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Backing BACIT will do a power of good
By Andrew Pitts | Tue, 16th October 2012 - 10:58
It's also often true that, soon after launch, the investment cycle turns against the strategy adopted or the region moves out of favour and investors suffer short-term losses. The history of Fidelity China Special Situations (FCSS) or Aberdeen Latin American Income (ALAI) since launch are two examples of backing regions that had already had a long day in the sun.
These days the hunt for yield in a low interest rate world dominates new launches of funds and trusts. There is little appetite for new launches that don't have a clear income-generating objective. It's rare to see anything overtly targeting growth appearing on the new issues menu.
That certainly can't be said about the offer for shares in Battle Against Cancer Investment Trust (BACIT), which is aiming to raise £250 million to invest in "leading funds across multiple asset classes and strategies" which it hopes will deliver annual growth of 10-15% across the investment cycle.
BACIT donates to cancer research
At first glance, however, the trust seems to appeal most to altruistic investors: BACIT will split a donation of 1% of its net asset value each year between the Institute of Cancer Research and the newly formed BACIT Foundation. It will also invest up to 1% of NAV each year in cancer-fighting drug development and medical innovation projects selected by the ICR. BACIT may get nothing back from these investments. But it could also have a stake in an anti-cancer blockbuster.
At second glance cynics would say that BACIT is targeted at investors who don't object (or have become accustomed) to paying the sorts of high charges levied by hedge funds and the like. BACIT is a hedge fund of funds (FoF) and these - like standard FoFs - rarely come cheap. First there is the FoF annual management charge (AMC), then the underlying AMCs levied by its holdings (there may also be performance fees), and the FoF itself may also charge an extra fee if it successfully identifies funds that perform well.
When the distributor's charges are included these charges can easily reach 4% or more every year. That's where BACIT is refreshingly different to other FoFs. While up to 2% of NAV will be committed every year to defeating cancer this "charge" is offset in an unorthodox way. First the investment team, headed by Tom Henderson, will manage the trust for free. Henderson, an ex-hedge fund manager who is investing £15 million of his own money into BACIT, will also meet annual running costs up to £210,000.
The major asset allocation positions are expected to comprise 22% in long/short equity strategies, 17% in developed market equities, 14% in commodities, and 8% each in fixed income and emerging markets equities.
Henderson's team has already identified the underlying best-of-breed holdings to meet that asset allocation and deliver its targeted returns. Here is where the underlying funds also deserve a slap on the back: a diverse range of managers are allowing BACIT access to their funds free of annual charges or performance fees. If the £250 million target is reached BACIT's total expense ratio is expected to be a jaw-droppingly low 0.2-0.3%.
A diverse range of top funds
So far $1.1 billion (£683 million) has been made available for BACIT to invest, free of charge, into a 31-strong range that reads like a Debrett's of global funds, many of which are beyond the reach of all but the wealthiest UK investors. They include Dollar Fund (a sub-fund of the CG Portfolio fund run by Peter Spiller), Baker Steel Genus Dynamic Gold, Majedie Asset UK Equity, SW Mitchell European and Sifonietta.
This diverse range all have in common high annualised absolute returns and very strong relative performance compared with their benchmarks.
Aside from the drugs discovery project returning little capital gain and the fund holdings failing to meet BACIT's expectations, the major risk factor is projected currency exposure of 54% to the US dollar.
There's no such thing as a free lunch for this kind of asset management, but not only does BACIT come close to providing one, this trust could also be awarded a Michelin Star by its investors.
Note: Deadline for offer for subscription is 1pm on 19 October. Contact Capita Registrars on 0871 664 0321; or www.bacitltd.com. The shares will be placed on 22 October and trading is scheduled to start on 26 October.
Key facts about BACIT
- Targeted annualised returns of 10-15%
- Target dividend of 2% of net asset value
- Can gear up to 20% of NAV
- 1% of NAV charitable donation and up to 1% of NAV invested in drug discovery projects
- Estimated annual total expense ratio of 0.2-0.3%
- Five-yearly continuation vote
- About half portfolio exposed to US dollar.
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.