Nest pension: fund options and performance

aroominyork

I’ve just taken a first look at performance of my Nest pension for a job I started in February of this year. I chose the Higher Risk fund so, with global stock markets up 6-7% since the end of February I expected to see some growth. Instead it shows contributions of £3874 and a pot value of £3880. So I looked at the holdings in more detail than previously: 70% equities; 15% HY bonds/EM debt; 11% property; 4% commodities. Five year performance is +28.3%. As a comparator the average of VLS60 and VLS80 is 34.4%. I guess some of that underperformance compared to VLS is due to the riskier fixed interest allocation.

On Nest’s five year risk/volatility chart the Higher Risk fund is quite poorly positioned compared to the closest comparators: Ethical Growth and 2040 Retirement. My hunch is to move to the Sharia fund which is 100% equities: this is the most straightforward home for what is not a large pot; if I wanted to reduce my investments’ overall volatility I could always adjust my SIPP.

I would be interested to hear other people’s thoughts about Nest.

jimjames

I assume you pay in monthly rather than dumping a lump sum into NEST in February,. If that's the case then you can't take markets rising 9% since Feb as a measure of performance because most of the money won't have been in the pension for anywhere near that long and things have been very up and down this year.

aroominyork

jimjames said:

I assume you pay in monthly rather than dumping a lump sum into NEST in February,. If that's the case then you can't take markets rising 9% since Feb as a measure of performance because most of the money won't have been in the pension for anywhere near that long and things have been very up and down this year.

I'm only talking about a general upwards market, which it has been - in fact since an early-March dip the market is up 11%, of course with blips. Yes, I am paying in monthly.

PS. What I find curious about Nest is that when most multi-asset funds wind up the risk, they do it mostly by increasing the equity allocation. They do not say "This is a higher risk fund so all the fixed interest should be higher risk". In my other investments I own very little in high yield bonds and do not understand emerging market debt (or wish to understand it) so I view this as an 85% equity fund. It seems easier to just go for the 100% equity Sharia fund - then I know what I own.

Stargunner

My company pension is also with Nest. I switched it from the default fund a couple of years ago to the Sharia fund, as the total fund size is mich smaller than my SIPP  so I am prepared to take more risk with it. It has done very well this year, as it is over 20% up.

B0bbyEwing

Difference between Sharia & higher risk funds?

Asking on behalf of two people who have opted for the higher risk funds purely on the basis of the name of them & the length of working years they have 'left'.

Hoenir

aroominyork said:

jimjames said:

I assume you pay in monthly rather than dumping a lump sum into NEST in February,. If that's the case then you can't take markets rising 9% since Feb as a measure of performance because most of the money won't have been in the pension for anywhere near that long and things have been very up and down this year.

I'm only talking about a general upwards market, which it has been - in fact since an early-March dip the market is up 11%, of course with blips. Yes, I am paying in monthly.

Taking the FTSE All-World as an example, this index peaked at a not too dissimilar level as it stands today in both July and September.  Charting the price you paid for units every month would provide a more meaningful insight. 

aroominyork

B0bbyEwing said:

Difference between Sharia & higher risk funds?

Asking on behalf of two people who have opted for the higher risk funds purely on the basis of the name of them & the length of working years they have 'left'.

Sharia is 100% equities. Higher risk as described in my opening post. Details in here Nest-quarterly-investment-report.pdf

Stargunner

B0bbyEwing said:

Difference between Sharia & higher risk funds?

Asking on behalf of two people who have opted for the higher risk funds purely on the basis of the name of them & the length of working years they have 'left'.

 Some of the requirements for a Shariah-compliant fund include the exclusion of investments which derive a majority of their income from the sale of alcohol, pork products, pornography, gambling, military equipment or weapons. 

Albermarle

Stargunner said:

B0bbyEwing said:

Difference between Sharia & higher risk funds?

Asking on behalf of two people who have opted for the higher risk funds purely on the basis of the name of them & the length of working years they have 'left'.

 Some of the requirements for a Shariah-compliant fund include the exclusion of investments which derive a majority of their income from the sale of alcohol, pork products, pornography, gambling, military equipment or weapons. 

Which seems to translate into the fund being even more reliant on US tech sector than a 'normal' global index tracker. Hence why it has done well recently but you could take a view that it has some concentration risk or in English, a lot of eggs in one basket.

IT is 100% equities as according to Islamic law they can not have any interest bearing investments like bonds.

aroominyork

Albermarle said:

Stargunner said:

B0bbyEwing said:

Difference between Sharia & higher risk funds?

Asking on behalf of two people who have opted for the higher risk funds purely on the basis of the name of them & the length of working years they have 'left'.

 Some of the requirements for a Shariah-compliant fund include the exclusion of investments which derive a majority of their income from the sale of alcohol, pork products, pornography, gambling, military equipment or weapons. 

Which seems to translate into the fund being even more reliant on US tech sector than a 'normal' global index tracker. Hence why it has done well recently but you could take a view that it has some concentration risk or in English, a lot of eggs in one basket.

Very good point. They use HSBC Islamic Global Equity Index Fund which is 77% US. The factsheet says its top holdings are Apple 8.04%, Microsoft 7.36%, Alphabet 6.03%, Amazon 5.06%, totalling a whopping 26.49%. By comparison, HSBC FTSE All-World Index has 12.65% in those four companies.

LHW99

Assuming you put in ~£390 per month:

Feb payment - in ~10 months, may be up 9% - ~£30

Mar Payment - in ~ 9 months, what date did it go in? if at the start of the month, you could have bought at a relatively high price. In my portfolio that wouldn't have increased over the rest of the year, although it would have gone up and down on the way.

April payment - in ~ 8 months maybe flat over the year

.

.

.

Dates of investment matter, particularly early on. After 10 + years is when you see the benefit of the early payments (hopefully)