Funds selection for pension

noclaf

Ive started a new job and with that comes a new DC pension.

There are various active funds available from JPM, BG, Invesco, Fidelity and BMO along with cheaper passive L&G regional funds. The L&G funds are 0.19%, the actives range from 0.55 to +1.0%.

Quite simply, I am stuck on fund selection. I am 41 and preference is to go primarily for Global Equities to complement my existing investments (see further below for details).

Do I build a cheap portfolio using the L&G passives or use the all-in-one active funds e.g: BMO Responsible global equities is 0.55% so quite cheap for an active and the performance has been reasonably good over the last few years, BG Global Alpha took a battering this year as it's a typical BG growth fund and more expensive at 0.77% but the underlying investments appear to be different to the BMO fund so those 2 could be used as smaller allocations e.g: satellite funds to complement a passive core set of funds? The HSBC shariah fund is available too but this seems to overlap with the BMO fund in some respects and is v concentrated to US equities (70%) so not keen. There is a JPM UK smaller companies fund @ 0.77% , this caught my eye as it would allow me to increase small cap exposure but performance has not been great last few years...is it really worth paying the premium here? 
There are bond, property and commodity funds also available. Not sure I need bonds just yet, property already represented in my old pension and commodities I won't touch with a barge pole...just too volatile for my liking esp with the current political landscape. There is also an active EM fund available...but il have to pay for it accordingly with a high fee.

Below is a snapshot of all my current investments and the % value per fund, total portfolio value circa £194k with 50% in the old DC pension. The only likely changes I will make is to replace the SIPP ftse100 fund with a global equities ETF such as VEVE or HMWO and to get rid of the Active income fund in my S&SISA and go all in on the FTSE global all cap fund.

Old DC pension:

Vanguard FTSE Dev world ex UK 20.7%

Vanguard ESG dev world all cap 20.5%

Vanguard UK equities 7.7%

SL property fund 7.5%

S&S LISA: Veve 14.4%

SIPP: ishares FTSE 100 ETF 13.3%

S&SISA: FTSE global Equities All Cap 14.2%
Global Equities income fund(Active) 10.3%

Sorry for the long post but any insight, perspective others can offer on how they would approach the fund selection in my new pension would be gratefully received! Thanks

El_Torro

You seem to have a pretty good grasp on what the different funds are, as well as their pros and cons. So just a case of picking what you like and going for it. 

Your main question seems to be whether to go with a managed fund or tracker. Most people on this forum prefer trackers. I don’t think the managed funds will outperform over the long term, especially taking into account the higher fees.

Looking at your existing investments, they look OK but I feel you would get similar results by going with a single global tracker (assuming you don’t want bonds). Perhaps throw in a managed global smaller companies fund in there too. 

JohnWinder

'...published in the June 2022 issue of the Financial Analysts Journal, examined the performance of actively and passively managed Luxembourg and Ireland domiciled equity and fixed income UCITS funds — funds which generally form the opportunity set of the European and cross-border fund investor. Their sample, covering the period 2008-20, was from Morningstar Direct and included 5,533 equity funds and 1,072 fixed income funds,.....

...While the evidence does find that on average actively managed funds have stock selection skills, retail investors don’t benefit from those skills because the implementation costs exceed the alpha-generating ability.'

https://www.evidenceinvestor.com/actively-managed-ucits-are-effectively-priced-to-fail-study-shows/

And there's plenty more where that came from.

'We compare two bootstrap methods for assessing mutual fund performance. ... We then show that the average UK equity mutual fund manager is unable to deliver outperformance net of fees under either bootstrap. Gross of fees, 95% of fund managers on the basis of the first bootstrap and all fund managers on the basis of the second bootstrap fail to outperform the luck distribution of gross returns."

Blake, D., Caulfield, T., Ioannidis, C. & Tonks, I. (2015). New Evidence on Mutual Fund Performance: A Comparison of Alternative Bootstrap Methods. Journal of Financial and Quantitative Analysis,

Source: http://openaccess.city.ac.uk/12673/1/wp1404.p...

noclaf

Thanks El_Torro and JohnWinder, I could use the L&G passives to create a portfolio and then possibly the JPM UK Smaller companies fund to add smallcap exposure but is 0.77% too high?seems pricey relative the last few years performance. Alternatively I could use a hybrid approach and put 40% in the active BMO global equities fund and 60% in the passive trackers but not sure if this is unnecessarily complicating it and creating overlap of fund coverage.

My other question is how to determine US equities allocation, most passive trackers are 60-70% US equities, no idea how they will fare over the next few years but would it be worth reducing US equities exposure in the new pension? Or do I just mirror typical global equities passive tracker allocations and be done with it?

My thinking is to set my US Equities exposure followed by EU, UK and Asia allocations etc

MX5huggy

Does it actually matter At the moment? if you are adding £1000 a month it will be 2 years before this pension is 10% of your total pot. 1 cheap global tracker until it has some real value. 

noclaf

MX5huggy said:

Does it actually matter At the moment? if you are adding £1000 a month it will be 2 years before this pension is 10% of your total pot. 1 cheap global tracker until it has some real value. 

Fair point, unfortunately there isn't a single 'cheap global tracker' available in the pension scheme. Actually there is a composite passive global tracker but I am not keen on the allocations; 20% per region for US, UK, EU, Asia. The next best option is the active BMO Responsible global equity fund @ 0.55% so for the time being I could just pick that single fund and wait till it hits a sizeable value before any further tinkering, it's that or bit more upfront work to use the L&G passives and set n forget + ongoing review/maintenance if/when the funds move away from my desired allocations.

noclaf

OP here, just circling back on this thread for a related question.

I am contemplating a partial transfer from an former employer DC pension to my Fidelity SIPP, to take advantage of the ETF platform fees cap.
Currently my old DC pension charges £177 per year for a pot at £98k invested into Vanguard passive Equity funds and a property fund (all OEIC funds), not unreasonable however using cheaper global equity ETF'S on Fidelity I could reduce the annual fees closer to £60 that includes capped platform fees and divi reinvestment +initial ETF transaction charges.

My reason for 'partial' as opposed to full is there might be an advantage closer to retirement by having two pots, not sure what but maybe the concept of having a small and larger pot and a mix of OEIC+ETF's. One approach could be 50/50 split between both, though that does not take full advantage of the lower fees on Fidelity.

For the potential savings mentioned above, is it worthwhile? I appreciate costs aren't everything  is there anything I've not considered? Would a 100% ETF portfolio (using large well established liquid Vanguard or HSBC ETF'S) bring unnecessary additional risks to my pension investments?

I am interested just to see the thought process of other investors if you were in a similar position.

Thanks

Albermarle

Are you aware that Fidelity have a cashback offer until October 22nd for transferred pensions?

£10,000 - £99,999	£100
£100,000 - £149,999	£300

noclaf

Albermarle said:

Are you aware that Fidelity have a cashback offer until October 22nd for transferred pensions?

£10,000 - £99,999	£100
£100,000 - £149,999	£300

Thanks Albermarle, I wasn't aware.

I have an existing SIPP with Fidelity, so will need to check if I am eligible.... frustratingly the old DC pension value has just dipped under £100k! Just my luck.....

Albermarle

noclaf said:

Albermarle said:

Are you aware that Fidelity have a cashback offer until October 22nd for transferred pensions?

£10,000 - £99,999	£100
£100,000 - £149,999	£300

Thanks Albermarle, I wasn't aware.

I have an existing SIPP with Fidelity, so will need to check if I am eligible.... frustratingly the old DC pension value has just dipped under £100k! Just my luck.....

Having an existing SIPP is no problem. You could add a couple of thousand to the existing pension maybe ?

noclaf

Albermarle said:

noclaf said:

Albermarle said:

Are you aware that Fidelity have a cashback offer until October 22nd for transferred pensions?

£10,000 - £99,999	£100
£100,000 - £149,999	£300

Thanks Albermarle, I wasn't aware.

I have an existing SIPP with Fidelity, so will need to check if I am eligible.... frustratingly the old DC pension value has just dipped under £100k! Just my luck.....

Having an existing SIPP is no problem. You could add a couple of thousand to the existing pension maybe ?

Unfortunately as I've left my previous employer, no further contributions allowed. If I am lucky, the total value might just bounce back up but in the grand scheme of things not a massive issue either way.