DIY or IFA?

dales1

TheTracker wrote: »

My basic basket of trackers seems to be up almost 12% in 12 months (money weighted).... Meanwhile VLS60 is up a little over 8%.
Each to their own ...

My own basic basket of trackers is up 14.8% in 12 months to end-Dec (time-weighted / unitised).
I thought time weighted / unitised was the preferred method ??

Dales

Fatbritabroad

StellaN wrote: »

Well good luck to you Sally. As quite a few posters have mentioned there is nothing vastly wrong with the funds you currently hold so I wish you the best moving forward and I'm sure you can reduce your risk exposure accordingly. As you said you can always consult an IFA in the future if you are worried about your choices many of them will give you an initial free meeting/advice before you hire them!

Some will offer a one off fixed fee consultation too if y ou just want a sense check but want to handle the ongoing investment yourself. I may well do this in the future when my pot is much larger but at the moment a small amount in an index fund and my company pension which I've moved out of its core allocation is fine for me

Fatbritabroad

bowlhead99 wrote: »

OK let's look.
It shouldn't even be on a list of 'multi manager' funds where it gets compared to all the funds-of-funds that use multiple managers, incurring multiple levels of fees from different management groups many of which are trying to achieve diversification across different asset classes.

It is a fund managed by a single group, investing into a single class of assets: global equities. So, compare it to the 197 funds in the global equity sector with a five year history, as Linton did, and observe that it came in 99th. Very middling - not something you should put into a much broader sector with lots of incomparable funds and say it is in the top two percentiles.

You've made the mistake of including 37 funds which score 'n/a' for their five year returns because they haven't existed that long and have been put below Vanguard in the ranked list, even though some of them have been outperforming it in recent months. What you should have done is eliminate them, leaving only 99 funds. Then it would no longer be top quartile.

Then I'd observe that you skipped straight from LS100 to LS60 without mentioning LS80, and the reason for that was presumably because I had so thoroughly debunked the reasons for its apparent top-tier performance in my earlier post: outperformance not attributable to being a tracker and saving a fraction on fees, but due to its rigid allocation to a high proportion of equities & strongly non-sterling exposure and no non-equities other than bonds which went on a good run at the same time as the equities and sterling devaluation which we happened to have within the last few years.

You could apply some of those same arguments to LS60 to explain its relatively strong performance in this 'medium risk' sector, where it is knocking on the door of the top quartile. Not actually *in* the top quartile though, once you eliminate the funds without track record which you erroneously included as being worse than LS60 even though some could be quite a bit better.

You were presumably happy to see LS80 right at the top of the 40-85% category, and the LS100 to be right at the top of the multi-manager fund of funds category, even though it gave them an unfair advantage. So, why not transplant the LS40 into the 'mixed asset, 40-85% equities category. After all, they aim to be not less than 40% equities, so it seems fine to do that. No less fair to put them in the 40-85 pigeonhole when they won't really go above 40, just like you put a fund which would never go below 80 in there.

After you do that and arbitrarily change the grouping to something that doesn't suit Vanguard's marketing so much, instead of having just 99 funds with five years of history in the 40-85 grouping, you'd have 100. The LS 40 wouldn't make the top 75 on the basis of its five year performance, making it bottom quartile.. But bottom quartile performance wouldn't suit your argument. See how making arbitrary fund sector classifications without considering risk etc, can give funny results?

Again, it's not a group of 57, because over 20 of those funds don't have a five year history and so are arbitrarily dumped at the bottom of the list. So, just like the LS 60 and 100 you suggested were top quartile, it's not top quartile after all.

The ones without five year history in the 0-35% equity sector include L&G Multiindex 3, which uses management judgement to allocate money among sectors, and whose performance over both 1 and 3 years was a percent or so better than Vanguard. Also includes the Blackrock Consensus range, another rival with flexible allocations in the 0-35% bracket whose returns over one and three years are somewhere between 1.5 and 2x the returns of Vanguard 20.

Or for something very far removed from an index there's Royal London Sustainable Managed Growth, using esoteric selections from Amazon & Google to Co-op Bank and Residential Social Housing bonds to return more than Vanguard's tracker in this equity range, over 1 and 3 years. But none of those funds have the full 5 years history so get kicked towards the bottom of the list.

You can suggest all you like, but basically only one of them (the VLS40) is a genuine top quartile performer, by the very slimmest of margins - per the link you provided, in the mixed asset 20-60 equity range its five year performance comes exactly 25th out of 100 funds which actually have a 5-year history.

Your assumption that they are all likely to remain there through thick and thin because of the inherent power of index tracking, may be optimistic.

Can I just say This whole thread has been really interesting for me as a relatively new investor (3 years or so). Bowlhead99 you make a very compelling argument for more complex funds and one I will definitely consider in the future when my pots bigger. Currently I've gone for Vls 100 for my isa with 25k in it now as I just want to build up my equity exposure and get used to investing. I feel I can handle the volatility this brings . I have 130k in my aegon company pension also in their 100% equity tracker having taken it out of their core lifestyle funds as I didn't see the point being invested in cash stock and bonds in a pot I won't see for at least 20 years probably more. I have 20k cash and about 5500 in p2p in an ifisa. I use the cash as both emergency fund and effectively as an alternative to holding bonds to reduce volatility on what is a high risk (in terms of volatility) investment. My p2p is my 'I Can lose it all high risk investment' Like you say I now feel I have this set up from the pov of understanding why I have these allocations rather than because Vls is the latest hot thing (it wasn't quite why I bought it originally as I read john bogles book and it convinced me for my current financial situation a simple Low cost tracker was best) but it's taken me a few years of reading to get to this stage

MPN

dunstonh wrote: »

Why do you see that as a problem?



Not necessarily. Our last six monthly update had 7funds added to our preferred list and 4 removed. The one before had 3 additions and 10 removals. Whilst most people would not be holding every fund on that list, a number of the removals were long-term big funds. If you are balancing the underlying assets, then removing a fund could then result in you needing to make a couple of other changes to bring back the allocations you are after. So, you may remove a fund that is perfectly fine just because it cant give you the asset weightings you want.

Plus, fixed interest sector, in particular, has seen some movement in many models.

There are different models and methods but movements happen. Each is for a reason. It would be better to ask your adviser why rather than people on the internet who will not know what model you are following.

I know we do not know which model the IFA is using but it still seems like a lot of funds in my opinion with the largest holding (Fundsmith) at only 8 per cent.

TheTracker

dales1 wrote: »

My own basic basket of trackers is up 14.8% in 12 months to end-Dec (time-weighted / unitised).
I thought time weighted / unitised was the preferred method ??

Dales

Indeed you are correct. Use time/unit weighting when comparing, if possible. We see a lot of portfolio return% quotes on here and they should all be labelled with the measurement type. The OP returns were not labelled, I wonder what was used?

As a predominantly passive investor I’m not too interested in seeing if I’m keeping up with the jones’s month by month, as I know I’ll beat activeman in the long run. Use time/unit weighting if you do want to compete, hence the disclaimer I noted. I do a time weighted calculation once per year and post to this forum.

Audaxer

dunstonh wrote: »

Not necessarily. Our last six monthly update had 7funds added to our preferred list and 4 removed. The one before had 3 additions and 10 removals. Whilst most people would not be holding every fund on that list, a number of the removals were long-term big funds. If you are balancing the underlying assets, then removing a fund could then result in you needing to make a couple of other changes to bring back the allocations you are after. So, you may remove a fund that is perfectly fine just because it cant give you the asset weightings you want.

Plus, fixed interest sector, in particular, has seen some movement in many models.

There are different models and methods but movements happen. Each is for a reason. It would be better to ask your adviser why rather than people on the internet who will not know what model you are following.

If you are annually removing a number of funds and adding other funds due to the underlying holdings, that is what I think makes it difficult for the normal DIY investor, and could result in us getting it badly wrong.

Is the same level of monitoring and fund changes necessary with an income portfolio? I thought if you had a number of funds or ITs with a long-term good performance history in different sectors that could give you an acceptable level of growing income, they would be mostly buy and forget with less need to change funds?

dunstonh

If you are annually removing a number of funds and adding other funds due to the underlying holdings, that is what I think makes it difficult for the normal DIY investor, and could result in us getting it badly wrong.

It is easier for advisers in this respect as the commercial software we have links directly into the underlying assets of the fund. A DIY investor could do it but it would take longer but some DIY investors enjoy that sort of research.

Some funds focus on 100% (or as near as) in a particular asset type. If you stuck to those, then its actually quite easy. e.g. if you want a fund to fill your 6% allocation to global high yield bonds and picked a fund that invested 100% into those then its easy. However, if the fund invested 60% into GHYB and 20% into global bonds and 20% into sterling corp bonds then you need to do some calculations or use software.

Is the same level of monitoring and fund changes necessary with an income portfolio?

Absolutely. The minute you start using single sector funds you are looking at rebalancing. If you use managed funds, you need to be prepared to remove and replace them as we move through the economic cycle. (e.g. if you have a spec sits/recovery fund, you dont want them for the whole cycle. Equity income is another that works best in a certain period in the cycle and not all of it). Even if you use trackers, you still need to be prepared to make adjustments that could see full removal. Most models have been reducing or removing their allocation to index linked gilts in recent times (but not gilts). Whether you fill that allocation by managed or tracker does not matter.

If you use single sector funds in your portfolio, regardless of your objective, investments style or model, you need to make ongoing reviews, rebalancing and changes.

Invest and forget using single sector funds will generally see a portfolio increase in risk over time. Plus, you generally find rebalanced portfolios outperform those left unbalanced and left to their own devices.

chrisgg

MPN wrote: »

I know we do not know which model the IFA is using but it still seems like a lot of funds in my opinion with the largest holding (Fundsmith) at only 8 per cent.

The majority of model portfolios (whether from IFAs or DFMs) will generally hold in the range of 15-30 funds with weightings below 10%.

bostonerimus

chrisgg wrote: »

The majority of model portfolios (whether from IFAs or DFMs) will generally hold in the range of 15-30 funds with weightings below 10%.

:rotfl::rotfl::rotfl::rotfl:

Audaxer

dunstonh wrote: »

It is easier for advisers in this respect as the commercial software we have links directly into the underlying assets of the fund. A DIY investor could do it but it would take longer but some DIY investors enjoy that sort of research.

Some funds focus on 100% (or as near as) in a particular asset type. If you stuck to those, then its actually quite easy. e.g. if you want a fund to fill your 6% allocation to global high yield bonds and picked a fund that invested 100% into those then its easy. However, if the fund invested 60% into GHYB and 20% into global bonds and 20% into sterling corp bonds then you need to do some calculations or use software.



Absolutely. The minute you start using single sector funds you are looking at rebalancing. If you use managed funds, you need to be prepared to remove and replace them as we move through the economic cycle. (e.g. if you have a spec sits/recovery fund, you dont want them for the whole cycle. Equity income is another that works best in a certain period in the cycle and not all of it). Even if you use trackers, you still need to be prepared to make adjustments that could see full removal. Most models have been reducing or removing their allocation to index linked gilts in recent times (but not gilts). Whether you fill that allocation by managed or tracker does not matter.

If you use single sector funds in your portfolio, regardless of your objective, investments style or model, you need to make ongoing reviews, rebalancing and changes.

Invest and forget using single sector funds will generally see a portfolio increase in risk over time. Plus, you generally find rebalanced portfolios outperform those left unbalanced and left to their own devices.

Thanks dunstonh. Regards rebalancing of income funds, let's say for example you had a good dividend paying fund/IT which shoots up a lot in value and you rebalance by selling some of your gains in that fund to buy into one of your other poorer performing funds/ITs. You would receive a lower amount of future dividends from the fund your are selling from, and might not be gaining as much in dividends from the fund you are buying into if it's not as big a dividend payer. Am I right in thinking the answer to that is take your income based on total returns rather than on the amount of dividends alone?