A single fund of funds for all investments?

Andy1663

Lots of food for thought... thanks very much :beer:

I was looking for a fully diversified fund, and so including global (some web sites have model portfolios with percentage allocation for different assets - and I was looking for a single fund that modelled this ideal proportion). The Fidelity looks an option for a cautious fund - the New star is only UK, so too limited.

I came across the CF Wise Income fund (which seems rather like the Midas fund) - and looked at the web-site blog - and thought that this seemed to be someone doing exactly what I'd do with time and knowledge i.e. an IFA (I think) putting together an ideal portfolio of shares and funds from any asset class, with constant review - and more adventerous than the Fidelity fund. I can see the sense in investing on two or three such funds to spread the risk - but a fund such as this seems to be doing just what I want (it actually calls itself a sort of 'one stop shop')?

It still seems to me that at some point someone has to decide which funds to go for. Is there any reason to think that a fund of funds manager shouldn't be in a better position than me to choose the best funds (e.g. I notice that the HL multi-manager income fund has IP as its biggest holding - along with others too. Is that manager making a worse decision than Edinvestor's example of putting all 40% in IP - or is this a sensible diversification?)

If I do end up putting together a small (say 4-7 funds) portfolio - are there any global property funds that invest in bricks and mortar?

Thanks again - I really appreciate the help! Andy

Chrismaths

Diversification is an over-used an under-understood term. There's more to it than just picking more than one fund, it's more about having different drivers of risk and reward in your portfolio, so no one thing will kill your performance.

If you look at Ed's "model" portfolio:

Ed wrote:

1.An Equity Income fund 40% ( eg Invesco Perpetual High income)
2.A Growth or Special situations Fund 30%
3.A bricks and mortar UK Property fund 30% (eg Norwich Union)

1 & 2 are both UK equity based. Equity Income is usually "value", and Growth is er.. "growth" - but frankly if the market falls, they are both going to fall. So that's 70% governed by a mixture of interest rates and corporate profits.

3. Is a UK property fund. One of the main drivers of returns in commercial property is interest rates (rising=bad for property), and demand for said commercial property (corporate demand again).

So basically that portfolio is dependent on interest rates not going too high, and companies increasing their profits (when corporate profits as a %age of GDP are at a long term high).

I'm not on the whole a fan of Fund of funds, but I think the guys at Midas are doing a pretty good job. They manage money in a pretty similar way to the way I do and aren't afraid to invest in direct equities, funds, hedge funds, commodities, structures etc. It's a bit different from a run of the mill Fidelity/HL/Jupiter product, and far more diversified.

EdInvestor

Chrismaths ignores the question of dividends which historically for many years make up no less than half of post-inflation investment returns.These are not dependant on interest rates at all - most property rents in particular are under very long term contracts so are very stable.Interest rates are only one of the factors affecting company profits - from which divis are paid.

Ignore dividends at your peril if you want to make consistent long term returns.Note that most foreign funds don't pay dividends and often have high hidden charges.Note that they also expose you to currency risk ( yet another example last year of awful returns from US and Japanese funds due to the strength of sterling.)

It's really quite easy to get good global exposure via the FTSE100, because we have so many large listed multinational companies here in the UK. There's no need to incur the high charges of overseas equity funds to get exposure to China - just buy some shares in HSBC Bank.If you want India, try Unilever, one of the biggest companies selling consumetr products there. America? Try big oil - Shell or BP, or Glaxo, one of the largest pharma companies in the US.All big blue chip listed UK companies.

It's actually easier IMHO to buy a profolio of say 15 big household name UK blue chips in different sectors paying good divis, than it is to go through all the palaver of sifting through the thousands of funds out there.And you will usually make more money, because you pay little or no charges.

Unlike with Fund of Funds where you pay double the norm - and the norm is already extortionate enough.

Andy1663

Edinvestor - this seems to introduce another set of factors I hadn't taken into account! A couple of questions, which are all rather novice:

1) Would such a blue chip fund really be diversified enough?

2) I've discovered an ishare FTSE dividend plus tracker - low cost and a focus on dividends - is that the easiest way to go down the income route, or simply pile into a top fund like IP for the best return?

3) How important are fund costs - isn't an extra 1.5% say for a fund of funds quickly outwieghed by good performance?

Thanks again.

EdInvestor

Andy1663 wrote:

1) Would such a blue chip fund really be diversified enough?

Fifteen diversified shares will get rid of most of the risk, the gains above that are pretty small and above 25 shares not worth bothering about.

2) I've discovered an ishare FTSE dividend plus tracker - low cost and a focus on dividends - is that the easiest way to go down the income route, or simply pile into a top fund like IP for the best return?

Both are good. The IUKD within a Selftrade ISA with no purchase transaction charges and no stamp duty is an especially good deal.Use Hargreaves Lansdown for funds, they are the cheapest.

3) How important are fund costs - isn't an extra 1.5% say for a fund of funds quickly outwieghed by good performance?

Yes, IF the fund performs well.But there are thousands out there that don't.:(
Also there are a lot of other hidden charges with funds that don't get mentioned.Typically they add another 1% to the cost annually.If you add more extras on top of that, such as with FoF/multi manager packages, the costs are really starting to get out of hand.

Over a 25 year typical investment period a 1.5% annual charge will eat up 30% of your returns. Have a look at the effect in cash terms on the FSA site:

https://www.fsa.gov.uk/tables

The savings in buying shares directly and keeping trading to a minimum are very significant over long periods.There is a good reason why people in the City are so very well paid.

Andy1663

Thanks. Can I buy things like IUKD and Investment Trust shares cheaply through HL (I see Alliance Trust has got a good site for such things - but I can't work out the comparative costs)? Ideally I'd like to do everything through one site.

I'd definitely go for a fund or a tracker rather than share picking which sounds far too tricky for me!

EdInvestor

https://www.selftrade.co.uk is the best for the IUKD in the ISA.It also rebates initial charges on funds, but will impose dealing costs for regular contributions into funds.

https://www.h-l.co.uk is easily best for regular savings into funds as there are no dealing charges. But it is not that cheap for buying ETFs like IUKD or ITs.

https://www.alliancetrust.co.uk has a cheap deal for its own ITs, otherwise much the same as the other two IIRC.

If you think you will mainly invest in unit trusts, and especially on a regular basis, then go for HL.

If you are more likely to regularly invest in IUKD go for Selfrade or in other ITs go for Alliance trust.

Andy1663

Just what I wanted to know - a real help, thanks. :T

I now need to work out what I'm actually going to do :eek:

dunstonh

Fifteen diversified shares will get rid of most of the risk, the gains above that are pretty small and above 25 shares not worth bothering about.

A sector allocated portfolio will typically have the largest holding in any one company at no more than 2% with most being less than 0.5%

15 shares is 6% each. Have a polly peck and marconi in there and you lose a significant chunk.

It's really quite easy to get good global exposure via the FTSE100, because we have so many large listed multinational companies here in the UK.

No it is not. No matter how many times you post this, it doesnt make it accurate.

The UK sector historically is best performing sector once every 5-7 years. Going forward it is likely to be less with the way the world economy is changing. So, if you have only UK blue chip shares/funds then you are looking to be getting performance about 2-3 years in a 20 year period.

Over a 25 year typical investment period a 1.5% annual charge will eat up 30% of your returns.

Oscar Wilde sums up Ed nicely on this front. The cynic knows the price of everything and the value of nothing.

Chrismaths

Chrismaths ignores the question of dividends which historically for many years make up no less than half of post-inflation investment returns.These are not dependant on interest rates at all - most property rents in particular are under very long term contracts so are very stable.Interest rates are only one of the factors affecting company profits - from which divis are paid.

I'm not even going to dignify that with a proper response.

Google "discount rates", "discounted cash flows", and "cost of capital" and learn something about investment before posting rubbish.