But the conference warnings in Edinburgh last week were barely noticed. With a Budget looming, the greater goal is raising money for a debt-strapped Treasury.
Last week also brought suggestions for a tax clampdown on entrepreneurs. This was touted as a possible alternative to the “mansion tax” which has a very high moral tone providing you do not live in certain districts of Edinburgh, London and the south-east. It may not raise much. But once introduced, who is to say at what level it could then be lowered?
However, the suggestion that higher rate tax relief be withdrawn from pension contributions strikes a wider blow. It will set back the pensions industry and those earnest calls to encourage us to save more. As important, it will hit self-employed and owner managed businesses especially hard as pension contributions play a critical part in long-term tax and financial planning.
The NAPF conference brought many fund managers to Scotland’s capital city. Birds of a feather may flock together – but the feathers here embrace some very exotic varieties. I was delighted to renew acquaintance with two highly contrasting groups. First was Cazenove Capital Management, that purring Bentley of fund managers. Its Edinburgh office has doubled funds under management over the past two years. The second was Fundsmith, the low-cost equity fund run by Terry Smith, amateur boxer and scourge of the fund management industry. Since his book Accounting for Growth lifted the lid on acquisition accounting almost 20 years ago, the word “iconoclast” seems almost lame.
It is hard not to take an immediate liking to the Fundsmith proposition: no performance fees, no initial fees, no redemption fees, no over-trading, no leverage, no hedging, no closet indexing or over-diversification. But Smith’s offer is more than economy. His fund managers make a positive virtue of not managing overmuch. The philosophy is “buy, hold and don’t generate unnecessary costs by constant chopping and changing”.
In respecting that, Smith’s fund also incorporates much of the timeless wisdom of Warren Buffett: research carefully, buy and hold. And the shareholdings – there are just 24 – have much in common with the Buffett portfolio. There is a strong bias towards high cash generating (and lowly geared) consumer staples such as L’Oreal, Nestle, Procter & Gamble and Unilever.
Sticking with these has paid off. Last year, the fund notched up a total return of 8.4 per cent and has gained 20.7 per cent since its launch in November 2010. Little wonder the fund with its branding motif of stark industrial rivets has drawn some £300 million and is attracting followers.
Cazenove Capital Management offers funds whose charges would make the likes of Smith recoil – but with a performance he would respect. In-house investment guru Richard Jeffries has long been a sage reader of market trends. He tells me the firm’s equity funds began to take on more risk in the third quarter of last year, the result of a contra-consensus view on growth. For the US, for instance, he believes growth could be closer to 3 per cent and for the eurozone, he reckons the outturn could be 1.3 per cent or more – both above consensus.
Some 200 at the conference heard presentations from Julie Dean on Cazenove’s UK Opportunities Fund and Paul Marriage on the UK Smaller Companies Fund. Both have very strong track records, and there was significant investor interest in both.
The £231m UK Opportunities Fund is free-to-roam over the UK equity market, with Babcock International, Compass, GlaxoSmithKline and WPP among its top ten holdings. Consumer services and industrials account for 30.3 per cent and 24.2 per cent respectively. The fund aims to outperform the benchmark, the FTSE All-Share Index by 3 per cent (net of fees) on a calendar year basis. The retail arm of the fund (minimum investment £1,000) has grown by 7.3 per cent over one year and 83 per cent over three years.
Low to no charges undoubtedly help overall investment return, as Terry Smith’s venture is proving. But funds with a conventional charging structure can also perform well – given stock picking intelligence and a grasp of market trends.