Questions when a fund is merged
We often receive notifications that an investment fund is being merged with another, as a result of an acquisition or programme of ‘rationalisation’.
The latest sees the Gartmore Long Term Balanced fund (with £41.4m of assets) merged into the Henderson Diversified Growth fund.
As a result of this merger, Henderson Global Investors is switching the mandate and manager.
When this sort of thing happens, investors should seek the answers to a number of questions before making a decision about what steps to take.
1 – Has the objective of the fund changed?
2 – Will the fund be investing in different underlying assets?
3 – Is the manager changing?
4 – Are there any changes to the charges for investing in this fund?
In addition to these fund specific questions, investors will also need to consider their own individual circumstances.
Whilst it is relatively simple to switch from one fund to another these days, as modern investment platforms offer cheap and ready access to funds from the whole of the market, capital gains tax could discourage investors from selling their direct holdings.
Some investors may also want to adopt a ‘wait and see’ approach when a fund merges, to see if the new fund represents a better alternative. This can either be the result of apathy or a calculated strategy.
Looking briefly at the Gartmore Long Term Balanced fund, this is a multi-asset class fund managed by William Edgar. It has achieved only third quartile performance over the past one and three years.
The fund has been around since April 1988, so has a reasonably long track record.
The Henderson Diversified Growth fund is a relatively new launch, started only in February 2011. It is managed by Bill McQuaker, who has a good reputation for multi-asset and multi-manager investing. He has been reasonably cautious in his approach to investing this year.
In its first year, the Diversified Growth fund only managed to deliver fourth quartile returns.
We only recommend funds that have a minimum of a three year track record, so the Henderson Diversified Growth fund would not meet our suitability threshold.
Investors who have been caught up in this merger should carefully consider whether this movement to the Diversified Growth fund is suitable based on their attitude towards investment risk and investment objectives.
Photo credit: Flickr/drachmann