BlackRock Consensus 85

davieg11

I've been looking through the 348 different pension funds in Standard Life and fancy this one. BlackRock Consensus 85. My fund SL managed pension fund is at 181 a unit and BlackRock is at 123 a unit, so does this mean the BlackRock has a good chance of increasing to 180 a unit in the years to come?

bowlhead99

If the Blackrock fund increased by on average 5% a year compounded over the next decade - which is not outside the bounds of possibilities - it would rise in price by 63% in total.

For a Blackrock or any other fund currently valued at £1.23 a unit, a 63% increase like that would increase in value to to £2.00 So yes, if you leave it long enough it is perfectly reasonable for it to increase to £1.80 and beyond.

Over the same timescale, if the fund that is already priced at £1.80 were to increase at 5% a year annualised return it would increase to £2.93

However, you can't compare funds by saying one fund is priced at 1.23 and one other completely unrelated fund is priced at 1.80 so the first one is expected to go up or the second one is expected to go down.

For example I could launch one fund tomorrow and call it the HighPrice Fund, priced at £20 a share, and another one called the LowPrice Fund, priced at £10 a share and invested in the exact same underlying assets.

If you invest £10,000 in the first one, I would issue you 500 units. If you invest £10,000 in the second one, I would issue you 1000 units. But in both cases I would take your money and invest the £10,000 that you give me in the exact same stuff. Each of them might go up by 5% or 10% or 63% or it might go down in value instead, depending on how that 'stuff' performs, but if the two funds invest in the same stuff and have the same running costs, they will have the same percentage return as each other.

If they don't invest in the same stuff, they will have a different percentage return.

You certainly don't have a higher chance of making more profits from the second one just because I am selling you it at a lower price. Price is just a number that falls out of the calculator when I say I have a fund worth £x million and there are currently y million units in issue and I divide £x by y.

If all the funds started at £1, which is not necessarily the case, then the ones that currently have higher prices either went up more because they have been running the same amount of time and delivering consistently better results, or have been running the same amount of time and got very lucky and might be due a big fall, or have simply been running for several years longer but giving the exact same, or maybe even worse, performance per year.

Basically you can't read ANYthing into the current prices of two unrelated funds. All you can say is that if a fund has a value of £1.23 per unit and it keeps making income and capital gains from the underlying companies and bonds and properties it invests in, in excess of its running costs, then it will eventually be worth a lot more than £1.80 per unit, and perhaps more than £180.00 per unit given an unlimited timescale.

enthusiasticsaver

Bowlhead puts this more eloquently but isn't that like comparing apples and pears? Totally different funds with different allocations.

AnotherJoe

As usual Bowlhead said what I was going to say but better. Read it and learn.

And to give a real example, 2 or 3 years ago I had some Apple shares, priced at around $700 each, then they "split" the shares so that for every one share you had you got 7. So the price of my Apple shares dropped from $700 to $100 each, but i now I had 7x as many, so I still had the same overall amount invested.

I would of course like them to rise back to $700 each again but the fact they were once priced at that, or that some other shares are priced at other values, including the SL managed ones at whatever price they are, has no bearing on that.

Buy the Blackkrock ones if you like them on the basis of what they are invested in, not their price.