All gain, no pain managed funds find increasing favour

By MARK FRYER

Sharemarket investments that promise the market's gains, without its pain, continue to be the fashion in the managed funds business.

Investors currently have at least three such offers to choose from - two funds that will track world sharemarkets and a third specialising in technology shares.

While they're very different, the common thread is that they offer the chance to make capital gains from rising share prices, with a safety net against falls - at a price.

* The two world share funds from Sydney company Liontamer are open to investors until October 17 and have the same structure, although the potential gains and the level of protection are different.

The Supergrow 150 fund promises investors 150 per cent of any rise in world share prices - as measured by the MSCI World index - over the next eight years, up to a maximum return of 100 per cent.

Investors who keep their units for eight years are promised at least their initial investment, unless world shares fall by 40 per cent or more from the starting point. If that happens, the guarantee no longer applies and investors could suffer a loss.

Liontamer's other offering, the Easygrow 85 fund, promises 85 per cent of any gain in world share prices - again based on the MSCI index - with a guarantee that investors will get back their initial investment, whatever happens to share prices.

The funds are set up as Australian unit trusts for tax reasons, although they are aimed at New Zealanders. The minimum investment is $5000. Both funds also promise an annual return of 1 per cent.

* The Orb Technology fund from Capital Guaranteed Investments, also from Sydney, is open until September 29 and specialises in high-tech shares.

In this case the promise is that the share price won't fall below the opening level, as long as you hold them for the full eight years. The fund also offers a "rising guarantee", which locks in part of any profits made each year.

This fund is aimed at investors in Australia and New Zealand, and is set up as a company, based in Bermuda. The minimum investment is A$5000 ($5645).

Because it's an actively managed fund, the ultimate return will depend not just on the overall direction of the markets but also the skill or luck of the investment manager.

The appeal of a guarantee is obvious to anyone who has been savaged by the sharemarket. The question for prospective investors is whether the guarantees are worth the cost.

As well as the costs which are built into the fees the funds charge, there is a cost in terms of lost flexibility.

All three funds are meant to be held for the full eight years; there can be charges for getting out sooner and, in the case of the Liontamer funds, you can only do so once every three months. And, with all three funds, if you withdraw early the guarantees no longer apply.

Investors also miss out on any dividends that the funds' investments pay.

Prospective investors may also want to seek advice on tax, given that the Government has signalled that it is considering changes to the tax rules on some overseas-based investments.