Active funds at a third of the normal cost

CANADIAN company BMO Financial has more than 12 million customers worldwide, to whom it offers a range of banking and wealth management services.

Its tentacles extend as far as the UK where it runs a successful investment operation. Among the many funds it manages is F&C, the country’s oldest investment trust, which was formed in 1868 and in more recent times has delivered 50 consecutive years of dividend growth for shareholders.

The manager of F&C is Paul Niven who in the past three years has also overseen the successful formation of a range of low- cost, actively managed funds at BMO. Labelled Uni v e r s a l MAP ( Mul t i - As s e t Portfolio), these 11 funds have just collectively gone t hrough t he £1 billion barrier.

Niven says the investment funds fill a ‘gap’ in the market – sitting between low- cost passive funds ( which t ypically r epli cate t he performance of a specific stock market i ndex) and higher cost acti ve f unds r un by portfoli o managers who make stock selection decisions in the hope of stellar returns.

Six of the funds have annual charges of 0.29 per cent, with the five remaining ‘sustainable’ funds having slightly higher charges of 0.39 per cent.

To put these costs into context, most actively managed investment funds have total annual charges in

excess of one per cent. ‘The funds have widespread appeal,’ says Niven. ‘They’re attractive to costconscious investors, provide a core investment proposition for many financial advisers and are also popular in the defined contribution pensions market where many investors have to manage their own plans.’

The funds range in risk from ‘defensive’ to ‘adventurous’ and all have targeted returns. So, in the case of Universal MAP Balanced, the most popular fund, the target is an average annual return over five years of inflation plus three per cent – inflation being measured by the consumer prices index.

Although the fund is only threeand-a-half years old, it has so far delivered a respectable return of 31 per cent, comfortably outperforming the FTSE All-Share Index over the same period. All 11 funds invest in a mix of equities, bonds and cash – there are no holdings in unquoted companies, property or alternative assets such as private equity. The more cautious the fund is, the greater the slice of assets in bonds and cash. In the case of Balanced, the current asset split is 62.5 per cent (equities), 35.8 per cent (bonds) and 1.7 per cent (cash).

The Universal MAP funds are run by a 15-strong multi-asset team based in London and Edinburgh.

The ‘strategic’ asset allocation for each fund is reviewed each quarter, thereby enabling shifts to be made to take advantage of any short-term investment opportunities. Individual stock selections are made by BMO’s investment teams who specialise in specific geographic areas and, says Niven, ‘ are expected to deliver outperformance’.

The Balanced fund has typically had equity exposure in the mid- 50 per cent r ange. The current higher exposure, says Niven, reflects BMO’s ‘ confidence’ in equities. ‘They’re not cheap,’ he adds, ‘but they’re more attractive than other assets.’

Although the £355 million Balanced fund is t he biggest among the Universal MAP range, Niven says the sustainable fund offerings are in the ‘ascendancy’. There is also an income fund that strives to reward investors with an annual income equivalent to at least four per cent.

The st ock market code f or Universal MAP Bal a nced is BF99W06.