Scottish Friendly My UK Tracker Options (ISA)

mal48

And you can of course get far worse returns from funds with lower charges. That is the elephant in the room. My investments are well diversified and that's the only free lunch in town. But the thread is moving a long way from the original point. I have been trying to demonstrate that certain funds in SF are far from a poor choice and I have used it as a easy and flexible vehicle to get consistent returns considerably above the UK All Stocks Index-some 5%.
As a matter of fact I am beginning to develop a respect for dunstonh, masonic et al. Some of the more recent posters seem completely lost, M

mal48

I'm hardly ignoring the charge. 1.5% take off .25%, I'd pay for a platform, so 1.25%. The Higher Fund is a tactically managed fund of funds and the Growth fund is an active fund. The returns are good. I'd prefer to pay .5% less, but the charges are reasonable. The external managers are closely monitored, which I'd otherwise have to do myself and the Higher Fund works within a risk profile. Not for you serious investors, I know, but I also get 5% off all goods I buy in Sainburys and many other major outlets through SF. But hey, this is a money savings site. Let's get back to basics, M

edinburgher

mal48 wrote: »

In reply to dunstonh, it was masonic who used the unfortunate colloquialism 'dodgy', possibly libellously.

That's a very interesting sentence for someone who has no business connection to what is a very poor product

Masonic, thank you a thousand times for the patient and methodical way in which you have debunked the snake oil being spouted in this thread. I only hope that anyone wondering whether they should go with this SF product 'for the cashback' takes the time to review it and comes to the conclusion that it's an overly opaque product designed to part them from more of their cash than is strictly necessary :beer:

mal48

edinburgher adds nothing new or useful to the thread, but simply repeats the poor product assertion. He's probably not read all the previous posts because there's information there to show the value of the product. As for cash backs, I've never mentioned them and I'm not interested. The Vectis card that gives discounts in stores is something completely different to a cash back for buying an investment product, M

edinburgher

mal48 wrote: »

ediburgher adds nothing new or useful to the thread, but simply repeats the poor product assertion. He's probably not read all the previous posts because there's information there to show the value of the product. As for cash backs, I've never mentioned them and I'm not interested. The Vectis card that gives discounts in stores is something completely different to a cash back for buying an investment product, M

On the contrary, I've read every post. What I add is thanks to another poster for his thorough and informative posts (in which he clearly and methodically sets out just why this is a product that will not suit a lot of investors).

mal48

If you've read every post E, I'm very surprised you think it's a poor product. I suggest that you read the Key Facts document thoroughly and then check the performance figures. I think you'll see what a good product it is. Of course not for everyone, but it makes good returns for me and it looks ideal for a novice investor, M

edinburgher

I am not sure whether you're simply trying to provide your own confirmation bias to justify an investing choice, or whether you actually work for SF. In any case, I'll leave potential investors to make their own minds up based on the facts provided (thanks again masonic) and the opinions. Cheery bye

mal48

To clear up E's confusion, I do not work for SF. I first came on ths thread to counter the claim that this is a hopelessly expensive and poor product and this I've done successfully. I come back to the thread to respond to arguments put to me. Hope that this is sufficient explanation, M

masonic

mal48 wrote: »

One point to masonic. If people read the previous posts, I wouldn't need to keep going over the same ground. I'll admit that some of the blind assertions and sheer lack of knowledge can be frustrating, but hopefully things have been clarified, even for you, Mal

There is certainly clarifying information posted within this thread. We may disagree on what it is. I'm all for not going round in circles, so it is probably best we leave it at that.

bowlhead99

Excuse the long post instead of ten short posts in a row without anyone answering in between

mal48 wrote: »

When this thread opened the charges were as they are now. dunstonh and masonic just didn't realise that.

Sorry, but it is you who doesn't realise what the charges are. There is a fundamental difference between the annual management charge and the total ongoing charges forecast which a credible fund house would put on their marketing material.

As Dunstonh - a regulated professional financial advisor - has informed you, quoting only an 'annual management charge' or AMC is the way the dinosaurs did it. The reference used by credible fund houses is 'ongoing charges forecast' or OCF. The ongoing charges forecast is the one that should be prominently displayed on the website as it includes AMC and a number of other charges which eat into returns. Audit costs, legal costs, regulatory fees, custody or depositary costs, fund administration and reporting costs, etc etc. So, OCF is the industry standard way to give investors an insight as to what it costs to be in the fund.

You say you believe that the 1.5% fee is an all encompassing charge. Your basis for believing this is because the key features document says that "The fund has an annual management charge of 1.5% of the fund value deducted on a daily basis. This annual management fee includes the cost of fund management for the underlying fund."

So, the AMC is 1.5%. No argument with that. But this is simply the aggregated charges billed by the fund manager(s) for managing the fund and the underlying fund. It does not include the other costs which are billed by other parties (admin, audit, legal, custody, banking etc etc etc) to the fund and underlying fund.

This is why they say that "if you withdraw your investment after 10 years, the effect of the total deductions could amount to £x. Putting it another way, this would have the same effect as bringing the investment growth from 5% a year down to 3.4% a year.". Clearly, if the management charge at 1.5% was the only cost or deduction, it would bring investment growth down from 5% to 3.5% a year, not as much as the drop to 3.4%.

But the fund does not only suffer that 1.5% drop, it instead suffers a larger drop, due to the effect of the running costs of the fund operated by SF on top of the 1.5% annual management charge levied by the fund and underlying fund(s).

There is a line of text under the table that shows the effect of running costs, saying "The deductions include expenses, charges and any other reductions." You took that to mean that the 1.5% charged as a management fee would include all of the expenses and charges. But this is your misunderstanding.

The deductions which an investor would experience in the table (which as noted above are greater than 1.5%) include expenses and charges, and one of those charges is the management charge. Read it again: they are not saying that the 1.5% management charge includes all of the other expenses, charges and other reductions. They are saying that there is a 1.5% charge AND there are other expenses, charges and reductions borne by the SF fund.

As you mentioned, the MyChoice fund policy selection of the SF UK Active fund within your ISA is linked to the SF UK Growth Fund, whose KIID is here (http://www.scottishfriendly.co.uk/uploads/pdf/products/kiid/key-investor-information-ukgf.pdf). As a prospective new customer they do not make it easy to find from the My Choice area of the website, you have to abandon that section and go to Existing Customers, Customer Information section and then you can find the link.

It refers to them having a 1.55% (not 1.50%) OCF, which will be the 1.5% AMC that you knew about and a further 0.5% of costs at the SF fund level which you did not. This explains why 5% gross return turns into less than a 3.5% net return in their MyChoice Key Features document. Unlike more popular DIY investment platforms they do not try to define or quote OCF anywhere obvious on their site apart from mentioning it in the KIID pdf.

You can find out about such other 'ongoing charges' of the fund by looking at SVM website to see how they run that. For that you would need to go to SVMs website where information about the SVM UK Growth Fund can be found: http://www.svmonline.co.uk/Navigate.aspx/Private-Investor/1/Investment-Funds/UK-Growth-Fund

This gives more information about the underlying fund they're running with the same objective, and on the right hand side shows the OCF of each class. The OCF of the main retail fund 'A' share class is 1.85% (compared to their annual management charge of 1.50%) and the OCF of the institutional fund 'B' share class is 1.1% (compared to their annual management charge of 0.75%). What these tell you is that the extra running costs of the SVM fund, over and above its AMC, are currently forecast to be 0.35% per annum.

That is pretty damn expensive, but understandable on a relatively small fund (they're not investing a billion pounds). If you go to the prospectus document in the Literature section of the SVM website (http://www.svmonline.co.uk/ResourceModule.aspx/Pdf/SVMMultifundsProspectus0416.pdf?key=8c13c3e8-bbcf-43b5-b628-0abd7b056a65) and turn to page 24, you can see the operating costs that they have negotiated: Depositary's fees of .03% here, fund accounting of 0.05% there, administration fee of £370k+ £x per activity there, custody fee on sliding scale from 0.001% to 0.5% over there, and so on.

Page 25 describes the other different types of fees which can be borne out of the Scheme Property including but not limited to audit/tax/legal/other professional fees, FCA fees, meetings costs, printing and distributing reports and publishing prices and yields, liability insurance etc etc. All of these things are NOT in an AMC. They ARE in the published OCF which we can see in total, as published by SVM, runs at 0.35% higher than the AMC which it includes.

Some managers, such as Vanguard, Woodford, Invesco etc will offer a Management Charge which is the same as its OCF, or pretty similar. They absorb those other types of charges within the headline fee, because they know the industry has modernised and investors just want to hear the overall cost, and don't really mind how much is management fee to a manager versus administration and depositary fee to an administrator or manager. This is NOT the case with your SF / SVM solution, where SF just want to mention a headline figure, and hope the investor does not ask awkward questions.

So, while you don't like to focus on fees, preferring the net result after fees, the fact is that this fund is costing you a lot to deliver its return. Other reputable fund managers would have an OCF of half that, all in, if what they are doing is simple stockpicking in the UK market with a heavy weighting to FTSE250 and the bottom half of the FTSE 100.

It is not like they are going out and doing "private equity style" investing, negotiating private acquisitions of entire businesses, holding them, strategically developing them, and carefully exiting them. I have exposure to 1.5+% annual fees (plus performance fees) for that kind of active management in some of my holdings, which I recognise is inherently fee-heavy because it is very far removed from tracking the popular names in the index. But such a fee for stockpicking 50 little minority positions in UK listed midcap is a joke.

If the SVM fund were really so good, you could get yourself a fund platform like Charles Stanley Direct or Youinvest for 0.25% a year and access the institutional version of its UK Growth Fund (Class B shares) which is 0.75% cheaper than the full fat retail version (Class A shares). Then you would still be in the same, pretty average UK growth fund, but saving a slice of cash for yourself every single year by avoiding Scottish Friendly or their ilk as an overpriced middleman.

Heck, there are several active threads on the Savings & Investment and Pension & Retirement forums here which have cropped up in the last couple of days, complaining that Youinvest put their platform fee prices up to 0.25% a year from 0.20% a year. Yet you are happy to avoid the 5000 investment options offered by a DIY platform, so you can instead pick from the 9 fund choices at SF, some are which are truly terrible and others like the Active fund are being sold at a premium fee of half a percent or more on top of what the exact same externally managed fund would cost through a Youinvest-type DIY platform.

The return of my SF portfolio is consisently above the All Stocks Index. I'm pleased with that. I could make more elsewhere, probably with greater time and effort, but I don't see the point of putting off novice investors who want encouraging, not to read posters denigrating a perfectly good product, M

Novice investors would be encouraged to learn that they can get the same quality investment funds without going through an expensive friendly society or bank which charges them an arm and a leg for the privilege.

If you only have £10pm, sure, use a SF product which is inevitably expensive to administer. There is no cheap high quality solution for equity exposure for someone with £120 a year available. But for £50-£100 a month there are all manner of ISA investment schemes direct from investment trust managers or via fund platforms.

mal48 wrote: »

dunstonh is clearly still concerned with charges per se and ignoring net returns. masonic is trying to claim greater sophistication and saying that it's the ratio of risk to reward that concerns him. He's now been answered, the risk is reasonable and the rewards are high, M

I recognise that some forumites are less experienced and do not want to go in at the deep end with choices from 5000 options. However, this is a money-saving site and it is disingenuous to say, "hey it works well for me, better return than FTSE index with the same risk", when it is clear you are just parroting back the marketing material, and have not properly investigated the fees or the holdings.

If someone says "OK then tell me exactly what I am buying, this all seems very opaque: what have been the ACTUAL returns over a decade or two because they are not on the SF site? how did the fund perform in 2008 to 2009 downturn? what is the ACTUAL volatility over the last three years because the Scottish Friendly marketing material does not tell me? - there is no information on which to base my investment decision..."

...you are not going to satisfy them by saying - "According to the marketing material, it is about as risky as the UK stock market, and aims to give better returns than the UK stock market, and in the short time I had it, it did, QED."

You can't say you answered the "whats the risk" question with 'reasonable' and the "what's the rewards" question with "high". That is an entirely useless and subjective answer which does not contain hard facts or quantifications or address any of the points.

The closest thing to performance information or investment commentary which SF allow you to find on their site is an annual Report, which is not available for most of the policy choices in the Choices product, such as the global multi-asset which you have, but it is available for the SVM-managed UK Growth fund that they structured as an OEIC. Except, all they publish is the Short version, two pages long, as of November 2014. http://www.scottishfriendly.co.uk/customer-centre/isa-oeic-investors/latest-fund-reports

It has been a year and a half since they created that pdf; it does not contain any graphs or charts to allow you to see the return profile, and they have not bothered to update it for prospective investors who might be interested in the position for May 2015, November 2015, May 2016 or any interim points. Clearly, they do not want to attract any investors who prefer want to look before they leap. They are relying on the fact that someone will like the idea of £10pm investment in something that might go up in value. The real meat of the details of what you would be buying, is not forthcoming.

mal48 wrote: »

I only mind to the extent that masonic has received numerous detailed factual replies, M

You're kidding, right??!

Your "numerous detailed factual replies" did not give any detailed information about the volatility of any of the funds or their performance in up and down markets, which is what Masonic was trying to find out.

For returns, you suggested that we go and check the Money Observer website every weekday. Well thanks for that, I'll just get my time machine and go back a decade and then look at the site daily for 2500 days and then I'll draw my own graph of ten year performance because Scottish Friendly don't seem to want to give me one.

Your comments on risk were simply regurgitating the website material that the fund(s) are higher risk funds and try to have a similar level of risk to the UK stock market in general. 100% in UK stock market would be high risk, no argument there, but there are various grades of risk and ways to measure it.

You said you are invested in two funds:

1) A global multi-asset fund that spreads its assets around the world (though for some reason was avoiding Asia and all types of bonds as of 10/10/2015 according to the Key Features doc).

For background in case you or another reader are new to stockmarket indices and benchmarks, the UK FTSE100 makes up over 80% of the UK All-Share and as it is weighted by market capital it is heavily skewed to particular industries while missing others. It would be poor quality investing to invest just in a UK capitalisation weighted index. The All-Share has over 600 constituents but over 50% of its value is in the top 20.

As global markets have on average well outperformed FTSE100 for the last couple of decades, even without the recent sterling depreciation substantially boosting the global regions' returns for a pound sterling investor, it is not remotely surprising that a global equities fund over the recent five to seven year bull market would beat the UK All-Share. It is not a very difficult bar to hurdle over. So the fact it 'beat the UK All-Share' when it was allocating money globally and not trying to invest its money the same way as the UK All-Share, is not at all surprising

2) You have a UK Growth fund run by SVM. As it is going for growth - and for example, instead of selecting the oil & gas and utilities and banking giants in the index it is going for consumer goods and services - it has a portfolio skewed very differently from UK All-Share. While All-Share has a massive 53% of its value in just the top 20 UK companies by size, and a massive 70% in the top 50 companies by size, I can see from the SVM website that their UK Growth fund has over three quarters of its value NOT in the top 50 but selected from the other hundreds/ thousands of UK companies.

Its money is weighted 36% in the FTSE 250, 21% in the bottom half of the FTSE 100, and 20% too small to even be in the All-Share let alone the FTSE 100 or 250.

So again, in a bull market the returns from such a fund - especially in a time when the oil price crashed and the financials like Lloyds and RBS have wobbled due to Brexit and other issues - are going to comfortably eclipse the return from the FTSE All-Share whose returns are excessively reliant on the oil, banking, pharma giants.

This is not because Scottish Friendly or SVM are great and always well worth their 1.8% fee. Yes, the return has been greater than the fee. But simply, the 'target' of beating the All-Share in a largely positive market from 2009 to today, has been very easy - and most competent mid-cap UK-focused funds have achieved it.

But don't go thinking you are getting the returns of the FTSE 250 with the risk of the FTSE 100. Make no mistake, this is not a broad largecap fund with some small companies here and there. It is a sectorally focussed fund containing a lot of mid-cap companies and its portfolio will diverge considerably from the benchmark if the benchmark is "all companies weighted by size". It will also differ from the other funds that might be lumped into the same benchmark group for being generally open to making investments in All UK Companies.

You can be top quartile in the IMA UK All Companies sector by generally focussing on medium to small companies or 'growth' companies during a bull market, just as you would be bottom quartile when the market swings the other way and the defensive largecap 'value' stocks are the ones to have. By focussing only one on one geographic region and a number of favoured sub-sectors, the risk is high, because the remit of the manager is to stay looking for growth and midcap even when the world is collapsing, and not to move to value and largecap. So you will get volatility.

What you have observed with your risk scores which you say is no higher than FTSE100 in recent years, is a bit of a freak occurence. For a period, the big oil companies, resource companies and banks of the FTSE100 were hit hard by oil prices, changes in growth outlook and financial shocks, and so relatively the Growth Fund does not seem to be more volatile than the FTSE100 if you measure a short enough period. As Dunstonh observed from his position of being a regulated financial advisor, such a 'rule of thumb' offered by FE "risk scores in the low 90s" is flawed.

Below is a picture of the FTSE 250 against the SF UK Growth fund and the SVM UK Growth Fund run by the same external manager over the last 3 years. They are pretty closely paced. The heavy weighting of the fund to the mid-250 index and the fact that other larger or smaller companies in the same sectors held by the fund will move in similar directions at similar times, means that they basically got to the same place over 3 years.

Along the way though, the actively managed fund had higher volatility: from March/April 2014 it fell 20% in half a year, while the 250 only fell a little over 10% and the All-Share would have dropped about 5% if I'd included it on the chart. Having fallen 20%, the actively managed fund then climbs 30%+ over the next 4-5 months. Although the performance is net of ongoing charges, there is nothing to suggest that one should sign up for a product with triple the charges of a tracker if the net performance and volatility are comparable - and especially if volatility is worse without overall performance being better...


If we look further back, over five years, we can see there is some divergence between the SVM-managed SF product and SVM's own UK Growth product, at least according to the Trustnet figures from where I sourced the data. Somewhere around the end of 2011 the small SF fund missed some growth and has trailed ever since.

But the SVM UK Global one is still closely sticking to the FTSE250 index, generally trailing a bit. With the exception perhaps of the two date ranges I highlighted on the earlier chart, the volatility - the depth and frequency of the ups and downs - is broadly on par with that indexed basket of mid-caps, because the smallcap and largecap stocks it also holds are moving similar amounts at similar times.


If we extend the chart all the way back to 2000 and look at what has happened over the last decade and a half you can see that the SVM team who were given the SF mandate in about 2004 didn't really do anything clever in the early years - delivering mundane performance on a par with the All-Share, up until the then market peak of 2007/8. However from the market trough of 2009 they featured small and mid size companies more heavily, and the outright performance during the easy performance ride since the depths of the market trough was improved, delivering about 200% return compared to the 100% on the All-Share or the 300% of the FTSE250 mid-cap index.


So, is this a great fund offering FTSE250-like returns with the risk-profile of the All-share, for which we should be queuing up to pay 1.5% management fees?

Well not really, especially as you can get lower management fees by skipping Friendly as a middleman. In recent years (i.e. over a timescale that's too short a period over which to evaluate a fund) the fund appeared to keep pace with the 250 while exhibiting similar volatility. A 250 tracker ETF can be bought from the likes of iShares, Lyxor, Vanguard for 0.1 to 0.4% expense ratio. These can be bought from a broker and held without a platform fee. Or any number of midcap OEICs exist, with combined OCF and platform fee of somewhat less than what SF demand.

What we see from the long term graph is that since 2009 the active fund has delivered a return midway between the leviathans which dominate the all-share, and the mid-caps of the FTSE 250. It is not doing that in a smooth straight line, but on quite a jagged and volatile one - with rapid swings much greater than the All-Share and quite similar to the 250 without achieving the same level of overall performance. You could recreate it by using an All-Share tracker and a 250 tracker. For the periods when the market moves against you, at least you would only be paying <0.5% fee for the privilege instead of >1.50%.

mal48 wrote: »

If you've read every post E, I'm very surprised you think it's a poor product. I suggest that you read the Key Facts document thoroughly and then check the performance figures. I think you'll see what a good product it is. Of course not for everyone, but it makes good returns for me and it looks ideal for a novice investor, M

For the avoidance of any doubt, I did read the key facts, interpreted them correctly (despite their poor presentation of the information on fees, which had misled you), and put some time into sourcing the performance data externally because Scottish Friendly do not give any useful quantification whatsoever of performance vs comparable indices - nor of volatility. After doing that I was unable to conclude that it was a good product.

All I was able to conclude in relation to the Active UK Growth fund was that it was unspectacular and if I wanted a product like that, the manager SVM would sell me their own version via any mainstream plaform for a lower fee.

For the 'Higher' policy which is a mixed asset fund of funds, I was not able to get performance data or information on historic holdings. From their 'risk graded funds' allocation table at http://www.scottishfriendly.co.uk/customer-centre/isa-oeic-investors/risk-graded-funds I can see that a year ago (10/8/15) they had a certain US: UK: European allocation split, and from the key features document I can see that this was apparently the same two months later when writing the key features at 10/10/2015.

I have no information on what it held in previous years, or what it holds today, or might hold next year, or any information on how it has performed historically. They choose not to provide performance information. It is an actively managed fund whose performance is down to their subjective choices to meet a 'higher' risk profile but they do not tell me what they will use to meet that profile other than three L&G tracker funds which are each available for a combined fee (platform plus manager fee) of one third of the percentage that Scottish Friendly wants to charge.

Other multi-region, multi-asset class funds exist (such as L&G's decent Multi-Index 7) which revisit the risk profile more frequently than once a year, publish performance data, and don't omit to include a small allocation to property, international bonds, high yield bonds, Japan, Pacific ex-Japan, and emerging markets. A balanced portfolio such as that, albeit at the higher risk end of the scale, probably seems more suitable for a novice investor who thinks they have higher risk appetite but does not really comprehend what a 'risk comparable with the UK stockmarket' might really mean as a target.

You think the L&G one is rubbish because your mixed portfolio of one UK midcap fund and and one opaque 'higher' Friendly policy was able to beat it over a short period. But your timescales are too short for you to be able to say this with confidence, and the 'higher' fund you hold is over 50% US stockmarket tracker, so was flattered when the US stockmarket recently pushed up to all-time highs while sterling devalued, amplifying the returns. I wouldn't count on that as being a great reason to rely on it in the future, especially as you have no idea what, if any, changes they will make or when.