The hope is that retail investors will jump at the chance to buy something other than one of the many new capital guarantee funds that have hit the market in recent months.
The fund is the first Asian registered vehicle in the Smith Barney Select Global range that work on the principle of buying and holding 30-odd stocks for a period of 12 months. Stocks are chosen in advance based on the research of Citigroup analysts and sat on for 12 months with no stop/loss limits. Investors are free to redeem anytime. Those that stay on until the end of the period will be given the option to roll-over into a new fund with a revised list of stocks.
Stocks for the Hong Kong fund will be bought on September 27, the day that subscriptions close. An indicative list of stocks that Citigroup is touting to potential investors includes Ford Motor Company, three semiconductor manufacturers and several Asian companies such as China Mobile and Kepco.
"These stocks have all been beaten up in recent months, but the philosophy is that they have the best chance of increasing in value over the next year," says Christopher Andrews, Asian head of retail for Citigroup Asset Management. The stocks come from a list of number one rated counters in three global markets, the US, Europe and Asia. The top rating means that they are anticipated to grow by 15% in 12 months.
"We are trying to pitch to the behaviour of Hong Kong investors by giving them a short-term horizon, a satisfactory risk/reward profile and low fees," says Andrews. With an initial unit price of $1.00, the fund carries a 1.25% front-end fee, a 0.65% management fee and a deferred sales charge of $15 per 1,000 units. This deferred sales charge will be paid in 10 monthly installments of $1.50. Investors choosing the roll-over option will not be charged another front-end fee.
Smith Barney runs 38 similar products, mainly in the US, with 70% of these performing above the benchmark last year.
"This is not a fund that will be measured by a tracking error to a particular index," says Andrews. "While we use the SSB Primary Market Index as a benchmark, the stocks are not chosen based on an industry or geographic weighting." The geographic split is likely to be 55% US, 10% Asia and Japan, and the rest Europe.
The Hong Kong fund is expected to close at $50 million. Andrews says Citigroup has no plans to launch a similar fund in other Asian markets, but is planning a three-year buy/hold fixed-income fund which should yield about 4%.