FSA expands choice of unit trusts and OEICs

In accordance with the UCITS (Undertakings for Collective Investment in Transferable Securities) Amending Directive on investment powers (the Product Directive), the Financial Services Authority widened the range of authorised unit trusts and open-ended investment companies (OEICs) available for investment by consumers at the start of November. Different asset classes, including derivatives, funds of funds and deposits, as well as equities and bonds, may now be held in one fund. In the case of tracker funds 20% of the value of the scheme may be held in a single transferable security or money market instrument, with the scope for up to 35% “where justified by exceptional market circumstances.” (CIS 5.2.32R(2)) The rule changes also permit firms to offer new “limited issue” and “guaranteed” funds, that offer protection against some unit price decline. Limited issue funds restrict the number of units which makes management easier in illiquid markets. Funds will be able to call themselves “guaranteed” if they are covered by a full third party money-back warranty; the fund manager will be required to ensure that the guarantor is able to meet this liability.