Fees for income funds

masonic

dont_use_vistaprint said:

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

We shall see what happens, but 8.12% is above the fund's average over short, medium and long-term return history. If it achieves it this year after returning just 2.2% last year, then that would be a good outcome. 8.12% is not a realistic expectation, but it could happen.

It's also worthwhile to point out the following from the fund house's page on the fund: "The Distribution Yield is based on the most recent month’s distribution and shown as an annualized percentage as of the date shown. It does not include any preliminary charge and investors may be subject to tax on distributions. Information is historical and may not reflect current or future distributions."

In fact, the figure has been updated for the month to 23/06/2023 and has fallen to 7.94%. It's perfectly normal for it to bounce around from month to month. In the case of a recession, it is likely to fall further. It is also only one side of the story, because if you invest $100k today, collect a monthly distribution of $639, but at the end your investment is only worth $92k, then that wouldn't be a very good outcome. The fund has lost money overall in five of the last ten years.

Malthusian

If the fund crashes and loses half its value, then other things being equal, the Distribution Yield would become 16%. Would that make it an even better investment?
Regardless of how it performs, people will still argue that it is a very expensive investment that has been picked by throwing a single dart at a dartboard.

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.

Why do you need offshore products? What is there to understand about forex? If you have a complex multinational tax position then it is to be expected that you would need specialist advice. 

1 year fixed rate savings accounts have never beaten a diversified investment portfolio over any truly long term period (say 10 years plus). The FCA-mandated standard assumptions for projections use 2.5% above inflation as a "medium" projected rate of return for an equity investment. What 1 year fixed rate savings account will pay you inflation plus 2.5%?     

dont_use_vistaprint

masonic said:

dont_use_vistaprint said:

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

We shall see what happens, but 8.12% is above the fund's average over short, medium and long-term return history. If it achieves it this year after returning just 2.2% last year, then that would be a good outcome. 8.12% is not a realistic expectation, but it could happen.

It's also worthwhile to point out the following from the fund house's page on the fund: "The Distribution Yield is based on the most recent month’s distribution and shown as an annualized percentage as of the date shown. It does not include any preliminary charge and investors may be subject to tax on distributions. Information is historical and may not reflect current or future distributions."

In fact, the figure has been updated for the month to 23/06/2023 and has fallen to 7.94%. It's perfectly normal for it to bounce around from month to month. In the case of a recession, it is likely to fall further. It is also only one side of the story, because if you invest $100k today, collect a monthly distribution of $639, but at the end your investment is only worth $92k, then that wouldn't be a very good outcome. 

The fund has lost money overall in five of the last ten years.

Hang on….Past performance is irrelevant   though :-) 

masonic

dont_use_vistaprint said:

masonic said:

dont_use_vistaprint said:

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

We shall see what happens, but 8.12% is above the fund's average over short, medium and long-term return history. If it achieves it this year after returning just 2.2% last year, then that would be a good outcome. 8.12% is not a realistic expectation, but it could happen.

It's also worthwhile to point out the following from the fund house's page on the fund: "The Distribution Yield is based on the most recent month’s distribution and shown as an annualized percentage as of the date shown. It does not include any preliminary charge and investors may be subject to tax on distributions. Information is historical and may not reflect current or future distributions."

In fact, the figure has been updated for the month to 23/06/2023 and has fallen to 7.94%. It's perfectly normal for it to bounce around from month to month. In the case of a recession, it is likely to fall further. It is also only one side of the story, because if you invest $100k today, collect a monthly distribution of $639, but at the end your investment is only worth $92k, then that wouldn't be a very good outcome. 

The fund has lost money overall in five of the last ten years.

Hang on….Past performance is irrelevant   though :-)

Who said that? Not me. I said that past performance can be used to as a guide to whether your chosen investments are capable of meeting your objectives. Putting that into practice in this case, it seems unlikely that this investment will deliver the returns you've inferred through misunderstanding what the annualised one month yield represents.

Past performance is incredibly useful in some contexts. What is not useful is looking at how much income was paid out in the previous month, and projecting that forward assuming it will be the same in the next 12 months, then ignoring any capital losses the fund is exposing you to in order to deliver a high yield.

dont_use_vistaprint

masonic said:

dont_use_vistaprint said:

masonic said:

dont_use_vistaprint said:

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

We shall see what happens, but 8.12% is above the fund's average over short, medium and long-term return history. If it achieves it this year after returning just 2.2% last year, then that would be a good outcome. 8.12% is not a realistic expectation, but it could happen.

It's also worthwhile to point out the following from the fund house's page on the fund: "The Distribution Yield is based on the most recent month’s distribution and shown as an annualized percentage as of the date shown. It does not include any preliminary charge and investors may be subject to tax on distributions. Information is historical and may not reflect current or future distributions."

In fact, the figure has been updated for the month to 23/06/2023 and has fallen to 7.94%. It's perfectly normal for it to bounce around from month to month. In the case of a recession, it is likely to fall further. It is also only one side of the story, because if you invest $100k today, collect a monthly distribution of $639, but at the end your investment is only worth $92k, then that wouldn't be a very good outcome. 

The fund has lost money overall in five of the last ten years.

Hang on….Past performance is irrelevant   though :-)

Who said that? Not me. I said that past performance can be used to as a guide to whether your chosen investments are capable of meeting your objectives. Putting that into practice in this case, it seems unlikely that this investment will deliver the returns you've inferred through misunderstanding what the annualised one month yield represents.

Past performance is incredibly useful in some contexts. What is not useful is looking at how much income was paid out in the previous month, and projecting that forward assuming it will be the same in the next 12 months, then ignoring any capital losses the fund is exposing you to in order to deliver a high yield.

No it was someone else that said  past performance was irrelevant.

in this case & I have checked ,  dividend is set annually and doesn’t change month by month, but the fund pays you monthly not annually 

Just  to be clear the 8.12% is based on the dividend of 0.67 - fixed for the year  , combined with the entry point - I’m sure you get that 

I understand what you are saying totally , past performance of dividend needs to be considered in conjunction with unit price. Although I expect the situation is very different when within uk tax because of how capital gains are favoured over income ? I could be wrong 

masonic

dont_use_vistaprint said:

masonic said:

dont_use_vistaprint said:

masonic said:

dont_use_vistaprint said:

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

We shall see what happens, but 8.12% is above the fund's average over short, medium and long-term return history. If it achieves it this year after returning just 2.2% last year, then that would be a good outcome. 8.12% is not a realistic expectation, but it could happen.

It's also worthwhile to point out the following from the fund house's page on the fund: "The Distribution Yield is based on the most recent month’s distribution and shown as an annualized percentage as of the date shown. It does not include any preliminary charge and investors may be subject to tax on distributions. Information is historical and may not reflect current or future distributions."

In fact, the figure has been updated for the month to 23/06/2023 and has fallen to 7.94%. It's perfectly normal for it to bounce around from month to month. In the case of a recession, it is likely to fall further. It is also only one side of the story, because if you invest $100k today, collect a monthly distribution of $639, but at the end your investment is only worth $92k, then that wouldn't be a very good outcome. 

The fund has lost money overall in five of the last ten years.

Hang on….Past performance is irrelevant   though :-)

Who said that? Not me. I said that past performance can be used to as a guide to whether your chosen investments are capable of meeting your objectives. Putting that into practice in this case, it seems unlikely that this investment will deliver the returns you've inferred through misunderstanding what the annualised one month yield represents.

Past performance is incredibly useful in some contexts. What is not useful is looking at how much income was paid out in the previous month, and projecting that forward assuming it will be the same in the next 12 months, then ignoring any capital losses the fund is exposing you to in order to deliver a high yield.

No it was someone else that said  past performance was irrelevant.

in this case & I have checked ,  dividend is set annually and doesn’t change month by month, but the fund pays you monthly not annually

You've definitely been misinformed on this point, as the dividend does change from month to month. There's evidence of this from the variation in the yield in past monthly factsheets, and it is necessarily the case because bonds mature at regular intervals and must be replaced by new bonds with different income streams. During a recession some of the higher yield bonds in the fund will default on coupons and/or repayment of principal, dragging the yield down. I do worry that you are approaching this investment with a mindset of a saver and not considering these uncertainties and risks. You should treat the value of future fund distributions as variable and not guaranteed, as stated in the warnings all responsible investment providers post on their literature.

dont_use_vistaprint said:
Just  to be clear the 8.12% is based on the dividend of 0.67 - fixed for the year  , combined with the entry point - I’m sure you get that 

I understand what you are saying totally , past performance of dividend needs to be considered in conjunction with unit price. Although I expect the situation is very different when within uk tax because of how capital gains are favoured over income ? I could be wrong 

The tax situation on foreign income for a UK domiciled individual would not be so very different than someone investing in UK interest-bearing securities, just some added complexity around forex, and reporting it in a different section of your tax return if you have enough of it. YMMV if you are non-resident or holding in some sort of tax avoidance scheme. For a UK domiciled individual, then it is true that capital gains are taxed at a lower rate than income, but most do not pay any tax due to the use of ISA and pension vehicles. 

All of my above discussion, figures, etc, have been based on gross returns. Performance has been considered on a total returns basis. This avoids any sleight of hand, such as generating high income by erosion of capital.

Prism

masonic said:

You've definitely been misinformed on this point, as the dividend does change from month to month. There's evidence of this from the variation in the yield in past monthly factsheets, and it is necessarily the case because bonds mature at regular intervals and must be replaced by new bonds with different income streams. 

The dividend does seem to be fixed for a year. The fund value and yield changes but not the distribution.

Franklin Income Fund - A (Mdis) USD - LU0098860793 (franklintempleton.co.uk)

masonic

Prism said:

masonic said:

You've definitely been misinformed on this point, as the dividend does change from month to month. There's evidence of this from the variation in the yield in past monthly factsheets, and it is necessarily the case because bonds mature at regular intervals and must be replaced by new bonds with different income streams. 

The dividend does seem to be fixed for a year. The fund value and yield changes but not the distribution.

Franklin Income Fund - A (Mdis) USD - LU0098860793 (franklintempleton.co.uk)

Yes, I see what you mean about the fund having a historical convention of revising its distributions annually each January in most years, but there are a few historic years where these were cut mid-year, and the fund literature states in its key risks that may distribute income gross of expenses as a means to maintain those dividends at the expense of capital. If such accounting is insufficient to make up for deficiencies in income from the underlying investments, then it has little choice but to pay out less.

Based on the pattern of dividends, which doesn't appear to be backed up by any policy statement in the factsheet or prospectus, someone buying today only has 5 more dividend payments before they should expect a change to the distribution amount per unit. Under adverse conditions, it can and has been revised intra-year.

The good news is that there is plenty of historic data with which to assess the range of possible outcomes under different sets of market conditions. It is notable that the NAV is lower today than it was at inception, and lower than at any point in the 2010s. As such, capital should be expected to be exposed to the full effects of inflation.

dont_use_vistaprint

Prism said:

masonic said:

You've definitely been misinformed on this point, as the dividend does change from month to month. There's evidence of this from the variation in the yield in past monthly factsheets, and it is necessarily the case because bonds mature at regular intervals and must be replaced by new bonds with different income streams. 

The dividend does seem to be fixed for a year. The fund value and yield changes but not the distribution.

Franklin Income Fund - A (Mdis) USD - LU0098860793 (franklintempleton.co.uk)

Yes it is 100% fixed for the year at 8.12% based on the entry point I took . The person at HSBC knows his stuff and all his info and recommendation has been accurate and well matched 

 

Malthusian

dont_use_vistaprint said:

Yes it is 100% fixed for the year at 8.12% based on the entry point I took . 

Unless the underlying investments don't pay enough in dividends for the fund to pay out the same dividend as previous quarters.
And the yield won't stay 8.12% even if the dividends stay the same, because the value of the fund will fluctuate constantly, which means the yield fluctuates constantly. Yield = dividend / fund value. 

The person at HSBC knows his stuff and all his info and recommendation has been accurate and well matched 

It's a very poor recommendation with a total disregard for diversification and appropriate level of risk.
He has also failed to explain how the income works, unlike Masonic who did a better job for free.
In the UK you wouldn't be able to get away with "recommendations" like this and charging 3% for them. But as I understand it you are somewhere outside the UK, which is likely to have lower protection and professional standards.