Sterling Investment Bond Fund Help

richp2k

Hi everyone,

I hope someone can help me with this query, because despite searching the net for the answer, i'm unable to find it and am quite frustrated!

I have a Sterling Investment Bond and it is invested 30% in 7IM Balanced and 70% Cazenove Multi Manager Diversity.

Well that's what I thought anyway! What I am confused about, is it seems I am not actually invested in these funds, but in these funds under a 'Sterling Wrapper'. So the titles of the funds are actually 'Zurich Sterling 7IM Balanced' and 'Zurich Sterling Cazenove.....' I hope that makes sense to you all!

When I compare the prices of these Zurich Sterling funds to the 'actual funds', it seems they are not as good. So it is as if the Zurich Sterling funds have to work harder for me to achieve growth. For example, I know the 7IM and Cazenove prices have increased slightly of late, so I was under the impression my Bond would have increased slightly in value too. But it hasn't. And that's because the prices of the Zurich Sterling 7IM and Cazenove funds haven't increased.

Can anyone tell me firstly why this is? and if I can switch to the 'official' funds if you see what I mean? My IFA has retired now so I don't currently have one, but I'm not too overjoyed at this news to be honest, but would lose a hefty amount if I closed the Bond at this stage and went elsewhere.

Many Thanks in advance!!! :beer:

Richie.

dunstonh

When I compare the prices of these Zurich Sterling funds to the 'actual funds', it seems they are not as good.

Unit price is not an indication of how good a fund is.

So it is as if the Zurich Sterling funds have to work harder for me to achieve growth.

They dont.

I know the 7IM and Cazenove prices have increased slightly of late, so I was under the impression my Bond would have increased slightly in value too. But it hasn't.

I dont know where you are getting your values from but the unit prices on those funds are changing daily. For example, the Zurich Sterling Cazenove Multi-Manager Diversity is up 5.72% in the last 3 months on close of business yesterdays price. (or 5.98% if you have version 2 of the fund depending on what Sterling bond you have).

I also put the two funds in life fund form and the two funds in UT form into financial express analytics in the 70/30 spread and performance over the last 3 months shows the Life fund version is up 5.21% with the unit trust version up 4.41%.

if I can switch to the 'official' funds if you see what I mean?

You would need to surrender the investment bond and repurchase in either unwrapped form or wrapped in ISA, pension or another investment bond that allows the unit trust version.

I'm not too overjoyed at this news to be honest

Thats because you are not looking at it correctly.

Most of the major unit trust/oeic funds are also available on life fund or pension fund form to be made available on the life and pensions tax wrappers. In the past they had to be life fund versions. Its only more recently that the unit trust versions can be held in the life and pensions wrapper.

I suggest you look at where you get your pricing from and see if they stopped updating the prices in error.

richp2k

thank you dunstonh for such a swift response! I understand exactly what you're saying, but let me just throw a bit more information at you if that's ok. As I'm still a little confused.

Firstly on 29th May 09, my bond was worth £38,278.25. Today it is worth £38,273.25. So it has gone down ever so slightly in the last month and a bit, despite you saying that the Life version has increased by 5.21%. So i'm a little confused by that still. There has been no withdrawals since 29th May either.

Secondly, I'm getting my info from trustnet.com. It has factsheets for all the different funds.

On trustnet, the Bid price for the Zurich version is 115.5. This is less than any of the variations (A,B,C or D) of the regular 7IM Balanced Fund. (I don't know which one i'm invested in, but it is definitely in Accumulation units). Also whilst I'm on this point, if I'm taking an income quarterly out of the bond, should I not have been invested in the 'Inc' funds?

As for the Cazenove fund I'm totally confused here, because the prices are completely different. 269.8 for the Zurich version, as opposed to 67.12 for the regular. Any chance you could explain that to me as well? I thought I was quite good with numbers, but obviously not that good!!

You also mention two different forms. The Life form and the Unit Trust form. If they are the same fund, fund manager etc, how can they perform differently in different forms? If that makes any sense to you! You say the Life version has done better than the U/T version.

And that brings me to my final question. When researching funds for my bond (for future switching etc), do I then need to find the Life version of the fund as opposed to the Unit Trust version? And as a rule of thumb, if the U/T version is performing well, does it mean the Life version is as well? I found the fund tool on citywire.co.uk as quite useful in looking at fund performance.
Is this similar to what you were using? And could you provide me with your link for a comparison?

I'm sorry for asking so many questions and being a pain! You just can't find the answers to these types of queries on the net.

Many Thanks again, :beer:

Richie.

dunstonh

Firstly on 29th May 09, my bond was worth £38,278.25. Today it is worth £38,273.25. So it has gone down ever so slightly in the last month and a bit, despite you saying that the Life version has increased by 5.21%. So i'm a little confused by that still. There has been no withdrawals since 29th May either.

That seems correct.

I just put the 70/30 split into Finex and did a chart from 29th May (obviously you wont have exact 70/30 now but its close enough without knowing more specific details). It was down 0.18%. The unit trust version was down 0.14%

The difference is down to charges, tax and that life funds are priced one day later than unit trust funds.

On trustnet, the Bid price for the Zurich version is 115.5. This is less than any of the variations (A,B,C or D) of the regular 7IM Balanced Fund. (I don't know which one i'm invested in, but it is definitely in Accumulation units). Also whilst I'm on this point, if I'm taking an income quarterly out of the bond, should I not have been invested in the 'Inc' funds?

That identifies that you have S1 version of the fund (S1 isnt marked as any series. Series 2 is marked as S2).

Most life funds are accumulation units due to the taxation method of the life fund wrapper. Its makes no differene as income is reinvested within the fund and factored into the unit price.

As for the Cazenove fund I'm totally confused here, because the prices are completely different. 269.8 for the Zurich version, as opposed to 67.12 for the regular. Any chance you could explain that to me as well? I thought I was quite good with numbers, but obviously not that good!!

The price has nothing to do with the value. The funds get launched on different dates and with different starting unit prices. The Cazenove fund was launched in Sept 88 but only become available on the Sterling bond in July 08.

If you have a unit price of 100p and buy £1000 worth then you get 1000 units. If the unit price is 200p and buy £1000 worth then you get 500 units. £2.00x500=£1000 £1.00x1000 =£1000. Different unit price but same value as the units held makes the difference.

There is no measure of comparison in unit prices (or share prices) by the share price alone.

You also mention two different forms. The Life form and the Unit Trust form. If they are the same fund, fund manager etc, how can they perform differently in different forms? If that makes any sense to you! You say the Life version has done better than the U/T version.

Life funds and pension funds are valued a day later than unit trusts. You also have different charges and different taxation. Unit trusts dont pay corporation tax within the funds. Life funds do. In periods of growth, the fund manager has to fund, in advance, corporation tax payments that will come due for the growth. In periods of decline, the money put aside for corporation tax but no longer required to be paid as there is a loss is then fed back into the fund (increasing the unit price). It is usual to see unit trust funds outperform life funds in growth periods but underperform life funds in downturns (based on equity content as income within life funds and unit trusts is largely handled the same way).

Some life funds are mirror funds, some may have a tracking error. That tracking error can sometimes work against you but also for you. Some bad examples also have an extra layer of charges that mean the life fund version constantly underperforms by a long way.

And that brings me to my final question. When researching funds for my bond (for future switching etc), do I then need to find the Life version of the fund as opposed to the Unit Trust version? And as a rule of thumb, if the U/T version is performing well, does it mean the Life version is as well?

You need to find the life fund version.

The ISIN for the Caz is GB00B2RKSL30 and for 7IM is GB0033841981

As a rule of thumb the performance will be similar but at different times one will be better than the other but not much in it.

I found the fund tool on citywire.co.uk as quite useful in looking at fund performance.
Is this similar to what you were using? And could you provide me with your link for a comparison?

I use financial express analytics. Its the same as Trustnet but has far more options, features and tools. It costs £5k a year though and is aimed at IFAs and investment managers. I can output in pdf form but I cant give you a webpage as you would need my login. If you want, you can PM me your email address and I will pop the pdf over to you with the the fund data on the two funds and the charting that I have used that compares the UT version against the life fund version.

Myrmidon_J

richp2k wrote:

Firstly on 29th May 09, my bond was worth £38,278.25. Today it is worth £38,273.25. So it has gone down ever so slightly in the last month and a bit, despite you saying that the Life version has increased by 5.21%.

Here's your answer:

dunstonh wrote:

... performance over the last 3 months shows the Life fund version is up 5.21% with the unit trust version up 4.41%.

As dunstonh explained, the unit price on any specific day has nothing to do with performance.

Different incarnations of the fund are released at different times, by different providers, in different wrappers, etc.

These constitute "funds" in themselves - e.g. Sterling Cazenove Multi Manager Diversity. These funds will behave in a similar fashion to the 'underlying' Unit Trust or OEIC, but are priced differently.

One reason for this is the tax status of the fund. Oversimplifying for a moment, in a pensions 'wrapper', the investments make a gross return - so the fund will most likely do "better" than its UT / OEIC counterpart.

Another reason is the charges applied to the fund. Some contracts (e.g. your bond is life insurance) charge more than others - and some IFAs take more commission - ultimately, fund performance will reflect this.

Also, some Life and Pension providers create "mirror" funds, that do not entirely accurately reflect the underlying (named) UT or OEIC. But I think I am correct in saying that Sterling funds invest directly in the fund concerned (albeit at a slight delay), so performance should at least be similar.

I use Financial Express for data mining. But my firm pays £5,000 a year (or something like that) for the privilege, so I can't help you I'm afraid!

Any more questions, fire away.

Myrmidon_J

dunstonh: JINX!

dunstonh

Myrmidon_J wrote: »

dunstonh: JINX!

You just beat me to it on one in the pensions section

Myrmidon_J

dunstonh wrote:

You just beat me to it on one in the pensions section

I have a great deal of respect for your well-thought-out and intelligent responses to queries. I am (perhaps unjustly) quite smug that I managed to cover at least some of the salient points in my own effort!

richp2k

well thanks very much for your responses guys. on a general note, i find this all very complicated without someone to assist me, and I'm sure I'm not the only one. They should get this stuff taught in schools to help with people's financial future - instead of teaching our kids the waffle they do now, that they'll never need to know in the future!

Anyhow (rant over!), the only question i have left really if you don't mind answering it for me, is after everything you have both said, am I set-up as best as I could be? What I mean is, i'm sure there are better performing funds in the cautious sector i could be invested in? And also, was the sterling bond the best option for me, if i'm just after a regular quarterly income with no tax implications? It's a bit late for me now to cancel it, as I would be hit with a large surrender penalty, but I'm wondering if my IFA actually advised me as best they could.

And finally, I do want some growth with my capital if possible. With these funds do you see that happening? I know it's impossible to predict what will happen, but with both your experience, do you see them giving me some long term growth?

Many thanks again, i really appreciate it.


Richie.

Myrmidon_J

richp2k wrote:

... I find this all very complicated without someone to assist me, and I'm sure I'm not the only one. They should get this stuff taught in schools to help with people's financial future - instead of teaching our kids the waffle they do now, that they'll never need to know in the future!

I entirely agree. Financial education is very important; I think people are starting to realise this now. Mortgages, pensions, savings and investments - these are not somehow "over there", in a magic box, but have a profound effect on quality of life!

Etc.

i'm sure there are better performing funds in the cautious sector i could be invested in?

There are almost always "better performing funds" in the sector that you could be invested in. If you constantly chase the top-performer, however, you're likely to end up disappointed: very few funds are able to maintain consistent outperformance.

Of far more concern is the asset allocation of the funds themselves. I actually quite like the 7IM approach; I think the 'Balanced' fund is well diversified and should be considered suitable for long-term investment.

The Cazenove fund is more of a mystery. The managers have more of an "active" style, which can bring significant rewards. Indeed, recent fund performance has been strong. But the fund has a greater risk of "blowing up" (compared to its sector peers), if certain calls are incorrect.

And also, was the sterling bond the best option for me, if i'm just after a regular quarterly income with no tax implications?

It is true that you pay no tax on bond withdrawals. It is not true that there are no "tax implications". For non-taxpayers, investment bonds generally represent a poor option; for higher-rate taxpayers (especially those who may pay less tax in the future), they have considerable merit.

It is hard to comment on the suitability of the investment (and wrapper) without additional knoweldge of your circumstances.

What is your attitude towards risk?
What is your minimum investment timescale?
What is your tax status?

Have you already used your ISA allowance for the year?

Etc.

And finally, I do want some growth with my capital if possible. With these funds do you see that happening? I know it's impossible to predict what will happen, but with both your experience, do you see them giving me some long term growth?

Since inception, the Cazenove fund has returned approximately 4.2% (annualised), whilst the 7IM fund has returned 3.0%. (I am considering the underlying fund, not the Sterling version, as the history is longer.) This is despite the recent market falls.

I would expect long-term returns to be slightly in excess of this. The average 'Cautious Managed' life fund has returned around 4.5% per annum over the last 20 years.

If you are making a regular withdrawal (5.0%, perhaps?), then this - combined with the effect of ongoing charges, etc. - will reduce, and possibly eliminate altogether, any "growth" in the funds themselves.

If you want to secure a regular income, and also achieve "growth", then you may have to reconsider your attitude towards risk.

richp2k

Thank you Myrmidon_J for your response too.

To answer a few questions you asked. Firstly I do utilise my ISA allowance, so that isn't an option in this case. Secondly my attutude toward risk is cautious to be honest. To put it simply, I do not particularly trust (and never have) financial institutions, and not being what I would consider to be well-off enough to be able to consider myself able to gamble with funds more, I will always be on the cautious side. Even if I achieved no growth, then as long as any loss through charges, withdrawals etc was minimal, you could say as an end result that I'd be very happy with that! I am also a basic rate tax-payer, and if you believe that the Bond might not have been the best option for me, I'm stuck with it for a few years now - at least till the surrender penalty has passed! :rolleyes:

My investment timescale is approximately 5 years. Naturally if something came along that was longer or shorter on the scale, but seemed a good thing, I would no doubt consider that. At the end of the day I guess it's all down to the funds that I am invested in. I understand what you are saying about chasing the top-performer, I wouldn't have the time to do this anyhow, but it seems to me that people do pick the right funds at the right time, and I often wonder just how they do it! I have read about a Newton japan fund, that wasn't considered anything too special at the time, but has since had astronomical returns.

I suppose what i'm trying to say is due to my lack of knowledge, if you or anyone can point me toward some funds that perhaps aren't too risky, but are looking like potential goldmines (;), ha ha!), then I'd appreciate you sharing the information with me. Or funds that in your opinion are better than the ones I have now. I would never consider anything risky, i think medium risk would certainly be the limit for me.