Lincoln set to drive into the spotlight

It is “not the name on every IFA’s lips”. But Lincoln Unit Trust Managers aims to raise its profile among intermediaries this year. Will Jackson finds that it will have much work to do.

Lincoln Unit Trust Managers is poised to take its fund range to a wider audience this year.

Will Hale, head of distribution for the Lincoln Financial Group, acknowledges that the firm is “not particularly well recognised” among intermediaries for its investment business. But he is keen to change that. Lincoln, he says, is seeking a higher profile.

“One of my key challenges is to strengthen our supporter base,” says Hale, who assumed his role last March. “We tend to appeal to the higher end of the market – private client stockbrokers and wealth managers – but I want to expand our distribution to the wider community. Our funds are equally applicable. It is a work in progress and there is much more to do.”

The firm plans to use direct marketing, as well as raising its presence on the internet and major fund platforms, he says.

Lincoln’s range of 13 unit trusts is available through Cofunds, Lifetime and Transact. The portfolios are run by three third-party institutional fund management firms, with Goldman Sachs managing nine funds representing about two thirds of total assets under management. These include the £490m Opportunities portfolio, Lincoln’s largest unit trust.

Delaware Investment Advisers, based in Philadelphia, runs the North American fund while Mondrian Investment Partners manages the Far East, Emerging Markets and Income trusts.

Hale says Lincoln’s renewed marketing push will continue to focus on its flagship Far East fund, despite its poor relative performance in recent years. According to data from Morningstar, the fund produced fourth-quartile returns over the one and three-year periods ending December 12, 2007. Over the longer time-frame the £260m fund even took last place in the Investment Management Association’s Asia Pacific excluding Japan sector. Emerging Markets was also fourth quartile over both periods.

Despite these levels of performance, Hale says he is “very comfortable” with Mondrian’s investment process.

Mondrian, which has run money for Lincoln since 1998, was founded in 1990. The firm has 46 London-based employees and has more than £29 billion in assets under management. Mondrian’s process seeks to invest in equities where it identifies value from long-term flows of income. This strategy, employed consistently across all markets and industries, gives funds a defensive nature. While this has produced relative underperformance during the mainly bull markets since 2003, Hale says the approach may soon be back in fashion.

“Mondrian’s process is completely unwavering from its stated intentions and has not changed one iota, despite the market conditions,” says Hale. “The funds will outperform over the long term. Growth has significantly outperformed value over the last five years, but these funds are well positioned to perform when the markets change.”

Mondrian’s deep-value approach has led it to take a zero weighting in India in the Far East portfolio, and a significant underweight position in China.

Michael Clarkson, senior manager on Brown Shipley’s Solus multi-manager range, says he sold out of the Far East fund in July, 2006.

“We went into the fund because of historical outperformance, a clearly defined investment process, the level of support given to the manager and its risk controls,” Clarkson says. “It underperformed in 2004 and 2005. The management team said it was defensively positioned and we understood that. But we are measured on a relative basis.”

John Monaghan, an investment manager at Origen, is more upbeat on the fund and agrees with Hale’s prediction that its process may be better suited to upcoming market conditions. He says: “I looked at the Far East fund during my time with the HSBC multi-manager business. It had a very strong run in the early 2000s and the process works in certain market conditions.

“If there is a downturn, it will come back. It has underperformed, but a lot of analysts will take comfort from that because it shows the process is consistent. If the markets turn, we may look to put money into it.”

Emerging Markets has grown to more than £80m since June 2004, despite launching in adverse market conditions. The fund’s largest country allocation was to Taiwan at the end of October, followed by Brazil and Korea. Mondrian announced it had raised its Taiwanese exposure across both funds in the second quarter of last year by increasing its stakes in existing holdings. The firm predicted that Taiwan was set to benefit from a consolidated stockmarket and increased tourism from mainland China.

In contrast to Mondrian, the Goldman Sachs portfolios have performed relatively well. Six of its nine funds are ranked second quartile over three years, with two funds – Growth and Internet Tollkeeper – achieving first-quartile performance over 12 months.

Despite its strong performance, however, the internet fund has just £4m in assets under management, a reflection of continuing investor caution on the sector after the collapse of the technology bubble. Hale says Lincoln remains committed to the fund, although its size means that the firm is also considering its “commercial viability” for the future.

Growth, meanwhile, gets its exposure to small and mid-cap stocks through a 30% allocation to the Opportunities unit trust.

Hale describes Nicholette MacDonald-Brown, the manager of Opportunities since October 2005, as a “rising star” and adds that Lincoln will look to push the fund in its marketing campaign this year.

He says: “The fund is trying to do something a bit different. It is a contrarian fund driven by valuations. It is about picking quality management teams in niche markets.”

The fund invests in 40-60 stocks chosen from the FTSE 250 and FTSE Small Cap indices. After taking over the fund, MacDonald-Brown was quick to reduce the total number of holdings and raise its exposure to mid-caps. This produced strong returns in 2006, though the past 12 months have proved tougher-going, with a fourth quartile return.

But the fund’s three year figures remain strong, with a return of 45% enough to take it into the second quartile. Lincoln announced that MacDonald-Brown had moved the fund back away from mid-caps last October, by increasing its exposure to large and small caps. The shift was made possible by a shareholder vote in 2006, which widened the remit of the fund to invest up to 20% of its assets outside its benchmark index. This allowed MacDonald-Brown to take positions in value stocks in the financial and mining sectors.

The final fund that Hale says Lincoln will focus on is Japan, also run by Goldman Sachs. Relative performance has been steady rather than spectacular, with third and second quartile returns over one and three years respectively. But Hale says its purely quantitative investment approach, in place since 2005, distinguishes the fund from its competitors.

“Japan has been unloved for a number of years and it is a difficult market to get right,” he says. “Goldman Sachs has a strong quant team and the process is able to look through the idiosyncrasies of the Japanese market.” Goldman Sachs – the last firm to join Lincoln’s line-up, in 1999 – was founded in 1869. The firm’s asset management division was created in 1988 and employs more than 400 people worldwide.

Hale says that investors are increasingly comfortable not only with quant strategies but also with Lincoln’s outsourced approach to fund management.

This appears to be backed up by the views of Origen’s Monaghan. “From our perspective it makes no difference,” says Monaghan. “Outsourcing is a recognition that houses do not have expertise in all areas.”

Lincoln applies a constant monitoring process to all three management firms. Its in-house investment team, which Hale joined in 2006 before taking his current role, uses a range of measures including quarterly meetings with the three firms.

Hale adds: “The team makes sure that our managers deliver. But we choose managers for the long term and allow them to manage through difficulties.”

Delaware, Lincoln’s longest-established relationship, was appointed in 1997. The firm was founded in 1972 and runs over $150 billion (£75 billion) in assets.

As Fund Strategy reported on October 30, 2006, Delaware changed the remit on the £80m North American fund to introduce smaller-company exposure. The fund is now able to allocate 30% of its assets to the Russell 2000 index, with the remaining 70% in stocks found in the S&P 500 index.

The fund has underperformed the sector average over the past year but has improved its fourth quartile three-year figures. Delaware uses an initial quant screen in its investment process.

Despite Hale’s desire to raise Lincoln’s profile as an investment manager, it seems unlikely that the firm will seek to grab the headlines with new launches any time soon. Hale says the firm’s products are always under review but adds that his primary focus is on the retirement market.

On the investment side of the business, Hale will instead concentrate on improving Lincoln’s existing unit trusts. “The intermediary market is a very competitive space,” he says. “We need to adapt the range and positioning of the funds to reflect the needs of the community.”

It appears that there is plenty of work to do. “In terms of the brand, Lincoln is not as well known as the other shops that IFAs buy,” says Monaghan.

“It is seen as a long-term, more conservative house on the Asia side in particular and tends to attract institutional money rather than the broader market. It is not the name on every IFA’s lips.”


(LUTM) runs more than £1 billion in its range of 13 funds. The portfolios are managed by Goldman Sachs Asset Management, Delaware Investment Advisers and Mondrian Investment Partners. LUTM, which is part of Lincoln Financial Group in Britain and Lincoln National Corporation in America, has been established for 25 years.

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