Stocks ISAs

whambamboo

hmm, can't say I like the look of your recommendation, Intelligent Money much.

The Chief Exec doesn't seem to honest about the fees on his dodgy iaccount, and there's a faint scent of spam to boot:

http://forums.moneysavingexpert.com/showthread.html?t=218589

He's complaining about the rip-off fees charged, but his fund guarantees to outperform the FTSE 100 by 40%, but if the FTSE rises 5% per year, and pays 3% dividends (the current yield is actually a little more than this), then he's charging 3% PA fees, compared to 0.3% PA in a lowcost tracker. And he's the one that's complaining about fees!

So he's returning 5% per annum, while the FTSE tracker is returning about 7.7%. But he pays a 40% bonus of the return, with a minimum of 10 years' investment

So the growth assuming 5% growth and 3% yield after n years is (1.05^n - 1) * 1.4, compared to 1.077^n - 1

For 10 years the comparative numbers are 88% versus 110% (this is why there is a 10 year minimum, to give them time to make more money out of your dividends compounding)

And the longer you go on the worse off you will be with their iaccount, due to the compounding effect. For a 25-year old foolish enough to fall for their propaganda, retiring at age 68, the yield of the FTSE100 would have to fall below 0.74% (which is never going to happen), to make more money from the iaccount than from real stockmarket investment (for higher growth rates, say 7%, you'd need 0.8% yield or below).

Of course the capital guarantee is next to worthless, as the chance of no capital growth over 10 years is vanishingly small.

(Half of the fund is mirroring the property market + 40%, but historically the property market has underperformed the stockmarket, so this just a gimmick)

Anyway, I'm rather put-off by these lot. Does anyone have any good reports about them?


If you are going to update your article Martin, then it might be good to compare the effect of fees.

E.g., on £7,000 with a 0.5% rebate, that's £35/year, which would be entirely swallowed by the £35 fee they charge.

I assume for an ISA and a non-ISA investment I'd pay two lots of fees, and then the same again for my wife, so £140/year?

whambamboo

can someone explain to me?

I'm looking to make some decisions. If I bought this inside my ISA:

http://www.h-l.co.uk/fund_research/security_details/sedol/3002519.hl

It says buy: 141.04p, sell 148.88p, but then:
Initial charge 4.00%
Initial saving 4.00%

So the initial charge is zero.

But do I still have to buy at 148.88p?

It seems to me that the prices are 2.77% above the mid. So actually there is a 2.77% initial charge. Or have I missed something?

Also, the fund is closing to new money soon, and they are putting their charge up to 1.75% PA.

Compare with

http://www.h-l.co.uk/fund_research/security_details/sedol/0007272.hl

only charges 0.8% but has the same goals.

How is this possible?

But this one says

*Additional annual charge of 0.5% + VAT applies to this fund

What is this charge for?

Also, it claims a zero initial charge, but there is clearly a buy/sell spread.

tom188

Unit trusts generally have a spread between the buy and sell price with mid being in the middle, Ie if you buy a fund then sell immediately you would not get the same amount back. The bid/offer price and spread will vary dependent on market conditions (like a share price). The initial charge and annual management charge are seperate entities and are charged as such.

tom188

This one definitely says

*Additional annual charge of 0.5% + VAT applies to this fund

What is this charge for?

This is the annual management charge payable to the fund manager for running the fund.

Fund managers are free to set their own fees and some charge more than others.

whambamboo

tom188 wrote:

This is the annual management charge payable to the fund manager for running the fund.

So what's the 0.8% for?

Why is it listed separately?

tom188

The unit trust price represents the underlying value of the assets the unit trust owns (shares, bonds, property etc).

0.8% can cover for example...
Share dealing/transaction costs
Administration
Research
Profit margin
Custody charges
Corporate Hospitality...

and all the things that fund managers need to do to manage a large amount of shares (etc).

tom188

The cost is shown seperately for transparency. Fund managers cant just help themselves to the underlying assets.

SeanW

The 0.8% is the Annual Management charge you are paying the Fund managers to run the fund. There could be extra charges that occur on top, as mentioned in the post above.

The 0.5% charge is actually to Hargreaves Lansdown to go towards the cost of your ISA wrapper, because they are not getting any renewal commission off the fund house on that particular fund.

The initial charge on a Unit trust is factored into the price you pay, the offer price. But it wont account for the bid/offer spread, there will be some left over. I am guessing the HL prices are not what you would pay if you bought with them after the saving.

whambamboo

whambamboo wrote:

can someone explain to me?

I'm looking to make some decisions. If I bought this inside my ISA:

http://www.h-l.co.uk/fund_research/security_details/sedol/3002519.hl

It says buy: 141.04p, sell 148.88p, but then:
Initial charge 4.00%
Initial saving 4.00%

So the initial charge is zero.

But do I still have to buy at 148.88p?

It seems to me that the prices are 2.77% above the mid. So actually there is a 2.77% initial charge. Or have I missed something?

Also, the fund is closing to new money soon, and they are putting their charge up to 1.75% PA.

Compare with

http://www.h-l.co.uk/fund_research/security_details/sedol/0007272.hl

only charges 0.8% but has the same goals.

How is this possible?

But this one says

*Additional annual charge of 0.5% + VAT applies to this fund

What is this charge for?

Also, it claims a zero initial charge, but there is clearly a buy/sell spread.

OK, so the 0.5% charge is for HL, because they aren't paying any commission.

Why would they choose a lower charge, 0.8%, when most managed funds are on 1.5% (=1% + 0.5% commission). Does this reflect a less involved style? Obviously it means lower costs for me (if I invest direct with Aberforth), but is it a warning sign at all?