How can 2.13% TER be justified for medium-risk short-term savings?

hodd

As it says. I have 50000 Pounds, which I would like to store/save (low-medium risk, with a possibility of withdrawal in an emergency) for three years towards a property deposit. It’s not so easy for me, as a non-resident, to open a new UK account.

Twenty five K is now sitting in an Investec High 5 getting 2.80%. The rest is in Natwest getting 0.10% AER!

Some options are:

• Move the Natwest cash to their Three Year Fixed Rate Bond (offering 2, 4 and 6% AER)
• I seem to be able to open an AA Internet 3 Year Fixed Rate Savings Account (4.10% AER)

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Not very exciting, so I asked my IFA.



He recommended a couple of funds, one cautious managed and the other (CF Ruffer Total Return O Inc) balanced managed. Then I find they have TERs of 2.13% and 1.56%.


Surely to pay such fees on medium-risk short term savings is nonsense?

opinions4u

To put anything in a managed fund, cautious or otherwise, where you have a 3 year time limit, seems to be garbage to me.

How has the IFA justified the recommendations?

pressuredrop_2

You wanted risk. The IFA offered risk.

If you want no risk, the route is a savings account.

Jake'sGran

I believe the Indian banks are offering better rates and for shorter periods. Have a look at those i.e. Punjab and ICICI banks etc.

dunstonh

You get higher TERs on absolute funds normally or self balancing fund of funds or funds of similar ilk. Thats because some of the assets they use are more expensive and/or they are doing more work.

The IFA could do it a lot cheaper but with £50,000 that really isnt enough for the IFA to take on the work and remain cost effective. The more you have, the cheaper it gets.

To be honest, for 3 years and purpose being house deposit, which means 3 years probably means anything from a week to 10 years, is probably best not invested in risk based investments.

Surely to pay such fees on medium-risk short term savings is nonsense?

They are not savings. They are investments. Apples and oranges. Although you are probably paying similar charges on the Natwest savings accounts as well.

hodd

Thanks Jake'sGran

The two Indian banks mentioned on the main site do offer slightly higher rates than the ones I've quoted above. However, they offer no possibility to withdraw early in the case of emergency, and for me their rates aren't that much higher to justify this.

Back to the funds, CF Ruffer Total Return O Inc gets good write ups, and the 1.56% TER is considered quite low. I might think about sticking some away in that fund, but the rest will go in AA or similar.

The other fund, CF Miton Special Situations Portfolio A Acc, had the 2.13% TER (according to Fidelity). Regardless of timescales, I really think IFAs must point out such high costs straight away.

opinions4u

hodd wrote: »

Thanks Jake'sGran

The two Indian banks mentioned on the main site do offer slightly higher rates than the ones I've quoted above. However, they offer no possibility to withdraw early in the case of emergency, and for me their rates aren't that much higher to justify this.

Back to the funds, CF Ruffer Total Return O Inc gets good write ups, and the 1.56% TER is considered quite low. I might think about sticking some away in that fund, but the rest will go in AA or similar.

The other fund, CF Miton Special Situations Portfolio A Acc, had the 2.13% TER (according to Fidelity). Regardless of timescales, I really think IFAs must point out such high costs straight away.

While I appreciate your desire to get a return on your savings, how would a 20% downturn in the value of these funds impact your housebuying aspiration?

hodd

opinions4u wrote: »

While I appreciate your desire to get a return on your savings, how would a 20% downturn in the value of these funds impact your housebuying aspiration?

I'd be looking for a smaller place.

Like I said, I might think about putting some cash into the Ruffer fund. If I ever do so, I wouldn't stash the lot in there, and I hope I'd see the fund plummeting and withdraw the lot/switch before it went down 20%.

dunstonh

Total returns funds and special sits funds are totally different types of investment (and risk).

Regardless of timescales, I really think IFAs must point out such high costs straight away.

Costs are included in the personal illustrations.

hodd

dunstonh wrote: »

Total returns funds and special sits funds are totally different types of investment (and risk).

Hello dunstonh

I, probably along with many others, would appreciate it if you could elaborate. My cash might be sitting in an AA account for three years, but I'd very much appreciate your input about the above.

jamesd

opinions4u wrote: »

To put anything in a managed fund, cautious or otherwise, where you have a 3 year time limit, seems to be garbage to me. How has the IFA justified the recommendations?

It's easy enough to justify if the risk tolerance is right. I'm very happy that I decided to invest my own property deposit money and borrow more to invest during 2009, much in emerging markets and natural resources funds. It takes an appreciation of the risks and a willingness to adjust plans based on investment performance. It left me in a position to buy for cash if I'd wanted to, though I'm not doing that. Possibly the best investment opportunity I'll see in my life, so I'm not expecting such good results to be achieved in the future.

So long as hodd is aware and has the appropriate willingness, it's OK. Though I'd personally be wanting to use more conventional equity income funds and global funds as part of the investment mixture.

hodd, absolute return funds can do things like purchasing options contracts that let them buy or sell at a specific price at a future time. Buying the option costs money but only makes money if the option ends up in the money, able to be sold for a profit. Otherwise it expires with zero value. Some might also short sell some companies, expecting their share price to fall, while buying others they expect to gain, to be neutral on the market as a whole but trying to make money based on the difference in performance of the two companies. What any particular absolute return fund does can only be determined by looking at its prospectus because the sector is extremely varied.

As a practical matter, the reported performance of a fund is after all costs, so you can compare results after costs easily.