When does a fund manager fund of funds make sense in a pension ?

gm0

I am a novice at the investment game in portfolio building. I am struggling a bit with some more complex (to me) fund structures as I work through the selection offered to me in my drawdown offer - L&G Pension Access Scheme.  I don't like things I don't understand the purpose of - certainly not enough to invest in them on short term performance history.  This is an active "fund of funds" choice:  My headline questions: Who is this for / aimed at ?  Why would you pick it (if anyone would) ?

L&G PMC Threadneedle Managed Equity 3 which is a fund of funds
ISIN code GB00BD1JSK21
SEDOL code BD1JSK2
MEX code LGTGEQPMC

Aim:  To grow the amount you invested. The fund will invest at least two-thirds of its assets in other funds managed or operated by companies in the Threadneedle group. These funds may invest worldwide

What I see

Cost 0.55% + wrapper.  Version launched in 2018.  £26m so small and to date a limited source of new capital (from pension schemes) to the others. 
Lots of discretion for the fund managers. 
If this is "on top of" the listed sub-fund charges taken in unit prices in the sub-funds then this will likely be expensive extra charge for them to allocate your capital across only their own set of house active funds with chunky charges of their own. (I don't get the option to select any of these sub-funds individually in this wrapper).  Or if it was the total cost it might be a "discounted" and acceptable way to hold a mixed arbitrary bag of regional "active" funds at a 0.5% and change.  I imagine until proved otherwise it's the nested charges one with returns net fees via the sub-fund unit prices. But there are zero OCF unit types on some of the funds I looked at.  So it could be either.
A quick look on trustnet shows that some of the threadneedle funds are rated quite highly and others are rated poorly.  At least at this point in the business cycle.  Presumably Threadneedle is part of Ameriprise and thus not part of L&G so this is a "deal" to bring a chunk of funds under management from retail pension schemes.

Asset mix 95% equities 5% FI and other. (So it is category correct for what I am looking for global equities).

Top 10 holdings 75.0% Rest of portfolio 25.0%

Threadneedle American Select Fund 18.4
Threadneedle American Fund 16.1
Threadneedle UK Fund 14.3
Threadneedle UK Select Fund 5.1
Threadneedle Asia Fund 4.5
Threadneedle Japan Fund 4.2
Threadneedle Global Extended Alpha Fund 3.4
Threadneedle Global Focus Fund 3.4
Threadneedle (Lux) Asia Contrarian Equity Fund 3.2
Threadneedle Pan European Focus Fund 2

From reading - concentrated stock picking going on.  Limited numbers of stock holdings.  Shorting in some of the funds to 30% value.  i.e. aggressive active management.

A baseline alternative for global equities

My "passive" alternative for global equities is to blend L&G PMC World (ex uk) equity index fund 3 + L&G PMC UK Equity Index Fund 3 (tracking FTSE World ex UK and FTSE UK All Share).  This at a shade under 0.12% + the wrapper cost.

Questions

1) On the threadneedle fund of funds - who is it for - what kind of customer ?
 
2) Is my assumption around calculating nested fund management charges correct - how do I tell definitively what I am being charged in these cases where there are nested funds and lots of unit types ?

3) When do these sorts of funds of funds make sense in a pension portfolio - somebody put it in there as an option ?

4) Would anyone suggest mixing any of it in or is it too general i.e. better to mix in a specific emerging markets or small companies fund as a @ 10% holding to broaden (diversify)  a global large cap tracker some more.  (I have access to an EM and a Smaller companies and indeed a Property fund (which probably need to realise some revaluation losses before buying any)

dunstonh

When does a fund manager fund of funds make sense in a pension ?

Very often it is suitable.     Some of the most popular funds are fund of funds.  (VLS, HSBC GS, L&GMI etc)

This is an active "fund of funds" choice:  My headline questions: Who is this for / aimed at ?  Why would you pick it (if anyone would) ?

aimed at low knowledge consumers wanting an active investment strategy but don't know what they are doing.

If this is "on top of" the listed sub-fund charges taken in unit prices in the sub-funds

Its not.

Presumably Threadneedle is part of Ameriprise and thus not part of L&G so this is a "deal" to bring a chunk of funds under management from retail pension schemes.

Most pensions have external fund houses available in their range.   So, its quite normal to see.

4) Would anyone suggest mixing any of it in or is it too general i.e. better to mix in a specific emerging markets or small companies fund as a @ 10% holding to broaden (diversify)  a global large cap tracker some more.  (I have access to an EM and a Smaller companies and indeed a Property fund (which probably need to realise some revaluation losses before buying any)

Knowing what asset allocation/sector allocation to use is a bit more thought out than picking random percentages to go into an area.   Plus, if you are going to be doing that then that means you are making active decisions that you need to keep under review on an ongoing basis.  What knowledge and experience do you have that makes you better than a fund of funds manager?

gm0

Thanks dunstonh. 

I am by initial investment education very much a "I don't know better" investor and thus passive or buy something trustworthy in the first instance inclined.  How you tell something is any good is - of course - a problem all its own. 

So I agree I have little business second guessing their mix of sub-funds. And any attempt to pick managers would be google and the past performance data which is not all it seems as a predictor of the future even if it can be used to screen a long list.

If it truly is 0.55% all in then you get a fair quantity of active stockpicking and shorting (betting the don't come) casino work on your behalf for the money, 

On last question on the adding 10% EM or Small Companies. This was on the (perhaps naive) logic that <10% would be irrelevant but that additional diversification within asset class is good away from large cap. 
So adding either smaller company or EM could extend the list of equities held and thus is additional diversification within that asset class.  Additional diversification - both across asset classes and sufficiently within is a message that has been hammered home again and again in my reading/self education on long term investing to date. 

Albeit it is a slightly different take than hold whole of market at weight in the vehicles provided per Kroijer etc.