Are Sicavs worth a look?
Advisers are divided on Sicavs - Luxembourg’s range of offshore funds - in spite of access improving.
In April 2010, the IMA began including offshore funds in its sector classifications. These are funds domiciled outside the UK which fall under the Ucits regime, such as Société d’investissement à capital variable (Sicavs).
The move was designed to offer investors a wider choice of funds and allow offshore providers to market their funds on an equal playing field with UK domiciled funds. But just how interested are UK investors in offshore products such as Sicavs?
Sicav is the French term for an open-ended investment company (Oeic). According to the IMA, Sicavs tend to have a board of individual directors, which may or may not appoint an investment manager, rather than an authorised corporate director in the case of an Oeic.
Apart from some slight distinctions in the way they interpret the EU’s Ucits fund rules, there should be little difference between the onshore and offshore vehicles in terms of their investments.
In the 12 months to March 31 2012 net retail Sicav sales in the UK have fluctuated hugely, moving from a high of £370m in July 2011 to net retail outflows of £265.3m in January this year. This contrasts sharply to net retail sales of Oeics in the UK, which, in spite of a drop in sales between July and December 2011, has been steadily positive, including £1.14bn in March 2012.
Part of this volatility in take-up appears to be either a lack of familiarity with the type of fund by advisers or a limited need to use it.
Superseded by Oeics
Under the EU’s Ucits directives, which started in 1988 with Ucits I and are now being implemented in their fourth incarnation as Ucits IV, crossborder investing has in theory been made easier. However, Dennis Hall, managing director of Yellowtail Financial Planning, says Sicavs have not lived up to the potential of early hype in the 1990s.
“Subsequent legislation [in 1997] was passed that introduced Oeics, which largely put paid to Sicavs for the domestic market,” he notes.
“Sicavs are beneficial for fund groups wanting to cross market across Europe, but for the domestic market the Oeic structure is the de facto version, [and Oeics are] not dissimilar to Sicavs or US mutual funds. Hence there’s no real market for Sicav funds in the UK, unless it is from a pan European manager who wants to sell the same fund across many markets.
“I don’t use any Sicavs as all my needs are met through Oeics, investment trusts, exchange traded funds (ETFs) and unit trusts. I really don’t need another structure and I suspect my feeling is widely held.”
However, some IFAs say they do help broaden choice for their clients. Amanda Davidson, director at financial planning firm Baigrie Davies, explains: “We would consider Sicavs for offshore investors where there would be good tax reasons to do so, such as the relevance of double taxation treaties with Luxembourg, where the Sicavs are based. Through this structure, offshore investors can benefit from professional management of their funds, thus helping fulfil an investor’s financial plans.”