Fund mergers…Just say No?
Thursday, 2 July 2009
I have no axe to grind over Rathbone Unit Trust Management, its just that they happen to let me know their plans last week. Similar changes are taking place throughout the industry in one form or another. If you want to read the marketing, click here, it will take you the Rathbones News and Views web site.
Essentially The Rathbone High Income Fund will merge into the Rathbone Blue Chip Income and Growth Fund and the Rathbone Special Situations Fund will merge into the Rathbone Smaller Companies Fund which in turn will revise its objective and be relaunched as the Rathbone Recovery Fund. When it comes to voting, do you answer Yes? In all likelihood the answer will be Yes as the fund managers will give all the arguments for the change. I wonder who will give the arguments for a No vote? Does it really matter anyway? Is it just a formality?
New funds are launched often and if the marketing fails to attract new funds, then the fund managers need to consider the funds long term viability. They do not want to return the money to unit holders as that is like ‘shooting themselves in the foot’, as they want to still hold onto the investors money. Hence a merger makes sense from the fund manager’s perspective. It is a logical way to keep the money under their management. I would say that’s good business practice for the fund management group. But have these institutions forgotten what they are supposed to be doing…investing your money within a chosen mandate. As the funds merge, so does the mandate. By this I mean the objectives of the fund and by definition, so have the relative risks.
So in the merger the risk of your investments may have changed. The objective of the fund has also changed. How do these changes affect you? Does the new mandate fit in with your risk? In fact, you end up being offered to buy a product that is different from the one you agreed to buy initially.
I would therefore like to be nominated for arguing the ‘No vote’. If the fund was successful, would it be merged? In simple terms, the fund failed. So why reward failure by giving the fund manager another chance to fail? OK that is unkind, as equally the change could be successful. But actually the motives are not about success, although that is what the marketing will say, it is more about holding onto the existing funds as long as possible and then hope that the new fund performs better.
The fund merger process also has other objectives for the fund managers. It is a useful way to get rid of poorly performing or unsuccessful funds in their stables. This makes the whole stable of funds under management look better, when actually there have been failures.
In essence, think about saying NO and voting with your feet. Look at your risk profile and assess your alternative options. There is no need to accept what is offered by a fund merger.
By the way, fund mergers are successful for fund managers as they know most investors suffer from inertia. It’s easier for an investor to continue with a fund rather than change, yet over time this may not be in your best interests.
Vote NO and review your portfolio.
posted by Murray Round Wealth Management @ 15:44,
The Authors
Nicholas Round
Nic is the Managing Director of Murray Round Wealth Management Limited, who seeks to ensure the advice provided is truly independent. Based in Shropshire with clients local, national and worldwide, Nic has strived to find the best possible service for his clients needs, by researching and studying the market, trends and philosophies. Nic strongly believes Asset Class Management will bring his clients Financial Freedom, Independence and Happiness.
Kirsty
Kirsty is our communication guru. Managing information requires considerable due diligence and her passion for organisation gives the clarity we all seek. From Shropshire, with a Psychology Degree and much travelling, she is now back in Shrewsbury...and London often, keeping us all at Murray Round focused.
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