My ISA problem

Debt_Free_Chick

MajorR wrote:

My feelings at the time were that i couldn't really complain about the stock market crashing when other people were having to jump out of sky scrapers. And iv'e been waiting every since for the money to grow.

How do you guys decide on choosing a fund, do you just look at the past years history? The $6million question (or £6,000 in the case) i know. Looking on here http://www.trustnet.com/ut/funds/ for example Number 8 - THREADNEEDLE LATIN AMERICA 1 looks good over the last 5 years. is that all i can do to decide?

Relying only on how well a fund has done in the past gives you no indication of what it might do in the future. A number of Latin American funds have performed well over one & three years - I've not analysed why, but it could simply be that the economies themselves have performed well. For the future, it's a case of assessing (from your own research) which markets are expected to also do well in the future. FWIW I've put some into India & China simply because many pundits predict that those economies will grow - China in particular, though my India fund has been far better in the past 12 months.

Also, I think you need to look more closely at the five year performance. You will see that the performance of that fund looks good because this year's performance has skewed the five year average. This fund actually lost 23% in years 3-4. Now, that's not necessarily bad as, over five years, it's still up ... but you should be aware that those funds which do spectacularly well are generally the same ones that can do spectacularly badly. In other words, you tend to get a bit of a roller coaster ride. You need to be aware of this and be sure that you are prepared to ride this out. (Incidentally, I'm not slagging this fund off, not least as I've been putting £175 a month into it since July last year!)

Also, bear in mind that if you invest in this fund only, all your future hopes & aspirations depend, to an extent, on the economic success of just one region in the World (Latin America). Again, not necessarily a bad thing, but diversification reduces the risk that you lose money due to some coup, other political activity, drug trafficking etc. In addition, currency movements alone could affect the return that a non-UK fund obtains. All the returns are produced in local currencies and then converted back to Sterling.

To diversify, you either need to spread that ISA around different funds (unless you have other investments already in other areas) or use future ISA contributions to buy to achieve this.

Finally, how important is it that this money produces a good return? If it's vital, then you'll need to factor that in. If it's "play money" (by that, I mean you can afford for it to fall in some years and/or you don't have a specific use for it on a specific date in the future) then you might want to consider being a bit "risky" with it and just see what happens.

None of this is advice, of course but hopefully will give you some food for thought.

whiteflag_3

EdInvestor wrote:

Fidelity recently published a list of the most popular funds picked through its fund supermarket.IFAs will have done most of this choosing

The list

-Most funds from the Equity income sector, of which the star ( for more than 15 years!) is Invesco Perpetual Higher Income.

-Next is Special Situations (Fidelity's is the star)

-There is one corporate bond fund ( for older and more risk averse people)

-Plus the venerable JPFM oil and ommodities fund, which of course had a boom because of the oil price:)

[Missing from the list, but will no doubt appear next year are the new Commpercial Property unit trusts which will be available in ISAs from this year and which all IFAs, rightly, like. Not an asset class to be ignored. ]

The vast majority of funds are rubbish and should be ignored.In general, it's almost always better to choose funds from fund management companies not insurance companies like Scottish Widows.

If you want an ethical/environment type fund, the best one is run by F&C.When you look at it closely, it is really an Equity Income fund, which explains it's good performance.

All these good funds have high charges, so make sure you move your ISA and expand it through a discount broker like www.cavendishonline.co.uk which will rebate the charges back to you.

Ed would you be kind enough to clear up a few points re the list I posted on 4/1/2005 and post your views on the following.

Can you define "rubbish" in the context of your post. Are they worthless or just doing what they say on the tin?

On doing your research do you always ditch insurance companies like SW without looking at their funds in more detail?

What do think of multi-manager funds? (having just read Fidelity's brochure for their new multimanager funds I dont think it is possible for joe public to come close to the level of research that the proffesionals can)

carnet

EdInvestor wrote:

Most funds from the Equity income sector

Not true. Only two came from the UK Equity Income sector. The others fall into these (Standard & Poor's) Sectors ;

1 x Fixed Inc GBP Corporate
1 x Fixed Inc GBP High Yield
2 x Asset Alloc UK Neutral
1 x Equity Europe ex UK
1 x Equity [Growth] United Kingdom
1 x Asset Alloc Global Flexible
1 x Commodity & Nat Res

Next is Special Situations (Fidelity's is the star)

Yes, Fidelity Spec Sits is the top performer over 10 years - but not over the last 5 years or shorter periods, where several other funds in its sector have outperformed it. Also, with all the question marks still hanging over this fund no-one (including Fidelity's own MM funds) is currently considering it for new investment. IMHO there are other funds in this sector with much better potential going forward.

-Plus the venerable JPFM oil and ommodities fund, which of course had a boom because of the oil price:)

Its actually called the JPM Natural Resources fund and it's good performance was not just because of the high oil price.

The vast majority of funds are rubbish and should be ignored

.

Somewhat of a sweeping generalisation - although I happen to agree with you - but probably not for the same reasons or with the same funds in mind. For example, I would only consider investing in (and have only ever invested in) one on this list - and it is currently being considered for sale as there are now better prospects elsewhere.

In general, it's almost always better to choose funds from fund management companies not insurance companies like Scottish Widows.

Not true. I know (and currently invest in) several funds run by the investment arms of Life Offices as, IMHO, they have the best prospects (on numerous criteria) in their sectors.

If you want an ethical/environment type fund, the best one is run by F&C.

Disagree. I know the one you're referring to - and I also know one which, IMHO, has more potential looking ahead (especially as the manager of the F&C offering now has considerably more on his plate )

When you look at it closely, it is really an Equity Income fund, which explains it's good performance.

That is true, but it still has the constraints.

All these good funds have high charges

In what way are they any higher than other funds ? You imply that "good" funds have higher charges per se. They do not - unless they have grown too large for their investment objective and soft-closed. None on this list have been - although, IMHO, several should have been long ago .

EdInvestor

whiteflag wrote:

Can you define "rubbish" in the context of your post. Are they worthless or just doing what they say on the tin?

They are just benchmarking the index,but charging a lot for it.You might as well have a cheap tracker.

On doing your research do you always ditch insurance companies like SW without looking at their funds in more detail?

Other than commercial property funds, where they almost have a monopoly and where they do know what they're doing, there are not many noteable insurance co funds, though I'm aware they are trying hard to improve, so do let us know if you've spotted some good ones

What do think of multi-manager funds?

They have very high charges because you are paying for the main fund manager's charges plus the charges of each fund as well.

Rumour has it they're a way for IFAs to get out of doing any fund selection and avoid having to take the risk of getting it wrong

dunstonh

Rumour has it they're a way for IFAs to get out of doing any fund selection and avoid having to take the risk of getting it wrong

Blend funds (to give them another marketing name) are great within a portfolio constructed with sector allocation. If you have a fund made up of 5-6 other funds, then you are diversifying even further. They should not be ignored and they do not always carry increased charges.

Debt_Free_Chick

EdInvestor wrote:

They are just benchmarking the index,but charging a lot for it.You might as well have a cheap tracker.

Ed - have you worded that correctly? All funds benchmark against an index of some description, simply so there is something to against which to compare the performance.

However, it's the investment or outperformance target that's the key thing. One needs to consider the target they aim for (e.g. stated benchmark +2%), how they intend to meet the target and what the track record of meeting the stated target has been.

Benchmarking is common to all funds - tracking is not. Did you mean tracking?

carnet

EdInvestor wrote:

so do let us know if you've spotted some good ones

Have done - and would love to - but, as you well know, unable to do so on these boards .

They have very high charges because you are paying for the main fund manager's charges plus the charges of each fund as well.

The underlying fund charges are invariably heavily rebated - although the TERs on these are understandably higher. Do you want them managed for nothing ? Nobody is forced to invest in a FoF - although many investors obviously consider it well worth the little bit extra - hence their popularity.