David Prosser talks more about the new fund’s proposed strategy.
So farewell then to the investment company industry’s last remaining index-tracking fund. It was announced this week that the Aberdeen UK Tracker Trust, which tracks the FTSE All-Share Index, is to merge with BlackRock Income Strategies Trust; the new fund, to be known as Aberdeen Diversified Income & Growth, will offer exposure to an actively-managed portfolio of investments from a broad range of asset classes and will target an annual return that is 5.5 percentage points above Libor, the interest rate at which banks lend to one another.
It’s an interesting move that should give financial advisers pause for thought. The debate about the relative merits of passive and active investment has raged for years now and will no doubt continue to do so, with champions of both approaches equally passionate about their cause. But large institutional investors are increasingly looking for something more than either side has generally offered in the past.
In research published earlier this year by State Street, 78 per cent of asset managers said they expected to see more demand amongst their large institutional clients for “bespoke investment solutions” – that is investment products that aim to deliver a particular outcome to suit an investor’s needs, rather than to simply do better than other similar products.
It’s a perfectly logical demand to make of asset managers. These investors are essentially asking fund managers to take greater responsibility for helping their clients to achieve their objectives, rather than leaving them to work out for themselves how to construct a portfolio that will get them where they want to be.
State Street’s research found asset managers preparing to launch a variety of new products in order to make this shift – everything from multi-asset portfolios to “smart beta” funds, which combine active and passive investment techniques.
But why should these bespoke products be the preserve of large institutions? Many of us, when we invest, are seeking funds that will help us achieve specific goals – to pay school fees over the next 10 years, say, or to buy a property, or to deliver a certain level of retirement income. Why shouldn’t we also have access to investment products that target these objectives much more precisely, rather than leaving us with the job of mixing and matching approaches in the appropriate way?
This is effectively the premise of the new Aberdeen vehicle. It will set out to achieve a certain level of return, using whichever assets it thinks will do the job, rather than operating with a mandate to maximise returns by investing only in certain assets.
Not that this is the first fund available to smaller investors with such a remit. In the open-ended sector, a growing number of targeted return funds are available, while the closed-ended industry this year saw the launch of a new sector, Flexible Investment, which reflected the growing importance and number of multi-asset investment companies.
Still, Aberdeen’s switch from tracker fund to targeted return model in this merger does rather neatly encapsulate a trend that is gathering pace in the institutional market and, now, the retail industry too. And for good reason: this approach won’t be right for all investors, but many will welcome the idea of products that are better matched to their actual needs – assuming, of course, that such funds are able to deliver what they promise.