switch out of your property investment fund

munk

Thomas_Crown wrote: »

Trying to find the good funds within the F.O.B. would be like trying to find a needle in a haystack!

I spent a while researching all the funds in the Scottish Widows Flexible Options Bond (FOB) range, I posted a list of the better performing funds here:

http://forums.moneysavingexpert.com/showpost.html?p=6179472&postcount=90

To be fair, there are more decent performing funds in there if you care to find them - for example recently I wanted to diversify a portfolio with some emerging market fund and looking through the list of FOB funds there was the Fidelity South East Asia fund which hasn't done so badly... I'd not originally added this to my list of 'top picks' on that linked thread above.

Note that none of the funds are Scottish Widows own in house funds. There are a few ok performing funds in the SW in house range (the european growth fund comes to mind), but none are particularly top notch over 1, 3 and 5 years.

I would say that unless there's an overriding reason for using an investment bond wrapper, think about moving away from the FOB if your 5 year establishment charge period is now over. Whilst there are perhaps a dozen or so decently performing external funds available for investment in the FOB, all of them come with a relatively high annual management charge with an average of between 2-2.5% pa.- you're paying once for the SW management (average of around 1%) and then again for the external fund management (again an average of around 1%).

As an alternative if you went with the same funds outside of an investment bond via a regular fund investment broker like Hargreaves Lansdown (or Chartwell like you mention), you'd only be looking at 1.75% pa on average. On top of that you wouldn't be paying the exorbitant establishment charges that SW levy, instead only paying on average say 0.25% instead of the 3.5%(? off top of head) establishment charge. (Edit, forget last sentence, see you went through chartwell!).

EdInvestor

mrodent wrote: »

I am thinking of switching a largish part of my ISA equity funds to gilts over the next few months....The point about this switch is of course to preserve the tax wrapper status.

Surely that's not the only point?Why such a dramatic switch in investment strategy?


[quite]I just rang the DMO (issuer of gilts) to ask whether it was possible to use their execution-only buying method to buy ISA-wrapped gilts (therefore without incurring annual management charges of a managed gilts fund)... The guy seemed a bit unsure but basically said "no you have to buy through a fund if you want to keep the tax wrapper".[/quote]


That's not so.You need to move your ISA to a self select provider which enables you to buy individual gilts.

https://www.selftrade.co.uk
https://www.alliancetrust.co.uk

are a couple you could look at.

It's not a good idea to buy gilts in a fund because there is no security.

... don't you just choose your gilt issue and leave the money in there?

This is what happens when you buy and hold a specific gilt.But a gilt fund trades its holdings, so not only do you have no security but you also pay charges which eat into the returns (as you know) which by their nature are already low.

One of the fund supermarkets I use, Cofunds, has about 20 managed gilts funds... should I just switch into one or two of these?

No IMHO

purch

... don't you just choose your gilt issue and leave the money in there?

If you want to go 'ultra' defensive then that is the way to go.

The FT, either in olde fashioned print or online has a table that shows the best Gilts to hold depending on the Tax bracket.

Currently Treasury 8% 2013, or Treasury 8% 2015 have the highest yield to maturity ( 4.85% ish)

mrodent

Dear Ed Investor and Purch,

Thanks very much... both your posts are very useful

When I said "the point was to keep the wrapper", I meant that I fear economic repercussions if the USA attacks Iran and wanted to put some of my money somewhere safer than equities... but didn't just want to sell these ISAs and lose the wrapper...

jon3001

I don't have any property funds yet and am holding off until things improve in this sector. However, in the meantime, a few Qs:

1. If I'm investing to gain exposure to another asset class that's largely uncorrelated with the rest of the portfolio (equities, bonds, etc) am I right in thinking that I should be choosing a fund that largely invests directly in property rather than property shares/REITS?

2. What long term gains and risks would you expect from these two types of funds?

3. What yield is attractive? Some of the funds only seem to yield 2.5% (far less than interest rates) which must mean the tenants are getting a bargain rent.

4. Which funds would you single out for consideration as the sector improves? (SWIP, NU, L&G, M&G, etc)

dunstonh

1. If I'm investing to gain exposure to another asset class that's largely uncorrelated with the rest of the portfolio (equities, bonds, etc) am I right in thinking that I should be choosing a fund that largely invests directly in property rather than property shares/REITS?

In general yes, although in the long term, a bit of both doesnt hurt. There is the difference in risk with both so that needs to be considered as well.

2. What long term gains and risks would you expect from these two types of funds?

Bricks and mortar low risk (4/10). Property funds high risk (9/10). Bricks and mortar funds are easier to guess future returns as a bulk of the return is rental income. Property share funds are harder as you have stockmarket and property values to consider. Bricks and mortar are expected to return to around 7-8% a year in future.

3. What yield is attractive? Some of the funds only seem to yield 2.5% (far less than interest rates) which must mean the tenants are getting a bargain rent.

The yield alone is not a good way to judge the property funds.

4. Which funds would you single out for consideration as the sector improves? (SWIP, NU, L&G, M&G, etc)

Cannot say. Against board rules and FSA rules to make such a recommendation. SWIP is virtually the lowest risk out of those. NU is under new management and the new manager has a different approach to the previous one.

jon3001

dunstonh wrote: »

jon3001 wrote: »

3. What yield is attractive? Some of the funds only seem to yield 2.5% (far less than interest rates) which must mean the tenants are getting a bargain rent.

The yield alone is not a good way to judge the property funds.

Any pointers then?

Ultimately are you not buying a rental income and an inflation hedged asset?

dunstonh wrote: »

jon3001 wrote: »

4. Which funds would you single out for consideration as the sector improves? (SWIP, NU, L&G, M&G, etc)

Cannot say. Against board rules and FSA rules to make such a recommendation. SWIP is virtually the lowest risk out of those. NU is under new management and the new manager has a different approach to the previous one.

I'm interested to hear which ones other investors are considering and why.

Lowest risk in what way? Some statistical measure or does it have a more diverse industrial and geographical spread?

Ian_W

Saw this CITYWIRE article and thought of this thread before it got a little er .. side-tracked.
Would stress that the 90day redemption delay only applies to INSTITUTIONAL investors, not to retail unit holders but IIRC it is a bricks & mortar fund with no property shares held.
There are also some interesting comments on this BLOG.