HEADLINES [click on headline to view story]:

Family Money

Personal Directions

The Doctor's Consultation by Dr. Iain Corness

Agony Column

Camera Class by Snapshot

Family Money: Funds of Funds

By Leslie Wright,
Managing director of Westminster Portfolio Services (Thailand) Ltd.

Growing Popularity

Since the mid-1990s funds-of-funds have been growing in number, and now there are well over 150 available. Just over half are run as a mixture of equity and fixed income, on an aggressive, balanced or cautious basis. The rest are primarily equity funds.

There are regional funds-of-funds (global, European, North American and Japan, for instance) and specialist funds-of-funds - for example, there’s an “ethical” funds-of-funds, and there’s even a technology fund-of-funds for those with strong stomachs.

Tax Benefits

There is a strong technical reason for considering a fund-of-funds product. You can buy units in a fund-of-funds with, say, a balanced portfolio.

Alternatively, you could buy a similar balanced selection of funds directly. But in the latter case, whenever you wish to switch holdings, you realise a capital gain on any profits you may have made. If everything is held within a fund-of-funds instead, the manager can switch funds on your behalf without creating an immediate tax liability.

Of course, small UK investors are unlikely to reach the annual exemption limit for capital gains - ฃ7,900 for the 2003~2004 tax year - but it is still a potential liability, especially if the market rises sharply.

Costs

In theory, then, funds-of-funds sound great. But in practice, there is rather more to them.

The main drawback is the double layer of charges: you have to pay fees on the underlying funds as well as those for the fund-of-funds manager. With annual charges for most funds averaging between 1~1.5%, an extra 1% for the fund-of-funds management means total annual charges of up to 2.5%.

If that basket of funds is going to outperform the fund’s benchmark index by more than 1% a year, it’s worth the extra 1%; but very few actively-managed unit trusts do outperform their index. Stock market returns are lower nowadays, and getting 6~7% with income reinvested means that an extra 1% on the fee equals 13% of the return.

It’s certainly a gamble that would not have paid off in the majority of cases in recent years. For the three years to 14 July, the average return for actively-managed funds-of-funds was minus 31.25%, compared with minus 31.24% for all active-managed funds, including funds-of-funds (Source: Standard & Poor’s, bid price to bid price, income reinvested). However, over the same period, balanced-managed funds-of-funds beat their overall peer group - losing 23.65%, compared with 24.84% overall. And cautious managed funds-of-funds lost 5.56%, compared with 6.29% overall. Small differences, perhaps, but significant.

But the argument that funds-of-funds are ideal for cautious investors is refuted by the fact that a low-risk investor wouldn’t want to be in equities anyway. Funds-of-funds are more for medium to high-risk investors who are prepared to invest for the long term in equities. And even then, in the vast majority of cases they have little to offer: the capital gains tax advantage is the only thing going for them.

The comparatively high total charges can also be reduced if the fund can only invest in in-house funds. While this may not be an ideal arrangement, given that even the best investment house is unlikely to have a strong track record right across the board, it does make the fund cheaper to run as the managers are likely to get discounts on switches. However, most funds-of-funds are actually unfettered: they can invest in the whole range of funds in their sector, regardless of who manages them.

With in-house fettered funds, the total expense ratio is a bit lower than for unfettered. For example, there might not be any exit or entry charges, and the annual management fee might be lower. And fettered funds-of-funds can give you access to the best managers of a good house. Unfettered funds will get a good deal, but not as good.

One well-known investment house - BestInvest - recommends a fettered fund-of-funds: the Threadneedle Global Equity & Bond Fund. They also like Fidelity’s Moneybuilder, Global Portfolio and Wealthbuilder funds, which are all fettered, and all run by Richard Skelt.

If you look at the performance in the active-managed sector over the past three years, there is a disproportionately large number of funds-of-funds in the top quartile. Since the market has bottomed out, a number of these funds have done very well.

Lessons To Learn

But even if you prefer to pick your own funds, the methodology used by funds-of-funds managers can offer pointers as to what you should be looking for.

One leading fund manager points out: “There is not one ideal unit trust out there. We try to build a balanced, blended portfolio where we can get repeatability. We aim to put together a portfolio of best styles and best approaches, so the fund outperforms when the market goes both up and down.” The investment process used by the funds under consideration is a key factor in this decision, he says.

Part of his approach is to marry two opposing styles. “For instance, we hold both the value-driven JO Hambro Capital Management European Fund and the growth-driven New Star European Growth Fund. We then try to blend these so we can still replicate the market and its risk, but in different ways. That means when mid-cap growth performs, we do well, and we also do well when large-cap value performs. We’re not clever enough to chase the market on a day-to-day basis,” he says. I wish all my clients were as modest!

Another house uses a number of performance filters, which include consistency, risk-adjusted returns and momentum. The momentum filter analyses which funds are in the top quartile on a rolling year-to-year basis, so it indicates which type of funds are doing well, such as large-cap or value funds. Funds may also appear in this group for other reasons, perhaps because of a change of manager or a change in approach.

At the other end of the spectrum is the GAM UK Diversified Fund, run by Andrew Green. This is the purest kind of contrarian fund which buys bombed-out stocks at the bottom. Because he buys these stocks early, there are extreme deviations from the market, but it’s worth waiting through the underperformance to reap the rewards.

Another fund manager says they look to blend different styles, to get a mixture of funds that perform at different times in the market cycle.

However, most managers agree that spectacular out-performance is impossible: “You would never expect a fund-of-funds to be top of the table in its sector because you’re investing in such a broad spread,” says one, “and there’s no way you could beat the best fund.”

Personal Directions: Don’t look back

By Christina Dodd,
founder and managing director of Asia Training Associates

Have you woken up one morning to find that you have woken up to one of the worst days in your life? We all have woken up to nightmares! And the thing is we think that we are the only ones having a bad day or time or life! Nothing can console us and we are oblivious to others who are having perhaps an even worse time of it. Nothing is wrong with this ... such is our nature.

Getting through bad and difficult times is tough ... it really is. Very few people are endowed with the patience and the coolness of thought required to tackle emergencies. Few of us collect our thoughts and emotions and tackle the task at hand in a measured way. We are human beings and our emotions tend to take charge first.

But there comes a time in our development where we should be able to take hold of “the wild horse pulling us along in the stampede.” No matter what the event, we have to be able to, at some stage in our personal development as adults say, “Hey human being, come on and settle down. Let’s take a look at this first.” Some people can do this and do it very well. They view the situation with calm and clarity and then make a plan of action. Other people, and I would think most people, are not capable of this at all. Or is it that they are capable and just don’t know it!

The reason I am talking on this subject is that I am increasingly meeting more and more men and women who are suddenly finding themselves on the receiving end of the “downsizing stick”. This is the nightmare they are now waking up to. It used to be the case that this never happened in Thailand. But it is on the rise and has been for quite some years, and those affected would of course never admit it to anyone.

In my travels and meetings with people who are presently living this experience, it is extremely important to try to inspire confidence and enthusiasm in them after such a “defeat” in their careers and lives. It is no easy task to do. Not at all. When such an event touches people it can have severe consequences. Overcoming the depression that accompanies the loss of a job is like trying to put out a fire with petrol. But in spite of this, the battle to overcome the present “temporary” defeat must go on. No matter how difficult and impossible it all may seem, the fight has to continue.

Human beings react to failure, loss, defeat, in various ways. And some react in the extreme. Some cannot pick themselves up as well as others. Some find it an enormous struggle to find their way again. Some find the obstacles too overwhelming and give up. Some need more guidance and care through a time that they thought would never enter their lives.

For individuals affected by downsizing or for companies who are “having to let people go”, a strategy - let’s say a future path or exit strategy - is an absolute necessity. At Asia Training Associates we have created our own Future Path Program “Don’t Look Back”, designed specifically and on a very personal level to assist individuals going through this experience.

The name itself, Don’t Look Back, reflects the positive nature of the elements that bind this program together giving it dynamic force and energy to the individual participants. We don’t sit and sympathize and sip tea, we begin with acceptance of the situation and analysis of what went wrong. It is in a way a reality check and as such is an extremely important step of letting go and finding focus. Assessing the past, looking at the present in order to face a positive future.

It’s all about learning to walk again and identifying new possibilities. It’s about thinking in a different way to the norm or how you used to think. It’s about finding the challenge in the situation you are in and working out ways of meeting that challenge. Becoming motivated to overcome the fears of change allows you to find the courage to succeed. In this process you also learn ways to be calm in the face of fire and to bind every strength together for the ultimate victory.

The program looks heavily at goals and the goal-setter, the reality of goals as opposed to dreams. It helps the individual identify, set, prioritize and plan. It looks at needs and actions, learning from past experiences in order to build and initiate. Knowing what to expect from others, knowing what others expect from you.

It covers all aspects of getting organized and provides the nuts and bolts of what you need to do in terms of resumes, interviews, contacts, networking, identifying support bases and so on. Preparation and planning are paramount to success and this program takes you through every key area.

An integral session of the program is, “So what’s stopping you!”, which takes into account the abilities of the individual to succeed. It brings alive the “You can do it” spirit and reinforces self-confidence and self-esteem. It re-ignites personal belief, faith and desire in oneself to achieve and to come out winning! Don’t Look Back is a new step forward in a new direction and future. It is a truly rewarding program.

To fight and win the battles that are constantly confronting us in today’s harsh world, we have to equip ourselves with every possible weapon. The best weapon of all is developing the ability and power “within ourselves” to stand straight and to stand and walk tall in the face of adversity. We possess immense capabilities within us to achieve and succeed. If we come out fighting with the correct tools and focus ... We Will Win!

If you are interested in our Don’t Look Back program and indeed other areas of training we provide, please contact me at Christina .dodd@ asiatrainingasso ciates.com and take a moment to visit our website. We promise you, You Won’t Look Back! Until next time, have a great week.

The Doctor's Consultation: Several good reasons to avoid getting old!

by Dr. Iain Corness

Picked up a medical textbook the other day (Pattaya International Hospital Treatment Manual 2003) and it opened at a section called ‘Geriatric Medicine’ and what a depressing start to the day that was! Gloom, doom and disaster! However, the picture is not really as bad as all that, so I thought that this week I would go through the aging process, and then what we can do about it. The recipe for the elixir of youth is not enclosed, but instead, some ways you can stay feeling ‘young’!

Let’s begin with the depressing news that you have actually been going downhill since the age of 14 (mentally) and from the age of around 30 (physically). That bar-room ditty that relates to what you used to do all night, now taking all night to do, can be too close to the mark for some of us. But don’t despair, help is at hand.

The book suggested that the aging of our individual organs is influenced by diet, environment, personal habits and genetic factors. Read that again - did you notice that three of them (diet, environment, habits) are actually under our control, so the angle of the slippery slide can be changed. Good News number one.

The physiological changes associated with aging include an increase in body fat, a difficulty in reading and a clouding of the optic lens. Glucose metabolism goes a little awry as well, as we get older. In the lungs, the elasticity goes out of the lung tissue, meaning that the lungs don’t absorb the oxygen as well as they should.

It doesn’t end there. The arteries become less elastic too, so the heart has to pump harder to force the blood around, increasing blood pressure and enlarging the heart. The liver doesn’t cope as well with toxic chemicals as it used to, and the bowel gets a little lazy as well, leading to constipation. For men, the prostate slowly enlarges and makes it difficult for the bladder to empty properly, so you have to get up to pee a few times a night. Finally, the brain shrinks and you begin to forget things, “I’ll never forget what’s-her-name” being a real problem!

So what to do? The main thing is to make sure your organs get enough oxygen to work properly. Oxygen gets into the blood via the lungs. Clogged air sacs in the lungs is a big problem. Answer? Stop smoking - immediately, and get some exercise every day, so that you start to use the lungs, and their capacity, again.

Now we have some oxygen back in the blood we have to circulate the magic red fluid. Cholesterol build-up in the arteries produces blockages. Reverse it by lowering cholesterol in your diet. You do this by decreasing animal fats and increasing vegetables. That’s not too difficult either, is it?

Now the sugar problems. Another one with an easy fix - cut out all the ‘extra’ sugar in your diet. You don’t have to use sugar in your coffee, and chocolates should be a very occasional indulgence only.

The liver? The main toxic substance it has to deal with is ethanol, otherwise known as booze. Give the liver one day a week to recover. That’s your AFD (alcohol free day).

So look at the three items again under your control - diet, environment, habits. The answer to aging is there. Begin with fags, fat, booze and fancy foods. It’s the right start.

Agony Column

Camera Class: Processing - the hitchhiker’s guide to photoshops

by Harry Flashman

I believe that the first rule of photography is nothing to do with Keeping the Sun Over Your Left Shoulder, or similar sage words, but should be to Always Question Your Photoprocessor. Harsh words? Perhaps. But with today’s fully automatic cameras, and today’s fully automatic processing machines, there should be very few occasions when you get your photographs back and they have turned out not as you expected.

Take a look at the two shots, taken in the Grampian Mountains in Scotland. The purple flowers and dark rolling hills looked particularly photogenic. The shot was taken in the Auto Mode, and should not have been too difficult for the camera’s meter to work out a suitable exposure. Likewise, the negative should not have been too difficult for the photoprocessor to handle, but that’s where it all went wrong.

The initial print that was given back in Scotland was very dark. The sky was a beautiful blue with pure white clouds, but the purple flowers were lost in the dark vegetation, and the standing figure in the mid-ground had almost disappeared. I checked the negative, and all the important details were in there, but not in the final print. For reasons known only to the photoprocessor’s brain, it had decided that the sky was the most important feature and made the print to suit.

Taking the negative back to the photoprocessor produced the lighter print, where the details in the vegetation were better, the purple flowers purple again, but the sky was a little ‘blown out’. However, this was much better than the initial print.

The fact that you must always remember is that the photoprocessing machine, is just that - a machine. It really has no idea what it is looking at, just a mixture of colours and tones and it makes arbitrary decisions as to what is the most important area of the photograph. Most times it will coincide with what the photographer wanted - but sometimes there will be glaring mistakes.

What you must do is not to be frightened by the machines, or their operators - who are normally all lovely young ladies with sweet smiles. All you have to do is to take the print back to them and show them what you want. With darker or lighter, this is easily done at the twiddle of a knob.

With colours, this is not quite as simple, as screwing up the reds can affect the blues, but again this can be subtly changed. This is particularly so for skin tones. Thai girls with that beautiful dusky hue in their skin should not come back looking like pink westerners with almond shaped eyes. Even when you drop the film off, a word to the girls that you want the skin tones to “look Thai” can mean you will have to do fewer trips to ask for reprints. There are always limitations with print film as we know it, but other than fluorescent colours, today’s photoprocessors can go reasonably close.

So how do you pick a good photoprocessing shop? This can be difficult, but busy places are usually better than ones that only do a few rolls of film a day. The reason for this is that the busy shops generally change the chemicals more frequently, and the operators are more experienced, so know what to do.

So where do I go? Since I travel all over Thailand these days, I have different places I go to, but when in Chiang Mai I have used Combine Photo Express (Fuji), next to KFC in the lower floor of Kad Suan Kaew and have received good work, and when in Pattaya I use Royal Express on Pattaya Second Road, just past Golden Beach Hotel, whose girls have always given me great service, with consistent attention to detail, for many years.

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