TIDDLER investment funds, which do not generate as much profit as large ones, are in danger of being shut down to cut costs.
New Star European Technology, formerly owned by Aberdeen, and Schroder EuroTech are two such minnows primed for the chop.
Small funds use up equal resources but do not make as much money as their bigger, more popular peers. Many more could disappear as the stockmarket downturn continues to hurt fund firms’ finances.
Patrick Connolly, at independent financial adviser (IFA) Chartwell, says: ‘You could pick any fund under 20 million in size, and there’s a good chance the management is looking at merging it with another fund to save money.’ But investors can be left high and dry when fund firms decide to streamline their range. The 26 million New Star European Technology, once worth about 100 million in its heyday, will be absorbed into New Star Technology this Friday, provided investors give the go-ahead at a vote today.
The 4 million Schroder EuroTech fund will be collapsed into the generalist Schroder European Alpha Plus in October, again subject to investor approval. Both firms admit they are saving money but maintain that investors are better off with the wider remit these funds can provide.
But if investors want to stay with European technology, they will incur costs and paperwork switching to another fund as there are no special arrangements for the dissatisfied. This is not the first time management has changed the New Star fund’s investment objectives, usually to suit their own purposes.
It was originally launched by Prolific in 1992 as a European Income fund, research by the Investment Management Association shows. This is its third change of investment objective, and New Star is the fund’s third owner. And many similar stories can be found in the fund universe.
The recent gelling of several firms into new supergroups, such as ISIS and Insight, has brought about many fund mergers and closures.
Some unpopular funds have just been taken off the shelves. Schroder, for example, has junked its whole range of ‘style’ funds, launched to such a fanfare in December 2000.
All this goes to show that you must monitor your investments regularly, says Mr Connolly.
He says: ‘As soon as a merger is announced, you must decide whether the new fund will still meet your requirements and risk profile. If it does not, you should move out.’ He says the New Star and Schroder mergers are a good idea. But he reminds investors with funds in tax-efficient Peps and Isas to organise a transfer if they wish to leave.
They must not cash in the investment first as this will lose the tax-free advantages.
Mark Dampier, at IFA Hargreaves Lansdown, says mergers of small funds into larger ones are generally positive. He says: ‘Small funds hardly make any money, so the firm is unlikely to put a decent manager in charge. Mergers do investors a favour as they can be apathetic and probably wouldn’t move of their own accord.’ Finding a new fund to suit entails doing your own research in newspapers or the internet, or visiting an IFA, he adds.
PATRICK COGAN, 61, from Heathfield, East Sussex, invested in the New Star Technology and New Star European Technology funds, which are set to merge.
He originally split 10,000 between the funds – which he holds on the Hargreaves Lansdown fund supermarket, Vantage – about three years ago. He reckons the investment is now worth 2,000.
Patrick (left), who has his own business importing Central American crafts and works voluntarily as a sales director for the Talking Newspapers charity, is unimpressed by the potential fund merger.
He says: ‘It does matter who runs the fund – but are there any good managers out there? All fund managers are villains at the moment, so it’s a complete non-event for me.’
MANY investors are facing hefty penalties if they decide to cash in their with-profits policies and possible poor returns if they keep them. Cashing in an investment is as big a decision as taking one out. So independent financial adviser Chartwell has put out a report on market value reductions (MVRs) which considers ways in which investors may be able to avoid them. It covers the major with- profit bonds and whether there are MVR-free clauses.
The report is available free if you call 01225 446 556 or visit website www.chartwell-investment.co.uk.
