Decision: active v passive multi manager v nutmeg v DIY

Tarquinius

Hi I'm looking for some advice and would be grateful for any advice...


I look after mine and my wife's and my mum's ISAs, as well as JISAs for both my kids, and am trying to decide on the best investment vehicle. The whole lot come to about £60k I have no particular aim in mind and can invest long term generally (though for one of the JISAs, may access it in 5 years or so).


I am happy to be adventurous (with some money in EM) but I also am a beleiver in some diversification (geographically and between all asset classes including a little bit in property, natural resources, hedge, bonds etc).


So I'm looking at a few options:


1 A ready-made portfolio from the like so BestInvest / HL. I like this because the manager continually re-allocates according the best funds on the market (supposedly) and according to economic conditions. In *theory* I guess this approach should outperform investing in trackers (as the manager is always picking the best performing actively managed funds and switching between them continually) ??? I also like the diversification between asset classes (with hedge, property, bonds etc all included). But I dislike the charges: these will be c. 2% (the sum of the OCF for the fund and Platform fee). Very expensive!



2. Nutmeg managed. Total fees about 1%. But this is invested only in trackers (so no opportunity for outperformance ??) and also this invests almost entirely in equities, not so diversified as a multi-manager fund. But it is active in the sense that nutmeg are active in re-allocating according economic conditions



3. Evestor or Vanguard Lifestyle type funds (adventurous eg 80% equity). Total fees in the region of 0.5%. No active management by the platform / manager (other than re-balancing) and invests in a blend of trackers.


4. Fund platform and pick my own funds. Perhaps around 1% total fees (including platform) if I choose a blend of trackers and active funds. If I did this I would relying on advice/analysis from the likes of BI or HL and would be picking their recommended funds (or trackers). I can do this, but I would probably only re-allocate about once every 6 months or so realistically. And I'm not sure I trust my own judgment more than I trust 'experts' to pick funds for me. (And I'm always just a teeny bit suspicious as to why some funds are recommended over others - and I'm not enough of an expert to tell if the wool is being pulled over my eyes!!)


So my ideal would be option 1 - BUT the question is will the benefits of the active management (both actively managed funds, and by the platform, between funds) outweigh the additional costs and charges of all that management ?


(I struggle to find comparable performance data after fees between these different options - I wonder which one of my options above would have performed best over say the past 10 years?)



That's my dilemma



Perhaps there are other options out there?


Any advice or thoughts very much appreciated!



Thank you

BLB53

Option 1 should be ruled out on cost.

If you feel confident to go along the DIY route then a multi-index fund such as Vanguard Lifestrategy with a low cost broker should work out at around 0.5% in total costs and would be my choice. See more on DIY Investor site...

http://diyinvestoruk.blogspot.co.uk/p/basics.html

and Monevator...

http://monevator.com/category/investing/passive-investing-investing/

If you do not feel OK with DIY then the so called Robo-Advisors such as Nutmeg, Moneyfarm may be an option. I have not heard of evestor but if they offer the equivalent of Lifestrategy for 0.5% then that would be good.

MK62

So my ideal would be option 1 - BUT the question is will the benefits of the active management (both actively managed funds, and by the platform, between funds) outweigh the additional costs and charges of all that management ?

Impossible to answer I'm afraid - there are fans of passive, fans of active, and fans of a combination of the two (well at least me anyway )

You can also model past performance to death, and it still won't tell you the answer...

The question is - does the active fund manager add value?
If you think in any particular case that he/she does, then go active.....

The argument goes that you can't outperform the market, at least not consistently, and that's probably true in the majority of cases.....however, you don't necessarily have to do it consistently, as long as the periods of outperformance outweigh the periods of underperformance......and really that entails selecting the right manager.
That's the hard part though......

The fastest car doesn't always win the race.....but it does sometimes....:)

rathernot

Personal view is pick a low cost platform and give yourself the option of having as much flexibility as possible.

Don't tie yourself purely to one fund provider and don't pay exorbitant fees to ROBO's that are really just dumping you in a bunch of ETFs that you can do yourself.

dunstonh

1 A ready-made portfolio from the like so BestInvest / HL. I like this because the manager continually re-allocates according the best funds on the market (supposedly) and according to economic conditions. In *theory* I guess this approach should outperform investing in trackers (as the manager is always picking the best performing actively managed funds and switching between them continually) ??? I also like the diversification between asset classes (with hedge, property, bonds etc all included). But I dislike the charges: these will be c. 2% (the sum of the OCF for the fund and Platform fee). Very expensive!

More expensive than using an IFA without any of the benefits. Far more expensive than decent DIY. No pros on this option.

2. Nutmeg managed. Total fees about 1%. But this is invested only in trackers (so no opportunity for outperformance ??) and also this invests almost entirely in equities, not so diversified as a multi-manager fund. But it is active in the sense that nutmeg are active in re-allocating according economic conditions

Again, bar initial fee with an IFA, this is more expensive annually than using an IFA being instructed to use passive only. More expensive than DIY using passive only.

3. Evestor or Vanguard Lifestyle type funds (adventurous eg 80% equity). Total fees in the region of 0.5%. No active management by the platform / manager (other than re-balancing) and invests in a blend of trackers.

Lifestyling funds are a niche option and unlikely to be suitable for most. Or did you meant their lifestrategy range? (Vanguard do some lifestyling funds as well).

A good low cost option for small amounts.

4. Fund platform and pick my own funds. Perhaps around 1% total fees (including platform) if I choose a blend of trackers and active funds. If I did this I would relying on advice/analysis from the likes of BI or HL and would be picking their recommended funds (or trackers). I can do this, but I would probably only re-allocate about once every 6 months or so realistically. And I'm not sure I trust my own judgment more than I trust 'experts' to pick funds for me. (And I'm always just a teeny bit suspicious as to why some funds are recommended over others - and I'm not enough of an expert to tell if the wool is being pulled over my eyes!!)

Hybrid investing is my preferred choice and the fund OCFs come in around 0.4% to 0.8% depending on risk profile (the higher risk funds in the range have higher charges so, the cost goes up when the weightings in those go up. We could compromise on the funds to lower the charge but that isnt why you invest. So, 1% woud be about right if you are in the upper end of the scale but less if you are at the lower end.

(I struggle to find comparable performance data after fees between these different options - I wonder which one of my options above would have performed best over say the past 10 years?)

We find our model option beats VLS but you have to be aware of your knowledge and ability. We buy in data, research and analysis and know our limitations. You could easily underperform VLS if you fail in that area. A lot of DIY investors self select their portfolio and beat VLS. But you have to put the effort in and follow the economic cycle.

Tarquinius

dunstonh wrote: »

Lifestyling funds are a niche option and unlikely to be suitable for most. Or did you meant their lifestrategy range? (Vanguard do some lifestyling funds as well).

A good low cost option for small amounts.

Yes I meant Lifestrategy - sorry.

dunstonh wrote: »

Hybrid investing is my preferred choice and the fund OCFs come in around 0.4% to 0.8%

Thanks. What do you mean by Hybrid ? Does this mean a blend of some trackers and some actively managed funds?

dunstonh wrote: »

We find our model option beats VLS but you have to be aware of your knowledge and ability.

I see you are a IFA. Is it possible you can DM me with your website or details of how investing with you will work i.e. how your charges compare to the options above and what your 'model option' looks like?


Thank you again!

snowqueen555

Managed funds do not beat passive investing over a long term.

I pick passive funds as the bulk of my portfolio, but buy smaller funds in specific sectors that I believe will outperform.

I feel like this is your best bet. Dont go with nutmeg or managed stuff, its nit worth the money.

bostonerimus

In think you need to do some more research. You are making assumptions that are not necessarily correct and you need to understand the type of funds that will be appropriate for your goals.....ie an account with a 5 year time horizon will contain different funds that one with a 30 year horizon. The VLS range of funds (or the equivalent from BlackRock etc) are good for the DIY investor as they give easy diversification, but that isn't an excuse to remain ignorant of other options.

You must know why you are buying any investment and be able to understand why VLS80 is going to be better than say Fundsmith or an actively managed EM fund in your circumstances, otherwise why would you choose one over the other? You have to go on the journey of latching onto something like VLSxx because lots of people recommend it; then looking at other portfolios; active vs passive; OEICs ITs etc; and then you will probably come back to VLSxx arriving where you started, but having gained knowledge from the journey.

TBC15

snowqueen555 wrote: »

Managed funds do not beat passive investing over a long term.

I pick passive funds as the bulk of my portfolio, but buy smaller funds in specific sectors that I believe will outperform.

I feel like this is your best bet. Dont go with nutmeg or managed stuff, its nit worth the money.

If you believe para 1 which is true, isn’t para 2 contradictory?

zagfles

Tarquinius wrote: »

Hi I'm looking for some advice and would be grateful for any advice...


I look after mine and my wife's and my mum's ISAs, as well as JISAs for both my kids, and am trying to decide on the best investment vehicle. The whole lot come to about £60k I have no particular aim in mind and can invest long term generally (though for one of the JISAs, may access it in 5 years or so).

Rather than those, which as you say are expensive, you could have a look at HL's "Master Portfolios" (other providers do similar) which give suggestions for funds, active or passive, the charges on those are reasonable (they don't have the extra layer that the MM funds do) but you'll have to rebalance yourself.

http://www.hl.co.uk/funds/help-choosing-funds/master-portfolios

http://www.hl.co.uk/funds/index-tracker-funds/tracker-portfolios

Be wary of marketing hype. The obvious, and the more subtle.

justme111

It is not a "dilema". "Dilema " is when there is a choice between 2 well defined options.
TBC15 , my understanding that some small sectors would not have passive funds ( by the way is"tracker" the same as "passive fund:? )for them