The move comes as more IFAs are using the investment expertise of DFMs and outsourced investment experts in the run-up to RDR.
In response to demand from IFAs, some DFMs are now offering managed fund of fund strategies that focus exclusively on specialist investment vehicles, including UCIS funds. This provides a potential solution for investors seeking a diversified exposure to assets with very low levels of correlation to their existing equity or fixed-interest portfolios. In addition, there is generally a well-defined expected return profile at levels comfortably above deposit rates.
As we move closer to the introduction of RDR, UCIS providers believe it is increasingly likely that IFAs who do not have the time or specialist resources to carry out due diligence on specialist funds will opt to outsource to DFMs. They in turn will have to look beyond the more traditional investment avenues at specialist areas such as UCIS and other alternative opportunities in order to help deliver the kind of return that IFAs need to offer their client base.
Alistair Mawdsley, Director of Connaught, commented:
“IFAs have a number of issues to contend with at present, not least the preparation and work that has to go into ensuring they are RDR-ready. Coupled with this they have to deal with a client base that is increasingly seeking strong income levels in a marketplace where it is difficult to get an above inflation rate of return. While equities and vanilla funds still have their place there is still considerable equity volatility and global market uncertainty - which is likely to be the case for some time.
“Given this range of issues IFAs have an option to outsource to DFMs in order to use their expertise to review and carry out due diligence on more specialist funds, like UCIS, which could potentially bring them the return their clients desire. This being the case, DFMs must consider diversifying their asset allocation by offering Fund of Funds of UCIS funds within their portfolios in order to help provide new opportunities and the potential for higher returns. DFMs and IFAs will of course still need to ensure that a UCIS-based investment is appropriate and suitable for each client. However, having established suitability, offering a basket of UCIS funds which could include amongst others, UCIS such as Connaught’s Income Funds Series 2 and 3, can manage overall risk and help develop investment in areas which are completely separate to the client’s core portfolio.”
James Crocker, Investment Manager at Montague Capital, said:
“The Montague Capital Alternatives Strategy contains a range of funds that exhibit extremely low levels of correlation to equity and fixed-interest markets. We conduct rigorous due diligence on the underlying funds, take a long-term view and rebalance whenever necessary. Through scale, we overcome the obstacle faced by many IFAs of high-value entry levels often required by the fund providers. The Connaught Income Fund Series 2 currently features in the strategy, satisfying our strict investment criteria. In addition to the transparency, one of the attractions is the ease of trading and relatively high levels of liquidity. For the appropriate clients, IFAs are recognising this is an ideal diversifier and we expect the strategy to deliver a net return of at least 7.15% over the next twelve months.”
Jamie Ferguson, Consultant at PQR Financial Planning Ltd, added:
“We are pleased with the level of return the Connaught Income Funds are delivering. This experienced team have used specialist lending to deliver a reliable and high income to our clients over the past few years. It is hard to find another area of investment that, like the Connaught Income Funds, produce returns of 7.15% to 9% per annum net of all charges, without capital values being at direct risk from a rise in interest rates. We believe this sector of the lending market can add a useful and diversified source of return to most portfolios with a high income requirement.”
For more information on Connaught Asset Management please visit: www.connaughtam.com, or contact Alistair Mawdsley on 020 8971 9727.