Which Pension Fund?

Bob1975

Hi, I am 49 and have recently started reviewing my pension fund with Standard Life. I am a bit late to the party and have only realised over the last few months that I am 100% invested in a UK Equity fund (roughly £300k in total). I have therefore, sadly missed out on the large returns from US equities over the last decade. 

I am now keen to take a more active role in my investments and have therefore reviewed the following funds through SL, which historically have unsurprisingly, massively outperformed my UK Equity fund, as there is a large % invested in the US. 

I initially thought that this would then be a relatively simple decision to switch to one of the below. However, when I look at the performance of all of these funds over the last 3 months and 6 months, the UK Equities outperform all of them (over a short period, I know).

SL BlackRock ACS World ex UK Equity Tracker Pn Fd 
SL HSBC Islamic Global Equity Index Pension Fund
SL Vanguard ESG Developed World All Cap Eq Idx Pn

SL Vanguard FTSE Developed World ex UK Pension Fd

Standard Life Overseas Tracker Pension Fund

My question is, is the general consensus that a more global fund, heavy on the US remains a good idea?
Is this just a blip with the US election on the horizon?

I am happy with 100% equities with regards to risk.

Without a crystal ball, another way of asking this might be, what are you doing with your money?

I am very new to all of this, and 99% of the knowledge I have picked up has come from this incredible forum over the last few months. Therefore if any of the funds above look like a stupid idea or if I am misunderstanding anything, which I accept I may be, then please tell me. I can take it.

dunstonh

I initially thought that this would then be a relatively simple decision to switch to one of the below. However, when I look at the performance of all of these funds over the last 3 months and 6 months, the UK Equities outperform all of them (over a short period, I know).

The problem with looking at past performance is that future performance will be different.    US equity has been the star in this cycle because of the tech recovery following the dot.com crash period and that US equity underperformed the global stockmarkets in the previous cycle, along with some other reasons.

The UK has underperformed in this cycle because of Brexit and sentiment to the UK.   However, the UK is now considered to be undervalued and with fears of tech being on the brink of a big fall, sentiment was swung from growth to value and the UK is strong at value.

My question is, is the general consensus that a more global fund, heavy on the US remains a good idea?
Is this just a blip with the US election on the horizon?

Why would a US election make any difference?  (hint: it doesn't historically - volatility increases but not returns)

Global is best as you never know what is going to be best or worst.    What will be will be. 

Albermarle

There is an element of the unloved U.K. stock market picking up a bit, which is probably what you are seeing.
You might go 100% ex U.K. and find the US tumbles more in a downturn.
Normally most people would always hold some U.K. %, but the amount can vary a lot between 4% and 40%.
So probably best not to swing 100% from one investment strategy to another.

Mark_d

Personally I prefer to invest in certain sectors of the UK economy as I have a far better understanding of what's happening here than in the US.

Within the UK the differences wouldn't be huge overall whether we had Conservatives or Labour in power.  This is not the case in the US where Republicans and Democrats are polar opposites - so the outlook for your investments might change dramatically come November's election.

Whilst you need a degree of risk to get good returns, being 100% invested in equities is fairly brave, given that we might be on the brink of WW3.  I consider myself to be on the risky side but 25% of my portfolio is in gold/cash.

Albermarle

Mark_d said:

Personally I prefer to invest in certain sectors of the UK economy as I have a far better understanding of what's happening here than in the US.

Within the UK the differences wouldn't be huge overall whether we had Conservatives or Labour in power.  This is not the case in the US where Republicans and Democrats are polar opposites - so the outlook for your investments might change dramatically come November's election.

Whilst you need a degree of risk to get good returns, being 100% invested in equities is fairly brave, given that we might be on the brink of WW3.  I consider myself to be on the risky side but 25% of my portfolio is in gold/cash.

Not sure cash, or even gold would be that useful in a nuclear war.
Probably investing in a bunker somewhere remote, with a lot of baked beans and ammunition would be better.

leosayer

I spent my whole career working for an investment manager (although not managing money) and used to select the active fund managers and funds/regions that I thought would do best.

I achieved returns below what I would have got from holding a simple global equity index tracker fund, arguably with a lot more concentration risk.

My equity allocation is now entirely achieved through global equity index funds like Vanguard FTSE Global All-Cap or similar from my DC scheme.

I sleep a lot better now knowing that I'm not missing out on any particular sector, country or company. I have enough exposure to the UK economy and GBP through my day to day life without increasing that by being overweight in UK equities.

It leaves me time to concentrate on risk management (bond and cash holdings), developing a drawdown strategy and tax management, all of which are equally as valuable as deciding on which equity fund to hold.

I'm under no illusions that an alternative approach may lead to a better outcome but when it comes to the financial future of myself and my family, I don't want to make bets.

LHW99

Are you still adding to this pension? Can you have two funds (or more) side by side?

You could consider directing new deposits to one of the Global funds, and leave the UK alone for now and see how you feel with (maybe) extra / different volatility.

Or you could split the UK holding and transfer half (for example) into an alternative fund.

Or both (unless this pension only allows one fund at a time).

Cus

leosayer said:

I spent my whole career working for an investment manager (although not managing money) and used to select the active fund managers and funds/regions that I thought would do best.

I achieved returns below what I would have got from holding a simple global equity index tracker fund, arguably with a lot more concentration risk.

My equity allocation is now entirely achieved through global equity index funds like Vanguard FTSE Global All-Cap or similar from my DC scheme.

I sleep a lot better now knowing that I'm not missing out on any particular sector, country or company. I have enough exposure to the UK economy and GBP through my day to day life without increasing that by being overweight in UK equities.

It leaves me time to concentrate on risk management (bond and cash holdings), developing a drawdown strategy and tax management, all of which are equally as valuable as deciding on which equity fund to hold.

I'm under no illusions that an alternative approach may lead to a better outcome but when it comes to the financial future of myself and my family, I don't want to make bets.

If you had received returns better than a global tracker, would you have continued? Honest question.

Hoenir

Mark_d said:

Personally I prefer to invest in certain sectors of the UK economy as I have a far better understanding of what's happening here than in the US.

Corporate Governance in the UK is also of a far higher standard when it comes to the treatment of both shareholders and bondholders. The post GFC era (of cheap money) created momentum in certain sectors of the equity markets. New game now in play. Navigating the unchartered waters of QT is going to be full of surprises. 

leosayer

Cus said:

leosayer said:

I spent my whole career working for an investment manager (although not managing money) and used to select the active fund managers and funds/regions that I thought would do best.

I achieved returns below what I would have got from holding a simple global equity index tracker fund, arguably with a lot more concentration risk.

My equity allocation is now entirely achieved through global equity index funds like Vanguard FTSE Global All-Cap or similar from my DC scheme.

I sleep a lot better now knowing that I'm not missing out on any particular sector, country or company. I have enough exposure to the UK economy and GBP through my day to day life without increasing that by being overweight in UK equities.

It leaves me time to concentrate on risk management (bond and cash holdings), developing a drawdown strategy and tax management, all of which are equally as valuable as deciding on which equity fund to hold.

I'm under no illusions that an alternative approach may lead to a better outcome but when it comes to the financial future of myself and my family, I don't want to make bets.

If you had received returns better than a global tracker, would you have continued? Honest question.

No.

The returns I achieved weren't materially different to the index - I put the difference down to fees on the actively managed funds I held, however I certainly had some years of outperformance, notably during the credit crunch, which were balanced by other years of underperformance.

Over the years I came to realise that me spending a few hours a week (at most) on fund selection and ongoing monitoring is unlikely to yield better results than the 'sum of all knowledge' represented by an index. Even if I had outperformed over the long term, it would be hard to me to attribute that to anything other than luck.