ABSOLUTE RETURN FUNDS- Comments?

carnet

EdInvestor wrote:

The fourth is the basic fact that if you take your eye off your money, the financial services industry tends to run off with it....

Very rare and would be incredibly bad luck.

Also, believe its true to say that no UT/OEIC investor has ever lost money through fraud.

It is certainly not a "basic fact".

Could also be reasonably argued that if you are stupid/lazy enough to take your eye off your money you might deserve to lose it.

EdInvestor

I was speaking figuratively, Carnet.

dunstonh

So I doubt these funds are really appropriate for retail investors.Better to stick with something with a good history like Fidelity Special Sits or Invesco Perpetual Higher Income, where the fund manager has been delivering the goods for years.[And yes I know Anthony Bolton is leaving, but not yet.]Or a tracker, or a portfolio of blue chip high yielding shares.

Fid Spec sits - high risk and hard to justify now
Inv Perp High Inc - medium risk (lower than FTSE 100 tracker)
high yield shares - high risk (reduces the wider the variety)
Tracker - med/high (assuming FTSE100. Different if other index).

If advice was given like that, it would result in an upheld complaint.

cheerfulcat

dunstonh wrote:

Fid Spec sits - high risk and hard to justify now
Inv Perp High Inc - medium risk (lower than FTSE 100 tracker)
high yield shares - high risk (reduces the wider the variety)
Tracker - med/high (assuming FTSE100. Different if other index).

If advice was given like that, it would result in an upheld complaint.

Hi, dunstonh

Some high yielding shares *are* high risk, there's no doubt about that. Those whose high yield is a result of a drastic fall in share price, for example, or whose dividend is not covered by earnings. However, many of the companies with a high dividend yield are simply large, well established companies [ Ed did say " blue chip " ] with nothing else to do with their money except return it to investors . After all, that's what equity income funds and many pension funds hold; would you call those funds " high risk "? Do you really think that holding a portfolio of shares in 15-20 big British companies is a high risk investing strategy [ serious question, btw, not a snipe :-) ]? I think that it would make things a little clearer if I explain that the High Yield Portfolio strategy involves reinvesting dividends until you need them as income, which further reduces risk.



Cheerfulcat

EdInvestor

Quite a useful piece here on target funds in the Sunday Telegraph.

Tristan Mawdsley, the head of sales at UBS, (a target fund provider) agrees that the products are complex but points out, rather surprisingly, that people bought into with-profits funds without understanding how these products worked, so why should it be different with target return funds. He fails to appreciate though that many investors would have stayed well clear of with-profits investments had they realised the potential problems that could arise.

#Well indeed: we all know now how "low risk" WP funds are (not) :mad:

BUT

The popular £90m Nationwide Target Return fund, which is managed by Merrill Lynch Investment Managers, is doing what it said on the tin. Since launch in January it is up by 6.25 per cent - well on target to meet its promise to beat base rate plus 1 percentage point.

A couple of respectable names there, might be worth a look if you think it's worth taking stockmarket risk for base rate plus 1%. I'd be wanting more than that myself.

dunstonh

Do you really think that holding a portfolio of shares in 15-20 big British companies is a high risk investing strategy [ serious question, btw, not a snipe :-) ]?

It's not really a case of what I think but what is the accepted position regarding single company share holdings and risk. A single share is higher risk, even if a blue chip company. The lack of diversification is where the risk primarily is. A blue chip company is less likely to fail but it does happen. If you are invested 100% into that, the potential for loss and gain is much higher. With diversification, the risk reduces the wider you spread your share selection.

I'm still confused as to what HGLTsuperstar's risk is with this money. The posts start leaning towards one area and then a comment or two switch it back to another. Yet we have suggestions of areas to invest which vary in risk. You cannot put Fid Spec Sits and Inv Perp Higher Income in the same risk category. The risk/reward/potential on these two funds are totally different.

Investing under your agreed risk reduces the potential available so its not just going above your risk profile that matters.

Nick_C_4

Tristan Mawdsley, the head of sales at UBS, (a target fund provider) agrees that the products are complex but points out, rather surprisingly, that people bought into with-profits funds without understanding how these products worked, so why should it be different with target return funds.

That's a great quote. What an idiot. Of course the point is that a huge number of people now regret putting their money into with-profits funds without understanding how they worked. And that would be my worry about these funds - they've got to be extremely complex. Like EdInvestor said, you're putting a lot of faith in the fund manager. For 6.25% I'd rather split my money between cash and something a bit more transparent....

cheerfulcat

dunstonh wrote:

It's not really a case of what I think but what is the accepted position regarding single company share holdings and risk. A single share is higher risk, even if a blue chip company. The lack of diversification is where the risk primarily is. A blue chip company is less likely to fail but it does happen. If you are invested 100% into that, the potential for loss and gain is much higher. With diversification, the risk reduces the wider you spread your share selection.

But both Ed and I refer all the time to a well diversified portfolio of shares. How risky is that, compared to, say, an equity income fund holding *exactly* the same shares?

dunstonh

But both Ed and I refer all the time to a well diversified portfolio of shares. How risky is that, compared to, say, an equity income fund holding *exactly* the same shares?

Actually, ed said portfolio and not well diversified. Portfolio could be a handful. Hence my comments about the risk reducing with the wider variety. Once you get into a couple hundred share holdings then you would be on getting close to the equity income funds.

Former_MSE_Forum_Manager

FYI

We have a rule amendment to cover this type of thing that has can be viewed HERE

This thread will remain undeleted so others can see and be aware of our policy on this, but i will now close the thread.