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Each product has been given a star rating, representing its overall value for money based on cost, terms and conditions and investment potential

Product of the month

First State Global Listed Infrastructure Fund

Peter Meany, head of global infrastructure securities at First State, will manage this fund, along with portfolio manager Andrew Greenup. Meany joined Colonial First State Global Asset Management at the beginning of this year. He has more than ten years’ experience in the sector, having worked at Credit Suisse Equities (Australia) and Macquarie Equities before joining First State.

This fund is an example of First State’s attempt to move away from traditional asset classes and into more global and specialist markets. The fund will have around 900 stocks to choose from in the infrastructure-related Global Industry Classification Standard sub-sectors. First State also plans to launch the fund to the European market at a later date.

Minimum initial investment: £1,000 lump sum or £50 per month
Initial charge: 4 per cent
Annual management charge: 1.5 per cent
Contact: call 0800 587 4141 or visit www.firststate.co.uk

Robin Amlôt says:
Here’s another financial idea from Down Under. The fund invests in companies involved in transport and utilities, so you have a mix of airports, toll roads, tunnels, ports, electricity and gas providers, hospitals, schools and prisons – potentially across both developed and emerging markets.

In theory, such holdings will offer stability of earnings, steady long-term growth, predictable cash flows and decent dividend yields. First State aims to outperform the S&P Global Infrastructure Index over a rolling three-year period.

If you believe all the hype, what you’re actually investing in is a brand-new asset class all on its own that sits somewhere between corporate bonds and equities on the risk/return spectrum.

Infrastructure projects should be protected against a downturn, but they are also illiquid, capital intensive and require high levels of upfront investment. Thus, as an individual investor, the only sensible way to get exposure is through a vehicle like this fund.

Long-term cash flows could make such a fund a useful SIPP investment, while the prospect of asset protection may be attractive given the uncertain economic outlook for the next couple of years.

Infrastructure may also offer a useful alternative home for investment funds that might otherwise be directed into property. If you bear in mind what appears to be a coming slump in the housing market, and add that to the potential downturn in commercial property that could accompany a general economic slowdown, then infrastructure starts to look like an attractive diversifier.

However, every rose has its thorns, and things can always go wrong with leveraged project finance. As the credit crunch is beginning to make clear, projects can unravel. One notable recent example was the collapse of Metronet, which left Balfour Beatty seeing £103 million literally going down the tube!

Another warning note: airports, and hence their share prices, are particularly vulnerable as terrorist targets, although some might see such a share price reaction as a potential buying opportunity.

Do you trust the fund manager not to invest your hard-earned cash in a wrong ‘un? It depends, as always, on experience. Peter Meany has a ten-year track record of researching companies in the sector, having previously worked on the Australian-based Macquarie Global Infrastructure Fund, showing annual returns of 19.4 per cent. First State has a background in infrastructure investing, having run both listed and unlisted portfolios for Australian pension funds since 1994.

Given the growing requirement for private financing of public sector infrastructure, the prospect of decent returns on infrastructure looks good. While the sector isn’t going to set your portfolio alight, you may want to consider it seriously as a useful diversification away from more ‘exciting’ and, therefore, risky prospects.

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Fundamental Tracker Investment Management – The Munro Fund

The Munro Fund aims to provide a core, long-term UK equity market investment vehicle at low cost, low risk and low maintenance. It is for small-scale savers who want to invest in the stock market with minimum risk. It acts like a tracker, in that it invests in every company in the FTSE 350, but it allocates stock weightings based on dividends rather than market capitalisation.

Although fund manager Rob Davies does not promise huge returns, he is confident that this actively managed fund will provide investors with steady long-term growth with competitive management fees.

Minimum initial investment: £1,000 (retail investors), £250 (direct)
Initial charge: 5 per cent (retail investors), 0 per cent (direct)
Annual charge: 1.5 per cent (retail investors), 0.75 per cent (direct)
Contact: Call 020 7131 4223 (Smith & Williamson Fund Administration)

Philip Johnson says:
The Munro Fund will invest in all companies in the FTSE 350 index (excluding investment trusts) that pay a dividend or are forecast to pay a dividend. This fund uses a mechanical process to offer investors the opportunity to benefit from the returns of the

UK stock market in a low-risk, low-cost, durable way without the need for constant monitoring.

The fund is based on the assumption that in the future, whether one, five, ten or more years hence, the structure of the UK stock market will, as it does today, reflect the size of the total cash dividends paid by each company.

Generally, I don’t favour tracker funds, but this is a bit different to the norm. A tracker fund, also known as an index fund, has the disadvantage of following valuations up and down regardless of the individual merits of each company. This is demonstrated by the activity at each review of the FTSE 100 index, when some companies are added and some are rejected solely on the basis of their market capitalisation.

The Munro Fund invests in every company in the FTSE 350 that meets their dividend criteria. This process brings the investment universe to around 300 companies. But the big difference between this one and traditional tracker funds is that it allocates stock weightings based on dividends, rather than market capitalisation. Holding shares in every company forecast to pay a dividend should ensure that opportunities for returns are not missed.

This fund is not promising huge returns but it should achieve steady long-term growth. It could be suitable for investors or savers looking for some exposure to the stock market with minimum risk. Clearly no stock market investment is totally without risk, but this diverse, actively managed fund should provide better returns than a bank or building society account over a period of ten years or longer.

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T. Bailey UK

Best Ideas Fund

This fund will typically consist of ten UK funds, each with a ten per cent weighting, and will blend themes from fund of funds and conviction investing. T. Bailey aims to invest only in those funds that represent the best ideas in the UK fund arena.

Jason Britton and Richard Martin will manage the portfolio. They will look for funds in the IMA UK All Companies Sector with managers that are not constrained by any benchmark. It was launched on 1 October 2007, joining T. Bailey’s current range including the £13 million Equity Income Fund, the £41 million Cautious Managed Fund and the £162 million Growth Fund.

Minimum initial investment: £1,000
Initial charge: 5 per cent
Annual charge: 1.5 per cent
Contact: visit www.tbailey.co.uk or call 0115 988 8200

James Davies says:
If you ever speak to a fund manager, it is likely they will eventually tell you how they incorporate ‘best ideas’ into their fund – it is one of those phrases that is in vogue at the moment. In truth, I would be a little alarmed if a fund manager included anything other than their ‘best ideas’; after all, you wouldn’t want to invest in a fund comprised of a fund manager’s ‘second rate’ ideas or ‘half-baked’ plans would you?

The T. Bailey UK Best Ideas Fund is essentially a UK-invested fund of funds that has a bias towards funds where the underlying manager is a conviction investor. Those of you who are familiar with Skandia’s Best Ideas Fund will not find that this T. Bailey fund shares much in common – the two are completely different concepts. I suspect that the ‘best ideas’ tag has as much to do with T. Bailey’s best marketing ideas as anything else.

But grumbles about the name aside, the more relevant question is whether or not this fund can justify itself in a competitive sector? T. Bailey is a specialist fund of funds manager and has a knack for selecting strong funds to include within its portfolios early on, while these funds are still building their performance records.

I think the types of fund T. Bailey is looking to select for its UK Best Ideas Fund play to its strengths and experience. I would expect the overall feel of the fund to be quite racy, with a bias towards those fund managers that are aggressive stock-pickers. In this respect I would suggest that the fund is going to be more suitable for an investor with an above-average tolerance for risk.

The fund represents a good way to gain exposure to a range of exciting and talented fund managers. I think there is a demand for the type of unconstrained UK fund of funds that this offering provides. At a time when asset allocation is so much the order of the day in the multi-manager sphere, it is refreshing to see an out-and-out, guts ’n’ glory best funds picker.

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Standard Life European Equity Ethical Fund

This fund has been launched to appeal to investors looking for exposure to European equities through a product reflecting their concerns on social and environmental issues.

The management team will look to provide long-term capital growth by investing in companies that make a positive contribution by preserving the environment or improving the quality and safety of human life. They will employ both positive and negative ethical screening processes to create a list of possible investment opportunities. The management team will follow the same methods as the UK Ethical and Ethical Corporate Bond Funds, but offer diversification through the European element.

The main fund manager, Stuart Fraser, has more than 20 years’ experience in the industry, most recently managing Standard Life’s European Equity Growth Fund. Fraser will be assisted by both Standard Life Investments’ European equities and socially responsible investment (SRI) teams.

Minimum initial investment: £500 lump sum or regular investment of £50
Initial charge: 4 per cent
Annual charge: 1.5 per cent
Contact: visit www.standardlifeinvestments.com or call 0800 33 33 53

Patrick Connolly says:
There are a growing number of people becoming interested in ethical investments. While some of these individuals will have staunch ethical and socially responsible beliefs that will dictate their investment approach, others have concerns that investing ethically may impact on both the performance and volatility of their portfolio.

While there is no concrete evidence to suggest that ethical portfolios are worse performers than their non-ethical counterparts, there are some legitimate concerns regarding volatility. This is because it is difficult to get ethical exposure in a number of investment sectors, such as commercial property.

Even with equity investments, where there are a reasonable number of ethical funds now available, there is still limited choice in some areas. One of these is the Europe (excluding UK) region where there is a real dearth of funds.

That being the case, this new launch is extremely welcome. Standard Life is developing a good record in this area, and this fund should therefore be worthy of consideration within ethical and socially responsible portfolios.

The lead fund manager, Stuart Fraser, has stated that the fund is aiming to be a top-quartile performer for all periods longer than a year. This is a commendable goal. However, ethical funds do face the situation that their comparable performance can largely be dictated by circumstances outside their control. If sectors where they cannot invest do extremely well or extremely badly then this will impact on their comparative performance regardless of any decisions the managers make themselves.

Finally, while the retail charges on the fund are competitive, it is a little ironic that, this being an ethical investment, Standard Life is offering advisers an initial commission that is in excess of the industry norm.

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This article is from the November 2007 issue of What Investment.