Unit trusts need good switching
Tony Lyons seeks the best advice
Saturday 02 November 1996
In these days of ever stricter regulation of financial services, no advisers will stick their neck out with their recommendations. More often than not, having found out whether the investor is a) interested in capital growth or income; and b) whether he or she is cautious or wants to take above average risks, they will play safe and end up recommending a managed fund, or perhaps a large equity fund.
Most companies offering unit-linked investment policies, however, offer a whole stable of funds.
Once an investor has purchased a policy with any management group, they are usually allowed to switch their investments within the group. Typically, the first switch in any year is free and additionals cost between pounds 15 and pounds 25 each. But few seem to take advantage of this facility, preferring to leave their investment where it is.
This inertia explains why the managed and general equity funds are much larger than the specialist funds within any management group.
Yet in any particular year it is normally one of these smaller specialist funds that puts in the best performance in the groups. Over the past few years, we have seen high technology, Far Eastern and US funds dominate the top performance lists at various times. But few investors have switched holdings into these at the appropriate time.
Now a new company is offering advice on which fund within an investment management stable is likely to be the top performer in the near future. Trend Track, based in Huddersfield, uses the moving average unit price to spot when one particular fund in any investment group is about to start outperforming the others. It sells its service to independent financial advisers. The client is charged pounds 100 a year for the advice on when to switch funds.
Trend Track has plotted the performance of funds in the largest groups and shown up a significant outperformance. Managing director Ken Hanning gives as an example a 45-year-old with a pounds 10,000 fund already invested in Scottish Equitable's Managed Fund and who contributes pounds 100 a month.
Over five years, this would have grown by just over 50 per cent. Using Trend Track and making a number of switches, especially into Scottish Equitable's Pacific, US, Fixed Interest and Property funds, would have grown the investment by 136 per cent. This was better even than being in the company's best performing fund for the whole five years.
"Advisers have used past performance, which is ancient history," says Ken Hanning. "We use 30-week moving averages of unit prices updated every week."
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