Investors ask for more: Nic Cicutti on why societies are setting up unit trusts

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The Independent Online
INVESTORS fed up with the pathetic rates of interest they receive on savings in building society accounts are turning to the societies' own-label unit trusts.

Several societies are joining the move to equity investment by setting up unit trust operations from scratch.

Unit trust savers buy units in a fund which itself invests in a range of shares. Unlike normal building society accounts, unit trusts carry a degree of risk. But building societies tend to take a relatively low-risk investment approach, so for increasing numbers of savers they offer a reasonable chance of decent returns on their money.

Many building societies use outside fund management companies which already run unit trusts, to look after their own schemes.

For example, Woolwich has only one Stockmarket Fund, also available as a tax- free Pep, invested in UK equities. The pounds 300m in the fund is looked after by Mercury Asset Management, a large investment company. Anyone can invest money in the Woolwich unit trust simply by walking into one of its branches and speaking to an adviser.

The society's 67,000 unit holders have a 'credit card' they can use to buy or sell units in the fund, subject to a bid-offer charge of 6 per cent.

Since its launch in 1991, the Stockmarket Fund has never dipped below 20th place out of about 100 UK Equity General unit trusts. Growth in each of the three years to June 1 averages 13.5 per cent.

Leeds, one of the top five societies in Britain, is planning a similar venture. From next month, two funds, both qualifying as PEPs, will be on sale, one a UK stock market fund, the other a balanced fund that will invest at least 35 per cent in safer fixed-interest stock.

Andrew Watson, chief executive of the unit trust operation, said: 'This is quite deliberate. We are aiming at the typical risk-averse Leeds customer, for whom this is a first step in equity investment.

'What our customers want is something that is simple and straightforward.'

Britannia Building Society has adopted a slightly different approach. Its 12 unit trusts are available from Britannia Life, the society's life insurance arm.

The 38,000 unit-holders' funds are managed in-house, with investors offered a choice ranging between UK equities, Japan, and the US. The Britannia High Yield Account has been one of the top funds in its 40-strong sector for each of the past seven years, while the larger Britannia UK General unit trust has been in the 10 bottom funds of its sector for five out of seven years.

National & Provincial has six unit trusts, managed by the stockbrokers Capel-Cure Myers.

The society's 44,000 unit- holders have seen the value of their UK Income Fund grow 19.4 per cent over the past three years, placing it in 103rd place out of 131 funds.

Seven per cent of N&P borrowers now have unit trust PEP mortgages.

Halifax has two unit trusts managed by Standard Life, which is taking them over in August. Halifax will then sell its own unit trusts, marketed through a new life insurance subsidiary.

The Halifax Income Advantage unit trust pays a current yield of 3.85 per cent gross as income but its capital growth in the year to June has been only 0.1 per cent.

Savers in the Halifax Instant Xtra Plus account would have to invest more than pounds 2,500 to better the income. It pays 4 per cent on pounds 5,000.

Nationwide is preparing to launch its own unit trust company next year.

(Photograph omitted)

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