Transferring HBOS S&S funds to tracker

Frazer

I'm in a couple of HBOS funds (Cautious Managed and UK Growth). In the early years they seemed OK, because the general boom in the markets masked the high charges and poor performance. Now that the tide has gone out, these funds can no longer hide their huge, wobbly beer guts, so I'm thinking of transferring to a tracker in a fund supermarket.

To do this, I have to get HBOS to sell the shares and transfer the cash to the new provider, who will use it to buy into the new fund. This will be done within the ISA wrapper, so I won't lose out on tax, but are there any other ways I could lose out in this process?

Aegis

Yes, you can lose out because tracker funds are often expensive to hold in a fund supermarket. Trackers don't pay much trail commission, so you can end up paying more to hold a tracker in a fund supermarket than a managed fund. If you're going to do that it might be worth considering a decent managed fund rather than the awful ones you've been in with HBOS...

Frazer

Ah, didn't realise that. I'll have a closer look at managed funds, then. It's just that I'm inclined to believe what I've read about managed funds being unable to beat the market in the long run. Even the ones that look good are probably just lucky, and that luck can end as soon as you buy in. They may help out by applying a bit of smoothing, but who needs that unless you need to cash in at short notice? :think:

You didn't mention the other option: find a cheap way to hold a tracker. Is there such a thing?

Aegis

Frazer wrote: »

Ah, didn't realise that. I'll have a closer look at managed funds, then. It's just that I'm inclined to believe what I've read about managed funds being unable to beat the market in the long run. Even the ones that look good are probably just lucky, and that luck can end as soon as you buy in. They may help out by applying a bit of smoothing, but who needs that unless you need to cash in at short notice? :think:

You didn't mention the other option: find a cheap way to hold a tracker. Is there such a thing?

Yes, there is. Trackers are probably cheaper to hold with their providers in a lot of cases. You'll pay the up front fee, something usually discounted with a fund supermarket, but you'll not have to pay the additional holding charge that you might see with trackers.

Don't believe everything you read about trackers on the Motley Fool's website, if that's where you got this information. They sell trackers through their site, and should therefore be treated with a little suspicion if they support them. On top of that, they have applied the way you see trackers working in the USA to the UK markets incorrectly. It is certainly possible for managed funds to beat trackers, and once you eliminate bank funds from your list, you will find that the majority of managed funds left over beat the index on a fairly regular basis in most sectors.

As always, don't believe me or anyone else who gives you an opinion. Take a look at the fund factsheets on Citywire.co.uk and trustnet.com and see what you think. Then research the goals of the funds and the fund manager's track record to see what you would like to invest in. You might well find that managed funds suit you more than trackers, you might find the opposite. Just research and decide for yourself.

Frazer

Very interesting, thanks, Aegis. You're spot-on about Motley Fool. I didn't know that they had a bias in that direction. In fact there are lots of things I don't know. It looks like I'll have to do some more homework before I move any significant sums around.

Edit: this MF article, or one very similar, helped to influence me in favour of trackers.

dunstonh

It's just that I'm inclined to believe what I've read about managed funds being unable to beat the market in the long run.

The FTSE100 trackers finished in the bottom 6% of funds over the last 10 years. Dont believe everything you read about trackers as much of it comes from the US and doesnt apply to the UK. There are pros and cons to both managed and trackers and either can be the right things to use in a portfolio depending on how and where you are investing.

Just take a look at the L&G index 100 fund or FTSE allshare trackers for yourself and check out their past performance. I can tell you that FTSE all share will be consistently around mide table, FTSE100 was mostly at the bottom. However, the anti-IFA brigade will slag me off. So, check for yourself. Once you realise that you will see that the comments on MF about trackers beating 9/10 funds doesnt really add up.

In the early years they seemed OK, because the general boom in the markets masked the high charges and poor performance. Now that the tide has gone out, these funds can no longer hide their huge, wobbly beer guts, so I'm thinking of transferring to a tracker in a fund supermarket.

HBOS funds are rubbish. Firstly they are bank funds and that is usually a bad sign before you even mention a bank name. As soon as you mention HBOS though you know that they are going to be some of the worst funds there are. HBOS just cant invest money well.

However, going from a cautious managed fund and UK growth fund to a FTSE tracker is shoving yourself up the risk scale quite a bit. A FTSE tracker would have lost more than the cautious managed. So, you perhaps need to look into risk profiling of funds and sectors to have a bit of understanding for when you compare things.

Frazer

dunstonh wrote: »

However, going from a cautious managed fund and UK growth fund to a FTSE tracker is shoving yourself up the risk scale quite a bit. A FTSE tracker would have lost more than the cautious managed.

Point taken. My preferred risk level is somewhere between the two funds I've got at the moment. I'll go for something similar in future.