The New Star Tri-Star Fund: could this be the answer you and your cautious-minded clients have been waiting for?

Multi-asset class investing: diversification, income and capital growth

Being dependent on the performance of equities holds little appeal to cautious investors. Instead, many are to turning funds that offer a degree of diversification – specifically, funds which combine the potential of equities with the capital security of bonds. Diversification is of course fundamental to successful investment because in a well diversified portfolio, underperformance by one asset class can be balanced by outperformance from another.

In reality, for most investors, multiple asset class exposure was available only via withprofits investment bonds, but poor relative performance through the market falls between 2000 and 2003, a lack of transparency, and until recently, heavy exit fees have troubled many investors and led to a slump in sales.

The way forward

However, there is an alternative to withprofits bonds for investors who would like to expose their capital to more potential than the deposit account holds, which is The New Star Tri-Star Unit Trust. Through this one fund investors can now construct a multi-asset, cautious-managed portfolio of equities, bonds and commercial property investments. Furthermore, The New Star Tri-Star Fund will be actively managed by a team of the UK’s most respected retail fund managers whose aim will be to produce good levels of income coupled with long term capital growth.

Reducing volatility

Adding commercial property assets to a portfolio of bonds and equities can help reduce volatility by counteracting some of the more pronounced market falls normally associated with equity investments. The point is demonstrated in the chart opposite (although past performance is not necessarily a guide to future performance). The chart covers a three-year period from January 1998 until December 2000. In the first year, bonds outperformed equities and commercial property, delivering a total return of almost xx%. 1999 proved to be the year of equities, which rose xx.x% compared with a modest fall in the value of bonds. Finally, 2000 rewarded investors in commercial property with a total return of x%, outperforming the fall of x% in equities, which produced negative returns, and the x.x% rise in bonds.

The commercial property element of the portfolio is accessed primarily through the New Star Property Unit Trust, one of the UK’s largest commercial property unit trusts, with more than £1billion in funds under management. The fund invests principally in genuine “bricks and mortar” commercial property and currently comprises a portfolio of more than 40 high quality property assets with a prestigious list of tenants. Tri-Star investors gain access to the New Star Property Unit Trust without additional initial or annual management charges, ensuring cost effective exposure to this important asset class.

Typical uses for the New Star Tri-Star Unit Trust

The fund could be a long-term core investment for the risk-averse investor who recognises the growth potential of the stock market, but is concerned about the potential risks associated with equity and bond investment; individuals with self invested personal pension schemes (SIPPs) and have yet to retire could also consider the fund; retired clients who dislike annuities and seek investments that can provide capital growth – but on cautiously managed basis - may find the fund attractive. Many ISA investors are now returning attracted by resurgent stockmarkets; here again The New Star Tri-Star Unit Trust might be an appropriate choice.

The ‘hands on’ management team

Three of the UK’s most respected retail fund managers manage the Tri-Star fund. Stephen Whittaker manages the equity component primarily seeking capital growth; James Gledhill is responsible for the bond element of the fund pursuing income and some growth and Roger Dossett manages the commercial property portion looking to maximise rental income and capital appreciation. The fund also benefits from the asset allocation expertise of New Star’s joint deputy chief investment officer Gregor Logan – New Star’s joint deputy investment officer. Collectively, these four individuals have more than 100 years’ investment experience. The managers continuously assess the potential offered by the securities and properties in their respective portfolios – with the aim of capitalising on opportunities as they emerge. Although New Star gives fund managers the freedom to make their own decisions, they are always subject to rigorous monitoring, control and compliance.

Active asset class management to help capitalise on opportunities and protect gains

The New Star Tri-Star Unit Trust will generally hold approximately a third of its portfolio in each asset class. The lead fund manager will weight the components of the portfolio up and down by about five percentage points depending on his view of the performance potential of the fund’s underlying assets classes. When markets are more volatile than usual, the manager may modify the fund’s asset allocation more aggressively; in some market conditions for example the weighting of an individual asset class may be adjusted up to 50% of the overall portfolio or reduced to 20% of the overall portfolio.