Fees for income funds

JohnWinder

‘they said no other fees are payable to anyone , no management fees,’

‘They said all funds charge different fees, based on the costs of running the fund, but said what’s important is the income I get back from this fund each month is after the annual fees’

That was confusing.

‘what is your concern about the 3 managers, I researched them and nothing negative came up at all 

They look after an actively managed fund, including changing the mix of bonds and stocks according to their judgment. And the annual management fee is high.

In the study, Kinnel wrote, "If there's anything in the whole world of mutual funds that you can take to the bank, it's that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds." http://news.morningstar.com/articlenet/article.aspx?id=347327

‘Tactical allocation sounds great. Who wouldn’t want a team of managers, moving their money between different asset classes, depending on which asset classes appear to present the best opportunities at any one time?

It’s no wonder tactical allocation funds are so popular, or that the industry invests so heavily in promoting them...

The problem is, as new research from Morningstar shows, the performance of tactical allocation funds has been dreadful.’  https://www.evidenceinvestor.com/tactical-allocation-funds-have-been-stinkers-morningstar/

‘Essentially, no matter where you look, wherever there is active intervention, there is usually value loss.

This doesn’t mean an active manager cannot outperform their benchmark or peer group — it’s just extremely difficult to do so, and the task is only getting harder.’  https://www.evidenceinvestor.com/choice-blessing-or-curse-for-active-fund-returns/ 

‘even including 2022’s relatively benign performances, the vast majority of actively managed funds nonetheless underperformed over periods of 10 years or more.’ https://www.spglobal.com/spdji/en/documents/spiva/spiva-us-year-end-2022.pdf

dont_use_vistaprint

GeoffTF said:

dont_use_vistaprint said:

They said all funds charge different fees, based on the costs of running the fund, but said what’s important is the income I get back from this fund each month is after the annual fees & the closest  to my requirements ( I asked for 10%)  at the risk level I asked for and the entry point unit price is extremely good plus other requirements I wanted like offshore and all monies in USD etc. 

No. There is no point in drawing a high income if it does not last. Past performance is irrelevant, because it is in the past. A global tracker fund gives the widest spread of risk at the a very low cost. You then decide how much income you draw from it. Income funds are less diversified than a market weighted global tracker because they only invest in companies that pay high dividends. Those companies are usually higher risk or have lower growth prospects. You can reduce your risk by holding a bond fund in to a global equity tracker, and drawing each month's income from whichever fund is above your target percentage allocation. There is no substitute for educating yourself. Here is a good place to start:

https://kroijer.com/

If past performance is irrelevant why do all the fact sheets of all the funds and all the websites and tools that compare show past performance ? 

past performance is not an indicator of future performance, but it’s clearly not Irelevant. why do assume everyone wants to  exchange  risk for lower returns ? Or draw a lasting nigh income. Entry and exit points are more important 



 

dont_use_vistaprint

JohnWinder said:

‘they said no other fees are payable to anyone , no management fees,’

‘They said all funds charge different fees, based on the costs of running the fund, but said what’s important is the income I get back from this fund each month is after the annual fees’

That was confusing.

‘what is your concern about the 3 managers, I researched them and nothing negative came up at all 

They look after an actively managed fund, including changing the mix of bonds and stocks according to their judgment. And the annual management fee is high.

In the study, Kinnel wrote, "If there's anything in the whole world of mutual funds that you can take to the bank, it's that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds." http://news.morningstar.com/articlenet/article.aspx?id=347327

‘Tactical allocation sounds great. Who wouldn’t want a team of managers, moving their money between different asset classes, depending on which asset classes appear to present the best opportunities at any one time?

It’s no wonder tactical allocation funds are so popular, or that the industry invests so heavily in promoting them...

The problem is, as new research from Morningstar shows, the performance of tactical allocation funds has been dreadful.’  https://www.evidenceinvestor.com/tactical-allocation-funds-have-been-stinkers-morningstar/

‘Essentially, no matter where you look, wherever there is active intervention, there is usually value loss.

This doesn’t mean an active manager cannot outperform their benchmark or peer group — it’s just extremely difficult to do so, and the task is only getting harder.’  https://www.evidenceinvestor.com/choice-blessing-or-curse-for-active-fund-returns/ 

‘even including 2022’s relatively benign performances, the vast majority of actively managed funds nonetheless underperformed over periods of 10 years or more.’ https://www.spglobal.com/spdji/en/documents/spiva/spiva-us-year-end-2022.pdf

Thanks for that , I get what it’s saying and why - although the performance of this fund and others they advised does look very good! 

I guess if it was that simple there wouldn’t be so many funds to choose from , everyone would just choose the best one with lowest costs and advisers wouldn’t have a job.

it’s seems on the one hand past performance is used to prove a point like in the article ,  and then someone else says past performance is irrelevant and something else  is important ?

Raisin will give me 5.7% , do I need to know about their operational costs before deciding as Barclays will give me 0.1% but they might have lower costs so be better right ? A bad example I know as guaranteed return. It’s very easy to look at historical data and make your narrative fit , data is so easy for around the story you want to tell 

JohnWinder

If past performance is irrelevant why do all the fact sheets of all the funds and all the websites and tools that compare show past performance ? 

past performance is not an indicator of future performance, but it’s clearly not Irelevant.

The fact sheets show it because it’s for advertising or promotion of the product. It’s regulated by the Financial Conduct Authority in UK as advertising would be, and it’s not required to be there so the FCA can’t view it as important information necessary for investors. 

Websites and tools use it because it is readily available, looks to be objective and accurate, and being quantitative permits easy comparison. It also tells you something about the fund, but if you can suggest what relevance it has then it could be a useful discussion.  https://www.handbook.fca.org.uk/handbook/COBS/4/5.html

Malthusian

dont_use_vistaprint said:

it’s seems on the one hand past performance is used to prove a point like in the article ,  and then someone else says past performance is irrelevant and something else  is important ?

Past performance is not being used to prove a point. It is being used to illustrate that there is a lack of evidence to believe that paying higher fees to fund managers consistently results in improved performance. 
Suppose I assert that the past results of a fair roulette wheel have no effect on what it will land on in the future. (This is the Monte Carlo fallacy, where people claim that the roulette wheel landed on black the last five times so it must be "due a red", or that a football team won its last five matches so it's "in good form".)
I prove this by spinning a roulette wheel six times, ten thousand times over. I show statistically that there is no relationship between the first five results and the sixth. The sixth result is approximately 49% red, 49% black and 2% green no matter whether the first five were mainly red, mainly black or mixed.
You wouldn't say "aha well this proves that the first five scores do affect the last one, because otherwise you wouldn't have bothered spinning the wheel those five times to try and prove a point". 
The burden of proof is on fund managers to show that active fund management consistently beats the market. The links given by *edit* JohnWinder show that there is no evidence.
(apologies for mixing up posts)

JohnWinder

 The links given by DunstonH show that there is no evidence.

I’ll believe that when I see them. 

masonic

I forgot to bookmark this thread, so missed some of the recent discussion, but it seems like there is some confusion about what the fund being discussed invests in. From the factsheet:

Annualised performance data in GBP from Trustnet:

This is a mixed asset fund with over 60% bonds (mostly corporate bonds). I guess the most similar mainstream investment would be something like Troy Trojan:

Though you can see from the comparison report that they have some significant differences, with the Troy fund being more defensively positioned with a higher return back in the days when interest rates were similar to today.

Some of the funds mentioned upthread were equity income funds, so higher risk and historically better performing (at least the global ones). I think it would be a mistake to assume anything about your desired asset allocation based on what HSBC has deigned to push you into. Perhaps you have the risk tolerance to go for an equity fund, perhaps not. You could choose to take this 3% up front fee and invest it in securing proper financial advice from an IFA, and end up with some change and a lower ongoing cost, so if you need some help choosing investments, you have options.

Regarding past performance, it is only of use as a guide to whether your chosen investments are capable of meeting your objectives, not that they will. Especially funds like this one, where the fund manager has a lot of freedom to change its composition at different times. Past performance is of very little use when projecting into a high interest rate, medium-high inflation period from a low interest rate, low inflation period.

GeoffTF

dont_use_vistaprint said:

GeoffTF said:

dont_use_vistaprint said:

They said all funds charge different fees, based on the costs of running the fund, but said what’s important is the income I get back from this fund each month is after the annual fees & the closest  to my requirements ( I asked for 10%)  at the risk level I asked for and the entry point unit price is extremely good plus other requirements I wanted like offshore and all monies in USD etc. 

No. There is no point in drawing a high income if it does not last. Past performance is irrelevant, because it is in the past. A global tracker fund gives the widest spread of risk at the a very low cost. You then decide how much income you draw from it. Income funds are less diversified than a market weighted global tracker because they only invest in companies that pay high dividends. Those companies are usually higher risk or have lower growth prospects. You can reduce your risk by holding a bond fund in to a global equity tracker, and drawing each month's income from whichever fund is above your target percentage allocation. There is no substitute for educating yourself. Here is a good place to start:

https://kroijer.com/

If past performance is irrelevant why do all the fact sheets of all the funds and all the websites and tools that compare show past performance ?
 

Because people are foolish enough to believe that it is relevant. In reality, funds that do well before costs in one time period are no more likely to do well before costs in the next time period. It is cost that matters, not past performance. Fund management groups start up lots of funds, wind up those that are unlucky and advertise those that are lucky. They are very keen to have past performance published widely. Do not be a mug. Buy low cost trackers.

dont_use_vistaprint

masonic said:

I forgot to bookmark this thread, so missed some of the recent discussion, but it seems like there is some confusion about what the fund being discussed invests in. From the factsheet:

Annualised performance data in GBP from Trustnet:

This is a mixed asset fund with over 60% bonds (mostly corporate bonds). I guess the most similar mainstream investment would be something like Troy Trojan:

Though you can see from the comparison report that they have some significant differences, with the Troy fund being more defensively positioned with a higher return back in the days when interest rates were similar to today.

Some of the funds mentioned upthread were equity income funds, so higher risk and historically better performing (at least the global ones). I think it would be a mistake to assume anything about your desired asset allocation based on what HSBC has deigned to push you into. Perhaps you have the risk tolerance to go for an equity fund, perhaps not. You could choose to take this 3% up front fee and invest it in securing proper financial advice from an IFA, and end up with some change and a lower ongoing cost, so if you need some help choosing investments, you have options.

Regarding past performance, it is only of use as a guide to whether your chosen investments are capable of meeting your objectives, not that they will. Especially funds like this one, where the fund manager has a lot of freedom to change its composition at different times. Past performance is of very little use when projecting into a high interest rate, medium-high inflation period from a low interest rate, low inflation period.

I did actually try to get some decent paid for advice, I spoke to a few uk advisors and to be honest other than pensions and ISA they didn’t seem to have a clue. No understanding of offshore or forex or high yield over medium term , offering projected returns I can beat with a 1 year fix savings account. HSBC seemed  far more knowledgable and able to match objectives very closely and the advice here has been good too 

dont_use_vistaprint

Thanks for everyone’s advice it’s appreciated, I clearly have a lot to learn & understand and am sure will make  mistakes but I decided to put 1/2 my lump sum into this now because nothing anyone said gave me a big enough reason to think I was given bad advice. But I’ll look at other things like black rock emerging markets and Franklin US opportunities fund for the remainder 

I imagine when I’m picking up my 8.12% over the next year people would still argue it’s a terrible investment ?