'Rebalanced tracker' pension fund

Porcupine

I'm thinking of investing about £5000 in a pension fund this year. I'm not particularly bothered what sort of vehicle it is - stakeholder, SIPP, etc. I'm thinking of a basic, cheap, tracker but with rebalancing so it's a 'fire and forget' fund... seen too many providers with only a few sector-specific trackers and no rebalancing.

So far I find things like Friends Life Balanced Index Fund of Funds and Vanguard Lifestrategy. FL is, as far as I can work out, 0.7% charges from Cavendish, while the Vanguard Lifestrategy 100% Equity Acc is 0.33% plus £2pm in HL's SIPP - on £5K that's equivalent to 0.81%. The HL fund will get cheaper as it grows - eg it's 0.73% on £6K, 0.67% on £7K, etc, so until I put more in the charges of HL and FL are roughly equal.

Anyone suggest any other places to look for this sort of fund? Is 0.7% high for this level of deposit?

I'm not averse to doing the rebalance myself, but it seems easier to use a cheap fund that does it itself if that's available.

mania112

A few points of terminology i think you may not be clear on:

- Traditionally 'rebalancing' refers to a portfolio of many funds. One will 'rebalance' them to ensure they maintain the same shape throughout their lifespan, because as one fund grows at a different rate to another, it will lose its shape overtime.

If you're talking about investing in just one fund, rebalancing is a non-issue.

The management of the fund will have its own rules on the 'shape' of its investments, and more often than not, that will include rebalancing.

- Trackers are fund which track something, here in the UK, Equity trackers funds are most likely to track the FTSE100. Trackers also do not need to rebalance (or they will auto-rebalance depending how you look at it) because it will always be mirroring the FTSE100, or whatever it tracks.

Those funds you mention are not trackers. They are, generally, mixed investment fund of funds.

.... this is not to say you're doing something wrong, it could be a perfectly good route, just hope to enlighten you a bit.

DavidLaGuardia

mania112 wrote: »

If you're talking about investing in just one fund, rebalancing is a non-issue.

The OP's point was that he/she was seeking a fund that rebalanced automatically across many differenet tracker funds

mania112 wrote: »

Those funds you mention are not trackers. They are, generally, mixed investment fund of funds.
.

The Vanguard one iis a fund of trackers, which is exactly what the OP is looking at

Porcupine

The funds I mention are funds of trackers, or that's what I'm aiming at anyway. A 'fund of trackers' combines the low charges of trackers with some non-tracker behaviour. For example, a single 'world' tracker might be something that tracks the MSCI World index. But that means it's probably going to have the 10 largest companies in the world in it. It won't have bonds, it won't have cash, it will be very heavily weighted towards vast-cap companies. By having a basket of trackers (US, UK, Japan, Europe, Emerging Markets, smaller companies, bonds) you have automatic diversification. If Japan does well it's covered, while a 'world' tracker might be mostly invested in the US because that's where those largest companies are.

The next problem comes because these markets grow at different rates. Emerging Markets might grow at 40% pa, while bonds at 4% pa. But then EM will lose 40% the next year. By rebalancing by transferring some from EM to bonds when EM do well and the reverse when EM do badly, you sell high and buy low.

But you have to remember to do this. And if the fund rebalances once a month, or even once a quarter, it might be more frequent than you remember to do it. So better to have the fund do it, and if it's mechanical there's no swanky fund manager to pay.

So that's the motivation behind this strategy... but it only makes sense if you can actually buy these funds at low costs, hence the question...

bigadaj

Understand your reasoning and it is generally sound. As with pound cost averaging rebalancing is never guaranteed to be of benefit, it just increase the chances, or lowers your risks dependent on your perspective.

I don't think there is anything that will act as you say because it is a complicated thing to do automatically. The vanguard funds will do part of it, but by their very nature the lifestyle funds will simply rebalance within their allocation, so you miss out on emerging markets, property, tech etc and are necessarily overweight in the biggest markets.

You can certainly do this yourself using a range of low costs trackers or funds. The other problem is that trackers may well under perform in specialist markets where it is arguable that a fund manager can add sufficient value to justify in higher fees.

Porcupine

I should add this is only part of my portfolio and I do rebalance the rest, it just turns out that a pension might be a suitable wrapper for this lump (ISAs are full). Given multiple platforms rebalancing gets harder, more expensive, and it's more likely that something will get neglected. So it might be better if the fund does it.
Hence the inquiry, as I'm not familiar with the range of pension-only funds and providers. I suppose my enquiry could be more specifically stated as:

1. Does anyone else do anything similar to Vanguard Lifestrategy? The FL fund I mention might be another example, though I haven't looked in detail.
2. What's the cheapest vehicle to buy it in?

DavidLaGuardia

bigadaj wrote: »

rebalancing is never guaranteed to be of benefit, it just increase the chances, or lowers your risks dependent on your perspective.

Rebalacning is likely to have an overall net benefit from the perspective that it naturally shifts from one asset at a high price to another when it is low. The issue is normally when this is doen too frequently and the cost of moving (even with a zero fee this applies because of dilution levies, spreads, stamp duty etc.) offsets any of this benefit. Within a fund of fund structures the way in which it is done as well as the amount of in and out flows to that fund will affect this. In a fund with more coming in than going out, the new funds can buy the necessary deficicts and rebalance without switching. In a fund with more people withdrawing this will not be the case.