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Savings and Investments thread

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    I've used the Vanguard 40/60  Equity fund as a core fund for a clients pension with LV, mainly to keep the costs down. Only reason to use it but their funds are pretty decent & cheap as chips 
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    One thing that jumped out at me from @PragueAddick note about the Spot the Dog list, is that we may not be using the same terminology. 

    I can’t see the actual list, but in a version someone else put on the web, it names funds - so in this version Artemis has one, U.K. Special Situations.

    Nowhere does it mention the manager. Artemis is not the manager, that’s the company that’s offering it. Derek Stewart and Andy Gray are the managers, and those are the people whose track record you need to look at. 
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    @PragueAddick @Rob7Lee thanks so much for that advice. Much appreciated, and I will be looking into changing my holding when I get the big bucks like you two ;)
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    edited January 2020
    One thing that jumped out at me from @PragueAddick note about the Spot the Dog list, is that we may not be using the same terminology. 

    I can’t see the actual list, but in a version someone else put on the web, it names funds - so in this version Artemis has one, U.K. Special Situations.

    Nowhere does it mention the manager. Artemis is not the manager, that’s the company that’s offering it. Derek Stewart and Andy Gray are the managers, and those are the people whose track record you need to look at. 
    Sure, I understand the distinction myself, I was rather questioning @golfaddick assertion above, he said

    A lot of people take stock by Vanguard (mainly due to cost) & they do what it says on the tin.....but no way would I choose one of their funds over an active fund run by Baillie Gifford, JPM, or any number of top investment management houses.

    and my point was, that, e.g. Baillie Gifford as a house could quite easily have both a Dog and a Star Performer - actually they call them Pedigree - which is your point too.

    Hopefully I have uploaded the latest file. actually I had a quick look again before uploading, and noticed one of the Dog Houses is Somerset Capital Management...isn't that Rees- Mogg's outfit?
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    Glad to see i've got the top two UK one's (actually 3 out of 5) and the global emerging markets one.

    @PragueAddick the issue I see with using Vanguard is the restrictive funds, better to use a different platform (where you can likely invest some in Vanguard if you wish) as you and I have both done with different platforms.
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    I don't get what's so hard to understand for people. 

    Many funds will beat the market, more will lose. There is no free alpha... Quite simply, you trade risk for safety, and pay for the privilege. I don't mean to be rude, but this isn't some sort of political debate with opinions and feelings, this is the facts, and if you think otherwise, you are wrong.

    If you've beaten the market, well done, you got lucky, next year, who knows. 
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    edited January 2020
    Good to see that I have 3 of the top UK  funds in my pension (as do many of my clients portfolios) as well as the top Global fund (BG Discovery). 

    @Huskaris. I really don't know what your beef is. You've made it perfectly clear many times you like passives as you don't think its worth paying an extra 1% for a chance of an extra xx% return. Your choice. I think differently. As I've said above, I have 3 of the top performers in that article in my pension. They have given me a much better return than having the equivilant passives in there. I'm happy taking that bet. I have a couple of duds in my pension too (Schroder Income maximiser being one) but its shown great performance in the past and as its only 5% of my portfolio I'm happy to wait it out as the outperformance of the funds stated above more than makes up the difference. And I can always switch out of any poor funds whenever I like so it's not like I'm stuck with them.




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    Good to see that I have 3 of the top UK  funds in my pension (as do many of my clients portfolios) as well as the top Global fund (BG Discovery). 

    @Huskaris. I really don't know what your beef is. You've made it perfectly clear many times you like passives as you don't think its worth paying an extra 1% for a chance of an extra xx% return. Your choice. I think differently. As I've said above, I have 3 of the top performers in that article in my pension. They have given me a much better return than having the equivilant passives in there. I'm happy taking that bet. I have a couple of duds in my pension too (Schroder Income maximiser being one) but its shown great performance in the past and as its only 5% of my portfolio I'm happy to wait it out as the outperformance of the funds stated above more than makes up the difference. And I can always switch out of any poor funds whenever I like so it's not like I'm stuck with them.

    I don't need to take it further than I already have. I will stop commenting on active vs passives now. I've made my point. 
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    Still waiting for your take on my post, @golfaddick. Why are there so many active funds on the UK market? Why are most of them shite? Why do fund houses that you claim to be "top" and therefore trustworthy, have so many shite funds, which take peoples' money? 
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    Be fair @PragueAddick, some of them are good, and therefore everything else is irrelevant ;)
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    Cos it's a total racket, obviously!

    Are there even any minimum education requirements to work in this industry or is it like being an estate agent and open to any old numpty that failed their GCSEs?
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    Still waiting for your take on my post, @golfaddick. Why are there so many active funds on the UK market? Why are most of them shite? Why do fund houses that you claim to be "top" and therefore trustworthy, have so many shite funds, which take peoples' money? 
    My take on it is like most things British......we did it first. Investment funds in the UK started years & years ago & so over time have built up in numbers. Fund houses dont like to miss out & so when one brings out a new "theme" then slowly the others will follow, thus saturating the market.

    I was working for Hill Samuel in the mid to late '80's. At that time they had a pretty decent range of funds (16) but decided they wanted an American one. Big fanfare & poster boards ("Go West young man") as not many fund houses had an exclusive US fund.......now you wouldn't want to not have one in your stable.

    Re your point about big fund houses having shite ones too. I suppose it's because you cant always be top in everything & if you employ 30 fund managers not all can be the dogs bollox. I use Baillie Gifford quite a bit as they have some great funds ( BG American & BG Global Discovery to name but 2) but they also have some that are bang average (but not many considering). Then there are the fund managers themselves. Some are "Contriarian" and will have their view on the market & wont he swayed. When I worked for Gartmore they had a UK equity fund & I spoke to the fund manager daily (it was my job to "get the message out there" to brokers and the like about the fund). He only wanted a small number of shares in the fund to manage and so kept it down to around 30. It didnt help that 2 of the companies collapsed  (Colloroll being one) and so that had a big affect on the funds value & performance. Obviously he couldnt be swayed from his convictions & so the fund limped on until Gartmore was sold (to TSB eventually I think) and the fund merged / disbanded.

    I suppose the reason why people are still investing in the shite ones comes down to a number of factors. The main ones being inertia & ignorance - some people just have no idea how there funds compare to others & even if they did they wouldnt know how to switch out of them. Then there are the multitude of (small) employer-led pension funds up & down the land which again dont evaluate the market enough. And then there are the historic life assurance funds (such as Canada Life, L&G etc) that brought out funds in the 80's & 90's and are slowly trying to turn them around. Then finally I think its about not wanting to lose face. Fund houses are happy to limp along with some dog funds hoping that they will pick up eventually, instead of perhaps merging them into another like-minded fund in their proposition. It does amaze me that some Companies will have 5 or 6 different UK Equity funds or 3 or 4 different European funds - usually under the names of  "Select" , "Undervalued" or "Opportunity" that sit aside their mainstream ones. The UK investment market is a myriad of issues.....


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    @PragueAddick, excellent thread, wished I'd seen it earlier.

    I have some strong views on the buy side.  A few years ago, one of my teams carried out some extensive analysis on the level of value it destroys through its opaque pricing and fees structures, not to mention churning and a myriad other underhand or just piss-poor practices.  My employer at the time refused to publish the research as, although all the data had come directly from the asset managers & banks, mea culpa style, they didn't want to upset them, as they were also their customers.  But no-one on the buy-side questioned our data when we fed it back directly and privately.  

    I'll try to dig out the research for precise numbers but we're talking low double digit value extraction (I think it was 11-13%), mainly creamed off by the buy-side, some to the sell-side.  Have a look at any asset managers' ROE, ROCE or CROCI and you'll see where a lot, but not all, of this money goes.  I continue to be amazed by rich friends who still allow Daddy's stockbrokers to manage their money, or those sharks at St James Place, and accept, without question or scrutiny, 7% return in a year when, say, the FTSE has done 16-17%, as it has this year.

    My two-penneth, to cut through the active versus passive debate is that retail investors should be focusing on returns relative to benchmarks that they care about, after costs, given the capital risk they are prepared to take.  Quotations of absolute returns, without costs, relative performance and the risk taken are meaningless.  Also, I'd be looking at consistent returns over at least ten years before I was confident my strategy was working.

    Finally, all the discussion about fund (unit trust) costs are missing a lot of costs - even today the fees they quote hide churn and trading spreads, not to mention completely underprice the risk of not being able to get out when you want to at today's price.  An additional 1, 2 or 3% starts to make a huge erosion of returns over the long term.

    Rant over ..!  

    Once again, great thread.
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    Decent reply, @golfaddick, thank you. I'm not convinced by all of it, but I have been meaning to say one thing, which your first sentence reminded me about. For all the valid criticisms of the UK and US funds industry, I am here to tell you that things are much worse in mainland Europe. You can hardly find fund supermarket platforms for ordinary punters such as Fidelity and H-L, and now many others, offer the UK market. Believe me, I've looked. Fidelity have something in the Netherlands which is based on their UK platform, and that's all I've found that match up. The rest, often run by banks,offer a tiny selection of funds, obviously the banks get a rake off from the fund managers, and both platform and fund fees are a joke. The market is underdeveloped, the players are creaming it. i think that is partly because we Brits were forced into looking after our own finances in the late 80s, often with dismal results (mis-selling, etc) but at least we became a bit more savvy. Most Europeans with a business/commercial background whom I talk to about it are pretty naive. 

    Tragically, this retail funds know-how could have been a rare British export to Europe, but the companies bottled it, particularly H-L. Of course we all know what Peter Hargreaves view of that opportunity was...and now it's gone forever. Instead the likes of Vanguard will move in and disrupt the banks and stockbroking giants, which will at least be quite fun to watch when it comes.
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    Regarding pricing.

    Just think back a couple of years when 5% bed-offer spreads were the norm. I remember pricing up the unit prices when I was at Gartmore.....it was more like 5.5% the difference between the buying & the selling price.

    Then there is historic & forward pricing. I was working for Hill Samuel during the October 1987 crash. We couldn't price any of our funds during that week as we (along with virtually all fund management companies at that thime) we on an historic pricing basis & when anyone rang up to sell their holdings all we had were prices based on the previous day's shares prices.....at 10am the next day they were meaningless. We went onto forward pricing by mid-week....ie, a client could put in a sell order & they would get the unit price that we would value the fund at at the close of business that day (dealing blind it was called then). I think it took the industry a couple more years after that before forward pricing was the norm.

    Another way the company made money was by cancelling units that had been created previously. I can't remember now exactly how it worked, but basically worked on the principle of buy low sell high. We had units held on the books that had been "created" some days or weeks previously & then were cancelled at a now higher price.

    So I dont get too fussed when people start comparing a passive fund at 0.25% to an active fund at 1.25%, when there used to be a 5% bid offer spread   !!
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    @WishIdStayedinthePub

    Welcome on the thread to someone who clearly has serious professional experience and knowledge.

    Right then...could you explain asset managers' ROE, ROCE or CROCI and how and when the mug punter can assess them? 
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    Sorry for the jargon.

    Return on Equity
    Return on Capital Employed
    Cash Return on Capital Invested.

    Broadly, at a very high level, how good is the company at using the capital supplied to it to make returns.  The first measure is ok, but the second one is usually a better measure as it takes into account the amount of money that companies have borrowed as well, not just the equity in the business.  The last one is the hardest to fiddle, as it is the return on cash employed, as cash is the hardest thing for accountants to misrepresent.  

    The higher the numbers the better but if you see very high numbers over a long period of time, people talk about 'excess returns' - often because there's not enough competition in the market, for whatever reason, and the customers are paying over the odds.  It can be just that people are happy paying a premium for something - think Apple, Louboutins or whatever, but often it's someone abusing their leverage in a market.

    The general point is that, as soon as you take your cash from a deposit account in a PRA licensed bank, that is protected by tax payers (at least up to 85k in the UK), you need to be rewarded with a reasonable return for the risk you are taking.  Equities, as an asset class, are considered one of the higher risk products, in that they provide you with a share in the future earnings of the company and some claim on its assets, though quite a long way down the list of claims.  The future value of earnings is unknown, and the future value of the share is unknown, hence the generally high risk.  Pooled investments, like funds, ETFs and ITs, generally reduce that risk by spreading it across more than one company but there are lots of exceptions to that rule.  e.g. Woodford with excessive concentration risk in illiquid, difficult to price stocks, or exposure to higher risk economies.

    A formal explanation of those acronyms (care of Sharescope, who I use for all my analysis) ...

    Return on equity is Post-tax profits divided by average NAV over the year. NAV is also known as Book value, Shareholder funds and Shareholder equity.  Values above 10-15% are considered good but check the sector ranking. No value indicates no post-tax profits.

    Return on Capital Employed is EBIT (earnings (profits) before interest and tax) as a percentage of average Capital employed (that is equity plus debt). EBIT should be company adjusted if available, otherwise normalised and failing that 'as reported'.  Values above 10-15% are considered good but check the sector ranking.

    Cash Return On Capital Invested is Free cash flow to the firm (FCFf) as a percentage of average Capital employed over the year, where FCFf is the cash after tax and capex have been deducted. Capital employed is calculated as Total assets minus Current liabilities plus short-term borrowing.  Values above 10-15% are considered good but check the sector ranking.

    Jupiter's figures, one of the better asset management companies, are 23.8, 29.2 and 26.1.


    @golfaddick, I take your point that things have certainly improved re spreads - HL played a big part of that in the early days, before they became too focused on shareholders and less on customers - but I still think they are egregious and plenty of the spreads are hidden in trading costs that are passed on to customers through the price but not visible.

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    edited January 2020
    I was at a meeting last year where my company wanted us to understand the new MIFID2 rules & that every platform, investment house & pension company were now having to send out statements showing the 3 sets of charges being applied to clients investments ; platform / product charge, fund charge and any advisor charge.

    I got into a bit of a discussion (well,  argument really) about the fact that fund charges are a bit of a misnomer, seeing as they dont really affect a clients investment in direct terms. EG  if you invest £10k into an ISA & (ignoring any platform/ admin or adviser charge) the unit price of the fund does not change then if you cashed in the ISA 6 months later you would get your £10k back. The talk was all about fund charges & (as discussed on here lately) the different AMC's of funds. 

    In reality the funds AMC is taken from the funds assets (NAV I suppose) rather than directly from the consumer (unlike a bid-offer spread). The greater the AMC then the less a fund may grow in real terms, but the client does not see it directly in their investment, which seeing the meeting was about discussing the charges being applied to their investment & trying to explain a new style "charging statement" I felt the discussion a bit meaningless. But that's just me I suppose.
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    @WishIdStayedinthePub  Cheers! Glad you didn't stay in the pub!

    @golfaddick in your latest post, is your argument that, if a Vanguard fund delivered say 18% last year, and a very similar focus fund with higher fees delivered 16%, the difference could well be represented by the higher fee, and punters will make their evaluation accordingly? 
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    What are acceptable charges for an online trading platform? 
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    Depends on your level of investment, what's cheap at one level is expensive on another. With Fidelity I don't pay anything, but if I had a smaller amount to invest they'd be expensive compared to some others I suspect.

    Also depends on what you are trading, funds, shares etc.

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    @Chunes The Lang Cat guys are excellent on such questions and fun to read. Not all their stuff is free for punters but this one is, and should help you compare precisely
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    Cheers @PragueAddick
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    It's that time of year again when I tell everyone to buy banksy ! 
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    Chunes said:
    What are acceptable charges for an online trading platform? 

    Plenty out there that charge less than 0.4% pa. 2 that I generally use charge 0.2% and 0.23% respectively. Problem then is the fund charges. Different platforms have different fund charges, mainly down to what they have managed to negotiate with the individual investment houses. Then there might be trading fees (rare nowdays) or some other incidentals.
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    @WishIdStayedinthePub  Cheers! Glad you didn't stay in the pub!

    @golfaddick in your latest post, is your argument that, if a Vanguard fund delivered say 18% last year, and a very similar focus fund with higher fees delivered 16%, the difference could well be represented by the higher fee, and punters will make their evaluation accordingly? 
    Yes, it could well be the fact. The FCA wanted transparency when it comes to charges... .unfortunately that will never happen. 
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    @Chunes The Lang Cat guys are excellent on such questions and fun to read. Not all their stuff is free for punters but this one is, and should help you compare precisely
    Thanks for the link.  When did these guys start out, Prague?

    I went about half way to doing something similar because I was so frustrated with the lack of transparency in charges.  I spent hours and hours building a comparison tool but in the end wasn't sure if there'd be enough interest (see earlier comments about people not caring as long as they got their 7% return). I also didn't think anyone would pay 25 quid a month for the privilege!  Maybe it's IFAs?

    General rule of thumb for me is to avoid anyone that charges a percentage of assets under management unless there are fairly low caps.

    Another reason I avoid unit trusts, although, as you say, there are a few, like Fidelity, that wave their fees.  When I did my analysis (2-3 years ago now) those platforms tend to be a bit restrictive on what else you can invest in - that still true?
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    edited January 2020
    Not sure what to do with my holding of:



    Lindsell Train Global Equity D

    Any advice if you have compared it to other similar funds? 
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    mendonca said:
    Not sure what to do with my holding of:



    Lindsell Train Global Equity D

    Any advice if you have compared it to other similar funds? 
    Keep it.
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