Moving to better performing Funds

Aintsheff

Hi

We set up a S&S ISA fund over 12 years ago as a way to help the kids with University costs. This was initially setup through a broker and we have been making monthly contributions towards it and we now have just over £21k (we have lost about £1.5k since the start of the year for obvious reasons). 

I think now, may be a good time to become more proactive with the investments that we hold and the first step I want to do is move the money from the current Broker (charges were £450 last year) onto something like Cavendish/Fidelity. We currently hold 2 funds, Threadneedle Protected Profits and 7IM Moderately Adventurous S Acc - though these 2 funds haven't performed to well, they have not lost us too much either. On speaking to the company, there is a £16 exit fee if we cash our our money and this will take a week to do so.

My questions are as follows:
1. Is it more advisable to open a Fidelity account first and transfer the current funds over to them and then purchase better performing Funds OR should we cash in with the current company and then move the cash over to Fidelity and then purchase funds? Is one option more tax efficient than the other or save us more money?
2. I am looking at Baillie Gifford American Fund and also Fundsmith - they have both performed much better compared to the 2 current Funds that we hold at present. Our plan is to stop our monthly payments and have £20k in the pot for the next 5 years without touching it. Will this be a good strategy?

Any advise would be much appreciated.

Thanks 

dunstonh

2. I am looking at Baillie Gifford American Fund and also Fundsmith - they have both performed much better compared to the 2 current Funds that we hold at present. Our plan is to stop our monthly payments and have £20k in the pot for the next 5 years without touching it. Will this be a good strategy?

The answer to your question is no it will not be a good strategy.

Single sector funds are designed to be held in a portfolio of other single sector funds.  Not in isolation or a handful.  They are also aimed at the higher knowledge investor.  Those who understand investing more and how to build a portfolio.

The funds in question are much higher risk than you are taking at the moment. BG American is one of the highest risk US equity funds.  It makes a very good satellite fund for your US equity allocation.  It does not make a very good single fund (or one of two funds) holding.

BG American has been a good PAST performer.  However, US equity was the standout area in the last cycle.  It is rare for the region/country/sector that is best in one cycle to be the best in the next.   US equity was one of the worst performers in the previous cycle to that.  What is it going to be in this next cycle?  We don't know but you are betting 50% of your money on it being best again.

Fundsmith is more global in spread. That is more reasonable to hold as long as you are not going to invest and forget.  The use of managed funds means you need to keep an eye and make adjustments.    

This was initially setup through a broker

You say your current ones have not performed well.  It looks like they were not set up through a broker but via an ex Allied Dunbar or Zurich agent. (one of the funds is restricted on availability to the Zurich group and the is part of the same group).  One is very cautious and the other medium/high risk.   The options you are looking at are very high risk and medium/high risk.   So, it you would expect the returns to be higher in positive periods and worse in negative periods compared to what you have.  In the scheme of things, what you have is more suited for a medium term regular contribution plan (regular premiums need longer - a lot of 10 year plans are now paying out less than people paid in.  ideally you need 15 years)

1. Is it more advisable to open a Fidelity account first and transfer the current funds over to them and then purchase better performing Funds OR should we cash in with the current company and then move the cash over to Fidelity and then purchase funds? Is one option more tax efficient than the other or save us more money?

You may not be able to do an in-specie transfer with one of those funds.  So, you may need to do a cash transfer.  However, you shouldn't "cash" the existing one in and then pay it to Fidelity.  You should do a cash transfer with Fidelity.

You should also reasses your investment selection and make a better decision.

kinger101

You can't buy past performance.  While those funds have done well, there's no guarantee how they will perform in the future.

Paying £450 a year to the broker on £21K is ridiculously expensive.  So I might think about a different home for my investments, and Fidelity is a good choice. 

You say you're likely to be invested for another five years.  In which case, a 100 % equities fund might be considered too risky.  Depends on whether you absolutely need the money, or any shortfall can be made up elsewhere.  60/40 might be a better balance.  I'd be inclined to find a low cost global multi-asset fund.  

Moe_The_Bartender

Over 5 years, I'd be more inclined to look at something like CG Absolute Return or Troy Trojan.

badger09

dunstonh said:

2. I am looking at Baillie Gifford American Fund and also Fundsmith - they have both performed much better compared to the 2 current Funds that we hold at present. Our plan is to stop our monthly payments and have £20k in the pot for the next 5 years without touching it. Will this be a good strategy?

The answer to your question is no it will be a good strategy.

......................

Have you missed a 'not' out?

Alexland

If this was setup 12 years ago to help kids through university in 5 years then shouldn't you be reducing rather than increasing risk as the withdrawal gets closer? Have you considered just gifting it to them now as they can each add £9k into a JISA each tax year and earn around 3%? I doubt a suitable 'approaching withdrawal' S&S asset allocation would do better after fees.

Zorillo

Alexland said:

If this was setup 12 years ago to help kids through university in 5 years then shouldn't you be reducing rather than increasing risk as the withdrawal gets closer? Have you considered just gifting it to them now as they can each add £9k into a JISA each tax year and earn around 3%? I doubt a suitable 'approaching withdrawal' S&S asset allocation would do better after fees.

Be aware that this would relinquish legal control over the use of the money at the age of 18 and if they wanted to spend all the money on sweets instead of university costs you wouldnt be able to stop them.

C_Mababejive

I'm no expert but the thing that rang alarm bells straight away was the seemingly outrageous charges of £450 for what is a relatively small sum invested. I think id be looking at chopping that first then moving into a ready made multi asset fund.

Aintsheff

Thanks to everyone that replied - food for thought!

dunstonh

C_Mababejive said:

I'm no expert but the thing that rang alarm bells straight away was the seemingly outrageous charges of £450 for what is a relatively small sum invested. I think id be looking at chopping that first then moving into a ready made multi asset fund.

I suspect the OP has got the charges wrong.  The £450 is likely the bottom line rather than the amount being paid to a "broker" (noting that it almost certainly is not with a broker given the availability of one of those funds and the name of the other).