BR report 2018

27 26 ANNUAL TARGET RETURNS The average target return of BR offers is 4.49%, with the most common target being 3%. The average target return has risen by 10.6% from last year’s 4.06%. This suggests an overall shift to higher returns and with it, a move up the risk scale. The highest target return of 10% is somewhat of an outlier. Only two BR offers target this level of return. AMC BY INVESTMENT STRATEGY BR offers with a Capital Preservation & Income strategy have the highest AMC charges, with an average of just over 1.7%, which is higher than last year’s average of 1.4%. The highest fee is also present in this strategy at 3.5%. The rising AMC in this strategy indicates that investors who want to use BR as a source of income may have to pay a premium. Growth strategies have the lowest AMC on average, followed by Growth & Income strategies. INITIAL CHARGE BY INVESTMENT STRATEGY Much like AMC, the Initial Charge for the Capital Preservation & Income strategy is higher than for any other strategy. However, the average Initial Charge has reduced marginally from 2.56% last year to 2.38% in 2018. Initial Charges are also lower for Growth and Growth & Income strategies. ANNUAL TARGET RETURN BY INVESTMENT STRATEGY The target return of Growth offers has increased significantly, from just 1.5% last year to 4.4% this year. All of the pure Growth strategy BR offers are solely focused on AIM quoted securities. The mode for the Growth & Income strategy is particularly high at 10%. Out of the 17 offers that have a Growth & Income strategy, 11 are invested in AIM quoted companies. DIVERSIFICATION We can measure the level of diversification in BR offers by looking at the amount of underlying companies that the BR provider intends to invest in. The average is 14 companies, up from 13 last year. The least diversified BR offers hold only one company, and this is the most common case. Just over 37% of BR offers only invest in one company. When looking at BR investments in unquoted companies (excluding AIM), 62% of open offers only invest in one company. However, where there is only one company invested, that company typically holds subsidiaries or invests in partnerships. This kind of corporate structure is allowed as a look through arrangement. The distinction between this and an investment company lies in the amount of shares that are held in the companies – if it is above 51%, then it is counted as a subsidiary, and will be BR eligible. It’s worth noting that AIM based BR offers tend to be far more diversified; this is congruent with the ease of access to AIM investments. On average, AIM based BR offers aim to invest in 26 different companies, with the lowest being 15 and the highest at 43 companies. AVG MODE MIN MEDIAN MAX 0% 2% 4% 6% 8% 10% 12% AVG MODE MIN MEDIAN MAX 0 10 20 30 40 50 The Minimum Subscription is the minimum amount an investor can subscribe for shares in the offer. The average minimum subscription has dipped slightly from £45,783 in 2017 to £43,468 in 2018. This continues a trend also noted in the 2017 average, although the mode has remained the same. The maximum value is £100,000 – down from last year’s £250,000. Decreases in the Minimum Subscription suggest that the asset class is becoming more accessible to retail investors. With a significant amount of UK property being valued over the £1m threshold, BR will still be a potential option for many mass affluent investors who sit in this category. MINIMUM SUBSCRIPTION 2018 OFFERS BY STRATEGY “The average BR offer invests in 14 companies.” In this subsection we break down the market by strategy and repeat the previous analysis. We will take a look at fees first, but as some fees are only charged by a small number of offers, we have only prepared the breakdown analysis for the most common fees – the Initial Charge and the AMC. CAP. PRESERVATION & INCOME CAP. PRESERVATION & GROWTH GROWTH GROWTH & INCOME AVG MODE MIN MEDIAN MAX CAP. PRESERVATION & INCOME CAP. PRESERVATION & GROWTH GROWTH GROWTH & INCOME AVG MODE MIN MEDIAN MAX CAP. PRESERVATION & INCOME CAP. PRESERVATION & GROWTH GROWTH GROWTH & INCOME AVG MODE MIN MEDIAN MAX 4.49% 3% 1.50% 4% 10% 14 1 1 11 43 1.72% 2.38% 2.08% 0.53% 0.85% 1.31% 1.32% 1.27% 4% 3.5% 3% 2.5% 2% 1.5% 1% 0.5% 0% 8% 7% 6% 5% 4% 3% 2% 1% 0% 12% 10% 8% 6% 4% 2% 0% 4.42% 3.91% 4.40% 7.25%