Fidelity MoneyBuilder UK Index Fund A Accumulation Shares

RS2014

I have just started investing a regular monthly amount of £50 into Fidelity MoneyBuilder UK Index Fund A Accumulation Shares under my stocks & shares Isa allowance umbrella. I am looking upon this as a long term investment, 25 years +

What does everyone think? Even though I think it might be risky, because I am looking at it as a very long term investment it should provide a good return over the long term, also I liked that the charges were low compared to other funds.

Am new to stocks and shares Isa so sorry if I sound ignorant.

Thoughts?

digannio

I think that's a decent enough start to make in terms of UK investing. The one thing to bear in mind is that the vast majority is in large companies (78%). To get an even better spread across the range of UK companies you could eventually combine it with something like the HSBC FTSE 250 Tracker - again a low cost tracker that has something like 72% in mid sized companies and 28% in small ones. You would then have reasonable diversification in the UK. You could have done a lot worse with your starting choices. The timescale is very much on your side and you've kept your costs right down.

ColdIron

Appreciate the point on diversity but isn't the Fidelity Moneybuilder UK a FTSE All-Share tracker which already contains the FTSE 250?

digannio

The Fidelity tracker has 78% in large companies, 17% mid and 5% small. The HSBC one is 72% mid and 28% small. The percentages don't point to big duplication and the two would sit together OK.

Gromitt

The Fidelity Moneybuilder UK isn't a bad fund, I have it myself and looking at the figures, I've made just over 4% in the last 12 months (considering the recent dip). I'd consider it low-risk.

Rollinghome

As ColdIron points out, the FTSE All Share index is the aggregation of the FTSE 100, FTSE 250 and FTSE Small Cap Indices.

From memory, the Fidelity UK index uses derivatives for parts of the index rather than full replication which may be why, despite low charges, its tracking error is higher than the better all-share trackers such as that of HSBC.

RS2014

Rolling Home can you just clarify what you mean as I don't fully quite understand- sorry if I sound ignorant I am just new to all this and quite a lot of terminology I am not familiar with.

Also am I right in saying that no dividends get paid out and any of these types of gains are just reinvested back into the fund with the view of improving price?

So does everyone think this is a good starting point for me with the view of how much I am contributing each month which is the minimal £50 amount and the fact I am looking at it as extremely long term?

Then maybe I can look at adding in an other fund when I have more to put in as I asssume you can pay into as many funds as you like within the stocks and shares isa wrapper as long as upper limit is not breeched?

Porcupine

Sounds sensible. It was my first fund. However the fees landscape has changed (and is still changing), so it isn't necessarily the cheapest out there any more, depending on who you buy it from.

The thing you should probably look at for your second fund is geographical diversity: the Fidelity fund is invested in only UK shares. That's good from a currency point of view (no exchange rate risk) but the UK is only 8% of the global market so your returns are more tightly coupled to the performance of UK companies - more risky than averaging over the whole of the world market.

SnowMan

RS2014 you are fine with your £50 per month into your Fidelity Moneybuilder UK index fund.

The judge of how good a tracker is is how closely it tracks its respective index in this case the FTSE all share total return index.

Rollinghome is right to point out that there are some major question marks over that fund as it lags its index by more than it should do (latest long report says 0.7%pa and 0.58%pa the previous year, and my own figures show a similar tracking record)

You expect trackers to lag their index by their Ongoing Charges figure (0.3%pa) but the Fidelity moneybuilder UK index lags the index by around 0.6%. That extra 0.3% is more than you find with similar FTSE all share trackers.

However that extra 0.3%pa in OCF probably only equates to about £2pa in extra charges over the next couple of years. So it is fine as a starting point, I've held that in the past.

But if you are going to invest larger amounts you might want to consider other trackers.

Rollinghome

RS2014 wrote: »

Rolling Home can you just clarify what you mean as I don't fully quite understand- sorry if I sound ignorant I am just new to all this and quite a lot of terminology I am not familiar with.

Also am I right in saying that no dividends get paid out and any of these types of gains are just reinvested back into the fund with the view of improving price?

So does everyone think this is a good starting point for me with the view of how much I am contributing each month which is the minimal £50 amount and the fact I am looking at it as extremely long term?

Then maybe I can look at adding in an other fund when I have more to put in as I asssume you can pay into as many funds as you like within the stocks and shares isa wrapper as long as upper limit is not breeched?

Sorry, I didn't intend to make it more complicated for you than it should be.

Yes, if you buy Accumulation units then all dividends are rolled up for re-investment rather than being paid out as it would be with for Income units.

And yes, it's a very good starting point. It's been mentioned that you might want to diversify further but for £50 a month I don't think that's something to worry about for quite a while. While it's true that the All-share, despite its name, doesn't include every company on the LSE, it does include around 600 or so - they're listed here: http://www.lse.co.uk/index-constituents.asp?index=IDX:ASX&indexname=ftse_all-share . The index is weighted to take account of company size so a tracker will obviously have proportionately more invested in say Tesco than in Topps Tiles.

I mentioned 'tracking error' which is the amount the fund deviates from the index it's tracking. The fees are the biggest factor in that but it can also be due to the method used by the fund to track an index. Some will use full replication, i.e. buy every share in the index, while others will use derivatives for some companies instead - usually the smallest ones. The best way to see this is to compare annual returns or overlay charts.

Provided you choose a fund with a TER/OCF of around 0.2% or less for a 'clean' fund and avoid those overcharging such as Virgin and Marks & Spencer then, for moderate sums, as Snowman points out, the difference isn't going to be very big.

At a later date you may want to look at diversifying beyond the UK and perhaps into asset classes other than equities too but for the sums you're going to be investing you'll be fine with just the UK for quite a while - particularly as world markets have a habit of keeping in step with each other to quite an extent. A large number of the companies in the All-share are international and it also includes many investment trusts that invest globally.

You will be entirely invested in equities of course so should expect quite severe swings up and down in value and perhaps worth mentioning that many pundits expect a significant market correction this year beyond what we've seen over the last few days but, for buyers like yourself, lower prices are exactly what you want.

RS2014

Thanks Rolling home for your really informative explanation and to the others who have contributed. Really appreciate it.

I have never used the stocks and shares isa wrapper before so I just wondered if someone can clarify a few points I have regarding the allowance and rules as well; -

1) Can I invest in multiple funds within my ISA wrapper as long as I am within the allowance in the same tax year? (Not planning to do this but would be good to know for future reference) If this is the case I am assuming you can only use one provider a year but I could add pay into multiple funds as part of the ISA but would have to pay the management charge for each fund?

2) Can I open up S&S ISA with a new provider every year and keep the funds in the older ISA's for as long as I want in effect potentially earning interest continously although I understand once withdrawn you lose the allowance for that year?

3) If I stayed with the same provider could I just keep investing into the same fund every year as long as it was within the allowance? Can i change funds when ever I want?

4) If i have a S&S ISA and open up a new one in a new tax year can i change the fund i invest in the old ISA from a previous tax year whilst investing the current year as long as I was not payin into old fund if that makes sense?

4) It is ok to open a cash ISA along with the ISA I have as long as I am within the set limits in total?

sorry for the probably very basic questions, I just want to learn and fully understand. I wish we had had lessons in finance when I was at school.