Balanced risk portfolio assessment

EdInvestor

It shouldn't be too hard to beat the SW portfolio ( my cat could do it ), which appears to be entirely invested in bond funds, which have recently crashed.In addition two of the choices are Funds of Funds, which have double charges, fatal for bond funds which don't grow anything like enough to cope even in good times, especially if the investment is providing income.

At least they didn't flog her an investment bond.

munk

EdInvestor wrote: »

It shouldn't be too hard to beat the SW portfolio ( my cat could do it ), which appears to be entirely invested in bond funds, which have recently crashed.In addition two of the choices are Funds of Funds, which have double charges, fatal for bond funds which don't grow anything like enough to cope even in good times, especially if the investment is providing income.

At least they didn't flog her an investment bond.

:rotfl: @ your ifa accredited cat Lloyds should employ him/her for sure.

I keep coming back to the same sentiment though re all my stressing about it being such a huge chunk of money what if something goes wrong etc etc - I keep thinking well even if I did just go for the handful of funds I'd chosen in my first post above, it can't possibly do any worse than it already has for the last 2 years in the Scot Widows funds.

Still though there's always that niggling 'what if', mostly because it's not my money but also because, well, actually, it *will* be my money (partly) at some point in the future as inheritance so obviously don't want to see it dwindle.

I think I'm going to wait to see what Bestinvest's adviser recommends by way of a portfolio and go along with them. The guy I spoke to on the phone was very on the ball and at least inspired a bit of confidence, so I'll wait to see what his reply to my mum's requirements are and perhaps go along with it.

Cheers.

jamesd

Munk, you'd also include property funds that invest mostly in physical property (building names in their list of holdings, not companies) as part of the fixed interest portion of the investments. That gets you two different asset classes instead of just one. Funds that invest in primarily property shares are a completely different thing.

Do remember that whatever the target average risk level is you should be including some higher risk funds as small portions of the mix. Emerging markets funds are fine, just at nearer 1% of the total instead of the 10% someone at high average risk might use.

You're also lacking non-UK cover right now, for bonds, commercial property and equities.

munk

jamesd wrote: »

Munk, you'd also include property funds that invest mostly in physical property (building names in their list of holdings, not companies) as part of the fixed interest portion of the investments. That gets you two different asset classes instead of just one. Funds that invest in primarily property shares are a completely different thing.

Thanks jamesd. The reason I'd left out property was because of the impending falling markets here in the UK that are predicted (although there seem to be so many contrary views about this). I'd considered international property but was unsure about that market and so ended up leaving it out. Of course in the future property markets no doubt will go up as is the general trend over the years and with this being a medium to long term investment property should have some part in the portfolio.

I was vaguely aware of the difference between property shares and physically held property funds and how it's important to go for the latter in a balanced portfolio. Since property shares are correlated more closely to equities in general, if the overall equities market drops property shares probably will as well whereas with physical property that won't be the case so much. That was my understanding of it at least

Do remember that whatever the target average risk level is you should be including some higher risk funds as small portions of the mix. Emerging markets funds are fine, just at nearer 1% of the total instead of the 10% someone at high average risk might use.

Ack.

You're also lacking non-UK cover right now, for bonds, commercial property and equities.

There is the European fund, although I take into account what you say in the last paragraph re emerging markets.

I'm waiting on a reply from Bestinvest with a suggested portfolio which I imagine will be around 12 funds in number. Once I have their suggestion I'll look it over and take your comments into account.

Many thanks.

jamesd

Property funds are usually commercial property. Not a lot of talk of a crash in value in that area. Lots of talk of a decrease in growth rates, to their more normal long term rates, though.

dunstonh

bricks and mortar commercial property funds are expected to yield 6-8% in future years. A good low risk commercial property fund is still a good option.

EdInvestor

Here's a list of property unit trusts.Nos 16 (NU) and 19(Resolution) are the kind you want.

http://www.trustnet.com/ut/funds/perf.asp?sort=5&ss=0&txts=&txtss=&columns=&page=0&booIMA=0&reg1=all&sec=pty&ima=all&unit=all&type=all&gobutton=Go

There's actually a better selection of bricks and mortar funds among the investment trusts: but if you use ITs (higher dividends, lower charges, not subject to funny pricing changes) you do need to have a brokerage account as they are listed like shares.

As a result they are a bit more volatile than u/ts invested in bricks and mortar but not as volatile as u/ts invested in property shares.

munk

Cheers guys.

EdInvestor you say:

There's actually a better selection of bricks and mortar funds among the investment trusts: but if you use ITs (higher dividends, lower charges, not subject to funny pricing changes) you do need to have a brokerage account as they are listed like shares.

By ITs do you mean REITs/Real Estate Investment Trusts?

The one property fund that I had flagged up by Bestinvest's portfolio builder was the New Star Property fund (on the back of every finance newspaper section it seems!). There were a few things that put me off that one though. First the Bestinvest MRI (their 'information ratio' I believe?) for the fund manager which is only 2.9% - 100% being best value added, 0 being worst! Secondly the fund has been in the last quartile of rankings for 1 and 3 yrs according to trustnet's info. Is this a decent assessment? If so I'm not sure why Bestinvest flagged it as a worthwhile fund for a cautious-balanced portfolio, guess it just goes to show you can't put too much faith in that tool.

Generally it seems a bit harder finding or screening decent property funds, a lot of them (most of them) seem to be classified as 'specialist' so it's harder trawling through all the other specialist funds and they're unrated by morningstar. Any tips on screening decent property funds?

EdInvestor

The Trustnet site lists them separately under its own classification which includes "Property" hence my link above.Another useful site is www.citywire.co.uk/Funds/Home.aspx .It uses the "official" classification which is much more unwieldy but they both have good info.

Investment trusts which hold actual properties are not the same as REITs.REITs are another name for property shares, though, just to confuse you, not all property shares are REITS.:rolleyes:

Here's a list of the property ITs:

http://www.trustnet.com/it/funds/perf.asp?sort=2&page=0&ss=0&txtS=&txtSS=&columns=&class=conv&booAITC=0&reg=all&sec=4&aitc=all&submitbutton=Go

As you can see the income (NDY) is much higher. If the income is stable and highish, it doesn't matter that much if the capital value wobbles up and down.BTW has your Mother's ISA allowance been used?

Only income from equities is tax paid, bond and property funds need to be in the ISA if they are to avoid tax.

Also, have you checked the performance of her bond funds lately -the current volatility in the stockmarket is having the effect of improving bond prices.:) This should not indicate you do nothing of course, as what she needs is more diversification and better quality income so that volatility on the capital side is not so significant.

munk

BTW has your Mother's ISA allowance been used?

She has a Cash ISA with NS&I only for 2007/8. When we eventually get her sorted out with a new provider I'll certainly be looking to get her S&S ISA filled for this year.

By the way - do you know what happens when you transfer a number of s&s ISAs from one provider to another (not re-register, these will have to be encashed apparently and the wraps transferred to the new provider). Is each ISA wrapper transferred individually or would there just be one single wrapper totaling the amount transferred?

Slightly confusing, a practical example:

Mum has 3 S&S ISAs from previous years all with Scottish Widows:

2000/1: £7000
2005/6: £4000
2006/7: £7000

If we transfer these ISAs over to another provider - transfer as in 'cash in' and move the wrappers as opposed to re-register because apparently scottish widows funds can't be re-registered (at least not with fidelity or bestinvest the two that I asked so far) - will there still be 3 ISA 'wraps' of £7k, £4k and £7k or will there just be a single wrap of £18k? Hope that makes some sense!

I did search the forum here for an answer to this but didn't have any joy.

Also, have you checked the performance of her bond funds lately -the current volatility in the stockmarket is having the effect of improving bond prices.

They are taking some time to bounce back. I had thought over the last couple of weeks they might have picked up a little more what with the turmoil in the equities market and everyone jumping over to bonds, but nothing significant as yet.

I'm wondering now whether to go ahead and move the bulk of the investment out of the 2 'out of isa' main funds (she's £50k/£51k invested in two funds(!) SCOT WID MANAGED INCOME PFOLIO and SCOT WID MOMENTUM INCOME PFOLIO) and drop it into a high interest savings account until we're ready to go ahead with the reinvestment. Mmm but then again maybe I should leave them given they're mostly bonds and what we just talked about above.

No need to panic anyway, their low volatility is about the only thing going for them

Cheers.