Self Investment into Passive Fund of Funds

funkey_monkey

Hi,

Looking for some feedback on my poor level of analysis on these funds.

First thing I've noticed is that the Baillie Gifford fund (Class is actively managed. For 0.35% OCF and 0% initial change on HL, that seems like a good price for active management. The fund is very similar in terms of fund/sector/country percentages to the VLS80 (Class ?) - which is 0.22% OCF. However, BG is only in to USA/UK for 55% whereas VLS is sitting just over 60%.
My thoughts here is that if you are going for either of these funds, the active management of the BG fund might be useful in the predicted turbulent time ahead due to Brexit. Plus, has VLS just performed better than the others due to a high USA weighting? BG has a yield of 1.45% and VLS80 is 1.54%. They both hold around 17% in bonds.

In terms of the 100% funds, it is between the VLS100 and the Blackrock 100. Blackrock have and Class I and a Class A funds. The Class I takes my interest (for no obvious reason). It has 52% weighting to USA/UK. VLS100 is 63%. Yield is similar as is performance. However, HL charge 0.1% OCF on BL and 0.22% on VLS.

The final choice entails the Royal London Sustainable World (Class C). It has a very high OCF of 0.77% and has exposure of 65% to USA/UK. The yield is the lowest at 1%. It is in the same market as the BG and VLS80 funds. It has 65% in USA/UK and bonds of 15%. On the face of it, I should not be considering it. However, there is something about it. It gets good reviews and accolades. It will have minimum 15% in bonds and 50% in £/€.

It keeps catching my eye along with the BG for some reason - possibly because they are consistent first quartile performers and that level of consistency is appealing to me.

MorningStar rate all at 5 stars - except VLS100 which is 4 stars. Trustnet rate BG, RL and VLS80 as 5 star - the BL100 and VLS100 are rated by them as 3 star.


Now, I am aware that past performance is in the past, so all I can really control are asset allocations and fees. Based on fees alone, RL should be dropped and the BL funds brought into scope.
In terms of risk, as this is going to be a small amount of my savings, it might be best to go for either the BL100 or VLS100. Bringing fees back into play, then the BL100 would be the winner.

However, I'm still unsure about the class of the funds. What is the difference between A, C, D and I? All I could find stated that if you are holding for over 10yrs go for Class A, around 7 go for B, and for short term (2 - 5) go for Class C. Is this correct?

I admit I do not know much about this and am only going on a my limited knowledge, so please correct me if you disagree on my rationales.

bostonerimus

Nothing wrong with your analysis, but it's probably worthless. Buy VLS80 or the Blackrock equivalent etc and do something more rewarding than fund analysis.

Alexland

Try not to get caught up on short term quartile performance. Have a deep think about your volatility tolerance and the types of assets you want to be invested in for the long term.

Alex

funkey_monkey

Alexland wrote: »

Try not to get caught up on short term quartile performance. Have a deep think about your volatility tolerance and the types of assets you want to be invested in for the long term.

Alex

RL and BG are consistent first quartile performers over 5 year period according to Trustnet. Is that not considered an indication of a well managed fund?

I intend to leave this in and to a certain extent 'forget about it'. Hence why I was initially looking at the VLS as they perform rebalancing etc within the cost.

I like the thought of sustainable investing. Although, I can't see where the value is in RL Sustainable World Trust.
Can someone please explain to me where the value is in it? Compared to the others, the yield is low and the OCF is high. I accept that as part of a balanced portfolio it will have a place.

I've taken a quick look at the L&G Multi-Index 7. It has only 40% in UK/USA and a larger amount in emerging markets.

bostonerimus

I'm a big index fund advocate, but whatever multi-asset fund you go with you've made the most important decision and that's to invest something....so just do it. Make sure you are comfortable with the equity to bond ratio, make regular contributions and make some strategic adjustments every few years. So write the funds you like on pieces of paper, put them in a hat and pull one out.

FYI I've followed a roughly 60/40 Vanguard index fund strategy for the last 30 years and average 8.5% annual return. I rebalance and actually adjusted my equity holding to around 75% when I retired because I have enough invested so that even large losses won't require me to lower my withdrawal rate. I got to that position without any complex planning, just early, consistent and aggressive saving into a simple portfolio of index funds....so what you do is probably more important than the funds you choose....within reason of course and the funds you have mentioned are all within reason.

funkey_monkey

Interesting diversion on this thread. My IFA has advised me that I have not fully invested my ISA allowance for this year - so I still have about £4.5k of my allocation.

I've opened a LISA with £100 last year in order to register before the age cut-off. I've now got just over £4,000 of my annual ISA amount still to invest.
My options are:

1. Place it into my IFA managed portfolio - where the majority of my money is
2. Put it into the LISA

I won't be needing this money for a property - so it would just be for retirement. My LISA currently holds the £100 in a Vanguard LS80 fund within HL.

I am aware that I cannot contribute to it after I am 50yo and nor can I draw down on it until I am 60yo.

What should I do with this LISA? 25% top up from the Gov is a very healthy incentive. I can access the IFA managed ISA if needed and I do have additional savings elsewhere.

I have just realised that instead of placing this money into a new fund that I could fund the ISA/LISA with it instead.

I know the LISA has gotten a bad press and has plenty of clauses in relation to exit penalties, etc. However, is it an option for me here? I'd avoid tax on the money and I'd also get a 25% top up.

I could examine the performance of the LS80 and decide if I wanted to move it, but I could simply add the £4k to it and that would get the money into the system - which is my stumbling block at the minute.

If I contributed £4k per year from now, I'd have £40k plus an additional £10k from Gov and then plus any rises in the fund.

What am I missing here - it seems too good to be true - as long as I live until 60yo!?!

Thrugelmir

funkey_monkey wrote: »

I'm in two minds about UK exposure as I don't think a Hard Brexit will come to fruition as both sides, but specifically the UK, need a deal and the border needs resolution - I can sense an extension. What are peoples thoughts on this?

As with any investment. You should justify to yourself the reason behind the purchase (or indeed sale). As there'll be both pros and cons. Well managed cash generative /profitable companies will survive. Selection therefore is key. Don't get bogged down in the politics. Business is far more fleet footed.

funkey_monkey

Just checking - does anyone have thoughts on the LISA option I have described in post #17 above?

Thanks.

bowlhead99

funkey_monkey wrote: »

Just checking - does anyone have thoughts on the LISA option I have described in post #17 above?

Thanks.

I don't think you mentioned anywhere what tax bracket you are in.

You can hold basically the same investments in LISAs as in 'normal' S&S ISAs or pensions.

If you are high rate taxpayer (which perhaps we might infer by the fact you employ an IFA, which is something only usually afforded by relatively wealthier people, so if you have enough money to need an IFA before the age of 40, maybe you have a high salary...) then extra pension contributions can be more lucrative in terms of tax relief than using a LISA. Simplistically if you put £100 in a pension as higher rate taxpayer it will cost you £60 of net pay. If you put £60 of net pay into a LISA you will get 25% bonus and only end up with £75 in the LISA.

So it is £100 plays £75,and whether it doubles or trebles or quadruples over the next couple of decades, that extra in the pension will persist (33% more money than in the LISA). Although the ISA can be withdrawn very flexibly without any tax consequences once aged 60, while the pension will be taxable (apart from a 25% tax-free lump sum).

So in retirement, of the £100 pension, 75% of it would be taxable at your marginal rate. That might be higher rate tax (75% of higher rate is 30%)... but for most it is only basic rate tax (75% of basic rate is only 15%, leaving £85 for yourself out of the £100) and for a lot of people it can be no tax or something less than basic rate because it might be drawn out within your personal allowance - e.g. after you have stopped getting paid for going to work but before you start drawing your state pension or other pension provision that you were building up.

So, if you aren't able to use LISA for a house purchase and will be using it to fund retirement or later life: iinvesting with higher rate tax relief in a pension usually beats investing with LISA. Whereas if you only pay basic rate tax at the moment, pension doesn't beat LISA because £100 of pension investment costs £80 and is potentially taxable in retirement. while £100 of LISA investments costs £80 is not taxable in retirement even if you were to draw out the entire balance on one day (as long as you're age 60).

So whether it makes financial sense to use LISA rather than other forms of investment to create a pot of money to draw out age 60+, probably depends more on your tax bracket now and your potential tax bracket in retirement, than anything else.There are some other factors such as a pension being outside your estate for inheritance tax and means-testing, and of course the LISA is accessible pre-60 (with a penalty) if you have screwed up your planning and really really need the money early ; a pension is not.

If you aren't a high rate taxpayer now but might be in a few years time it would make sense to invest via conventional ISA now, take it out penalty-free in a few years time, and use it to fund pension contributions with higher rate tax relief in due course.

But to be honest, the LISA penalty for early withdrawal is not so terribly severe that you couldn't invest in LISA now and just take the penalty charge on the chin later if it should happen that you need the money back to fund pension contributions or just generally for other things like car, house upgrade etc. Obviously it's preferable to avoid a penalty and use your other ISA funds for that sort of thing instead. But worth considering the full range of options.


Personally I would probably use a LISA if I had access to one (even though I am higher rate taxpayer who isn't at their annual or lifetime pension contribution limit) as it is good to have flexibility even if it i not necessarily the most MSE thing to do in terms of the most amount of bonus or tax relief possible. .If you already have £16k in a conventional ISA for this year, £4k into similar investments within LISA is unlikely to be a major problem.

funkey_monkey

I'm a basic tax rate payer - just not very materialistic so save most of my income.