Legal & General Stocks & Shares ISA

dunstonh

Wouldn't it be as well to issue the same health warning about all managed UK equity funds too which mostly fell by a very similar amount or in some cases much more - partly due to the incredibly high management fees we pay for unit trusts in the UK?

Potentially yes. However, the issue I was on about was risk. You would diversify the funds to include equity income, uk other bond etc and bring the risk down as well as the potential volatility. Maybe even commercial property very soon. As well as other areas with a weighted spread to suit risk.

Would agree with you that just because it's a low cost tracker fund it doesn't necessarily make it any safer than a comparable managed UK equity fund.

It certainly doesnt make it any safter and generally on a like for like basis tracker funds tend to be slightly higher risk due to the lack of downside protection.

The figure for the L&G UK Index tracker is a 5.4% loss. As far as I can see its performance has never been out of the second quartile (including for the period you mention) which would be a rare achievement for any managed fund.

The index tracker is consistently around mid table as you would expect.

The average loss for all unit trust funds last year seems to have been 6.8%, while for all tracker funds the figure was 2.7%. Managed funds having to carry management fees of up to 2% and more, much of which is paid as annual commission to advisors, was presumably the reason for that.

Thats a myth I'm afraid. Most index trackers still pay trail commission. The problem with figures like that is that you are not comparing like for like or risk for risk.

Try and compare index trackers with UK equity income and see how your figures stack up.

Anyway, you seem to be turning this into a tracker vs managed issue and that is not what my post was about. It was about picking a fund for the wrong reasons.

earlgrey_3

dunstonh wrote: »

Potentially yes. However, the issue I was on about was risk. You would diversify the funds to include equity income, uk other bond etc and bring the risk down as well as the potential volatility. Maybe even commercial property very soon. As well as other areas with a weighted spread to suit risk.

I wouldn't disagree but it would hardly be fair to compare a UK equity index fund with bonds and property. There are trackers for many other markets and other regions too. There's no reason not to hold a selection of tracker funds (or ETFs) to cover those as core holdings too.

For anyone wealthy enough to enjoy the services of Bloomsbury Financial Planning (and with at least 1 million of liquid cash to invest) that's what they'd recommend. They are very dismissive of managed unit trusts: http://www.bloomsburyfp.co.uk/

"The proposition that active management is not cost-effective for investors did not start with Bloomsbury, it arose from research by leading academics in the field of finance and repeatedly, studies have shown that when adjusted for their style exposure, any outperformance by actively managed portfolios which does exist, does not reliably exceed that which would be expected by random chance.

When the costs of achieving this are taken into account, the outperformance becomes negative.

Undoubtedly, there are actively managed portfolios which have outperformed due to skill and there will be some which will do so in the future – the problem is that there is no reliable way of identifying them in advance; it is easy but not very helpful to be able to do it after the fact." Bloomsbury Financial Planning.

Another course the OP could consider if she wanted to put everything into one basket or have as a "core holding" would be generalist Investment Trusts which often have managment costs well below 0.5% because they pay no trail commissions, have far more flexibility than unit trusts, and may hold diverse investments in worldwide equities, property and bonds.

The problem for small investors, and for the average adviser, is knowing how to diversify safely and choosing sectors. It's clear from the posts to this site that many find that very difficult.

It's fine to pay huge fees if a fund manager can be relied upon to consistently out-perform an index-tracker - unfortunately most can't. By definition, the average managed unit trust is average.

It certainly doesnt make it any safter and generally on a like for like basis tracker funds tend to be slightly higher risk due to the lack of downside protection.

Surely it depends on what you are comparing with. Diversifying spreads risk, I think we all agree on that. I think we would also agree the most risky funds are all highly active managed funds - that's not to say there aren't very safe managed funds provided the investor is suffiiently knowledgeable to assess the risk.

The index tracker is consistently around mid table as you would expect.

Or to be more accurate, they are consistently just above mid-table - which is what I would expect due to the much lower fees compared with managed unit trusts.

Thats a myth I'm afraid. Most index trackers still pay trail commission.

Some but not all I understand. Could you give a figure or is it a trade secret? Does the Scottish Widows UK All Share Tracker whose annual management charge is just 0.25% pay advisers annual commission? Many trackers don't pay any upfront commission to advisors either I gather.

Out of interest could you tell me the trail commision paid to financial advisors on Jupiter or even L&G managed funds for example as compared to their tracker funds? Do they also pay some advisors extra for hitting sales targets too? Go on, you can tell me.

Try and compare index trackers with UK equity income and see how your figures stack up

I gave the comparison figures for UK equity income, for UK equity growth, and for UK equity growth and income.

munk

jaqui59 wrote: »

Hi everybody ...

Ive yet to use my ISA allowance for 2008/9 and have more or less decided I would like to take a little gamble with £7200.00 and put this money into a Legal and General Index Tracking Stocks and Shares ISA linked to the UK Index with an annual charge of 0.52%

Do you think ive made a good choice or are there better options to consider.

Any advice would be great ... Thanks

Just a headsup in case you weren't aware - you can get £110 cashback for signing up for an L&G ISA:
Legal & General ISAs

Dunstan_2

munk wrote: »

Just a headsup in case you weren't aware - you can get £110 cashback for signing up for an L&G ISA:
Legal & General ISAs

I was looking at this just tonight, and it led me to asking a question: I am a bit wary about Stocks and Shares ISAs, but would quite like the £110! Is it therefore possible to open the account, leave the money in for a few months, and then open a different cash ISA and transfer into the new cash ISA? Or would I have to wait until the new tax year?

munk

Dunstan wrote: »

I was looking at this just tonight, and it led me to asking a question: I am a bit wary about Stocks and Shares ISAs, but would quite like the £110! Is it therefore possible to open the account, leave the money in for a few months, and then open a different cash ISA and transfer into the new cash ISA? Or would I have to wait until the new tax year?

Well, it's a S&S ISA so you can't transfer to a cash ISA at a later date. You could always transfer over to another S&S ISA provider, although how easy it would be and how much it'd cost to exit L&G is something I don't know. Probably no exit fee and certainly won't be impossible to transfer the ISA, though you might have to transfer it 'as cash' into the other provider and then reinvest it in your chosen funds/shares from there.

Also generally I think L&G from memory take a while to pay the cashback out (4 months or so, check on quidco site for info), so you'd want to leave the money in their ISA at least until they pay the cashback.