Aviva Pensions - Choice of Available Funds

mither_2

Hi All,

Having reads through various discussions on the different funds available I am now considering moving my pension out of the Aviva Mixed Investment (40-85% shares) and dividing it between some different funds. 

My reasons for moving are: 
Mediocre performance over the 5 years that I've had money in the fund (third quartile within sector annual performance and cumulative performance.  
The fund is risk rating 4 and I'm prepared to take greater risk (level 5 or 6) to achieve potentially higher returns 
I still have at least 20 years until I'm likely to retire and so can leave the funds invested for a long period. I its more likely that I won't be drawing my pension for another 25 years.  

The funds that I am interested in moving to are in risk ratings 5 & 6. 
Risk rating 5) 
Baillie Gifford Managed - higher historic returns and quartile ranking within sector but with similar geographic and sector spread
BMO Responsible Equity Growth - higher returns and ranking. Greater concentration on the UK (100%) but this fits OK as will be spreading money in other funds that are focused on different regions. 

Risk rating 6) 
Blackrock Continental European - consistent performance. Diversified across different sectors and different countries within Europe.   
AXA Framlington American Growth - consistent performance and high returns. More exposure to he US and to technology than I have with the other funds   
Rathbone Global Opportunities - consistent performance and high returns. Good geographic/sector spread with lots of smaller holdings in more companies
Bailie Gifford UK & Worldwide Equity - consistent performance and high returns. Spread across a broad number of funds and businesses that aren't captured in other funds. 

I currently have the full £200k with Aviva's fund and am looking to spread the money amongst the different funds though haven't decided on the allocation as yet.
From what I've read it can be considered risky to have greater than £50k with any fund as the money is not protected if any of the funds becomes insolvent? 

My thinking is to put this money into these funds for 10 years or more (generally accepted period required?) and closer to retirement move them to lower risk assets.  

Any thoughts on these different funds please? 

Many thanks!
 
  

mither_2

I have done some research and know that I need to do more but wanted to get some feedback first, possibly from those that have been in a similar position?  

Its commonly said on these boards not to judge previous performance as the basis of future performance? What to base decisions on then? Logically if a fund has been in the top quartile in its field and shown good returns for many years this is a better option than one in the same field that has shown poor performance relative to its peers? 

Unless someone has the knowledge and the time available to study all of the different equities out there and what may happen to their industries how is it possible to make a decision?    

I also have £130k spread across different medium risk funds within a Vanguard ISA. Again on these I've followed  a similar approach spreading the money across some medium risk funds in different regions and different sector. 

mither_2

One thing that was noticeable from my research is that so many funds will have the same 3-5 companies again and again (Alphabet(Google), Apple, Facebook, Microsoft, Amazon etc). Unless putting all of the money into one funds that invests in these then its very difficult to avoid some level of duplication? 
On another point, these companies have  been very profitable for the last 5 - 10 years but can that growth continues? This would be an example of where past performance may be misleading? i.e. its not possible to continual repeat this success?  

MaxiRobriguez

Past performance is not an indicator of future results.

Apple, Alphabet, FB, Microsoft et all have done well but are now all expensive by most traditional valuation metrics. There's every chance these stocks could be some of the worst laggards over the next ten years. If anything buying a fund which has underperformed may give you better results as their performance returns to the mean over time. It's not like there isn't plenty of evidence in the past of sectors which have rallied really well coming down to the earth thereafter.

In terms of how you choose your selections, then it's either:

1) Keep it simple, get a global equity tracker that is as cheap as possible and forget about performance of the fund, just that it'll rise with GDP growth.
2) Create your own portfolio of funds and overweight/underweight in categories/sectors/countries you find appealing, for whatever reason that is: value/growth, large cap/small cap, EM/developed etc, but past performance should be near the bottom of reasons why you pick it, because you have no idea why that outperformance occurred (because no fund gives you the full information on the totality of their holdings) in most cases so have no means to tell if it was skill or luck.

Based on a judging a book by it's cover, I think you'd be more suited to option 1.

EdSwippet

MaxiRobriguez said:

1) Keep it simple, get a global equity tracker that is as cheap as possible and forget about performance of the fund, just that it'll rise with GDP growth.

Aviva pensions regularly offer a range of "rebadged" BlackRock funds, often at attractive OCFs that compete well with those of Vanguard and HSBC. If available to the OP, these might fit the bill nicely. (BlackRock are the folk that manage and own iShares.)

dunstonh

Mediocre performance over the 5 years that I've had money in the fund (third quartile within sector annual performance and cumulative performance.  

Historically, the Aviva 40-85 fund has virtually matched the sector average.  The odd year a tad below and a tad above but pretty much the same.   It is not a mediocre fund.

You need to be aware that it currently has around 64% in equities.    Yet it is in a sector that has funds with up to 85% equities.  So, you would never expect it to be high up the performance table in its sector.  

If you took a fairly typical 1-10 risk scale and put all the funds in the 40-85 sector onto the risk scale, you would find funds from risk 4 through to risk 8.      The lower risk funds would typically be lower down the performance table than the higher risk ones when looking at growth periods.  And reversed when looking at negative periods.

So, you are wrong to call the fund mediocre.   Also, looking at cumulative performance can mask a lucky break.  One good quarter in 5 years can distort cumulative figures.   Was that good quarter luck?  Was it a particular industry or asset had a growth spurt and that fund happened to be higher in it than another?    - recently, funds heavy in tech stocks have done better than funds that were lighter.   However, its the riskier ones that tended to have more.  So, are you trading past performance (which is too late to benefit from) for increased risk?

Logically if a fund has been in the top quartile in its field and shown good returns for many years this is a better option than one in the same field that has shown poor performance relative to its peers? 

Against its peers is fair.  Except the 40-85% sector is not a way to compare funds as a 60% equity fund is not comparable with an 85% equity fund.

Unless someone has the knowledge and the time available to study all of the different equities out there and what may happen to their industries how is it possible to make a decision?    

Software is used a lot nowadays.   Actuarial investment models for the weightings along with a dose of opinion.  Some people spend less time and effort than others. Some dont know what they are doing. Some do.

If you know why a fund did well in one period you are some of the way there.   Just because another fund didn't do as well in that period doesn't mean the higher performing fund is better.   


The most modern Aviva pension is a whole of market SIPP.  The legacy contracts (older schemes) limit the range significantly.   So, your choice may or may not be limited by pension version.

mither_2

@MaxiRobriguez
@EdSwippet

Thanks for your responses. 

Of the ones I'm looking at I think some of them are equity trackers but just not necessarily global equity trackers these include some from Blackrock? 

Blackrock Continental Europe - Benchmark = FTSA World Europe ex 0 UK Index
Rathbone Global Opportunities - Benchmark = IA Global
AXA Framlington American Growth - Benchmark = S&P 500

Bailie Gifford Managed - Benchmark = IA Mixed Investment 40% - 85% shares 

Are these not the equity trackers that you refer to? 

For the Bailie Gifford Managed this appears to be very similar to the Aviva Pension (Mixed Investment 40-85% shares) but has performed better. 

Albermarle

From what I've read it can be considered risky to have greater than £50k with any fund as the money is not protected if any of the funds becomes insolvent? 

This is one part you can stop worrying about . If you stick to mainstream funds , like the ones you mention , there is almost zero chance they will become insolvent.

 One thing that was noticeable from my research is that so many funds will have the same 3-5 companies again and again (Alphabet(Google), Apple, Facebook, Microsoft, Amazon etc). Correct these are some of the biggest companies in the worldUnless putting all of the money into one funds that invests in these then its very difficult to avoid some level of duplication? You can invest in funds with no US % or in ones that concentrate on more mid sized /smaller companies.

On another point, these companies have  been very profitable for the last 5 - 10 years but can that growth continues? Nobody knows unless they can see in the future.This would be an example of where past performance may be misleading? i.e. its not possible to continual repeat this success? Nobody knows

Are these not the equity trackers that you refer to? 
No an equity tracker just blindly follows/replicates  the index it is designed to follow . The funds you mention are all actively managed , so you are relying on the fund manager to beat the market , which is not easy .

mither_2

MaxiRobriguez said:

Past performance is not an indicator of future results.

Apple, Alphabet, FB, Microsoft et all have done well but are now all expensive by most traditional valuation metrics. There's every chance these stocks could be some of the worst laggards over the next ten years. If anything buying a fund which has underperformed may give you better results as their performance returns to the mean over time. It's not like there isn't plenty of evidence in the past of sectors which have rallied really well coming down to the earth thereafter.

In terms of how you choose your selections, then it's either:

1) Keep it simple, get a global equity tracker that is as cheap as possible and forget about performance of the fund, just that it'll rise with GDP growth.
2) Create your own portfolio of funds and overweight/underweight in categories/sectors/countries you find appealing, for whatever reason that is: value/growth, large cap/small cap, EM/developed etc, but past performance should be near the bottom of reasons why you pick it, because you have no idea why that outperformance occurred (because no fund gives you the full information on the totality of their holdings) in most cases so have no means to tell if it was skill or luck.

Based on a judging a book by it's cover, I think you'd be more suited to option 1.

Agreed regarding the Apple, Alphabet, FB etc which is why I was less keen on the AXA Framlington American Growth as five big US tech firms account for 20% of the shareholdings which may explain why they have done so well over the last 10 years and may also mean that there is limited scope for further growth in future years. 

I think I'll steer away from that one. 

mither_2

Albermarle said:

From what I've read it can be considered risky to have greater than £50k with any fund as the money is not protected if any of the funds becomes insolvent? 

This is one part you can stop worrying about . If you stick to mainstream funds , like the ones you mention , there is almost zero chance they will become insolvent.

 One thing that was noticeable from my research is that so many funds will have the same 3-5 companies again and again (Alphabet(Google), Apple, Facebook, Microsoft, Amazon etc). Correct these are some of the biggest companies in the worldUnless putting all of the money into one funds that invests in these then its very difficult to avoid some level of duplication? You can invest in funds with no US % or in ones that concentrate on more mid sized /smaller companies.

On another point, these companies have  been very profitable for the last 5 - 10 years but can that growth continues? Nobody knows unless they can see in the future.This would be an example of where past performance may be misleading? i.e. its not possible to continual repeat this success? Nobody knows

Are these not the equity trackers that you refer to? 
No an equity tracker just blindly follows/replicates  the index it is designed to follow . The funds you mention are all actively managed , so you are relying on the fund manager to beat the market , which is not easy .

Thanks

Noted. Doesn't seem like a big risk to me but certainly one raised by others on these boards. 

Thanks. On reading again I can distinguish between the two. 

One example would be the Blackrock 50:50 Global Equity Index Tracker? This has a 0.0% charge whereas the Aviva Mixed Investment (40 - 80% shares) pension that I currently have only charges 0.02%. 

The actively managed funds typically have a c0.8% charge. 

Is this because there is much less involved in a tracker fund? i.e. they don't need to hire large teams of researchers and/or the lower risk/return means lower costs for them?  

Albermarle

There will be a charge from Aviva for managing the pension . The 0% for Blackrock 50:50 means there is no extra charge for this fund , whilst the actively managed fund has an extra charge .

Is this because there is much less involved in a tracker fund? i.e. they don't need to hire large teams of researchers 

Yes and they do not need a well known and expensive fund manager to run the fund .

Some actively managed funds will be successful and beat the market but usually not long term, and many will do worse than the market.