Comparing IFA managed portfolio to Vanguard LS60

enthusiasticsaver

fred246 said:

enthusiasticsaver said:

fred246 said:

I remember the OP describing the Baillie Gifford American fund as cautious. It's rated 6 out of 7 in investment risk.

No I did not describe the fund as cautious.  It is one fund in a cautious portfolio counter balanced no doubt by the strategic bonds.  I do not imagine all the funds in a cautious portfolio are low risk. It is one of 14 funds. 

You did describe it as cautious because I remember looking it up. None of my investments have been higher than 5 and I wondered what 7 would be. I am not trawling through 11300 posts looking for it though!

This is the quote from that thread where I queried the Baillie Gifford American fund and why the performance was so high. 

"We are invested in a low to medium risk model portfolio  but on looking online today on the Fidelity website which is the platform used by IFA I see that the Baillie Gifford American B investment fund which is part of our portfolio  is up by 78.32% giving an annualised performance of 73.34%.  Anyone any ideas why this has gone up by so much?"

This quite clearly says it is in the low to medium risk profiled portfolio but obviously only forms a percentage of the overall portfolio.  In ours it is 12% and is even present in the lowest risk but only 6% in that particular fund. No equity fund in isolation could be called cautious. 

BananaRepublic

enthusiasticsaver said:

It is coming up to the end of the year so I normally check on investment performance around this time. 

I invested in a global multi asset passive fund of funds (Vanguard LS60) for four  years from 2015 to 2019 but for comparison I am only looking at annual performance as we have been with an IFA for just over a year now since September 2019. If we had invested in VLS60 trustnet says the annual performance was 6.4%.  According to my Fidelity performance report our annualised return  with the IFA led portfolio was 13.61% for the last 12 months invested in a cautious portfolio over 14 different funds.  This is after fees including set up fees for the first year so I am pleased with that. 

Performance varies from -5.06% for the Legal and General UK property feeder account (understandable in current situation and it was suspended anyway until October) to the Baillie Gifford American fund which has done brilliantly at 114.45% for the year.  Strategic bonds have done ok and UK funds average but emerging markets, Japan and the European ones have also done well. 

I know a lot of people on here do not like IFAs but on comparing the last years performance to what it would have done had I left it in VLS60 it seems to have done much better with the IFA than a passive tracker fund even after taking fees into account.  Am I missing anything? I know that is a crude comparison over just one year and just one multi asset fund.  I would also say I do not only use an IFA with the sole objective of improving returns.  There are other benefits. 

You can’t really draw conclusions after one year. However I’m not surprised. 

I suspect the so called cautious portfolio includes funds characterised as high risk. I’m of the view that a sensible choice of active funds can achieve very good returns and outperform passive funds apart from the US market. In part that is because active funds can target markets/sectors without index funds.

An IFA will have tools that help him/her build a diversified portfolio with the desired risk profile. I’d be interested to know the algorithm their software uses to choose, for example, a European mid caps fund. I bet it’s based on long term historical performance. Anyway, it’s not rocket science, but people who don’t want to DIY, or who don’t have the temperament for investing, can benefit from an IFA. 

BananaRepublic

enthusiasticsaver said:

This quite clearly says it is in the low to medium risk profiled portfolio but obviously only forms a percentage of the overall portfolio.  In ours it is 12% and is even present in the lowest risk but only 6% in that particular fund. No equity fund in isolation could be called cautious. 

They might argue that although constituent funds are higher risk, by diversifying over many geographical sectors and markets, they are reducing the risk to the desired levels. 

fred246

Well done enthusiasticsaver. It looks like you have been lucky this year and done well with your low risk portfolio containing high risk investments.

enthusiasticsaver

BananaRepublic said:

enthusiasticsaver said:

This quite clearly says it is in the low to medium risk profiled portfolio but obviously only forms a percentage of the overall portfolio.  In ours it is 12% and is even present in the lowest risk but only 6% in that particular fund. No equity fund in isolation could be called cautious. 

They might argue that although constituent funds are higher risk, by diversifying over many geographical sectors and markets, they are reducing the risk to the desired levels. 

Yes exactly. Even if I were using my own DIY approach I would not pick funds all in one sector or all the one asset type or geography. The VLS 60 is obviously spread across different asset types and globally diversified. It follows that not all the funds in an IFA managed portfolio if viewed in isolation would all be at the same risk level. There are significant sums invested in bonds to bring the risk level down of the portfolio. 

Thrugelmir

enthusiasticsaver said:

Thrugelmir said:

enthusiasticsaver said:

Thrugelmir said:

And if your IFA had underperformed your choosen benchmark? Would you now be sacking them. Holding a concentrated fund that performs exceptionally is going to result in a better overall return. What's the performance excluding the Baillie Gifford American fund ? 

  it is also the overall experience of using an IFA approach. 

I'm more than happy to manage my own investments for a broad range of reasons. Equally I fully understand if someone would wish to use an IFA. Or even a combination of the two. 

I fully respect that and am not saying in any way that an IFA approach is better for anyone or everyone.  Just that our first year has been positive for us. 

I'd be concerned if the outcome wasn't positive in the last year. Even VLS60 is, with it's high UK weighting. The test for your IFA will be when market conditions become more challenging. What actual benchmark does your IFA compare against? That will provide a more meaningfull short term snap shot.  A few % of underperformance here and there over 10-20 years will mount up. 

Cus

This might also cheer you up. After year 1, IFA is up 13.6%, VLS60 is 6.4%.
Assuming you pay 0.5% a year to the IFA, and if we assume that the next 9 years the VLS60 continues to gain 6.4% a year, and let's assume your IFA matches VLS60 every year but you only 5.9% a year due to them taking that 0.5% from you, you will still be better off having taken the IFA route after the total of 10 years. 

@dunstonh - are you familiar with DFM's or wealth management firms that are not tied to a restricted fund platform?

enthusiasticsaver

Thrugelmir said:

enthusiasticsaver said:

Thrugelmir said:

enthusiasticsaver said:

Thrugelmir said:

And if your IFA had underperformed your choosen benchmark? Would you now be sacking them. Holding a concentrated fund that performs exceptionally is going to result in a better overall return. What's the performance excluding the Baillie Gifford American fund ? 

  it is also the overall experience of using an IFA approach. 

I'm more than happy to manage my own investments for a broad range of reasons. Equally I fully understand if someone would wish to use an IFA. Or even a combination of the two. 

I fully respect that and am not saying in any way that an IFA approach is better for anyone or everyone.  Just that our first year has been positive for us. 

I'd be concerned if the outcome wasn't positive in the last year. Even VLS60 is, with it's high UK weighting. The test for your IFA will be when market conditions become more challenging. What actual benchmark does your IFA compare against? That will provide a more meaningfull short term snap shot.  A few % of underperformance here and there over 10-20 years will mount up. 

The low to medium risk strategy is supposed to outperform the IMA 20-60% mixed investments. Not sure what IMA stands for. It has since 2007 when the company started. 

dunstonh

@dunstonh - are you familiar with DFM's or wealth management firms that are not tied to a restricted fund platform?

I am.  But not all platforms offer DFM functionality and not all DFMs are on all of those platforms.  Although with all the platform changeovers in recent years, the number that do not is getting less.  Also, only a limited number of platforms will do the MiFIDII requirements on a 10% drop for the adviser.  Most require the adviser to do it and that would present a capacity issue with many firms.     A lot of Wealth management firms use the same platform and the same DFM for every single person that invests with them whilst still trying to claim IFA status.

I am not a fan of DFMs. I always keep an open mind but far too many IFAs  (or wealth management firms more typically) use a DFM for everyone.  That gives the adviser less work to do but it means the investor pays an extra charge for it.  Whereas in reality, the adviser charge should be reduced (and there are some that do reduce).     When you look at the investment returns from most DFMs, they are lower than the likes of VLS or HSBC GS.     There are some areas where a DFM can add value (ESG could be for example) but my general belief is that they are overused and provide little benefit for most of the investors using them.      So, I have generally negative but not absolute refusal to use DFMs.

Linton

enthusiasticsaver said:

Thrugelmir said:

enthusiasticsaver said:

Thrugelmir said:

enthusiasticsaver said:

Thrugelmir said:

And if your IFA had underperformed your choosen benchmark? Would you now be sacking them. Holding a concentrated fund that performs exceptionally is going to result in a better overall return. What's the performance excluding the Baillie Gifford American fund ? 

  it is also the overall experience of using an IFA approach. 

I'm more than happy to manage my own investments for a broad range of reasons. Equally I fully understand if someone would wish to use an IFA. Or even a combination of the two. 

I fully respect that and am not saying in any way that an IFA approach is better for anyone or everyone.  Just that our first year has been positive for us. 

I'd be concerned if the outcome wasn't positive in the last year. Even VLS60 is, with it's high UK weighting. The test for your IFA will be when market conditions become more challenging. What actual benchmark does your IFA compare against? That will provide a more meaningfull short term snap shot.  A few % of underperformance here and there over 10-20 years will mount up. 

The low to medium risk strategy is supposed to outperform the IMA 20-60% mixed investments. Not sure what IMA stands for. It has since 2007 when the company started. 

IMA, I believe now known as IA, is the investment managers association.  They are the trade association for UK fund managers.  They do things like defining the fund and industry sectors and they also publish an index for each fund sector whch can be used to represent the average fund in each sector.