What would it have made in the bank?

Lokolo

Rollinghome wrote: »

Please don't resort to abuse. You of course are IFA dependent on selling funds for the investment companies on commission and it's quite understandable why you would want to talk down investments that pay you less commission and talk up those that pay you most.

To be fair, Dunston has a point. This thread had nothing to do with IFAs until you came along....

cheerfulcat

ANGLICANPAT wrote: »

OMG Im shocked ! Im sure Ive read over the years, in various advice articles to punters like me and OH that this L&G fund is a good core one to have!

Hello, Anglicanpat,

IMO a tracker fund is great for regular investments. For a lump sum maybe not so good, as you are buying the market at whatever level it is at the time of purchase, and following the ups and downs.

Even allowing for re-investment of dividends, you could spend an awfully long time underwater. If you had been actively buying throughout the last 11 years you would undoubtedly have had a better return.

Just_landed

ANGLICANPAT The moral of the story is that cash ISA’s like I found out pay more than S & S Isa’s over the long term because they only go one way UP. With S & S Isa’s they rely on the stock market - up ,down, up down, like wise pension funds. I bet over the last 11 years you could of averaged at least 4% in cash Isa’s. Mind you im only talking from experience.

Just_landed

ANGLICANPAT here is a link to simple interest calculator, I know its in $ but just read it as £


http://www.moneychimp.com/calculator/compound_interest_calculator.htm

jamesd

ANGLICANPAT, a tracker fund is recommended for a few cases:

1. For investors who will not monitor and adjust their investments, so who need something that will give middle of the road performance if ignored for twenty years. A large number of UK investors, particularly in their pensions, fall into this category. If they aren't paying attention about the least bad thing that can be done is tell them to use a tracker so they can't go too far wrong compared to the market as a whole.
2. Sometimes as a core holding with others around it.
3. Sometimes by those who think fees are most important and who don't want to try doing better than average.
4. In the United States, where there are punitive tax penalties for holding investments for under a year that on average (but not necessarily for specific funds or at specific times) can eliminate the advantage active funds deliver in raw performance there. The UK doesn't have the same short term tax penalty as the US. This still doesn't prevent people from misapplying the US results to the UK while ignoring the big tax difference.

In your case it seems that it might have been part of a mixture of funds put together by an IFA who expected to continue to actively manage them. One of the key things to do in active management is called rebalancing: taking money out of funds that move up and down a lot and into funds that move up and down less when markets are high and the reverse when they are low. If this was done in your case you should have had gains that don't show up in the performance of the individual fund because you can make money this way even if the tracker funds involved start and finish a period at exactly the same value, exploiting their different movements in the meantime.

There's no telling what China will do except be very volatile. The main negatives of the Bolton fund are:

1. The performance fee, 15% of any growth above the MSCI China index.
2. Inexperience in the market, at least for Bolton himself.

Personally I'm not using that fund but other China and Asian funds instead. More Asia in general than China only because that gives the fund manger somewhere else to put the money if China looks to be doing badly. Being extremely specific can lock the manger into only bad choices if that narrow area is doing badly, so it's nice to give some options unless you're paying very regular attention and moving money around as needed.

Some funds you might consider that aren't quite so China specific but still gain if it gains:

Fidelity South East Asia or the less volatile First State Asia-Pacific Leaders.

JPM Natural Resources or the less volatile M&G Global Basics.

Volatility is recent, not necessarily long term. You might choose the more volatile one if you're confident of short term growth, the less volatile one to hedge your bets if you think there might be falls. Switching between them can have the effect of locking in some of the gains - gaining faster with higher volatility then switching and dropping less if there's a fall.

Rollinghome, you might try to note that here we're writing to an investor who used a tracker fund and who is unhappy with its performance compared to managed funds like Invesco Perpetual High Income that were recommended by her IFA. You should also read the FT things with a bit more caution, since the FT has recently been running a series that did crazy things like comparing the cost of Invesco Perpetual High Income with a FTSE tracker and reporting how much you'd have at the end after fees, treating both as if they had the performance of the tracker. That's ridiculous because the Invesco perpetual High Income fund performed far better and would have delivered a lot more than the tracker delivered, both after their actual fees. Which is what ANGLICANPAT has experienced. You might also recall that I'm not in the financial services industry and use both tracker and managed funds, depending on the market and what I'm trying to achieve.

You should also consider a bit more about those Morningstar ratings. Risk is average for the funds in the UK Large Cap category, not to all funds in all categories and the same applies somewhat to the return:

"Morningstar Risk Rating

An annualized measure of a fund's downside volatility over a three-, five-, or ten-year period. This is a component of the Morningstar Risk-Adjusted Return.

Morningstar Risk Rating is derived directly from Morningstar Risk. In each Morningstar Category, the top 10% of investments earn a High rating, the next 22.5% Above Average, the middle 35% Average, the next 22.5% Below Average, and the bottom 10% Low. Investments with less than three years of performance history are not rated."

"Morningstar Return

Morningstar return is an assessment of the fund's excess return over a risk-free rate (the return of the 90-day Treasury bill) in comparison to similar funds, with an emphasis on downward variation. Therefore, if two funds have precisely the same return, the one with greater variations in its return is given the larger risk score. In each Morningstar Category, the top 10% of funds earn a High Morningstar Return, the next 22.5% Above Average, the middle 35% Average, the next 22.5% Below Average, and the bottom 10% Low. Morningstar Return is measured for up to three time periods (three-, five-, and 10-years). These separate measures are then weighted and averaged to produce an overall measure for the fund."

I'm not sure why you considered the income version of the fund (that pays out the dividends) instead of the accumulation version (that reinvests them).

If you compare the accumulation version with the accumulation version of Invesco Perpetual High Income, one of the most popular managed funds in the UK, here's how it goes according to those Morningstar pages:

10 year annualised return: 2.10% unmanaged, 11.21% managed (do remember this is after fees...)
10 year return: above average, high
10 year risk: above average, below average

So to summarise using the ratings you seem to prefer, the managed fund delivered five times the average growth rate each year, with high rather than average returns and with below average rather than average risk. And it was one of the best sellers, not just one that only with hindsight can be picked out as having done well.

There's also a no trail commission version of Invesco Perpetual High Income available, with as expected a 0.5% lower TER. This is the one you'd expect an IFA taking fees instead of commission to use these days, though it hasn't been around as long and might not be available on all investment platforms yet.

dunstonh

There's also a no trail commission version of Invesco Perpetual High Income available, with as expected a 0.5% lower TER. This is the one you'd expect an IFA taking fees instead of commission to use these days, though it hasn't been around as long and might not be available on all investment platforms yet.

Many of the platforms haved unbundled the charges already (the others are in process of doing it) and work on the basis where you agree the fee with the IFA (i.e. 0%, 0.25% or 0.5% or whatever you agree) and all trail commission is rebated but the IFA charge is then deducted. So, if the no trail version was used on a 0.5% fee the net effect would be the same as using the trail version. Equally if there was no ongoing fee then the rebate would cancel out the difference.

Linton

Just_landed wrote: »

ANGLICANPAT The moral of the story is that cash ISA’s like I found out pay more than S & S Isa’s over the long term because they only go one way UP. With S & S Isa’s they rely on the stock market - up ,down, up down, like wise pension funds. I bet over the last 11 years you could of averaged at least 4% in cash Isa’s. Mind you im only talking from experience.

No way!! Sure if you put all your funds in something like a FTSE tracker you could well be worse off than in cash. However good investing means diversification, so you arent dependent on the main UK stock market indices which are dominated by a few large companies.

I have done reasonably well by having a significant amount (say 30%) in long term cash (not cash ISA's which dont seem to offer sufficent return for a basic rate tax payer) and a similar amount in a range of higher risk funds - raw materials, far east, emerging markets, technology, small companies,special situations etc. Over the long term these riskier investments are averaging about 10% per year.

The riskier investments are volatile, but the large cash buffer means that one isnt forced to sell at a bad time.