in the UK then it has to be populated by researchers who know their subject inside out and can make decisions based upon fact rather than hypotheses and experiment. When one wrap platform provider starts saying: ‘We are not like the rest of the market’, then you can pretty well put money on the fact that, such as unit trusts and broker bonds before them, the writing is on the wall for their demise.

Confidence

That is not good for public confidence nor for the offices that spend millions of pounds developing not only their market products but also the market into which they provide their service.

Before the retail distribution review is even contemplated the rules under which we are all bound should be clear and unequivocal. They should follow normal commercial practice, the best practice of course, and be capable of producing the best outcome for clients, not necessarily at the least cost inherent in the product.

If stakeholder pensions have anything to prove to the world at large, and the regulator in particular, it is that forcing suppliers to wait 25 years to make any profit on a financial product while leaving that product open, through pension transfers, to pillaging by fund management groups when the funds get large enough, is not only bad commerce, it is bad value for those invested.

PS11/09 should be relegated to ‘File 101’ and the wrap/platform market left to commercial pressures which the FSA should monitor, not prescribe. Reading the Better Regulation paper of 2006 would help the FSA understand the current disquiet.

Terry O’Halloran is founder of O’Halloran & Company

Article from FT Adviser

UK fund launches groundbreaking equity sukuk

Article from Reuters
By Bernardo Vizcaino
DUBAI | Mon Apr 2, 2012 11:20am EDT

(Reuters) - London-based Ethical Asset Management has launched what it calls the world's first "investment sukuk", aiming to resolve a major area of controversy in Islamic finance by treating the vehicle as an equity instrument rather than as a bond.

The firm aims to raise 200 million pounds ($318 million) through the sukuk in the next 12 to 18 months, with 50 million pounds required to start buying the assets which will back the instrument.

The initial tranche will buy between two and four assets, Ethical Asset's founder and chief executive Saadat Khan told Reuters. The sukuk is a closed-end private placement fund, structured as a Jersey property unit trust.

Traditional sukuk, often described as "Islamic bonds", have been criticized by a number of Islamic scholars and investors for resembling conventional debt products; payments on them can be seen as akin to interest payments, which are banned under sharia principles.

Instead, Ethical Asset will invest money raised by the sukuk in income-generating student housing in Britain, projecting annual net returns of 4 to 6 percent, and give investors ownership of those assets - which it says will make the instrument closer to an equity product than debt.

Ethical "will provide investors with full ownership, which includes exposure to the risk/reward that is integral in a sharia transaction," Khan said.

The sukuk's maturity is expected to be five to seven years, he said. "We want to provide a commercially viable option...which does not rely on debt and can still deliver secure and stable returns."

RISK

The nature of the equity sukuk means investors will directly face risk in the student housing market, and there is no guarantee that they will receive returns of 4 to 6 percent.

Khan said he expected the British student housing market would remain strong despite weakness in the larger British real estate market.

Annual investment returns on student accommodation in London jumped to 15.1 percent in September 2011 from 8.4 percent in 2010, according to data from real estate consultancy Knight Frank. Other cities in Britain posted a return of 10.5 percent, down from 14.6 percent in the previous period.

Knight Frank said higher tuition fees at British universities taking effect from this autumn were a concern for the market, since they could potentially affect student enrollments.

Since the start of 2011, a total of 12 sukuk have been listed on the London Stock Exchange, bringing the total to 37 with a combined value of $20 billion, according to the UK Islamic Finance Secretariat, part of the financial lobby group TheCityUK.

(This story deletes part of paragraph 7 incorrectly attributed to Khan)

(With additional reporting by Anjuli Davies; Editing by Andrew Torchia)

Article from Reuters

Fund Managers Aren’t Showing Much Faith In Euro-Zone Debt

March 30, 2012, 9:54 AM
Article from The Wall Street Journal

By Min Zeng

In an ominous sign for Europe’s sovereign-debt crisis, big global asset managers are showing little faith in government bonds sold by the euro zone’s debt-strapped nations, even as these markets have posted an impressive rally this quarter.

While banks and hedge funds have chased bond prices higher, fueled mainly by liquidity provided by the European Central Bank, Pacific Investment Management Co., or Pimco, the world’s biggest bond-fund manager, has slashed its already-depleted holdings in debt of Spain and Italy in February and has said it expects selling to return in coming months.

Raiffeisen KAG has sold Spanish and French debt in recent weeks, holding less than is designated by benchmark indices. Frankfurt Trust Investment shifted its position on Spain back to underweight last week. BlackRock Inc. (BLK), meanwhile, has done no more than dip its toes in Italy this quarter and Fidelity Investments has refrained from buying altogether.

Such big investors regard the policy response until now, including cheap loans for banks from the European Central Bank, as a short-term fix and they believe the euro zone’s structural problems will take time to resolve. Without such big investors, many peripheral nations will face funding challenges, with several having been shut out of the capital markets. This means that the ECB may need to intervene more to prevent sharp rises in borrowing costs, but getting more financial aid from Germany and other creditor nations’ taxpayers could be a tall order.

“At the very top level, liquidity has provided a nicer buffer against volatility but, if you peel back the cover, you are not going to like what you see in terms of structural issues which remain very weak,” said Bob Brown, president of the bond group at Fidelity Investments, with more than $1 trillion assets under management. Brown manages $331 billion in bonds.

Indeed, signs of stress have popped up again this month, with bond yields, which move inversely to their prices, having climbed from recent lows in Spain and Italy. This month through Wednesday, Spanish government bonds have handed investors a loss of 2.34% in dollar terms, shrinking its year-to-dated gain to 3.45%, according to data from Barclays. Over the same time frame, Italy’s government bonds lost 0.4%, though the gain for the year, at 14%, is still juicy.

This doesn’t impress Scott Mather, head of global bond-portfolio management at Newport Beach, Calif.-based Pimco, who predicts bond prices will drop in both Spain and Italy in the months ahead as both nations are likely to disappoint on their deficit-reduction targets. Pimco is a unit of Allianz SE (ALV.XE).

A key issue, Mather pointed out, is that Europe “has not moved convincingly” toward fiscal union even as Germany earlier this week dropped its opposition to an enlargement of the euro zone’s bailout mechanism.

Underlining his concerns, Mather said he holds most of his European exposure in Germany and the U.K. He has sold out of peripheral Europe and has even moved out of countries that many consider “core,” such as France and Netherlands, which he thinks can suffer, given disappointing debt dynamics and political unwillingness to tackle the issues.

The yield on the Spanish government’s 10-year bond traded at 5.433% Friday, a surge from this year’s low of 4.634% in February. Italy’s 10-year government bond’s yield traded at 5.170% Friday, up from the March low of 4.754%.

Yields are still far off the stress levels near the end of last year when Italy’s 10-year yield moved above 7.4%. But the recent increase signals that the euphoria from the ECB’s liquidity–two operations of cheap three-year loans for banks–is wearing off.

Fund managers cited upcoming elections in Greece and France, the risk that Spain could miss its deficit-reduction target again, and the threat of deeper economic contractions in the euro zone. The latter would make it harder for governments to implement austerity measures in line with the strict rules laid down by the European Union.

Spain is seen as the biggest risk by Werner Fey, a fund manager at Frankfurt Trust Investment GmbH in Frankfurt, which manages about EUR15 billion of assets including stocks and bonds. Fey cited problems with the nation’s saving banks, high unemployment and the fact that the government fell short of its fiscal deficit-reduction target.

Christian Zima, fixed-income fund manager in Vienna at Raiffeisen KAG, which oversees about EUR28 billion of assets, said yields on Italian and Spanish 10-year debt could rise as high as 5.75% but this would prompt policy actions to cap further increases, such as bond purchases by the ECB, he said.

Still, Zima said he is wary of downside surprises from the euro zone as he sees the steep belt-tightening carried out in peripheral nations taking a toll on the economy.

“There are so many risks down the road. Stay defensive,” he said.

Article from The Wall Street Journal