Fund advice needed for newbie!

skillboy

Hi All

I am new to investing in funds and have bought the HSBC FTSE 250 tracker fund as my first one.

The next fund I plan to buy will also invest mainly in UK shares. My objective for this fund is for it to grow steadily over the next 10-15 years. My attitude to risk is actually high but I think this next one I buy should be a "safe and steadier" one.

I have the following funds on my shortlist:

Invesco Perpetual High Income
Artemis Income
Threadneedle UK Equity Income
Axa Framlington UK Select Opportunities
Royal London UK Equity Income

Does anyone have an opinion on which one to choose out of the above?

All feedback greatly appreciated.

Millennium

I'm no financial guru, but after some research I have decided to go with fundsmith.co.uk for my 2014 ISA. Have a read of the site. It seems to make sense!

bowlhead99

Millennium wrote: »

I'm no financial guru, but after some research I have decided to go with fundsmith.co.uk for my 2014 ISA. Have a read of the site. It seems to make sense!

There are a lot of investment strategies that seem to make sense and a huge number of managers can give you some bullet points of their strategy and leave you nodding along "yes that's a philosophy I would agree with".

A problem with Fundsmith is that it has only been running for 3 years in a rising market. Typically, as a bare minimum, anyone's "some research" into an actively managed, high conviction (only 20-30 underlying companies) fund, would include an evaluation of how the fund and its management have performed through thick and thin, falling markets as well as rising markets, major world events over a couple of economic cycles etc. Unfortunately the prospectus can only give information back to the day one price in Nov 2010 and offers no information about the prior track record of the individual managers making the investment decisions for your ~1% p.a.

So effectively you are investing on liking the bullet points from the investment philosophy, an acceptance that 1% is reasonable for a global high conviction portfolio, and "hope". From their own marketing blurb describing their approach:

Management versus numbers
We are rather more comfortable analysing numbers than we are trying to gain insights into companies by meeting the management.

So to Fundsmith, evaluating an opportunity is about demonstrable track record and figures standing for themselves - rather than whoever happens to be manning the ship at a point in time, and what insight they can give you into understanding the performance drivers or the likely direction a business will push next.

If you had those same views, I don't know how you would decide to invest in Fundsmith where the only things you know is that they are run by Terry Smith and grew NAV in 26 of the last 37 months against a backdrop of a generally rising market, with no information available for months 38-160 (to capture information about its resilience over the last couple of major crashes).

A record of 11 or 12 negative periods in the last 36 months is the exact same as the Inv Perp HI fund or the AXA Fram UK Select Opps fund which are each operating with disparate strategies in UK/Europe, so Fundsmith is hardly being groundbreaking or contrarian. If they make hay in the good times they are typically likely to fall harder in others.

I'm not saying Fundsmith is a bad fund, far from it - there is perhaps too little information to judge IMHO and a fund with its outlook could have a place in some people's portfolios (how else would they be managing 1.6bn...). But if OP suggests that the next fund in his portfolio should be a 'safe and steady' one, Fundsmith is probably not for him, as it has done 50-60% in 3 years and is focussed on a low minimum number of holdings which makes it inherently more volatile than a more diversified fund.

What Fundsmith and hundreds of other funds have going for them, is it is global in outlook, constructing a portfolio across geographic markets, currency and industry sector. If my first investment was a UK mid-cap tracker, then rather than looking to add another specialist UK fund like UK Equity Income, I would likely look globally. On the basis that UK is only 9% of the developed world's investible equity market cap (let alone the emerging and undeveloped word) and UKEI is some fraction of that 9% - it seems a bit 'eggs in one basket'.

Also, I would be careful to consider the context of what is meant by 'safe and steady' ?

Generally the share prices of large dividend-paying companies are a bit more resilient in a downturn because they contain consumer staples, healthcare, oil etc which can keep delivering profits year in year out - rather than being driven by the latest fashion, technology or luxury demand. However in recent years since the credit crunch people have piled into these companies en masse, seeking dividend income to replace declining bank and bond interest income. That, together with recovery from the '08/09 crash, is a contributor to why the UK equity income sector average is up 102% and 38% over 5 and 3 years (and the Invesco fund up 85% and 46%) respectively.

With this sort of return - and even higher over 5 years for the more volatile AXA Fram Select fund - it is good that the OP has a high attitude to risk if he wants to pile in now. All assets are expensive but on a global basis some areas (like UK income) seem more fully priced than others. As are other traditional 'safe and steady' investments like bonds and gilts.

I appreciate this does not really answer OP's question:

- Will the Inv Perp fund sustain its long long track record of outperformance in the high income sector as it goes forwards with a new figurehead manager? Was its below average performance within its sector over the last 5 years simply indicative of a more conservative style which might bode well in a post-QE-taper market sell-off?

- Looking forward, will Threadneedle UK Equity Income beat Artemis Income and the IMA sector average again as it has been doing this year or lag behind it as it did during 2010/11? For that matter, is Threadneedle UKEI any more suitable than its UK Equity Alpha Income or UK Monthly Income or UK Growth & Income funds?

- Is an income-seeking equity fund (4 out of 5 on OP's list) more desirable than an income-seeking equity and bond fund, or a fund without income as the headline objective but overlapping holdings (Fram UK Select Opportunities)? Given all largecaps have a lot of international exposure is there any reason we should not seek out a few Swiss or US-listed companies, like Invesco does in its high income fund?

To be honest, these are pretty much unanswerable questions. Like beauty, investability is in the eye of the beholder. As many platforms charge on a percentage basis rather than a fee per fund, perhaps you could invest in all 5. Or stick a pin in your notebook and pick one. Or widen your search beyond funds that only invest in UK shares with income characteristics.

Disclaimer: I don't own any funds mentioned above; feel free to disregard all comments :beer:

robatwork

Great advice from Bowlhead - and something you would normally pay for. A true forum stalwart!

I did enjoy "investability is in the eye of the beholder".

As to the OP's funds - you're already exposed to the top 250 UK companies, most of the funds you suggest are still purely UK - how about thinking a little further afield (more risk/reward possibly)?

skillboy

Thanks all.

My thinking is like this in terms of the funds I plan to buy...

First fund the mid cap UK tracker
2. A UK exposed fund but one that maybe has a bias towards more FTSE 100 stocks..
3. A UK small cap fund
4. A global equities fund
5. A global technology biased fund

I am not concerned with income, only capital growth over 10-15 years...

Does my plan seem reasonable, reckless, clueless?!!

jimjames

skillboy wrote: »

Thanks all.

My thinking is like this in terms of the funds I plan to buy...

First fund the mid cap UK tracker
2. A UK exposed fund but one that maybe has a bias towards more FTSE 100 stocks..
3. A UK small cap fund
4. A global equities fund
5. A global technology biased fund

I am not concerned with income, only capital growth over 10-15 years...

Does my plan seem reasonable, reckless, clueless?!!

If you've already got the FTSE250 tracker why not get the FTSE100 tracker to complement that and then other trackers to cover the global part. Or get the Vanguard tracker which does it all in one fund.

bowlhead99 wrote: »

"We are rather more comfortable analysing numbers than we are trying to gain insights into companies by meeting the management."

So to Fundsmith, evaluating an opportunity is about demonstrable track record and figures standing for themselves - rather than whoever happens to be manning the ship at a point in time, and what insight they can give you into understanding the performance drivers or the likely direction a business will push next.

Interesting strategy from Fundsmith which seems at odds with most other managers that claim to do huge numbers of company visits meeting management to get an idea of businesses. Maybe that saves money by not travelling and makes no difference to the end result but it is a very different philosophy to others.

dunstonh

My thinking is like this in terms of the funds I plan to buy...

First fund the mid cap UK tracker
2. A UK exposed fund but one that maybe has a bias towards more FTSE 100 stocks..
3. A UK small cap fund
4. A global equities fund
5. A global technology biased fund

What research have you used to come up with that sector allocation and what ratios do you intend to invest in each?

The split between small, mid and large cap seems to indicate a US style way of investing rather than European (US is very inward looking at models aimed at the US market focus more internally whereas outside of the US, models tend to be more globally focused).

That is quite a high risk spread whatever the allocations are. Not a problem if you have the capacity for loss and have other lower risk assets to offset the risk.

How much are you investing? You may be overcomplicating it and hampering your growth potential unless it is a larger amount (and you will be rebalancing I assume).

mark55man

Lots of good stuff here mainly about the vanguard range


https://forums.moneysavingexpert.com/discussion/4392271


depends if you want to fire and forget or take an active interest and learn more about investment. Perhaps you should put 80% of your cash in a boring universal fund, and then explore and learn with rest

skillboy

I'd probably look to invest around 400 quid in each every month...

Since my aim is capital growth I would probably give an even allocation to all the funds. I don't mind the risk involved in these funds as I plan to hold them for a long period of time (10 years min).

As I learn more I guess I can get a sense of how to rebalance later on, does this seem reasonable?

Also, can you explain what you mean when you say I could be overcomplicating things? I thought that buying 5-6 funds which are focused on different geographical areas and companies would mean not putting all my eggs in one basket so to speak?

Frank replies appreciated!

Thanks

atush

Seems a little UK centric to me.

talexuser

I'll leave it to others to discuss diversification and portfolio balance. If you want long term exposure to UK Income (preferably income reinvested) I go by manager reputation (although past performance is no guarantee etc etc etc).

So to address your original question the Royal London has done ok recently but is not known for long term recommendations. Perpetual has done VERY well for me over ~19 years but the manager change coming may not be the time to buy in. The Axa I don't see many long term recommendations. I have both Threadneedle and Artemis in my Income section, both have done ok. The Artemis is managed by Adrian Frost who used to manage Lazard Income years ago when my father was in it, so we have had a fund by him for well over 20 years. Rarely top of the table but pretty much always in the top ten, which I think is more important. It's as good as any in the timescale you are looking at... you can always change if it goes off the boil.