Architas and Birthstar launch 'cradle-to-grave' funds for UK investors

Architas and Birthstar launch 'cradle to grave' funds for UK investors

Fund manager Architas and financial systems provider Birthstar have launched the first target-date, or 'cradle-to-grave', funds available to retail investors for over 10 years.

The team are launching seven funds under the Architas Birthstar Target Date banner. They will be overseen by Architas with portfolios managed by global asset manager and target date specialist AllianceBernstein.

Target-date funds are multi-asset funds that have a maturity date set at or around an investors' retirement age.

Risk managed to reflect customers' remaining investment time horizons and risk profiles, they are designed to cater to investors' needs throughout their lifetimes, or from 'cradle to grave'.

Institutional availability

The Architas Birthstar Target Date range has maturities ranging from 2015 to 2050. The longer the time horizon the more weighted to equities and riskier assets the fund will be, while funds with nearer maturity dates will be weighted more to lower risk assets, such as government bonds.

Birthstar says that it is targeting an annual return of UK consumer prices index growth plus 4 per cent over the long term, which reduces on a sliding scale as an investor gets closer to their maturity date.

The funds have been available to institutional investors in the UK since 2009 and Birthstar claims that a number of large auto-enrolment pension schemes now invest in them. They each have an ongoing charges figure (OCF) of 0.55 per cent, a minimum investment amount of £50 and will be available online through most major UK fund platforms.

The last target date funds to be made available to UK private investors were launched by Fidelity in 2003; however they are now only available to institutional clients.

Birthstar says its motivation for making the funds available to private investors in the UK was in part a response to recent pension reforms that have given retirees more access to their pension pots, but also to the widening 'advice gap' created by the retail distribution review (RDR).

Implemented in December 2012, RDR was designed to make investment costs more transparent by removing the ability of financial advisers to take ongoing commission from the sale of funds to clients.

However, as advisers have moved to flat fees combined with percentage charging based on the value of a customer's portfolio it has made servicing lower-value clients unviable, leaving the average UK investor with no access to financial advice.

More affordable

Henry Cobbe, managing director of Birthstar, believes target-date funds could be the solution for these types of investors: 'Advisers are increasingly outsourcing asset allocation to focus more on financial planning. Meanwhile, customers without access to advice are going online to search easy-to-understand and easy-to-use solutions.

'By providing the whole investment journey within a single fund, we want to make properly designed and managed investing more straightforward and more affordable for all, he says.'

On how these funds differ from traditional multi-asset vehicles, Cobbe argues that target date funds are more 'dynamically managed'; rather than sticking rigidly to set asset allocation limits based on pre-defined assumptions about risk, Cobbe says that the managers of the Architas Birthstar range have the ability to manage portfolios in accordance with current market conditions.

'At the moment most people are still equating low risk with fixed income, however in current conditions, with bond yields at record lows and the risk of tapering at both the Fed and the Bank of England on the horizon, this is no longer the case.

'Our managers will look at that situation and perhaps decide it is more appropriate to increase weighting to equities or other alternative strategies in the lower-risk portfolios and can change this as the market changes,' Cobbe says.

In addition Cobbe claims that target-date funds are inherently cheaper than using multi-asset funds, both in terms of OCF and the cost of switching in and out of funds as risk and return profiles change over time.


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