THE CASE FOR EQUITIES It is an historic fact that, over the longer term, investments in equities have provided an excellent hedge against the ravages of inflation. Furthermore, equities have produced far higher returns than monies held on deposit. The performance of the MSCI (Morgan Stanley Capital International) World Index over the last 17 years equates to an annualised return of 14.2% thus making a strong case for global equities. As the MSCI World Index has only been in existence since 31st December 1981, one needs to look at other, longer term data to underline the case for equities. The Barclays Capital Equity-Gilt Study, reckoned to be the most authoritative source of information in the UK on this subject, analyses returns from the three main asset classes, namely cash, fixed interest securities (bonds) and equities, starting from a base of December 1918. The analysis uses geometric rather than arithmetic averages as these give a better guide to long term trends. The geometric mean is commonly used as an average of growth rates. The result it yields is lower than that obtained by arithmetic mean, and it is less sensitive to the effects of extreme values. Furthermore, the asset returns are deflated by the Retail Prices Index published by the Office for National Statistics. In other words, the figures shown below are real returns, net of inflation. Thus, the real investment returns in the UK over some 80 years are as follows:- From
Cash 1.5% per annum Although
these returns relate to the UK only – long term global return
analysis does not exist – data available from other countries
indicate that, on a global basis, the outcome would be the same,
with equities outperforming both bonds and cash, as demonstrated
by the MSCI World Index figures referred to above. Asset allocation – choice and timing of exposure – is the key to successful investment management. Outperforming the markets has become the Holy Grail of fund managers. They have not found it easy to achieve this goal consistently. “Passive” Management Another approach is the use of index funds, often called tracker funds, which seek to perform in line with a stock market index by buying and holding the securities that comprise that market index. THE LACOMP APPROACH The
Lacomp World Fund invests in equities on a global basis through
a combination of passive and active management. RISK AND REWARD Considering the risk and the three asset classes – cash, bonds and equities – the consensus among most investors would be to consider cash the least risky, followed by bonds, with equities carrying the highest degree of risk. However, whilst this is true in the short term, the historic facts show that it is precisely the reverse when viewed over the long term. By definition, the longer you hold your investment in the Lacomp World Fund, the lower its risk profile will become. However, it should be made clear that the Lacomp World Fund intends to be fully invested in global equities. At times, a part of the portfolio may be invested in areas that would be considered volatile or high risk. Although the Lacomp World Fund has the ability to invest in bonds or even cash, it would take extreme circumstances for the Lacomp investment team to consider doing so. ADMINISTRATION The Lacomp World Fund is administered as Managers by Capita Financial Managers Ltd, a company specialising in that field. Using an established company with the relevant expertise to administer the Fund is cost-effective and ensures smooth handling of all transactions. The Unit price of the Lacomp World Fund is published daily in the Financial Times, under the Capita Financial Managers entry in the Authorised Investment Funds section. TAXATION Investment switches within the portfolio of the Lacomp World Fund do not incur Capital Gains Tax. When you sell your units, you only pay CGT on gains which exceed the CGT exemption applicable at the time of the sale. The yield of the underlying assets is likely to be very small or nil, and any withholding tax at source, therefore, negligible. In essence, this means that the capital growth within the Lacomp World Fund can be compounded year on year without being depleted by CGT in the interim. INVESTING IN THE LACOMP WORLD FUND You can invest a lump sum or a regular monthly amount in the fund, either as a unit trust or as an ISA (Individual Savings Account). |