YOUR MONEY: MANAGED FUNDS: How to go global

Choosing a unit trust with international expertise protects your long-term investment against risk, writes Tony Lyons

Fund management groups are hoping to score a "double whammy" with customers this year, boosting their traditional end-of-tax-year marketing campaigns by talking up the political risk of the general election. But it would be a mistake to see such marketing ploys as an invitation to invest in managed funds, particularly through PEPs, for short-term profit.

Investment in equities is generally about long-time savings, trying to maximise gains over five, 10 or more years. And despite what the salesmen say, the truth is that changes of government in the UK have historically had little long-term effect on stock market performance. The real issue for investors is not the end of the tax year, or the election, but to develop a strategy for long-term growth.

Few of us have the time, money or ability to assemble a portfolio of shares and other investments to provide good long-term growth prospects with a low risk. But this can readily be accomplished by investing in managed funds such as unit trusts. Many heavily advertised products concentrate on UK investments, particularly the tracker funds that follow the performance of the London stock market. But many City fund managers who look after big pension funds will tell you that the ideal portfolio is internationally diverse, to benefit from overseas gains. Various countries are at different stages of the economic cycle; not all stock markets go up at the same time.

Picking a relatively low-risk fund with long-term growth prospects can be difficult, with a choice of more than 150 unit trusts. Just as in the UK, the 75 per cent rule seems to operate: over a given period, three-quarters of fund managers fail to beat the overall performance of the stock-market index. There are, however, one or two international growth unit trusts that now offer a significant amount of international index tracking - and since they offer portfolios with more than half their holdings in the European Union, investors can use them in their general PEPs, the most tax-efficient means of investment.

Kleinwort Benson Global Equity Trust is one such unit trust. Launched just over two years ago, it has more than 800 investments spread around the world. It aims to have half its holdings in the UK and the rest overseas, taking the average life fund as its benchmark. Minimum investment is pounds 1,000, or pounds 50 a month. The managers make an initial 5.5 per cent charge, reduced to 3.5 per cent for PEPs, and a 1 per cent annual charge. The fund currently has 49 per cent of its portfolio in the UK, with overseas investments split between 15 per cent in mainland Europe, 10 per cent in the US, 12.5 per cent in Japan, and 10 per cent in the Far East and Australia. Half the remainder is invested in emerging markets via UK investment trusts; the rest is in cash.

Paul Kelly, the fund manager, takes a top-down approach, looking at world-wide economies to decide asset allocation. "We do not look at individual stocks," says Mr Kelly. "We track indices. Our target is to match the central index of the areas we invest in. This includes the FTSE 350 in the UK, the S&P 500 in the US, Eurotrack 100 for Europe, the Nikkei 300 in Japan, and so on." He adds: "Because the fund is investing in core holdings in each country and does not have a high turnover of stocks, it keeps dealing costs relatively low."

With such a wide spread of investments, Kleinwort believes it offers investors a low-cost means of buying into a highly diversified portfolio.

The fund also employs tactical asset allocation, used to invest for only a month or two when the manager sees interesting short-term opportunities. Using the futures market, it enables the fund to switch quickly and cheaply between different economies, normally the UK, US and Japan. Costs are only pounds 2 a contract worth pounds 100,000, compared with much higher charges for buying and selling shares. So if the manager thinks, for example, that the US market looks cheap, he can sell futures in the British index to buy them in the S&P 500.

These investment techniques were originally developed by Kleinwort Benson for use in its successful institutional investment management business, looking after pension funds for large companies and local authorities.

Funds such as KBUs Global Equity Trust are firmly in the long-term growth category and are not for investors looking for a high income. Since launch the fund has grown by 37.5 per cent, including income being reinvested, and 7.8 per cent over the last year, which is satisfactory rather than spectacular. Its aim is to outperform its competitors over five and 10 years. With a highly diversified portfolio and advanced fund management methods, Kleinwort believes that investors will see less volatility, as well as benefiting from long term growthn

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Arts and Entertainment
Books should be for everyone, says Els, 8. Publisher Scholastic now agrees
booksAn eight-year-old saw a pirate book was ‘for boys’ and took on the publishers
Life and Style
Mary Beard received abuse after speaking positively on 'Question Time' about immigrant workers: 'When people say ridiculous, untrue and hurtful things, then I think you should call them out'
tech
Life and Style
Most mail-order brides are thought to come from Thailand, the Philippines and Romania
life
News
i100
Life and Style
tech
Voices
Margaret Thatcher, with her director of publicity Sir Gordon Reece, who helped her and the Tory Party to victory in 1979
voicesThe subject is being celebrated by the V&A museum, triggering some happy memories for former PR man DJ Taylor
Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Business Analyst - Financial Services - City, London

    £50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

    SThree: Trainee Recruitment Consultant

    £18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

    Recruitment Genius: Administrator - IFA Based

    £22000 - £24000 per annum: Recruitment Genius: This is an opportunity to join ...

    Day In a Page

    General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

    Chuka Umunna: A virus of racism runs through Ukip

    The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
    Yemen crisis: This exotic war will soon become Europe's problem

    Yemen's exotic war will soon affect Europe

    Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
    Marginal Streets project aims to document voters in the run-up to the General Election

    Marginal Streets project documents voters

    Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
    Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

    The real-life kingdom of Westeros

    Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
    How to survive a social-media mauling, by the tough women of Twitter

    How to survive a Twitter mauling

    Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
    Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

    At dawn, the young remember the young

    A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

    Follow the money as never before

    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
    Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

    Samuel West interview

    The actor and director on austerity, unionisation, and not mentioning his famous parents
    General Election 2015: Imagine if the leading political parties were fashion labels

    Imagine if the leading political parties were fashion labels

    Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence
    Public relations as 'art'? Surely not

    Confessions of a former PR man

    The 'art' of public relations is being celebrated by the V&A museum, triggering some happy memories for DJ Taylor
    Bill Granger recipes: Our chef succumbs to his sugar cravings with super-luxurious sweet treats

    Bill Granger's luxurious sweet treats

    Our chef loves to stop for 30 minutes to catch up on the day's gossip, while nibbling on something sweet
    London Marathon 2015: Paula Radcliffe and the mother of all goodbyes

    The mother of all goodbyes

    Paula Radcliffe's farewell to the London Marathon will be a family affair
    Everton vs Manchester United: Steven Naismith demands 'better' if Toffees are to upset the odds against United

    Steven Naismith: 'We know we must do better'

    The Everton forward explains the reasons behind club's decline this season
    Arsenal vs Chelsea: Praise to Arsene Wenger for having the courage of his convictions

    Michael Calvin's Last Word

    Praise to Wenger for having the courage of his convictions