July 23, 2010 7:20 pm

Private investors gain offshore choices

Private investors in the UK now have more funds – and newer investment strategies – to choose from, following the inclusion of another 49 offshore products in the Investment Management Association (IMA) sector listings this week. But advisers warn that buying into offshore funds can be difficult, as many are still not available on fund dealing platforms.

Since the IMA opened up its sector classification system in April, 314 offshore funds have asked to be included in its lists. Of these, a total of 175 have now been added – not including the 10 offshore funds that were already included in the IMA absolute return fund sector – and another 106 are now being checked to ensure they are appropriate for UK investors.

To qualify, a fund must have a sterling or sterling-hedged share class (or shares in a currency appropriate to its assets), be registered for sale in the UK under the Ucits fund regulations, and carry “distributor” or “reporting” status – allowing it to benefit from the same income and capital gains tax treatment as a UK onshore fund.

Inclusion in IMA sectors allows offshore funds to be compared with UK competitors on a like-for-like basis. Offshore funds are “flagged” so that investors and advisers can identify them in performance tables.

Advisers believe that this can help alert private investors to new opportunities.

“Offshore funds offer investors a wider range of investment strategies, as well as potentially providing better diversification,” says Sheridan Admans, investment adviser at The Share Centre. “They are also often the springboard for many strategies that eventually come onshore, such as the Allianz BRIC Stars fund and the First State Agribusiness fund.”

Offshore fund returns can look attractive when compared directly with onshore equivalents, notes Tom Becket, chief investment officer at PSigma Investment Management. “Where there’s most opportunity is in some of the quirkier funds in the absolute return space,” he argues.

For private investors, though, this can bring practical problems. “An ever-growing number of funds can be a headache, so investors will need to find a way to screen out funds and narrow their selection down.” says Tim Cockerill, head of collectives research at Ashcourt Rowan.

Dealing in offshore fund structures can also be a headache, advisers say. “A lot of offshore funds will not be available immediately, because a lot of platforms are not able to buy Sicavs,” says Becket. Often, the technology is lacking. “There are still instances when you have to fax instructions and confirm by telephone, which is really quite archaic,” says Cockerill. “For individual investors, investing via a platform is probably the best route, but the choice may be limited.”

Broker Killik & Co – which deals in onshore and offshore funds and does not differentiate between them in its selection process – currently recommends the Dublin-domiciled First State Asian Equity Plus, Veritas Global Equity Income, Findlay Park American Smaller Companies, Findlay Park Latin American and Polar Capital HealthCare Opportunities funds – as well as the Luxembourg-registered Brevin Howard Macro FX hedge fund.

Cockerill rates JO Hambro UK Growth, Jupiter India Select, JPMorgan Russia, and Blackrock New Energy. But Admans believes the fund selection process should begin at home. “For the majority of investors, the UK market is broad enough to offer diversification,” he argues.

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