Sun Alliance sits in the centre

Royal SunAlliance's New Zealand equity fund combines the best of both worlds.s

Wednesday, October 29th 1997, 12:00AM

While most fund managers are running to either the passive or active end of the equity management spectrum one, Royal SunAlliance, reckons it can sit nicely in the centre and offer investors the best of both worlds.
SunAlliance has figured out a way of offering investors a New Zealand equity fund which combines the benefits of active management with the tax advantages of an index fund.
Investment manager Bill Courtney says the New Zealand share market is unique in that the large cap stocks account for such a large proportion of the market.

Royal SunAlliance's view is that these stocks are so well researched a manager has little chance of adding value, therefore it is better to take an index approach to this end of the market.
The smaller cap stocks though are a different story. Courtney says there is plenty of room to research and ferret out value in this sector, consequently the best management style is an active, bottom-up approach.
Royal SunAlliance's New Zealand shares Superplan fund is made up of two components; namely an actively managed small companies fund and an index fund which tracks the top eight stocks.
The key to the structure is where the assets of the passive fund actually sit. Beneath Superplan fund which investors buy, there are the smaller companies trust and the index fund.
However, there are another two levels below the index fund.
The next step down is a stand-alone registered superannuation scheme that has, at this stage just, one investment a passive, top eight stocks fund with a private binding ruling from the Inland Revenue Department.
The assets for the passive side of Superplan are held in this fund. The key to the structure is a product ruling from IRD which allows the registered superannuation scheme to pass the income, with all its tax benefits, up to the fund which is one of the two funds the retail Superplan fund feeds into.
The retail fund can alter its weightings between the active and passive funds without the risk of tainting its tax status.
Courtney says the combination of tax benefits with lower fees is how the fund can return better returns, with lower risk, to investors.
The fund has been established under the superannuation scheme regime for several reasons.
Super is the product area Royal specialises in and it believes, contrary to other managers, that superannuation will continue to command the biggest market share of fund types for some time.
Also the use of qualifying trusts within the super schemes allowed this structure to work.

« Sovereign early market casualty

Get your tax questions answered online »

Special Offers