Clerical Medical has launched three new Target Return funds designed to achieve defined cash plus targets at a lower level of risk than would be expected from traditional managed funds and equities.
The three new multi-manager funds are the Target Income Return, Target Return and Dynamic Return funds. These managed funds take advantage of new investment regulations which allow a wider range of assets and instruments to be combined for the purposes of diversification and risk management.
Clerical Medical Head of Investments, Phil Clements, said:
"Achieving equity like returns with a reduced level of risk is an attractive proposition for a wide range of investors conscious of the current level of market volatility. These funds significantly enhance the managed fund offer from Clerical Medical and are available across our life and individual pension product range."
"Advisers now have access to a range of investment strategies where they believe a managed fund solution meets their clients needs or are looking for a core holding for a diversified portfolio as part of a long term investment strategy."
"The volatility in global markets during 2007 has further justified the need for solutions that cushion investors against market movements. In our view, the case has definitely now been made for target return strategies as the way for investors to meet future goals."
"In a fund measured by performance relative to a traditional benchmark, positive relative returns definitely look attractive during a bull market; but those relative returns will not look very good when a bear market inevitably arrives. On the other hand, a cash benchmark plus wider investment powers can help us to target positive returns, with less dependence on a rising market to achieve those returns."
Mr Clements said the new Clerical Medical target return fund range was available to IFAs and their clients through pension and life products, thus providing the associated tax benefits.
"These funds are aligned to customer needs. This new generation investment solution will appeal to low to medium risk profile investors who nevertheless seek equity-like returns."
"To reduce volatility through investment market cycles, these funds have the flexibility to invest in equities, fixed interest, cash and floating rate notes, hedge funds, real estate and structured products."
The new funds are:
| Fund | Mandate |
| Dynamic Return Fund | To achieve capital growth in excess of long-term stockmarket returns but with a reduced level of risk over a market cycle. The performance target is cash* + 6% after fund charges over a market cycle |
| Target Income Fund | To produce a high level of income together with a similar level of capital growth to funds in the ABI Cautious Managed sector but with a reduced level of risk over a market cycle. The performance target is cash* + 3% after fund charges over a market cycle |
| Target Return Fund | To achieve capital growth in line with long-term stockmarket returns but with a reduced level of risk over a market cycle. The performance target is cash* + 4% after fund charges over a market cycle |
* 3-month London Interbank Bid Rate (LIBID), net of tax
The funds are managed by Patrick Armstrong and Dr Ana Cukic-Munro of Insight Investment, who have built a strong reputation and excellent track record for overseeing absolute and target return funds. The Insight Diversified Target Return Fund, which the Clerical Medical Dynamic Return Fund will invest in, is top quartile over one year1. Since its launch in February 2005, the Diversified Target Return Fund has beaten returns on cash by 9.5%2.
The Clerical Medical Multi-Manager range from 29 October will be:
- Dynamic Return Fund
- Target Return Fund
- Target Income Fund
- Balanced Fund of Funds
- UK Alpha Fund of Funds
- UK Equity Fund of Funds
Editor's Notes
Absolute return is an umbrella term covering a diverse number of funds and strategies. Typically they aim to generate positive returns in variable market conditions using flexible investment techniques across a wide range of asset classes.
Total return funds typically seek to meet their objective of income and capital appreciation by investing in a broad range of assets. In addition to the traditional asset classes, such as equities, bonds and cash, these products may invest in commodities, property, currencies, structured products and funds managed by other providers. Investment risk may be further diversified through investment across a number of regions. Total return funds tend to have unconstrained investment strategies, meaning that managers have the freedom to move between asset classes to achieve the optimal blend of investments for different market conditions. Managers depend on a combination of market returns, asset allocation and management skill/timing to achieve their objective.
Target return funds employ the same flexible, multi-asset approach and are effectively a sub-set of total return funds. The main difference is that they target a specific level of return, usually in relation to cash, over the long term. An example might be cash + 4% over a market cycle, which is broadly the same return as equities have historically delivered.
1 Source: Lipper as at 30 September 2007, and on an annualised basis.
2 Lipper: at 31 October 2007
