Choice of fund.

garrob

Hello, I am looking for some input regarding the fund choices available to me. I have been contributing to my company DC scheme since April 2016 and its currently showing a fund of £58,000. I will be 60 in Feb 2020 and looking to retire on Feb 2022 then pick up a part time job. The fund I am invested in is a lifestyle fund - DC Threadneedle Dynamic real return. I have 7 other choices if I should choose to freestyle. Emerging markets equity. Global equity fund. Baillie Gifford diversified growth fund. Threadneedle multi-assetdiversified growth fund. Inflation linked pre-retirement fund. Fixed pre-retirement fund. Cash fund.
Would any of these choices offer me a bit more growth? or am I better sticking with the lifestyle fund that I am currently in? Maybe it's better to stay considering I have potentially only 2.5 yrs left. Any feedback would be fantastic.

jaybeetoo

When you retire are you going to buy an annuity or go into drawdown?

tacpot12

Potentially these funds do offer more potential to grow, but with just 2.5 years left, if you want to buy an annuity, you would be better off remaining with the lifestyle fund. If they offer more potential to grow, they also offer more potential to fall.

garrob

Thank you for your replies.
I will probably go down the drawdown route and use that money for 4 years until my DB pension kicks in then my full SP at 66.

Malthusian

Threadneedle Dynamic Real Return isn't a lifestyle fund, it's an absolute return fund (thankfully one of the better ones in terms of past performance, unlike say Standard Life GARS).

A lifestyle fund is where the fund progressively switches into lower-risk assets as a defined year approaches (so a "2025 Retirement Lifestyle" fund would aim to be all in cash or low-risk assets by 2025).

Does the pension progressively switch out of Threadneedle Dynamic and into something else as your retirement date approaches? Or is Threadneedle Dynamic the low-risk fund that the lifestyling strategy has switched into?

In practice it appears to be a multi-asset fund with a pretty conservative allocation of almost 50% in government and corporate bonds currently, which the manager has a very free hand to alter depending on his view of market conditions (hence "Dynamic"). You should ask yourself how it would affect your plans in the what-if scenario that we have a 2008-style crisis in 2.5 years and the fund falls by 25% or more.

The conservative allocation means that if we do have a stockmarket crash it will fall less than riskier funds, but fall it nonetheless will.

Albermarle

Emerging markets equity. Global equity fund.

In your position you should keep away from these two - too much risk of a big fall .
Otherwise advice as above , but keep in mind you do not need to be 100% in one fund or the other and you can split it /hedge your bets .

garrob

Thanks again for your replies. When I look at my online account it says 100% in Threadneedle dynamic real return. You seem to suggest it's a reasonably good fund so maybe its better to leave it as is. I have not told my work when I plan to retire. Do you think I should ask them to keep it in this fund instead of them moving it to safer funds as potentially I have only 5.5 yrs to work in there eyes.

Audaxer

garrob wrote: »

Thanks again for your replies. When I look at my online account it says 100% in Threadneedle dynamic real return. You seem to suggest it's a reasonably good fund so maybe its better to leave it as is. I have not told my work when I plan to retire. Do you think I should ask them to keep it in this fund instead of them moving it to safer funds as potentially I have only 5.5 yrs to work in there eyes.

In my view that seems a strange choice of fund to be given for your whole investment. Looking at the portfolio of the Threadneedle Dynamic Real Return fund in the link below:
https://www.youinvest.co.uk/market-research/FUND:B93TQ86
it initially appears to be quite defensive as there in only 22% equities, 44% bonds and 30% cash. Then looking at the stock (equities) breakdown by country, 60% of the equities are in Asia of which 39% are in Japan, but there is less than 1% of equity in the USA. This seems to me to be more risky as most multi asset funds would have an equity allocation of up to 50% in USA and a much smaller equity allocation to Asia.

There must be a reason for it but it seems a strange allocation to me, and it seems a really surprising option for a one fund portfolio.

jamesd

That seems like a sensible allocation, avoiding over-valued US for areas that are under-valued and likely to do better.

Albermarle

I have not told my work when I plan to retire. Do you think I should ask them to keep it in this fund instead of them moving it to safer funds as potentially I have only 5.5 yrs to work in there eyes.

I think there is some confusion here . Although you initially said it was a lifestyle fund ( which would change as you got closer to retirement date ) it actually is just a normal fund . So will just stay as it is whatever your retirement date is ,
In any case as you have online access to the pension directly , what you tell or don't tell your employer is not important from a pension fund point of view anyway ?

Malthusian

jamesd wrote: »

That seems like a sensible allocation, avoiding over-valued US for areas that are under-valued and likely to do better.

People have been saying the US is over-valued for quite a few years now.

As the name of the fund implies, its objective is not to reflect the global distribution of capital like a global equity tracker. The point of investing in it is that you trust Threadneedle's manager to dynamically alter the asset allocation with the aim of ensuring that the fund makes a positive return over three year periods.

Presumably the idea that the fund manager thinks the US is overvalued so investing in it carries too much of a risk of a fall in value over a three year period. By contrast Japanese equities are expected to deliver steadier growth which is more in line with the fund's objective. Not endorsing this crystal-ball-gazing, just trying to explain what you would expect this fund to do and why.

If the US carries on beating all other markets for another five years then investors in Threadneedle Dynamic Real Return have no grounds to be annoyed, provided the fund still meets its objective of delivering a positive nominal return over three year periods and above inflation growth over the long term.

The fund selection available to the OP is rather random and it's difficult to say the OP should switch part or all into another one given that it's a crap shoot over whether any of the other global funds would do any better. Especially given the relatively short timescale to spending the money. If he definitely didn't want to trust the Threadneedle manager's judgment on how to generate positive returns over three year time periods that would be a different matter.

The OP hasn't indicated a great inclination either to switch into one of the global equity funds in the hope of more growth or to switch into cash in order to hold what he has and then spend it down between 2022 and 2026. All the options carry risk.