Ready-made ISA Portfolios

Audaxer

Hi there, I am looking to invest my full 2016/17 ISA allowance in a Stocks and Shares ISA and I have come across Ready-Made ISA portfolios from Hargreaves Lansdown. As I am looking for mainly income rather than growth I am considering either the Conservative Income or the Balance Income portfolio, but have a few questions:
1. Are these a good choice for an inexperienced stocks and shares investor?
2. As the FTSE is quite high at present is it a bad time to invest the full ISA allowance?
3. The costs show an Admin Charge of 0.45% but also an ongoing charge of 1.34%. Are these reasonable costs for this type of portfolio as they seem quite high to me?
4. The aim of the fund is for income and modest growth, but is there any way of knowing how much of the performance figures (factsheet shows 46.9% for 5 years rolling performance) relates to income as opposed to growth?
5. If the value of funds fall is the dividend income likely to fall in the roughly the same proportion as the fall in a fund value?
Thanks

dunstonh

1. Are these a good choice for an inexperienced stocks and shares investor?

Cheaper and better available.

2. As the FTSE is quite high at present is it a bad time to invest the full ISA allowance?

Is it quite high? In real terms it is low based on historic points.

3. The costs show an Admin Charge of 0.45% but also an ongoing charge of 1.34%. Are these reasonable costs for this type of portfolio as they seem quite high to me?

That is higher than a fully advised portfolio you can get from an IFA. The whole point of DIY is to be cheaper. Not more expensive.

4. The aim of the fund is for income and modest growth, but is there any way of knowing how much of the performance figures (factsheet shows 46.9% for 5 years rolling performance) relates to income as opposed to growth?

Yes there on our software but I dont know if HL make that sort of info available to you. You may be able to recreate it on the free tools by comparing the acc units with the inc units to see what the difference is.

5. If the value of funds fall is the dividend income likely to fall in the roughly the same proportion as the fall in a fund value?

No correlation between the two.

Audaxer

Thanks dunstonh.

I don't think it is a DIY portfolio as it is ready-made with funds chosen and they do a bi-annual rebalance, but agree it does still seem quite expensive.

Another thing I was looking at was an article in Money Observer where they picked an ISA share portfolio for this year with the view of earning £10k annual income. It invests a total of £168,500 split between 10 large companies including BP, HSBC etc. They advise last year's portfolio made £10k income from a slightly larger investment. While I don't have that amount to invest, would a self-select ISA scaled down in size to say £15k, split between the same shares in the same way be worth looking at?

I'm not sure how easy it is to do a self-select ISA, and what costs are involved in purchasing shares direct.

dunstonh

I don't think it is a DIY portfolio as it is ready-made with funds chosen and they do a bi-annual rebalance, but agree it does still seem quite expensive.

Multi asset funds such as L&G multi index or Vanguard Lifestrategy are DIY.

Another thing I was looking at was an article in Money Observer where they picked an ISA share portfolio for this year with the view of earning £10k annual income. It invests a total of £168,500 split between 10 large companies including BP, HSBC etc. They advise last year's portfolio made £10k income from a slightly larger investment.

Shares are for larger investors with experience and time. Otherwise it is just random and likely to result in lower returns.

Audaxer

Okay thanks, I'll probably go for funds, but I will need to investigate a bit more.

However just out of interest, I note that the Money Observer article says that their ISA share portfolio for 2016 invested £176k in shares and that earned a £10k annual income. So presumably even a novice investor who had the funds and bought and retained the same share allocation for the year would have had the same result?

bowlhead99

Audaxer wrote: »

So presumably even a novice investor who had the funds and bought and retained the same share allocation for the year would have had the same result?

Any novice investor or experienced investor holding that exact same portfolio would have had the exact same result. However, there's no real expectation that a novice or experienced investor picked at random would have happened to have that portfolio unless they had chosen to slavishly follow what they read on money observer at that specific time. Neither is there any expectation that if you invest in last year's portfolio now, you'll get the exact same result.

Audaxer

bowlhead99 wrote: »

Any novice investor or experienced investor holding that exact same portfolio would have had the exact same result. However, there's no real expectation that a novice or experienced investor picked at random would have happened to have that portfolio unless they had chosen to slavishly follow what they read on money observer at that specific time. Neither is there any expectation that if you invest in last year's portfolio now, you'll get the exact same result.

I would have thought some investors might have been tempted to invest in last year's portfolio when they would have read last year's article, if they had say, significant funds in Cash ISAs earning minimal interest and were tempted by the advice that investment in that particular portfolio could earn £10k annual interest. This year's article is showing a revised portfolio for this year, with slightly less invested, which may or may not make the £10k income expected at the end of this year, but I would have thought there is a good chance it would make significantly more than could be earned in Cash ISAs?

bowlhead99

Yes, there is a great chance it would make significantly more than could be earned in Cash ISAs. There is also a great chance it could lose 25% of its value or more in a year, which couldn't happen with a Cash ISA, so it depends what your goals are and what you consider an acceptable return.

Audaxer

bowlhead99 wrote: »

Yes, there is a great chance it would make significantly more than could be earned in Cash ISAs. There is also a great chance it could lose 25% of its value or more in a year, which couldn't happen with a Cash ISA, so it depends what your goals are and what you consider an acceptable return.

Yes, I think I'd be safer going with an income fund rather than individual shares. I would also consider a tracker ISA, but not sure if it's a good time to put a lump sum in say a FTSE tracker with the FTSE currently being quite high?

If going for a good managed ISA income fund(s) with reasonable costs, I'm not sure what best to go for or best place to look?

Linton

Audaxer wrote: »

Hi there, I am looking to invest my full 2016/17 ISA allowance in a Stocks and Shares ISA and I have come across Ready-Made ISA portfolios from Hargreaves Lansdown. As I am looking for mainly income rather than growth I am considering either the Conservative Income or the Balance Income portfolio, but have a few questions:
1. Are these a good choice for an inexperienced stocks and shares investor?

Almost certainly better than an inexperienced S&S investor would choose for themselves.
Much better than say a FTSE tracker. Are they the best - probably not but who knows.

2. As the FTSE is quite high at present is it a bad time to invest the full ISA allowance?

Is it high at the moment? Higher than it has been - yes. Higher than it should be - who knows, probably not. But the FTSE should only be a relatively small part of your portfolio - there's a whole world out there.

3. The costs show an Admin Charge of 0.45% but also an ongoing charge of 1.34%. Are these reasonable costs for this type of portfolio as they seem quite high to me?

Higher than you can get. But better to pay high fees for something appropriate than low fees for something that isnt.

4. The aim of the fund is for income and modest growth, but is there any way of knowing how much of the performance figures (factsheet shows 46.9% for 5 years rolling performance) relates to income as opposed to growth?

You need to look for "yield" figures to get an idea of the income %. The yield for the HL income portfolios is a bit low, judging from an article on the BT website. But if it's enough for you that's fine.

Note that the overall performance assumes re-invested dividends so will be less than the sum of the separate performances of the income and unit price.

5. If the value of funds fall is the dividend income likely to fall in the roughly the same proportion as the fall in a fund value?

Generally speaking no. Companies dont like to cut dividends if they can help it. The share holders dont like it. Dividends are fairly constant over time, hopefully increasing at least with inflation. Share prices can vary wildly. So the yield (dividend as a % of share price) can also vary wildly without affecting the actual income.

Audaxer

Thanks Linton, your response has made me think again about the HL Ready-Made portfolios, although a bit expensive. Interesting article from BT. When it says the yearly dividend yield is estimated at 3.03% is that after deduction of the total costs of 1.79% have been deducted? On top of that presumably there could still be some capital growth.

I know it's not guaranteed but if it provided net annual income of around 3% and also some capital growth, it doesn't sound too bad for an inexperienced investor.