Differentiation of total return funds may be difficult for intermediaries to get across to clients, according to comments on the sector expressed at a conference organised by JPMorgan Asset Management.
Mark Dampier, head of research at Hargreaves Lansdown, says the challenge of differentiation is one of the issues highlighted by his firm’s own study of the sector thus far.
The idea of total returns as a whole has been given a push by Ucits III rules, which allow investments in financial derivative instruments, says Richard Romer-Lee, head of research OBSR.
Dampier says, however, that total return funds launched by UBS, Credit Suisse, and Baring are fairly similar, and that Hargreaves Lansdown is not marketing any of them currently.
One of the reasons is figuring out how to explain these funds in a way that meets compliance demands: it is a new area for both clients and their IFAs.
Considering clients’ views of with profits, precipice bonds and split capital investment trusts, there may also be a general challenge in pitching a new area of investments, Dampier adds.
Total return funds may benefit elsewhere however, with increasing interest in Sipps potentially lending itself to total return fund products.
A sample of 1,000 people by JPMAM has found 65% want fund performance to be compared to cash returns, as against 19% who say they want a comparison to equities.
Jasper Berens, head of UK sales JPMAM, says the shift away from relative to total returns is reflected in comment heard from one IFA along the lines that clients “are not risk averse, they are loss averse”.
“We’ve built a product the market has told us it wants us to build,” he says.
Richard Romer-Lee says there may be some differentiation through focus on volatility, although even in this differences may be minimal.
Miles Geldard, chief investment officer global multi-asset group, and lead manager on JPMAM’s Cautious Total Return fund, says differentiation ultimately will come through performance.
“The proof is in the pudding,” he says.
Geldard says investors must also be prepared for some volatility in returns. His fund will not be “a cash machine month after month”, as returns will not come in a ‘flat line’. The fund will be able to hold up to 100% cash if required, and up to 40% equities if the return opportunities are felt to lie there.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Jonathan Boyd on 020 7484 9769 or email [email protected].IFAonline
£92bn transferred since 2015
Achievements, charity work and other happy snippets
Since first announcement