Pension Benchmarking

KRfifteen

I've been invested in a SIPP now for over 6 years. I started off with a good fund value, in excess of the LTA, and hoped to see an average growth of approx 5% although with ups/downs. I was prepared for occasional losses although the Covid crash was still a bit of a scare. Looking at the graph of the fund value it's a mere blip now, that loss was recovered in 6 months or so. Feeling I'd more experience I upped my 'risk' by one category with the fund. 
The graph continues on it's way 2 steps up, 1 step down but the overall trend is there, it's up. In December 21 the fund was at it's highest value, and then fell away losing about 10% to bottom out in October 22. The fund has slowly increased again but seems to have stalled this year, small movements up/down, no real trend but still 3.5% down since that December 21 peak.

I'm not enamoured with a 16% return in 7 years, I'm on the low end of risk, my fund has a volatility of 6.8-8.8%. I was previously in a lesser risk category, roughly 50/30/20, equity/fixed/cash now the allocation is roughly 55/30/15. 

The fund split is currently 
30% fixed interest
10% UK equity
20% Developed markets
25% Alternative/Emerging markets
15% Cash

Between platform fees/TER/advisor I'm paying 1.3% per annum in charges.

So that's where I am, my question is am I getting a good return for my investment and charges? I get a benchmark provided by my fund provider but that's like marking your own homework. If that allocation/risk is returning as expected for the market at the moment I'll grin and bear it. I come from a position that if I pay someone to do something (hello fund manager) and they aren't then I need to find out if there's good reason for that.

dunstonh

I was prepared for occasional losses although the Covid crash was still a bit of a scare. 

Worth noting that it was the third biggest drop in the last 25 years.  So, if that was a scare, the other two would have been even worse.    And the first of those three was just over 2 negative years in a row.   It makes the last 18 months look tame by comparison.

 Looking at the graph of the fund value it's a mere blip now, that loss was recovered in 6 months or so. 

The speed of recovery for such a large drop was unusual.   You would normally be looking at 2-3 years in most periods.

I'm not enamoured with a 16% return in 7 years, I'm on the low end of risk, my fund has a volatility of 6.8-8.8%. I was previously in a lesser risk category, roughly 50/30/20, equity/fixed/cash now the allocation is roughly 55/30/15. 

Returns for cautious investors were far higher than normal between 2009 and 2021.     Those gains unwound over 2022/23 and are back within the long term average ballpark.   Looking ahead, you would expect returns for cautious investors to be back to being quite low again.  i.e. the margin between cash savings and cautious investment profiles will be quite small.

You need to remember that the last 5 years has been extremely volatile but looking at recent history, you had a 15-20% fall over 2015/16.  2018 was a negative year.   2020 had the second biggest drop in the last 25 years and 2022 was negative for equities, not by much, but fixed interest suffered their worst period for over 100 years.

When you look at events, you have had several major events occur in quick succession that would normally be considered once every 7 or so years.     Brexit, a global pandemic, dot.com mk2 crash, a war in Europe, an energy crisis, high inflation, high taxation and high regulation (UK) .....   It's actually amazing that the losses haven't been greater.

Negative or volatile periods happen.  The 10 year period from 1st Jan 2000 to 31st Dec 2009 was a negative period in most areas.    The 10 years that followed saw significant gains.     You have to take the good times, nothing times and bad times and average them out over the long term.     That typically means 15-20 years minimum nowadays.  Any time less than that then you don't know if you are going to get the good period, nothing period or the bad period.    Its fair to say that you have had the bad period

 I come from a position that if I pay someone to do something (hello fund manager) and they aren't then I need to find out if there's good reason for that.

Your fund manager has no influence on global affairs.

JohnWinder

Very hard to say. Firstly, you’ve been invested for over six years and report a seven year return; the results of return calculations are very very dependent on start and finish dates. Without those, forget it.
Secondly, I don’t know what ‘alternative’ markets are, so can’t appraise that aspect.
Thirdly, developed market equity (you didn’t say ‘equity’, so I’m guessing) could include or exclude small capitalisation companies; it makes a difference to returns sometimes.
Fourthly, fixed interest returns vary with credit risk (government or corporate bonds) and how long until they mature. You gave no clue.
You’re probably living in the wrong country to get really low fees, although some of Europe is worse, but you could still have funds that deliver what they promise, namely ‘to closely track an index’; you then have nothing to complain about when the returns disappoint, because sometimes returns are just not special. Maybe that’s your situation right now, rather than having some dud fund managers.

KRfifteen

dunstonh said:

When you look at events, you have had several major events occur in quick succession that would normally be considered once every 7 or so years.     Brexit, a global pandemic, dot.com mk2 crash, a war in Europe, an energy crisis, high inflation, high taxation and high regulation (UK) .....   It's actually amazing that the losses haven't been greater.

Negative or volatile periods happen.  The 10 year period from 1st Jan 2000 to 31st Dec 2009 was a negative period in most areas.    The 10 years that followed saw significant gains.     You have to take the good times, nothing times and bad times and average them out over the long term.     That typically means 15-20 years minimum nowadays.  Any time less than that then you don't know if you are going to get the good period, nothing period or the bad period.    Its fair to say that you have had the bad period

It does seem that I've hit an unsettled period, until recently I wasn't too concerned as my FA keeps telling me, time in the market, time in the market. My concerns are that if I wait 15-20 years to assess things then find out I could have done better putting my money elsewhere that would be rather annoying. The fact that you haven't said I seem to be getting a poor return I'll take as a positive. I'm not going to fret over what I can't change. Thanks for the reply.

KRfifteen

JohnWinder said:

Very hard to say. Firstly, you’ve been invested for over six years and report a seven year return; the results of return calculations are very very dependent on start and finish dates. Without those, forget it.
Secondly, I don’t know what ‘alternative’ markets are, so can’t appraise that aspect.
Thirdly, developed market equity (you didn’t say ‘equity’, so I’m guessing) could include or exclude small capitalisation companies; it makes a difference to returns sometimes.
Fourthly, fixed interest returns vary with credit risk (government or corporate bonds) and how long until they mature. You gave no clue.
You’re probably living in the wrong country to get really low fees, although some of Europe is worse, but you could still have funds that deliver what they promise, namely ‘to closely track an index’; you then have nothing to complain about when the returns disappoint, because sometimes returns are just not special. Maybe that’s your situation right now, rather than having some dud fund managers.

You're right John, I've been invested for 6.5 years so rounded down at the start and rounded up the next one, sorry for the slackness. I can't say much more on fund allocation as it's beyond my knowledge. I'm probably the same as most, if I'm making money then I'm happy to pay the fees it's when I don't see any progress I question it. When conditions are difficult at my work I can't tell my boss that it's difficult to get good results so they'll have to settle for less. I do appreciate this approach (fees tied to performance) might induce the industry to take risks, and that wouldn't be good, so maybe the model of fixed percentage regardless of performance has some merit.
Fees wouldn't even enter my mind if the fund was increasing at a decent rate although as posted above I think I just have to accept we're in a turbulent period at the moment.
I was wondering though if there was something online where I could punch in my figures and see some sort of comparison of performance against other funds.

Albermarle

My concerns are that if I wait 15-20 years to assess things then find out I could have done better putting my money elsewhere that would be rather annoying.

It is inevitable that in 15 or 20 years time you will be able to look back and say 'I wish I had changed this or that' Hindsight is a wonderful thing.

I am not an investment expert but your current portfolio seems a bit heavy in alternative/emerging markets ( 25%) and a bit light on Developed ( ex UK ) world.

Pat38493

KRfifteen said:

 My concerns are that if I wait 15-20 years to assess things then find out I could have done better putting my money elsewhere that would be rather annoying. 

You probably know this, but it's pretty much certain that after waiting 15-20 years you very definitely will find that you could have done better by putting your money elsewhere.

However that only would make any difference to how you should feel if you can say that you reasonably could have known that in advance, which is usually not the case.

Linton

Poor asset allocation can be responsible for a far higher loss of potential return than fees. To compare your returns with something similar  but more mainstream: An ordinary single off-the shelf 60/40 fund I checked would have returned nearly 40% over the past 7 years.

Looking at your allocations 55/30/15 is arguably over cautious dependeing on when you inntend to retire.  If retirement is a decade or more away you could consider a higher % equity and much less cash.  What is the cash for?

Much more of an issue I think is the allocation of your equity.  Looking at the %s I make it:

 45% alternative/EM (What is the "alternative"? This area includes some dubious or highly risky investments)
 36% developed markets ex-UK
18% UK

To be kind, in my view this is "unusual".

One very broad global equity market tracker is about
88% developed world ex UK,
8% EM
4%  UK
0% Alternative

My own growth portfolio equity allocation with a particularly high EM allocation is:
74% developed markets ex-uk
20% EM
6% UK
0% Alternative

 EM has performed poorly in recent years whereas the US has performed better than all other major geographies.

Was the equity allocation your advisor's idea or your's?  If your's why was your advisor not involved? What was the rationale for the allocation?

Pat38493

Well if for example the reason OP is invested pretty cautiously is because they were already bumping the LTA and wanted to preserve the value, their adviser should be discussing with them now that the LTA charges don't exist anymore.  I would hazard that most investors on this board would recommend a much higher equity allocation for a fund of that size (unless OP will be making large withdrawals which constitute a significant portion of the amount in the short to medium term, which would then in any case be questionable from tax point of view.).  

dunstonh

It does seem that I've hit an unsettled period, until recently I wasn't too concerned as my FA keeps telling me, time in the market, time in the market.

The longer you are invested, the closer you get to the long term average applicable to your asset mix.

However, if you take a typical economic cycle, you are looking at around 15 years.   Broadly speaking, 5 of those years will be very good.  5 of them will be good with the odd wobble and 5 will be volatile.            The order you get them will vary and the years between them vary.  Its a broad guide.

You have been invested for 6.5 years.    Nowhere near long term enough to be closer to the long term average.

My concerns are that if I wait 15-20 years to assess things then find out I could have done better putting my money elsewhere that would be rather annoying.

There will always be better than what you have.   Statistically, going higher equity and less fixed interest will be better in around 90% of periods.   The main differences in returns are the amounts allocated to equities and fixed interest interest.    Charges and management come next but have less impact on the total return differences.

The fact that you haven't said I seem to be getting a poor return I'll take as a positive.

The chart below shows the last 7 years with sector average for global equities and UK gilts.   The cash element would have done nothing until recently.   Its unusual to see alternatives mixed in with emerging as alternatives can be high risk or low risk.   Its a catchall.   So, 25% of your portfolio is unclear.

But if you focus on the fixed interest/gilts difference you can see that the fixed interest has been a big drag on the returns.



To give you a long term indication of how unusual that is, here is the gilts since 1995.    I have included interest rates (in red)


The upper one is with income reinvested (total return).  The lower one is unit price with income not reinvested (i.e. drawn out).   The lower one isn't the total return but it is useful as you can see how the unit price doesn't historically change much as the return in fixed interest securities is the income.  Normally you would expect to see the unit price wavy line within a band but not going anwhere.  However, post credit crunch, the unit prices went up higher than typical due to low interest rates not seen in 300 years.   2022/23 saw that post 2008 gain unwind to return its expected band.

The interest rate line is useful as you can see that long term investors, despite the recent falls are still better off than cash and that fixed interest is back in its expected range again.

Putting all that another way, the fixed interest securities would be expected to be a little above cash saving over the long term but they went through a bubble period which burst but has since returned back towards its long term average.   You missed the early growth in that bubble but suffered the full extent of its bursting.

If your FA or IFA took on an existing pension 6.5 years ago, then it's likely you may well have seen those gains in your previous product/investment mix.   

In case you are not aware, with charts, the further you go back, the more compressed the ups and downs appear. So, that sharp drop on the second chart showing long term is the same as on the first chart over the shorter term.  Despite it not looking as sharp a fall.   In addition, falls or gains in the past look smaller than falls or gains in more recent times.

JohnWinder

I'm probably the same as most, if I'm making money then I'm happy to pay the fees it's when I don't see any progress I question it

I think you can improve on that thinking quite a lot, maybe even ditch it. Firstly, if the stock and bond markets have a nice run for several years (there’s your ‘I’m making money’), it doesn’t mean the fees are justified (you may have got those good returns with lower fees, and commonly do). Secondly, poor returns due solely to the way the markets performed over several years in no way reflect poorly on the fees you pay if you’re still getting market returns. What some research has shown is that the more you pay in fund management fees the worse the returns are likely to be, although the relationship won’t be linear or proportionate, but it’s a guide. Look for low fees whether you’re getting good returns or not.

‘although as posted above I think I just have to accept we're in a turbulent period at the moment’

Definitely not. If you took ‘fund managers don’t influence global affairs’ to mean all your problems are down to global affairs, you might have taken the message meant for you but do you really believe some fund managers can’t sometimes pick the wrong stocks? Read the SPIVA reports.

I was wondering though if there was something online where I could punch in my figures and see some sort of comparison of performance against other funds.

I think you can if you do it fund by fund. People talk about the ‘trustnet’ site.