Help On Choice Of Funds

Rollinghome

Linton wrote: »

Err, the morningstar ratings are not absolute, they are relative to other funds in the same category. In the case of the HSBC tracker, that's "UK Large-Cap Blend Equity".

So it may well be Average Risk and Above Average Returns in that category, but IMHO that category as a whole is both higher risk and lower return than many others and certainly cannot be considered safe. This ties in with what I claim - sector and performance are far more important than TER.

Of course it's relative, what else could it be? Which was why I questioned your use of the term "safe-ish".

What investment are you saying should be considered safe in absolute terms? Should we all invest 100% in gilts perhaps? Have you considered the many possible definitions of 'safe'?

Instead of just "IMHO" would you like to detail the "many other" categories with a better risk return ratio that you claim exist and the research you base that opinion on?

Charges can be known in advance but future performance can't. What you can be sure of is that high charges are a handicap to performance and a basic question should be how any fund manager intends to overcome that handicap and whether it will by increasing risk. If more people had asked that same question there'd be fewer of them trying to get their money back from the collapsed Cru Arch funds which charged twice the normal fees for a managed fund (and paid twice the normal sales commission).

Charges and any justification of higher charges should be fundamental to sensible investment but the old sales line 'never mind the price, feel the quality' still works for some.

xx_Law_Grad_xx

Thanks everyone. Your help is much appreciated.

Revised list of funds: -

I have added AXA & Artemis as they are lower risk and would diversify the portfolio. Are they both considered low risk funds? I may have been hasty in choosing them but looking for funds along those lines - Less risk and not reliant on emerging markets.

• First State Global Resources - To gain exposure to natural resources and gold.
• Baring Global Agriculture - Confident in agriculture long term
• First State Asia Pacific - Not too much exposure to China.
• First State Indian Subcontinent - More diversification than Jupiter.
• First State Latin America - Less focus on Brazil.
• Neptune Russia & Greater Russia
• AXA Framlington UK Select Opportunities
• Artemis Strategic Assets

pqrdef wrote: »

The list of stuff to research can multiply until you never get anything bought. Or it all becomes more time-consuming than it's worth.

In any case, the market's view of the prospects of anything is already priced in. Nothing is so good that the buying price isn't an issue. The difficulty with funds is to know when they're already overpriced.


I'm never clear about the objective of managed funds in very specific sectors. Are they trying to do the best with your money, or are they just selling exposure to the sector? What does the fund manager do if he comes to feel that emerging market local currency debt isn't a good place to be at some point? Do you have to watch it like a hawk?

Yeah, I am in danger of never picking anything and continually revising my choices.

mr_fishbulb wrote: »

By that logic you are saying you think Agriculture and Africa funds will generate returns, but you don't want to buy any of them until they have gone up

If you are investing for the long term then it may be beneficial to regularly pay into something you think will pay off in the future. When making regular contributions, you get to buy units when they are "cheap" and will have hopefully accumulated a lot of units by they time they start to go up. There is always the risk that nothing will come out of these, and watch out for fees eating away at your money if the fund doesn't return anything. Also it's quite frustrating to watch a fund do nothing for years. However if you believe they will come to fruition then it can be good to get in early. For instance in my pension I pay into a Japan fund. It's only a small %, and the returns haven't been great so far, but if the Japanese economy does recover then hopefully I would have built up a large(ish) holding of that fund.

Agree completely. I have added Baring Global Agriculture to my choice of funds. My problem with Africa is the level of corruption there. It certainly would be a land of opportunity once they sort the corruption out. The Heart of Africa fund failed miserably and would not want another repeat of that. Investec Africa & Middle East would be a possibility.

teddy_ruckspin

Law Grad, have you considered the charges and their effect on the long term profitability of the portfolio?

sabretoothtigger

Barings Agri has a performance fee of 15% above benchmark all world total return index msci

Is first state a favourite of yours ? I prefer aberdeen asia pacific

pqrdef wrote: »

I'm never clear about the objective of managed funds in very specific sectors. Are they trying to do the best with your money, or are they just selling exposure to the sector? What does the fund manager do if he comes to feel that emerging market local currency debt isn't a good place to be at some point? Do you have to watch it like a hawk?

Very specific would not apply to a global fund. Thats not very specific, the world is a big place to consider

If anything a global fund is exceptional, most funds are based america. Even a ftse tracker is basically related to usa.

Even most global equity funds are mostly biased again to USA. The one you quote has no exposure there, so I'd say its the opposite of specific, it should add diversity to most people portfolios

I think that fund manager can just hold uk cash if he wants

Linton

Rollinghome wrote: »

Of course it's relative, what else could it be? Which was why I questioned your use of the term "safe-ish".

What investment are you saying should be considered safe in absolute terms? Should we all invest 100% in gilts perhaps? Have you considered the many possible definitions of 'safe'?

Instead of just "IMHO" would you like to detail the "many other" categories with a better risk return ratio that you claim exist and the research you base that opinion on?

Charges can be known in advance but future performance can't. What you can be sure of is that high charges are a handicap to performance and a basic question should be how any fund manager intends to overcome that handicap and whether it will by increasing risk. If more people had asked that same question there'd be fewer of them trying to get their money back from the collapsed Cru Arch funds which charged twice the normal fees for a managed fund (and paid twice the normal sales commission).

Charges and any justification of higher charges should be fundamental to sensible investment but the old sales line 'never mind the price, feel the quality' still works for some.

You were claiming that a FTSE tracker was a good investment because Morningstar put it in the average risk, better than average return ratings.

What you dont seem to understand was that Morningstar merely compare funds with others investing in the same detailed areas. So their ratings say nothing at all about investing in a FTSE tracker vs an Emerging Market vs Gilts or whatever. They are merely comparing investing in a FTSE tracker vs some other UK larger equity fund.

As to what are better areas to invest:

1) Emerging markets which I have invested in for the past 7-8 year are slightly riskier (more volatile) than the FTSE 100 but have been providing annual returns of 20-30%. I hold Aberdeen Emerging Markets and Jupiter Emerging Europe.

2) If you want to invest in the UK look at the major recovery/value funds such as M&G Recovery or Fidelity Special Situations. I have held the former for 16 years - average return 7.9%. Its volatility is about the same as the FTSE but over the past 5 years it has provided about double the return of a FTSE tracker.

3) Resources - I have held JPM Natural Resources for 7 years. Average return 30% per year.

And there are many others. None of the funds I have mentioned are obscure lucky choices, they are the largest and most obvious ones in their sectors.

Where I believe you are going wrong is focusing on 1% extra charges and ignoring say 10% better underlying performance. It seems blindingly self evident to me that sector and focus of investment provides almost all the opportunity for optimising returns, TER 's effect is little more than noise.

And before you say its just a lucky choice of sectors - by investing in a FTSE tracker you have made a choice of sectors and chosen a limited one which the evidence shows has been at best mediocre.

xx_Law_Grad_xx

I have been looking at what funds to add to my UK portion of my portfolio and have decided on the following: -

• 1 UK Income
• 1 UK Growth
• 1 UK Smaller Companies

[FONT=Times New Roman, serif]I have shortlisted a number of funds from each sector and then ran them through Morningstar X-Ray. I have taken screenshots of the stock stats to see if there are any funds which should be avoided.

Should I drop the smaller companies fund as do they tend to perform poorly when inflation is rising?










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B_Blank

What broker are you using to buy these funds?

xx_Law_Grad_xx

B_Blank wrote: »

What broker are you using to buy these funds?

Interactive Investor.

lvader

xx_Law_Grad_xx wrote: »

Thanks everyone. Your help is much appreciated.

Revised list of funds: -

I have added AXA & Artemis as they are lower risk and would diversify the portfolio. Are they both considered low risk funds? I may have been hasty in choosing them but looking for funds along those lines - Less risk and not reliant on emerging markets.

• First State Global Resources - To gain exposure to natural resources and gold.
• Baring Global Agriculture - Confident in agriculture long term
• First State Asia Pacific - Not too much exposure to China.
• First State Indian Subcontinent - More diversification than Jupiter.
• First State Latin America - Less focus on Brazil.
• Neptune Russia & Greater Russia
• AXA Framlington UK Select Opportunities
• Artemis Strategic Assets

Yeah, I am in danger of never picking anything and continually revising my choices.


Agree completely. I have added Baring Global Agriculture to my choice of funds. My problem with Africa is the level of corruption there. It certainly would be a land of opportunity once they sort the corruption out. The Heart of Africa fund failed miserably and would not want another repeat of that. Investec Africa & Middle East would be a possibility.

It looks like a good list for last year, I'm expecting US large caps, China and Japan to do well this year.

xx_Law_Grad_xx

lvader wrote: »

It looks like a good list for last year, I'm expecting US large caps, China and Japan to do well this year.

Yeah, it was a good list in my opinion but with inflation rises looming and emerging markets falling I have had to re-assess my choices.

I thinking along the lines of global index linked bonds, euro, uk and us large caps.

I see the fall in emerging market funds an ideal opportunity to invest but waiting for further drops.

Do you not worry about a chinese property bubble bursting? That is keeping me away from emerging markets as if it does burst then russia and latin america in addition to natural resources will suffer.