The Unit Trust Test
By JOHN BULL
HOOSING a unit trust has become as confus- k,,ing an exercise as weighing up the claims of rival soap manufacturers. One way, indeed the only way, of cutting through the tangle is to look at the records. How well has a particular fund performed when compared to the course of share prices? That is the crucial test.
I am disheartened at some of the results. Exactly 134 units trusts were in operation on January 1, 1966. Since then, the equity market as measured by the Financial Times thirty-share index, has fallen back by some 7 per cent. Only six funds have managed to beat the averages by the small margin needed to preserve portfolio values intact over that period. Unit-holders in the other 128 funds are worse off now than they were thirteen months ago. Meanwhile, the cost of living has risen by about 3f per cent.
At the same time, one must record that few have done very badly out of the unit trust move- ment. Only four funds so managed their affairs that their portfolios declined in value over the thirteen-month period by more than 14 per cent. The moral is obvious, though nobody advertises it: the unit trust movement by and large allows you to keep in step with share prices, but the vaunted addition of professional management to your affairs produces only a humdrum result.
Of the four trusts which behaved so dis-' appointingly, one invested in companies 'actively engaged in the field of technology'; one felt that investors should benefit from taking a stake in companies providing 'equipment and supplies to schools and universities at home and abroad'; one liked 'the building industry and its allied trades'; and the fourth wanted everyone to share in the growth which could be found in the Mid- lands, 'the hub of British industry.' It is just as instructive to look at the most successful funds in 1966. One has done very well out of com- modities; another, in spite of the gyrations of Wall Street, has had a successful run in Ameri- can securities; and a third has concentrated on the Australian market. Commodities equal danger: technology equals growth? It did not work out that way in 1966.
The variations between unit trusts no longer merely involve differences of portfolio. There are now many kinds of assurance scheme tacked on to the investment benefits. As a result, it is increasingly difficult to distinguish between 'with profits' life policies and assurance-linked unit trusts. Certainly there is something of a battle for business going on between the unit trust movement and the life offices. The former have their habits of full disclosure and imme- diate surrender value to help them. the latter have rock-hard reputations for absolute safety and reliability to offer.
It is in this context that a new venture by an up-and-coming insurance group, Vehicle and General, must be seen. It has brought out a with-profits life policy, Future Assured Growth Plan, which breaks new ground in two ways. In the first place, it is intended to publish details of the portfolio on a regular basis. This is some- thing insurance companies, unlike unit trusts, have never done. Secondly, Future Assured Growth Plan will give policy-holders a monthly check on the behaviour of the underlying fund through the issue of special bonus units. In general, insurance policy-holders have only been able to note progress at three- or five-yearly in- tervals when bonuses are declared. Some of the charm of this full-disclosure policy disappears, however, when it is realised that there is no surrender value until three years have passed. So if you do not like the way the portfolio is being managed, there is not much you can do about it in the short term.
This consideration underlines the fact that, in spite of appearances to the contrary, the unit trust and the assurance worlds are still some way apart; they serve somewhat different markets. On the other hand, it would be refresh- ing to see the giants of the assurance industry publishing detailed and regular information about their activities on behalf of policy-holders.
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