New Star is set to merge its underperforming £28m Tri-Star Unit Trust into its £48m Cautious Portfolio, a fund of funds offering.
The firm says the planned 8 August move, subject to FSA and investor approval, follows an “unprecedented” fall in value of Tri-Star's three major asset classes – UK equities, bonds and UK commercial property – as well as a recent shift in the Cautious Portfolio’s investment policy.
The Tri-Star proposition was launched in a blaze of publicity in July 2006 but has struggled to meet its return expectations as the credit crunch has taken hold, slipping to fourth quartile in the IMA Cautious Managed sector over one year (Lipper, July 2). Since launch, the fund has also changed managers on the equity mandate of the fund.
New Star says investors will benefit from the fund of funds approach, which it says can “shift in style more quickly” than a fund investing in individual stocks and points out this advantage in difficult economic and market conditions.
It says investors will also benefit from the “more flexible investment mandate and greater level of asset and geographic diversification” offered by the New Star Cautious Portfolio Unit Trust.
Earlier this year, New Star altered the objectives of its Cautious Portfolio away from a requirement to produce income, arguing it was “restrictive” for the manager and stifled potential returns.
Instead, the fund’s capability was widened to allow the use of derivatives and forward transactions for investment purposes.
Mark Skinner, managing director, New Star Investment Funds, says: “Funds that are constrained by style will suffer when market cycles moves against them and there has been no harsher lesson than the recent credit crisis.
“Whilst Tri-Star was designed to be cautious in nature, the unprecedented fall in the value of the three major asset classes highlighted the need for a greater level of flexibility and diversification.
“Investors in the New Star Cautious Portfolio should benefit from the fund’s greater adaptability and broader investment remit. Investors should be well served by Craig Heron, who has a strong track record of running global multi-asset portfolios.”
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From 6 April 2019