Should I leave my New Star funds or just sit and wait?

19 December 2008

How the mighty have fallen! During the year, this share has traded from 167.50p to a halfpenny! The years fall is recorded at a horrible 98.96% which is pretty much as bad as it gets.1

However this isn’t reflective of the company's ability to manage money, it's to do with the company as a whole. Should investors be worried, and is their capital at risk if they have invested in New Star funds? (For investment management advice you should speak to an independent adviser for investment advice)

Well actually no. Far too many scaremongerers are out there, keen to take your cash and put it into a new fund to take their scrape off the top, and frankly it's unhelpful. There is little or no reason to move funds at all given that the fundamentals for going into New Stars funds have not really changed.

Now you could say that the chief investment officer Stephen Whitaker has left, but there is always a reason for every action. I note a comment he made in April this year that he believed the banks had reached their bottom, and there was a light at the end of the tunnel.2 Yes, indeed, it was a high speed train. At that point he still had core positions in RBS, Barclays, HBOS, Bradford & Bingley and Lloyds TSB. The best of these was Lloyds but the remainder plummeted beyond comprehension with B&B almost worthless. The fund is down a mere 49.5% over the last year and that will not have gone unnoticed at the top.3

Many people go into a fund for the wrong reasons and come out for the wrong reasons. Personally I don’t believe in star performing, swashbuckling fund managers. I have been around far too long to know that is nonsense. There is a team approach and that is why I will buy a fund. The difference in a fund comes from many key component parts, namely the direction given to the team, quality of analysts, quality of researchers, strategy of the fund manager, his/her discipline, how the above affects their asset allocation, general morale in the fund group and their motivation - only to name a few. Nothing has really changed here within New star and the key managers will probably be locked in now by the new deal.

Those customers who have been scared by headlines regarding the safety of their money may well frown at those attempting to scare them. Your capital invested into New Star is ring fenced. The assets of the funds (shares, fixed interest bonds or property) remain under the collective ownership of the unit-holders, so they are not available to creditors of New Star Asset Management.

As for the future, well that’s another story. A wait and see approach will be required. After all a banking syndicate now owns 75% of New star's ordinary shares and given our banking institution's amazing abilities to lose capital over the last few years a close watch will have to be kept on their interference in the managing of the organisation. £6 million of preference shares have been set aside for employee incentivisation which should keep the key people there. If it doesn’t we would naturally review the situation and either advise to sell the funds or keep a closer watch on performance. Let's remember these funds have a spread across 60-100 stocks and that many stocks do not go sour overnight.

As for those who are invested into the suspended New Star fund? Well I am puzzled how you got there in the first place. In 2006 it was obvious to any investment adviser that property was overvalued so why on earth would you invest into a falling market where a fund was launched in mid 2007? What research would an adviser have had on this before advising you to invest? None.

When a fund is suspended it is supposed to re-open within 28 days to continue ISA-eligibility. As the suspension took effect from 25th November, an announcement should be expected before 22nd December.

For investment advice call Peter on 0845 230 9876 or e-mail info@wwfp.net

Sources:-

1. yahoo

2. citywire

3. trustnet

Peter McGahan is an Independent Financial Adviser and the Managing Director of Worldwide Financial Planning Ltd who are authorised and regulated by the Financial Services Authority. 'The FSA does not regulate Credit Cards, Will Writing and some forms of mortgage and Inheritance Tax Planning.'

Information given is for general guidance only, and specific advice should be taken before acting on any suggestions made.

The above represents the personal opinions of Peter McGahan.

All information is based on our understanding of current tax practices, which are subject to change.

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