Knowledge- Advice -Advisers how much do I need

dunstonh

Stats (apparently) don't support the view that managed funds (on the whole) do better than the index

Take a look for yourself. See where the HSBC trackers come out in their respective sectors compared to sector average. (you will find them consistently around mid table). There are times its worth having both managed and trackers. But dont assume that trackers are best all the time. Also, remember that the much of the tracker research is American and ported over here. Yet the US tax system hits managed funds harder than trackers so it is harder over there and trackers do make more sense. That handicap doesnt apply in the UK.

You will get people that are at the two extremes and be pro tracker and pro managed. The best way is for you to look for yourself on trustnet and see where the trackers are against other funds in the same sector.

This way I spread the investment risk, the 'fund picker is useless risk', and reduce the commission charges.

Dont go commission. Go fee based. You should find that the cheaper option.

dougz_2

dunstonh wrote: »

you will find them consistently around mid table

Doesn't this sound like rather good for the trackers though? i.e suggests being in the others carries a significantly increased risk, without a significant increase in average return?

Rollinghome

dougz wrote: »

Doesn't this sound like rather good for the trackers though? i.e suggests being in the others carries a significantly increased risk, without a significant increase in average return?

But not good for commission-based IFAs as the low cost ones don't pay them commission. HSBC ended commission payments on all 7 of their trackers last year and reduced AMCs from 1% to just 0.25% and typical TERs of about 0.28%. Which of course will give them still more of and edge.

In contrast, trackers are far more favoured by true fee-based IFAs who return all commssion.

http://www.investorschronicle.co.uk/InvestmentGuides/Funds/article/20090803/baf03a68-7dc7-11de-9704-0015171400aa/How-low-can-fund-fees-go.jsp

From Morningstar (notice important consistency):
Legal & General UK Index Trust (R) Inc
Morningstar Rating™(Relative to Category)31/01/2010
3-Years
Return: Above Average
Risk: Average
5-Years
Return: Above Average
Risk: Average
10-Years
Return: Above Average
Risk: Average
Overall
Return: Above Average
Risk: Average

Source http://www.morningstar.co.uk/uk/snapshot/snapshot.aspx?tab=2&id=F0GBR04D9X&lang=en-GB

Note: The HSBC trackers now have AMCs lower than the 0.5% of the L&G funds.

Aegis

Rollinghome wrote: »

In contrast, trackers are far more favoured by true fee-based IFAs.

Do you have statistics on this? I ask because my limited exposure to fee-only IFAs actually shows a preference for managed funds with good investment strategies and managers rather than trackers (where possible), with unit trusts, OEICs and investment trusts all considered depending on the client.

I've seen a couple of IFAs which advertise as being tracker-only, but that's one or two who believe in the strong or semi-strong form of the efficient market hypothesis rather than being a general tendency across fee-only IFAs.

dunstonh

But not good for commission-based IFAs as the low cost ones don't pay them commission. HSBC ended commission payments on all 7 of their trackers last year and reduced AMCs from 1% to just 0.25% and typical TERs of about 0.28%. Which of course will give them still more of and edge.

Personally, I prefer the blackrock trackers when I use them.

In contrast, trackers are far more favoured by true fee-based IFAs who return all commssion.

evidence please.

Doesn't this sound like rather good for the trackers though? i.e suggests being in the others carries a significantly increased risk, without a significant increase in average return?

Yes it is. There are times that you want portfolios to have some money in a sector or even all of it on that basis. However, the point was that mid table is not quite the same as outperforming 9 out of 10 funds.

Linton

Rollinghome wrote: »

But not good for commission-based IFAs as the low cost ones don't pay them commission. HSBC ended commission payments on all 7 of their trackers last year and reduced AMCs from 1% to just 0.25% and typical TERs of about 0.28%. Which of course will give them still more of and edge.

In contrast, trackers are far more favoured by true fee-based IFAs who return all commssion.

http://www.investorschronicle.co.uk/InvestmentGuides/Funds/article/20090803/baf03a68-7dc7-11de-9704-0015171400aa/How-low-can-fund-fees-go.jsp

From Morningstar (notice important consistency):
Legal & General UK Index Trust (R) Inc
Morningstar Rating™(Relative to Category)31/01/2010
3-Years
Return: Above Average
Risk: Average
5-Years
Return: Above Average
Risk: Average
10-Years
Return: Above Average
Risk: Average
Overall
Return: Above Average
Risk: Average

Source http://www.morningstar.co.uk/uk/snapshot/snapshot.aspx?tab=2&id=F0GBR04D9X&lang=en-GB

Note: The HSBC trackers now have AMCs lower than the 0.5% of the L&G funds.

Doesnt it rather depend on what sector you are talking about? The L&G fund's sector is UK Large Cap Equity. If that's really what you want to invest in, and you have say £20K, IMHO you would be better off buying shares directly. In that sector it is rather hard to do very badly and you are never going to make a fortune.

Now consider rather more interesting sectors - eg Far East, Special Situations, Technology, Small Companies. Here you will find that trackers either dont exist or do relatively badly.

Go onto Trustnet where you can sort by overall return and have a look at the really succesful funds - I doubt you will find any trackers there.

Your case that trackers are always the thing to go for does not seem justified on the flimsy evidence of one fund in an undemanding area.

The key thing is to decide which sector you want to invest in, and then chose an appropriate fund. In some cases that could be a tracker, in most it will not. To start off with the decision that you will be going for a tracker seems bizarre.

Rollinghome

dunstonh wrote: »

evidence please.

Let's put it this way, if you can be bothered there are plenty of fee based advisers out there banging the drum for trackers, some might say too loudly, and you certainly won't find commission-based IFAs doing that for obvious reasons. There's probably a fairly obvious reason why they take that view. By suggesting trackers they can offer funds that are consistent and likely to outperform the majority of funds without the risk of upsetting the client with a fund that's been a good performer in the past but suddenly starts to under-perform. Like those funds did well by being over-weight in banks until it unravelled and like Invesco Perpetual Income now.

Whatever their merits, funds like the HSBC trackers that pay them no commission aren't going attractive to commission-based advisers. Turkeys and Christmas and all that. As has been obvious from your determination to rubbish trackers over a very long period with various claims including that they were particularly high risk made in a way that suggested they were higher risk than comparable managed funds and your claim that "FTSE100 trackers have been consistently in the 4th quartile for the last 15 years" based on who knows what.

But it's nice to see you're starting to adopt a slightly more balanced view at last. Possibly not unconnected with your claims now to be a fee-based adviser in the face of so much adverse comment and scandal about commission bias among IFAs, Park Row being the latest, and the steps being taken by the FSA to deal with it with the RDR.

dunstonh wrote: »

Personally, I prefer the blackrock trackers when I use them.

Why, do they pay commission? Whatever the reason, glad to see you might at last be taking the time to at least understand trackers and perhaps other investments that don't pay you commission such as investment trusts. Good practice for when backhanders from the fund managers are abolished by the FSA. A short time ago they were a total mystery to you includig their costs. It's good that you're making an effort at last and hopefully good for your clients.

(By the way, could you try using the quote button rather than including unsourced quotes as if they're from the same poster. Thanks.)

Rollinghome

Linton wrote: »

Doesnt it rather depend on what sector you are talking about? The L&G fund's sector is UK Large Cap Equity. If that's really what you want to invest in, and you have say £20K, IMHO you would be better off buying shares directly. In that sector it is rather hard to do very badly and you are never going to make a fortune.

Doesn't what depend on what sector being talked about?

On buying shares directly, which is what I do mostly for UK shares, that rather depends on whether the investor feels confident to do that, including the hassle of dealing with rights, takeovers etc., how well spread in how many companies he wants to be, his preferred broker and how long he intends to hold.

When you take into account broker fees for buying/selling, stamp duty, and the spread then a tracker can often be the cheaper option, especially with AMCs of just 0.25%. If the investor wanted to use H-L and hold shares in an ISA they'd charge him an additional 0.5%. Personally, I certainly wouldn't bother with direct holdings with the object of tracking the market for as little as £20K but others might differ. Companies don’t make it easy now for us small shareholders.

Linton wrote: »

Now consider rather more interesting sectors - eg Far East, Special Situations, Technology, Small Companies. Here you will find that trackers either dont exist or do relatively badly.

I assume you mean unit trust trackers. There's far more choice as ETFs. Trackers work best in well-regulated markets and less well with small caps. Also if you want say a fund that's weighted towards income then that wouldn't find that among unit trust trackers. Quite how or why you could expect to have a "Special Situations" tracker is beyond me.

Linton wrote: »

Go onto Trustnet where you can sort by overall return and have a look at the really succesful funds - I doubt you will find any trackers there.

You very clearly haven't got your head round this and have missed the point entirely. This thread might help you: http://forums.moneysavingexpert.com/showthread.html?t=2209297&page=3

Linton wrote: »

Your case that trackers are always the thing to go for does not seem justified on the flimsy evidence of one fund in an undemanding area.

Sorry, that's nonsense. If you can find any post where I've ever made where I’ve suggested such a thing then please refer me to it. What you will find me saying is that it is wrong for commission based based IFAs to misrepresent the facts on a board like this for their own interests and dismissing the possiblity that low cost trackers might suit some investors.

I think you really do need to try harder to read what people post before making such claims.

dunstonh

Why, do they pay commission?

I dont take commission. So, it wouldn't matter.

Whatever the reason, glad to see you might at last be taking the time to at least understand trackers and perhaps other investments that don't pay you commission such as investment trusts.

I have used trackers plenty of times. However, I am not blinkered into thinking they fit every area. In some areas they are fine but most people are not looking for average and that is what the tracker will most often provide in many areas. And as has been said many many times but you choose to ignore, IFAs cannot recommend ITs unless they are packaged or they have links to a stockbroker.

Rollinghome

dunstonh wrote: »

I dont take commission. So, it wouldn't matter.

I noticed you said that the other day.

So do you mean don't have any client accounts now where you keep any of the commission? You were saying on this board not long ago that you generally rebated part of the initial commission and kept the trail. When did you change? Do you expect other commission based IFAs to do the same well ahead of the new rules proposed in the RDR?

I'm still interested why you prefer Blackrock. Especially as in another post you said you favoured Gartmore (apparently unaware that they underperformed competitors presumably because of the high AMC which included 0.5% trail commission). In what way is Blackrock better than others? Provided the tracking error is reasonable then price is the normal decider. Is the Blackrock cheaper than the competition?

dunstonh wrote: »

I have used trackers plenty of times. However, I am not blinkered into thinking they fit every area. In some areas they are fine but most people are not looking for average and that is what the tracker will most often provide in many areas. And as has been said many many times but you choose to ignore, IFAs cannot recommend ITs unless they are packaged or they have links to a stockbroker.

I assume you mean unit trust trackers and not ETFs. And nor should anyone think UT trackers fit in every area. They clearly don't. They neither fit all areas nor fit the requirements of all investors, especially those who want higher income or higher or lower risk than the tracked index.

But in suggesting UT trackers will always be average you seem to be ignoring the Morningstar research on tracker funds. They show that trackers can consistently deliver above average returns with only average risk. I assume you were aware of that?

I posted details of the L&G fund even though it's not likely to perform as well as the lower cost HSBC funds etc. because it has the longest track record. I'd suggest the sensible approach would be to go with a fund demanding higher fees when, but only when, there's a proven advantage in doing so. And that advantage shouldn't be that it pays great commission or for marketing reasons.

I know that some IFAs, especially smaller ones, aren't able to sell ITs but surely that doesn't mean they shouldn't at least have a reasonable understanding of them. I don't see how it's possible to tell a client that one investment is right for them without any knowledge of the alternatives - including ITs.

I understand that's another area to be addressed by the FSAs RDR with the requirement for better qualifications so that IFAs will be able to advise on ITs.