Fund Selection for first timer

C_Mababejive

RE Stocks and shares ISAs...am i right in saying that this is only a mechanism for;
a)sheltering gains from CGT
b)paying lower rate of tax on divis for higher earners

Also if your allowed to put £7200 in such an account,,can you make deposits as many times as you like and how is the max value of £7200 decided? Is it the value of the shares at the point when they enter the ISA?

For example,if in month one i deposit shares (maybe bed and isa) up to a value of £6000 at transfer,,,six months later the value has risen miraculously to £8000...can i still deposit another £1200 worth of stock??

Whats the difference between a SIPP and a S&S ISA??

If you already have an employer FSPS is it worth opening/can you open a SIPP or would there be more value in AVCs?

Sorry for all the questions..i thought id put them all in one post

Thanks

koru

C_Mababejive wrote: »

RE Stocks and shares ISAs...am i right in saying that this is only a mechanism for;
a)sheltering gains from CGT
b)paying lower rate of tax on divis for higher earners

yes

C_Mababejive wrote: »

Also if your allowed to put £7200 in such an account,,can you make deposits as many times as you like and how is the max value of £7200 decided? Is it the value of the shares at the point when they enter the ISA?

For example,if in month one i deposit shares (maybe bed and isa) up to a value of £6000 at transfer,,,six months later the value has risen miraculously to £8000...can i still deposit another £1200 worth of stock??

yes. It is the amount you put in that matters. Many ISA managers will have a limit on the minimum amount you can put in at any one time.

C_Mababejive wrote: »

Whats the difference between a SIPP and a S&S ISA??

This has been covered in many other threads. Do a search.

C_Mababejive wrote: »

If you already have an employer FSPS is it worth opening/can you open a SIPP or would there be more value in AVCs?

I will leave this for other people. At the risk of extreme hypocrisy, I wonder if it would be better to raise this in a new thread. This thread has already gone off topic (and I have contributed to that), but pensions is really a completely different topic.

C_Mababejive

One final point thats confusing...on the HMRC website isa guide
http://www.hmrc.gov.uk/ISA/faqs.htm#10
It says you pay no tax on interest,dividends and bonuses. Does this just apply to basic rate taxpayers??

koru

C_Mababejive wrote: »

One final point thats confusing...on the HMRC website isa guide
http://www.hmrc.gov.uk/ISA/faqs.htm#10
It says you pay no tax on interest,dividends and bonuses. Does this just apply to basic rate taxpayers??

No, it applies to anyone. However, in many cases a basic rate taxpayer would pay no extra tax on UK dividends, as they come with a tax credit which meets the basic rate liability.

giruzz

jamesd wrote: »

Note sure that the 12.5% in gilts is a good idea when there's every reason to believe that quantitative easing has caused a significant price bubble in that market. I haven't checked whether M&G SECURITIES LTD INDEX LINKED BD also uses gilts but I'd be cautious about that one at the moment if it does use them a lot.

Asia-Pacific and Latin America have both had a very good year and there's reason to wonder if they are more set for a drop than additional large increases but those don't seem too unreasonable so long as you know this and are happy to accept the risk for the long term.

Some nice funds there assuming that you do want the high non-UK weighting that you have. I would want that, personally.

Hi,

The M&G SECURITIES LTD INDEX LINKED BD is UK Gilt too. I just felt that GILT were a bit safer than a stock investment in the UK.

To be honest I don't have too much hope for the UK economy, to many open questions and I don't have too much faith for the future...

The funds on Bric and Apac have performed very well recently and I'm a bit concerned on the economy in China. On the other hand, if we are concerned on China...what else can we invest?

The US economy is still weak, the prospect on the European economy aren't encouraging....

so I just tried to make things balanced.....

regards,

giruzz

jamesd

Rollinghome wrote: »

Several of your posts including this one http://forums.moneysavingexpert.com/showthread.html?t=1027133&highlight=cru from 18 months ago perhaps illustrate the problem.

For the CF Arch Cru Investment Portfolio fund I concluded around 14-15 months ago that I didn't trust the results or most prominent person involved with the fund, so around that time I'd have sold any holdings in it. That's around the time I stopped mentioning it. I did something similar for commercial property when I decided I wasn't comfortable with new buying in that area. I'm currently very close to that point with an alternative fixed interest investment firm, largely due to management performance in the area of informing investors of significant items or changes in properties of the investment and some significant historical information that turned out to be seriously inaccurate - too many red flags being tripped about issues that matter too much.

The rest seem to have delivered reasonably on a fairly low ups and downs brief, though with definite underperformance of benchmarks sometimes, notably for Invesco Perpetual Income. I'd probably have substituted a corporate bond fund for the Cru fund or commercial property and that would have worked out reasonably.

So if I was an IFA providing active fund selection services I'd probably have come out with tolerable results on that brief.

For myself I did reasonably well:

1. Stepped up pension contributions to all but minimum wage via salary sacrifice for the 2008-9 tax year to buy during anticipated market lows.
2. Kept lots of non-pension cash during 2008 and early 2009 and phased it into investments early enough in 2009.
3. Added to investments in 2009 with borrowed money.
4. Didn't switch enough ISA money out of emerging markets as I should have done, and missed one significant red flag that should have caused me to move out of Russia before that market dropped rapidly.
5. Used lots of emerging market and raw materials investments in 2009.

How I'll do in the future is unknown. I've been fortunate as well as trying to do sensible things for the situation.

koru

koru wrote: »

For instance, one study finds that the number of US active fund managers who outperform the market is pretty much what you would expect as a result of pure luck.

On the other hand, here is another study which suggests there are US active fund managers who can consistently outperform the market, but only if they are actively picking individual stocks and heavily weighting their portfolios to these stocks and under weighting the rest of the index.

http://rfs.oxfordjournals.org/cgi/reprint/hhp057?ijkey=M0noS3O1M6QvzdG&keytype=ref

Click on download.

Being a very active stock picker does not guarantee you will beat the market, of course, but it is apparently a better predictor of future outperformance than anything else. Choosing the funds that make the biggest stockpicking bets compared with the index, where the fund is smaller than average and has performed in the top 20% of funds over the prior year will apparently give, on average, 6.5% better returns than the index. Of course, this is for the US, but I cannot think of any reason why the same would not be true in the UK (although I accept that it might not be). Of course, the problem is that the academics used some pretty sophisticated analysis to identify these funds and you can't just find this information on Morningstar. (Someone should launch a fund of funds which passively invests in funds which meet these criteria.)

An important further point from the paper is that simply picking a well reputed fund management house is no guarantee that they will be running the kind of fund that is likely to outperform. They show that Fidelity Magellan has been a closet tracker for a long time. Shockingly, about half of US active funds (measured by total assets) have, since the late 90s, been close to closet trackers (whereas in the early 80s, there were virtually none. I would love to see equivalent UK figures.

koru

xyy123 wrote: »

On a massive tangent, Goldman Sachs once did a random study of 100 of their employees and asked all of them to shut their eyes and put their hands up if they thought they were in the top 5% of the company. They opened their eyes and 95 people had their hand up. A cynic cannot help but appreciate the similarity in fund management.

This cynic suspects that the 5 who did not have their hand up probably got sacked by Goldmans shortly after. Maybe many of the 95 knew they were not the elite, but also knew it would be very dumb to admit they knew!

Rollinghome

[

jamesd wrote: »

So if I was an IFA providing active fund selection services I'd probably have come out with tolerable results on that brief.

Hmm, I'm not so sure. Have you actually calculated what a portfolio following those recommendations would now be worth?

I don't know what investors eventually got when the Cru funds were forced to shut down a few months after your recommendation but for someone with 20% of their pf there I assume it would have been a big hit.

The Invesco Perp Income funds of course now hover between bottom and 3rd from bottom in their sector this year even though things may well improve longer term.

The Blackrock Absolute return fund, a suggested 30% of the pf, with a claimed target of 10% p.a. was actually down over the year following your recommendation in July when it had peaked. Now 18 months on from there it's managed to struggle to being 4% up but that isn't quite what I assume was hoped of an absolute return fund taking an additional performance bonus of 20% for everything over libor.

I don't say that as a criticism. You give the impression of being one of the savvier posters on this board and presumably had given that portfolio recommendation some thought as you posted it a total of 30 times. But it does seem to illustrate how difficult it can be to select actively managed funds on the basis of past performance.

Rollinghome

koru wrote: »

Incidentally, it has been contended that most of the US studies are irrelevant in the UK because trackers have a tax advantage in the US which will tend to help them seem to perform better than active funds. However, most of the US studies I have seen seem to compare actively managed funds with the index and with the average performance for the sector, rather than directly comparing with trackers. In the case of these US studies, tax should not distort the findings.

My understanding is that management charges on UK active managed funds are generally higher than in the US which would make the picture for UK funds somewhat worse than shown by the US studies.