How does investing in a Spectrum fund rather than a portfolio of funds reduce the impact of CGT?
Over time the asset allocation split for a given portfolio changes as the constituent parts rise (or fall). Rebalancing can reinstate the original asset allocations. For a portfolio of collectives this involves buying and selling the appropriate funds. If the portfolio is outside of a tax-protected wrapper, these rebalancing trades are all classed as disposals for CGT purposes.
The Spectrum funds not only ensure the asset allocation remains current, ie reflecting the current economic outlook, but because any rebalancing is done within the fund there are no CGT implications. A potential CGT liability would only apply on disposal.
A CGT benefit does not always apply, however. In the event of an investor’s risk profile changing, for example from a five to a four, a portfolio of individual funds could, with careful calculation, be altered to effect the change in risk profile through the switching of just some of the portfolio. This could potentially result in a lower CGT liability than by switching between Spectrum funds.
It is important to remember that the main benefit of the Spectrum fund range is that they are asset-allocated MultiManager funds managed by Old Mutual Wealth's Investment Division. Any potential CGT advantages should be considered as an added benefit in certain circumstances.