are you guilty of offshore discrimination

In the past 10 years the share of cross-border products as a proportion of European-wide sales has more than doubled, from 21% in 2001 to 43% in 2011, according to Lipper. But UK parochialism is still alive and well.

are you guilty of offshore discrimination


To hone in a little further, data provided to Portfolio Adviser exclusively from Lipper, shows net sales of cross-border funds into the UK as a percentage of cross-border fund sales into all markets globally, has been increasing.

For instance, in 2009 net sales of cross-border funds into the UK amounted to €2,229m out of €79.24bn globally, approximately 2.8%.

In 2010, the percentage of sales into the UK upped to approximately 5% (€7.8bn out of €136bn) and in 2011 this increased further still to roughly 11% (€3.5bn out of €34bn) despite depressed sales generally.

There are a number of contributing factors to this growth, both organic and structural, but many intermediaries still have an inherent distrust for non-UK domiciled products. Is there good reason for such parochialism, or is bred out of a fear of the unknown?

Toby Hogbin, head of product and channel development for Martin Currie, says: "Historically there has been a home stake bias. There are multiple reasons, such as the level of understanding and support received from the fund manager, but a main one was the UK’s approach to taxation of offshore funds."

Structural changes

Previously offshore funds for sale in the UK had to have distributor status, which was something that was applied for annually in arrears. This meant advisers had to propose an offshore fund to a UK investor in hope and expectation of a tax position (CGT), rather than the knowledge of such a position.

This has now changed to reporting status, which is applied for once and applicable until the fund no longer exists.

"Advisers can now have confidence that fund will be tax efficient for UK investors perpetually," explains Hogbin.

He said this, along with Ucits, has helped to level the playing field between UK-domiciled and offshore-domiciled funds, but there are still some barriers in place.

One of these is the move towards investing through platforms that have been developed with the convention of UK funds’ 12pm valuation time. Most offshore funds on the other hand are valued at the end of the day.

Adviser demand for choice is forcing platforms to change, along with the Ucits push for a common European market in fund management.

Ed Moisson, head of UK and cross-border research at Lipper says: "Our data enables an informed view of not just where funds are domiciled, but also whether they generate assets from more than one market (the threshold used is 20%) and thus really make use of the cross-border passporting Ucits enables."

Hogbin says: "The whole point of Ucits is that there should be competition between all the European markets and that competition depends upon advisers being domicile agnostic."

A good reason advisers may not yet be "domicile agnostic" is the very real difference shown between AMCs and TERs between onshore and offshore funds.

Cost analysis

In the table above Lipper has found the average AMC and TER of actively managed cross-border and UK funds. Cross-border have been classified as Luxembourg- or Dublin-domiciled funds sold into at least three markets and UK funds as unit trusts and Oeics domiciled in the UK and open to retail investors.

Hogbin said funds sold across a number of different markets could have higher TERs because they need a number of currency share classes.

But the fact remains that average charges are higher and in a UK regulatory environment that is encouraging clean-fee share classes, it could be some time before advisers are truly convinced of offshore potential.

Do you invest in offshore products? What factors do you take into consideration when comparing products in various domiciles? Let us know below…



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