How FE Trustnet can help you pick a fund

The line between wealth managers and the traditional high street IFA will soon be much less distinct, as the impact of the RDR takes effect.

With more pressure to provide whole-of-market recommendations and greater understanding of what is available, thanks to the higher level of qualification that will be required to operate, the products that are typically recommended will become more varied at the same time as upfront fees put IFAs motives on a more accountable footing.

There has been much gnashing of teeth in the press about the impact of RDR, but as the day draws closer IFAs themselves seem increasingly sanguine about the likely implications for their industry.

A recent survey we conducted found more than 60 per cent of advisers do not believe that RDR poses a threat to their business, and expect fewer than 10 per cent of their clients to stop seeking paid-for advice.

They do, however, believe that they will sell a broader range of investments once the RDR has been implemented.

Investment trusts, ETFs, structured products and multi-manager funds are among the biggest winners in this new landscape, according to those advisers we spoke to, who said these were the investments where they expected to see the biggest increase in demand.

Identifying the best potential investments among these vehicles is the biggest challenge advisers face, especially if their core business is – like most – built on unit trusts & OEICs as a staple, and they have little experience with the rest.

FE Trustnet features a number of ratings designed to make this process easier, and these have seen growing interest from the thousands of advisers who use the site every day as the deadline for RDR draws closer.

Two, in particular, offer a universal comparison for advisers who are looking at a new universe of investments, and need to understand how these vehicles – which may be strange to them – stand up when compared with more familiar vehicles that they are used to dealing with.

FE Crown Ratings are designed to rank funds according to their performance in terms of stockpicking, consistency versus a credible benchmark, and risk control. They are entirely quant-based, which means they can be applied to a vast number of funds, and the difficult issue of who is paying for a rating is avoided entirely.

FE Crown Ratings apply to most of the investment vehicles listed on the site, including unit trusts & OEICs, investment trusts, life and pension funds, and even offshore funds.

So, were a client, post-RDR, to ask for a range of options in the Asia Pacific ex Japan region, looking beyond just unit trusts & OEICs, it would be quite simple using FE Trustnet to identify an OEIC, an offshore fund, and an investment trust – all of which have Five Crowns under the FE Crown Rating system.

In fact, you’d have to choose between 15 funds. As well as First State Asia Pacific Sustainability and Newton Asian Income – those staples of the OEIC world – there are three investment trusts: Edinburgh Dragon, Schroder Asia Pacific and Schroder Oriental.

Offshore there is even more choice, with 11 funds to choose from, including offerings from First State, Aberdeen, Barings and Jupiter.

At this point, you can narrow your search using another rating we provide – FE Risk Scores.

FE Risk Scores are designed to allow advisers to identify investments and explain to their clients how risky these investments are relative to the FTSE 100, a benchmark that we chose because we believe it is universally recognised by investors, and as such provides a powerful point against which to compare other risk assets.

Using performance and FE Crown Ratings together, and considering only funds with Five Crowns, Coupland Cardiff Asia USD comes out on top among the offshore funds, returning 161.8 per cent to investors over three years.

Among the investment trusts, Schroder Oriental Smaller Companies is the best-performing trust over three years, with Five Crowns, having seen its NAV grow by 134.9 per cent.

Newton Asian Income fund is the best-performing Five Crown-rated OEIC over three years. It has returned 116.8 per cent to investors over that period.

When FE Risk Scores are taken into account, however, a new dimension is added to the decision.

Comparing the two sterling-denominated vehicles, Newton Asian Income – the OEIC – and Schroder Oriental Smaller Companies – the investment trust, the latter is by far the riskier investment according to FE.

Newton Asian Income had an FE Risk Score of 77 on Friday, while Schroder Oriental Smaller Companies had an FE Risk Score of 116 on the same day.

You may feel that the FTSE 100 is irrelevant when you’re choosing a fund in such a far-flung sector, but the alternative argument is that – since western economies hit that bump in the road in 2008 – investors have a very keen interest in the risk they are exposed to in their portfolio, the bulk of which is UK-based, and are even more interested in seeing what additional risk they are exposed to via satellite exposure in more exotic places.

What these two scores tell you is that the OEIC, despite returning slightly less than the investment trust, is considerably less risky – nothing to be sniffed at as we stare into the chasm of a second credit crunch.

By looking beyond performance and considering funds from the different angles that these ratings provide, we are confident that, if nothing else, any decision you make will be better informed.

That is, after all, what we stand for.