Warning on "enhanced income" funds

EdInvestor

Sure to be loads of people caught out with these.

http://www.timesonline.co.uk/tol/comment/columnists/article5579382.ece

Those who wish to avoid risk need to be satisfied with more modest returns for a while.

unhealthyman

I'm a bit unclear on how I'd identify an 'enhanced' income fund? Is the article largely just making the sensible point that those putting money in bond funds in general also risk losing some money? Or is it something more damning? I can't quite make out the central point.

dunstonh

That has to be one of the most pointless articles I have seen for a long time.

If you go into an equities find targetting high yields then you may suffer losses on capital if the equities go down in value is what the article is effectively saying.

Talk about stating the obvious.

unhealthyman

dunstonh wrote: »

That has to be one of the most pointless articles I have seen for a long time.

If you go into an equities find targetting high yields then you may suffer losses on capital if the equities go down in value is what the article is effectively saying.

Talk about stating the obvious.

That's what I thought...

And the only other point seemed to be that an 'enhanced' fund is more complicated than simpler funds.

dunstonh

And the only other point seemed to be that an 'enhanced' fund is more complicated than simpler funds.

Which is why they are in the specialist sector (Schroder Income Maximiser being mentioned in the article). Specialist funds are in the specialist sector for good reason. If you dont understand investments then the specialist sector isnt where you should be looking. If you buy with advice, you get consumer protection if the investments dont match your risk profile. So, there really isnt a problem.

As it happens Schroder Income Maximiser is a bit lower in risk as a UK FTSE all share Tracker.

cheerfulcat

dunstonh wrote: »

That has to be one of the most pointless articles I have seen for a long time.

If you go into an equities find targetting high yields then you may suffer losses on capital if the equities go down in value is what the article is effectively saying.

Talk about stating the obvious.

That's not how I read it - the author is saying that these funds are using options as well as simply holding equities or bonds and that in her opinion rather than decreasing risk they are increasing it.

Having said that her rather peculiar maths in the paragraph regarding the mythical man who'd invested £100,000 makes the whole thing suspect.

dunstonh

The problem is that the article doesnt really make it clear what it is saying. Hence I took the view that it was stating that these funds carry a risk and the risk is what you would expect for a fund of that type but dont make the mistake that the risk is less than what they say it is (?!)

It mentions they hold various instruments which can alter the risk which is true. However, it also holds lower risk assets as well which when balanced out brings the risk down to slightly less than a typical UK equity fund. It doesnt say that in the article.

purch

If you dont understand investments then the specialist sector isnt where you should be looking

The problem with products such as these is that maybe no one understands them properly, certainly not your average investor and also not many advisors either.

cheerfulcat

dunstonh wrote: »

The problem is that the article doesnt really make it clear what it is saying.

You're right there - I've just read it for a fourth time and have come to the conclusion that the writer hasn't got a clue.

dunstonh

They make a point of highlighting Schroder Income Maximiser. Only 6.16% of its overall portfolio is held in areas which involve more complicated intruments. The rest of it is equities.

If it was a higher spread then fair enough but the fund doesnt hide from these and its only 6%. Also, looking at its historical spread, it is consistent around the 6% mark although it only held 3.79% in november suggesting the manager saw value enough to double the holdings in December.

If you want a laugh at HL's double standards, take a read of this article:
http://www.thisismoney.co.uk/investing/article.html?in_article_id=415175&in_page_id=166

Mark Dampier is praising the fund there and is pitching it at the lower risk end (which it isnt). Yet in the article Ed links to he is saying he wouldnt touch it, with the inference its higher risk. HL wont publish an opinion on it as its not a top seller on their platform.

purch

Are you trying to say that Dampwit doesn't know what he's talking about ???:eek:

Funny how the "half-wit" won't touch the Schroder Fund cos he "doesn't understand what goes on under the bonnet", yet is more than happy to 'pimp' funds such as the Blackrock Absolute Alpha, which uses far more complicated and complex products to gain a return !!!