Looking for views on performance of ISA portfolio

TcpnT

My mother in law recently asked me to take a look at her investment portfolio.

This is all held in an ISA by a medium sized national firm of wealth managers on a discretionary basis. She has no interest in or knowledge of investing. As  long as she sees the regular income she draws she is happy and has never considered how well it is performing. It is a 60:40 portfolio managed for balanced income and growth. Medium risk level (5 on their rating). She takes quarterly income distributions of 6-10000 a year depending on the year. There are about 40 holdings in the portfolio a large proportion of which are single company shares and individual gilts.

I have looked back and analysed the last 7 years from Dec 17 to Dec 24 which is all I have reports available for.

I have rounded the figures for clarity but the position is roughly this:

Initial amount invested in Dec 17 was 336,000 with 36,000 added in 2019 - so total amount invested was 372000.

Value at Dec 24 was 319,000 and over the 7 years 60,000 had been paid out as income.  So total value at Dec 24 379,000.

So over the 7 year period her total gain has been 7000. During this period the managers fees and costs have totalled 35,000.

By my calculations, taking into account the timing of the withdrawals this is an annualised return of about 0.3%. She would have done significantly better with the money in a cash ISA. Cumulative performance is way under the managers own chosen benchmark (Pimfa balanced TR).

So my questions are:

What are other people's views on this performance?

Can anyone give me real life performance comparisons from their own balanced portfolios at similar risk levels?

Am I justified in challenging the particular investment manager concerned about the performance and if so how should I approach this?

I'm considering whether to move it all elsewhere.

Thanks for any input.

MeteredOut

You'll need to share the specific investments she has chosen (or that she agreed with).

What does the 60:40 split mean. 60% is probably equities, but is the other 40% purely bonds (which have not performed well recently) or is it a mix of bonds/gilts/cash?

I doubt anyone here would be happy with the performanc figures you've shared.

But, as soon as you mention wealth manager, you can assume the return would be lower than investing in the same funds via an IFA or a self-invested approach.

You can name the wealth manager; some have some fairly hefty lock-in clauses fees if you do want to move.

Isthisforreal99

Who is the firm you refer to? There's no issue in naming them.

TcpnT

This portfolio is managed on a discretionary basis by her personal investment manager at the firm. She has no interest or input into the particular holdings. Her only input was to set her objective and risk profile. It is 60:40 equities:bonds.

I'm not naming the firm because I don't believe that this reflects their performance in general. It's more to do with the choices made by a particular investment manager.

The firm is not SJP and there are no exit charges

dunstonh

By my calculations, taking into account the timing of the withdrawals this is an annualised return of about 0.3%. She would have done significantly better with the money in a cash ISA. Cumulative performance is way under the managers own chosen benchmark (Pimfa balanced TR).

Bonds are basically flat over the last 7 years.  So, 40% of the portfolio would have returned nothing.  That isn't down to management but the asset class.   However, if a large potion of the bonds was gilts and/or index linked gilts then they would be in a loss position now.     They have had their worst period in over 100 years.

The 60% in equities should have doubled over 7 years.

Can anyone give me real life performance comparisons from their own balanced portfolios at similar risk levels?

And you need to factor in withdrawals.  Withdrawals are a drag and lead to greater losses during negative periods.

If she was heavier in gilts, the gains on the equities would have been really hit by the loss on gilts.  Lots of portfolios were hit like this.

Am I justified in challenging the particular investment manager concerned about the performance and if so how should I approach this?

You can discuss it but complaints about investment returns are not allowed.    If it was down to gilts (which is my guess based on limited info), then it is just one of those things and why you are told investing is long term and not short term.  Gilts over the post credit crunch cycle to date have outperformed cash.  However, Gilts over the last 7 years have been negative.

MeteredOut

TcpnT said:

This portfolio is managed on a discretionary basis by her personal investment manager at the firm. She has no interest or input into the particular holdings. Her only input was to set her objective and risk profile. It is 60:40 equities:bonds.

I'm not naming the firm because I don't believe that this reflects their performance in general. It's more to do with the choices made by a particular investment manager.

The firm is not SJP and there are no exit charges

Without knowing those choices made by the particular investment manager, there's not much anyone can do to help, other than the general feedback you've already been provided with re. 60:40 split. As above, the 60% should have doubled over that period of time.

Can you split out the £35K costs over the 7 years. How much was the wealth manager fees versus the fund fees?

Based on a very simple straight line calculation, with an average of £5K per year, assuming the starting balance of £336K stayed the same, that's a total 1.5% per year - more than many would want to pay, but not the worst we've heard of.   And since the fund actually grew, the actual percentage will have been lower.

Albermarle

A relatively simple comparison, would be to look at a 60:40 multi asset fund and see how that performed over the 7 years in question. Normally info is only given for the past 5 years, but presumably that info is out there somewhere.
With an investment cost at least 1% less, then that would be a 7% gain at least.

dunstonh

Based on a very simple straight line calculation, with an average of £5K per year, assuming the starting balance of £336K stayed the same, that's a total 1.5% per year - more than many would want to pay, but not the worst we've heard of.   And since the fund actually grew, the actual percentage will have been lower.

If its 1.5% a year all costs then its not bad.  If its 1.5% with platform and investment costs on top then that is heavy.

Its also worth noting that DIMs and advisers have to include transaction costs in their figures.  Often though most investors totally ignore them given their flaws and that they are not physical charges but a synethic figure.
A managed portfolio typically runs higher TCs than passive.    However, as TCs are synthetic and not physical charges, it would be useful to know how the charges are broken down.  i.e. if TC equates to 0.35% of the figure, then the physical charges would be lower.  If TC equates to 0.05% of the figure, then the physical charges would be higher.

eskbanker

Albermarle said:

A relatively simple comparison, would be to look at a 60:40 multi asset fund and see how that performed over the 7 years in question. Normally info is only given for the past 5 years, but presumably that info is out there somewhere.
With an investment cost at least 1% less, then that would be a 7% gain at least.

It's not difficult to find fund performance over 7 years, e.g. at Trustnet (A being HSBC GS Balanced, B VLS60):

Albermarle

eskbanker said:

Albermarle said:

A relatively simple comparison, would be to look at a 60:40 multi asset fund and see how that performed over the 7 years in question. Normally info is only given for the past 5 years, but presumably that info is out there somewhere.
With an investment cost at least 1% less, then that would be a 7% gain at least.

It's not difficult to find fund performance over 7 years, e.g. at Trustnet (A being HSBC GS Balanced, B VLS60):

After I posted I realised that Trustnet would do this, but thanks for posting the info anyway.
More importantly it shows that standard low cost multi asset funds, have massively outperformed the 'Wealth Manager' 

poseidon1

eskbanker said:

Albermarle said:

A relatively simple comparison, would be to look at a 60:40 multi asset fund and see how that performed over the 7 years in question. Normally info is only given for th e past 5 years, but presumably that info is out there somewhere.
With an investment cost at least 1% less, then that would be a 7% gain at least.

It's not difficult to find fund performance over 7 years, e.g. at Trustnet (A being HSBC GS Balanced, B VLS60):

I don't see that this is a like for like comparison with a stockbroker managed portfoiio of individual shares, corporate bonds and perhaps gilts, paying actual dividends and interest annually.

This particularly fund is accumulation only ( no income unit variant), so to be able to make annual 'income' distributions of £6k to  £10k  mentioned by the OP in favour of his MIL, surely units would need to be sold each year?

Seems  to me need to find a distributing fund with the 60:40 mix, with a gross distributable income yield of say 2.5% to 3% and see what its capital value would be over the same period for a proper comparison with the conventional stockbroker managed portfolio.

All that being said for £272k originally invested,  in my experience 40 separate holdings  was far too many, and would make me wonder if there was an element of 'churn' going on.

 However, this begs the question if OP's MIL has zero interest in investing, how on earth did she end up with a stockbroker managed portfolio in the first place?