Prudential - advice on funds

griffinsaver26

Hi. I've listened to advice from this forum about taking advantage of paying AVCs via my LGPS but struggling a bit to know which of the funds to invest in with Prudential. There are 10 to chose from, I'm starting with a smallish monthly investment so thought it probably best to stick with 1-2 funds? Or would it be better to split between some more?. I'm thinking of one higher risk (M&G PP UK Equity Passive Fund) and one medium (BlackRock Aquila Life Consensus Fund) - probably split 30/70. Nothing available to buy is in the HL top 50 and the number of passive funds is pretty limited.
I'm 44, aiming towards retirement at 60, pretty new to all this and I would really appreciate some advice, thank you

bowlhead99

The 'higher risk' fund you mention is higher risk because it's a specialist fund: 100% invested in equities, and it only covers stocks that are listed on one stock market in the world (over 90% of public stocks are not listed in the UK).

It's not a fund that is designed to be held in isolation as you're suggesting, without creating some balance by also buying other specialist equity funds in all the other parts of the world (North America, Continental Europe, Japan, developed Asia-Pacific ex-Japan, emerging markets...)

The Consensus fund is a more balanced holding with a 'bit of everything' approach so that it covers UK equities, various different international equities, different bond types etc, following some sort of 'consensus' approach on how other pension fund managers are running their asset allocations.

As it's already a 'balanced' fund spreading your money all over the place including into UK equities... if you buy it, it doesn't need you to go and buy another UK equities fund with almost half as much money again (ie the £30 you considered putting into UK index for every £70 into the 'already balanced right out of the box' Consensus fund.

What's especially true with only small monthly amounts, is that you don't need to worry about buying more than one or two funds if they are already balanced funds such as Consensus. There is definitely no point buying Consensus for a nice balanced allocation and then trying to destroy that allocation and build your own by adding a greater weight to the UK index. If you want to add further specialist funds because you want more risk in search of greater reward, IMHO the UK stock market index (with its relatively high allocation to big pharma, oil and banking) doesn't seem to be the place to find highest potential growth around the world over the coming couple of decades before you retire.

Don't worry about the fund offerings not being on HL's marketing list. Your AVC pension fund provider is not trying to encourage people to get comfortable with investing and push you into their favoured particular funds by feeding you marketing material from its industry friends, so it doesn't produce a 'wealth 50' marketing list and send mailshots to your house. HL is, so it does.

griffinsaver26

That’s really helpful, thanks @bowlhead99! It’s so difficult when you don’t know what you’re doing and just have a list of 10 funds to chose from. So if I put all my monthly payments into the Consensus, that would seem reasonable? All my research to date has pointed me towards index trackers, that’s what I was looking for, but easier said than done! 

bowlhead99

griffinsaver26 said:

So if I put all my monthly payments into the Consensus, that would seem reasonable? All my research to date has pointed me towards index trackers, that’s what I was looking for, but easier said than done! 

Yes

The Consensus fund is a portfolio of investments built on index trackers, which includes equities in all major regions of the developed world together with gilts, index linked gilts, corporate bonds and overseas bonds. So you could hold it on its own. As it already has 30-40% of its equities in the UK index, which some would consider to be on the high side, it wouldn't make sense to then go and buy even more of the UK index as a separate fund on top.

It is likely your available fund choices include emerging markets and property and so you might like to add a bit of those on the side which are areas not covered by the fund, but probably for no more than 10-15% of your overall allocation in total.  If the amount you are putting away each month is relatively small, you don't need to get hung up on fine detail, but your pension platform will probably allow you to put really small percentages of your monthly contribution into other funds if you really feel you need to. 

From Blackrock's Aquila Life Consensus Fund S1 factsheet:

FUND OVERVIEW

The Fund seeks to achieve a total return for investors. The Fund invests across several asset classes. The Fund may invest in equity or fixed income transferable securities, money-market instruments, deposits and cash and near cash. The Fund will aim to have between 40-85% of its investment exposure in equity securities.

INDEX DESCRIPTION

The consensus strategy adopts the same asset allocation as the average UK pension fund as measured by the balanced sector of the ABI Mixed Investment 40%-85% Survey (excluding property and emerging markets) and implements this through index funds.

KEY BENEFITS

1 Reduced tracking error to benchmark index through rigorous risk control

2 Diversified portfolio of securities tracking the sector exposure of the benchmark index

3 Minimised transaction costs leveraging our trading expertise and experience

TOP HOLDINGS (%)
AQUILA LIFE UK EQUITY INDEX FD S1 27.23
AQUILA LIFE US EQ INDEX FUND S1 18.80
AQUILA LIFE EUROPEAN EQ IDX FD S1 14.27
AQUILA LIFE OVERSEAS BOND IDX S1 13.67
AQUILA LIFE CASH FUND S3 5.32
AQUILA LIFE ALL STX UK GILT IDX S1 5.27
AQUILA LIFE JAPANESE EQ IDX FD S1 5.09
AQUILA LIFE PAC RIM EQ IDX FD S1 2.96
AQUILA LIFE ALL STK UK ILG IDX S1 2.67
AQUILA LIFE CORP BD IDX ALL STX S1 2.17

griffinsaver26

Thanks so much. I will just check if there’s an emerging markets fund but will probable just keep it simple in the Consensus. Thanks for all your help 

AlanP_2

My wife and I have LGPS AVCs (not through Prudential) and are a lot closer to cashing in than you are.

The way we looked at it was we are getting all the tax breaks on this investment so we don't need to aim for the absolute highest investment return possible.

Keeping it simple and building a pot slowly & steadily made sense.

Albermarle

Also there is no guarantee that having a higher % equity, more volatile portfolio, will necessarily produce the goods over a specific time period.

griffinsaver26

Thanks both. The Consensus is classed as a medium risk, I’m happy to stay away from the high risk options as they are UK only funds with Prudential AVCs and like you say @AlanP_2, the tax breaks are the big bonus, try to keep the rest simple. 

bowlhead99

AlanP_2 said:

The way we looked at it was we are getting all the tax breaks on this investment so we don't need to aim for the absolute highest investment return possible.

griffinsaver26 said:

 like you say @AlanP_2, the tax breaks are the big bonus, try to keep the rest simple. 

There is some sense in that, but the one obvious comment to make is not to make the fact that you got tax breaks distract you from what sort of a fund you want or what level of return you are seeking. 

For example sometimes we get posters here saying that because they got tax relief in a pension or a bonus in a LISA, they feel they can take more risk because some of the money was 'free' and it's not really their own money they're losing. While others will say they will go for lower risk because they have got a nice freebie so their money doesn't need to work hard for them. Two ways of looking at it.

But really the bonus or tax relief is going to be there whatever you invest in - it's your money, and you worked just as hard to get it as you did for the other pounds in your investment account - so don't let that distract you from the overall objective of buying a decent investment whose risk /reward characteristics are appropriate.

griffinsaver26

Good point bowlhead99! 

griffinsaver26

Hi @bowlhead99, I wonder if I could pick your brains again. As you can tell, I’m very new to investing. I have read a fair few articles and discussions on here and my plan is to pay the AVCs and buy the Consensus and then I also planned to open a S&S isa. I’ve been set on the VLS80 but have now had my head turned by the HSBC Global Strategy Dynamic Portfolio. I’m thinking the Consensus has quite a big UK focus so the HSBC Global might be better to run alongside instead of the Vanguard. Do you have any advice or opinions on this?