Funds industry denies unit trusts are a 'rip off'

Its all averages. Saunders has quoted an "average" figure (mean, median, or what) probably to disguise the fact that some funds have excessive charges. If the objective is to encourage more people to invest then a simple performance league table after all charges (including IFAs) should suffice. Who needs an average! Only those who are trying to hide something.

18:13 on 27 January 2012

1) Lots of trackers have *much* lower TERs than that, for example the Vanguard All Share is 0.15%. Other trackers such as HSBC have had to lower their TERs over recent years to compete, which makes their trackers a better proposition now than 10 years ago.

2) The trackers in the table seem to be showing a lot of tracker error. Vanguard charge 0.5% up front to cover stamp duty, whereas others show this cost via long-term error. Vanguard also do some *very* careful stock lending which improves their tracking.

3) Quoting the average of active funds doesn't really help. What's the standard deviation? How many of these funds would someone need to buy to have a strong chance of at least matching the performance of a tracker? Just buying one active fund would be a *huge* risk.

4) Did they ensure they weren't being mislead by "survivorship bias"? The real dog funds from a decade back will have been quietly closed, or merged into something else, which would push up the average if you just look at the survivors.

I know some people prefer active funds as they consider themselves skilled at choosing those that will show future out-performance by looking at past performance and/or manager record. I'm less than convinced and have most of my pensions and ISAs in a variety of Vanguard trackers.

18:17 on 27 January 2012

Spot on. Only worth going active in inefficient markets like Emerging Markets and sometimes corporate bond funds. And then you need to be on the ball. Vanguard high yield UK equity at circa 0.20% looks good.

20:15 on 27 January 2012

Investment trusts are cheaper than OEICs, and most of the big generalist ones have wrestled expenses down as a percentage of asset value over the ten years or so since the previous bear market.

Intermediaries rarely collect commission from ITs (though Anthony Bolton's China fund paid it) and so do not alert private investors to this alternative.

Moreover, the legal constraints on how ITs are run and how they present the treatment of expenses in their accounts, plus the existence of supervisory boards, make a fairer deal likelier for their shareholders-- though they are still patchy in disclosing the impact of trading costs and spreads, and the rate of portfolio turnover which governs this.

Standardising and compelling the regular, itemised publication of a genuinely TOTAL expense ratio should, of course, have been put on a legal footing-- with fines and suspensions for defaulters. But that presupposes a government which is more interested in protecting the consumer and enforcing transparency and a level marketplace than collecting its tax rake-off from 'invisible earnings'. It's the Britain-as-Treasure-Island syndrome applied to pooled, delegated investment.

The public is so lackadaisical about defending its own interests, so ready to swallow snake oil, that perhaps it deserves no better.

20:19 on 27 January 2012

Agree that OEIC and Unit Trusts fees are too high and many (a lot) are run mainly for the benefit of the marketing companies until they get so bad even the IFAs vote with their feet.

However, all is not perfect in the Investment trust world. They are better run, certainly, but in the last few years less high fees and expenses have started to creep in and reduce their advantage.

1 . IT Directors can in practice award themselves what fees they like. Now around £25K per annum for one half day meeting a month with no doubt expenses and meal paid. Not bad for some, especially when the portfolio manager does most of the work anyway.

2. 20% performance fees

The former is more a moral consideration for a big trust, ie who is it run for, the directors on the gravy train or the shareholders ?

But the second is a real concern, particularly when we get a sharp recovery some time (some hopes next year!).

When most shares are owned by institutions, ITs, OEICs and foreigners it is very difficult for private savers and investors to defend their interests unaided.

21:29 on 27 January 2012

Sorry, typo, Para 2 should read

However, all is not perfect in the Investment trust world. They are better run, certainly, but in the last few years high fees and expenses have started to creep in and reduce their advantage.

21:34 on 27 January 2012

Do investment trusts work out cheaper once you have taken into account that a platform like H-L will rebate an initial fee on the fund - for instance is it actually a better return if owning Edinburgh Investment Trust rather than Invesco High Income Fund, both run by Woodford and with same top ten holdings?

Its beyond me to work it out. The one thing I do like about ITs is that you know the exact price of entry and exit.

sgjhaghsdg - what kind of returns have you been averaging with your Vanguard ISAs ?

I need to move my trackers (unwrapped) from HL now they charge £2 a month - Fidelity, Cavendish, Best Invest - anyone recommend?? I will be sorry to move becuase I do like the HL website but it isnt cost effective for me to stay.

22:17 on 27 January 2012

Against my judgement my wife has some money invested in a Santander Growth fund. The charges are low but the growth is pitiful and the spread is more than 10% of the price* with the result that £5 out of every £50 invested is lost immediately.

*25p on a £2.10 unit

22:44 on 27 January 2012

Hilary, large variation in fees, but OEICs usually have higher annual fees because of the annual commission to IFAs (0.5%), higher expenses due to open investment structure, and marketing fees.

Rule of thumb with many exceptions is OEICs 2%, ITs 1% (even though IT charges are creeping up).

Edinburgh IT has a) expensive debentures and b) is trading at a premium both which make it a difficult call as to whether in this case it is better than the OEIC. In my opinion probably so long-term because of better structure but not if bought at the premium.

22:46 on 27 January 2012

Thank you John, this is very useful rule of thumb and helps my understanding of the costs of ITs versus UTs

Problem is, most successful funds in the same sector as Edinburgh are trading at a premium and are not likely to lose that premium any time soon so I think it may be swings and roundabouts. However your comments will help my decision when it comes to emerging markets if I make an investment this year as those ITs are, I think, trading at a discount.

00:25 on 28 January 2012

Personal assets trust always trades close to NAV. Damn good manager as well,

07:06 on 28 January 2012

Hilary - just to build on your query about where else to go to invest in trackers without the platform charges that HL are now applying, there are a couple of places I can recommend:

Best Invest - depending on which tracker you are interested in , they have a number that not only do not charge a platform or custody fee but you also get a small rebate on the annual commission - normally 0.10%

Alliance Savings -this is probably offers the best deal as although they charge £12.50 to buy any fund, they give you a 100% rebate on the annual commission, so for example if you invested 10k in a tracker, you would pay £12.50 up front but get £30 back -a £17.50 profit. It works against you if you invest within an ISA as they levy a admin charge of close to £30.

I am investing a good amount of my portfolio with them especially funds that I would normally have with HL but the platform fee kills that off. An example is a personal favourite of mine -M&G Gilt & FI - I am investing £9,000 in it outside of an ISA and with HL they would charge me £24 a year for that but with Alliance the charge is the £12.50 but then I will get repaid commission of £13.50 - a profit of £1.

This might give you some ideas of where to take your business. Best of luck!

08:12 on 28 January 2012

> sgjhaghsdg - what kind of returns have you been averaging with your Vanguard ISAs ?

Hard to say because it's only a recent thing and I've also got quite a conservative portfolio with quite a lot of infrastructure.

I do however know how the UTs I've held for many years have performed, and they've been all over the place. Some will look list real stars for a while, but then flop, so you never know whether to stick or twist, and end up holding loads of different ones to try and compensate. Overall, over the long term, I'd have been much better off in trackers.

08:52 on 28 January 2012

> Personal assets trust always trades close to NAV. Damn good manager as well,

I hold a lot of personal assets and quite a bit of RIT Capital. The former always trades close to nav and RIT were actually on a small discount last week. RIT have had a torrid year but so have a lot of people!

08:53 on 28 January 2012

sgjhaghsdg -I'm a great believer in active UT management and I have found that if you do your research you can find the funds and managers that consistently outperform the index. The time honoured approach is to go for funds that have been Top Quartile in each of the previous 5 years with the same manager who still needs to be there.

That approach is very successful and you then have a shortlist of the consistently outstanding managers/teams- people like Nigel Thomas at Axa Framlington, Julie Bond at Cazenove, Ian Spreadbury at Fidelity and Richard Woolnough at M&G.

Trackers do still play their part t hough - if you want average performance (i.e. your investment will go up and down depending on which way Mr or Mrs Market is behaving) then that and their low cost will make for a respectable approach especially if you diversify across the asset spectrum.

Ideally, you would have a core of trackers and some outstanding active managers so you get the best of both worlds-but for me, part of the excitement of being a personal investor is finding really effective managers and putting your trust in them to manage your funds!

09:40 on 28 January 2012

@ HR Man - Studies have looked for "hot hands (managers whose short-term outperformance persist to the medium/long term) but have failed to find it. They have also looked at whether "recentism" (aka, it's done well recently so will continue to) is any guide to future performance, and there too the evidence has been lacking.

Were it the case that such simple techniques worked, then surely multi-manager funds would be able to cover their extra expense, but they under-perform even more than a single layer of management.

I suggest reading a copy of "Smarter Investing" by Tim Hale is you still have any lingering doubts.

Regards diversified trackers, I'm using seven different ones to access the territories and market caps I want, and have then added both passive and active bond funds, some carefully chosen (low gearing!) REITs and some infrastructure funds. My overall TER is 0.4%, which I'm very happy with.

Regards excitement, I get this from researching and buying into technology companies. This works well for me - let's just say that I'm pretty expert on capital gains tax!

10:00 on 28 January 2012

sgjuaghsdg-there is plenty of evidence to show that there are consistently outperforming managers/teams, although they are not great in number - I think at present around 2% of funds can be regarded as Top quartile in each of the last 5 years.

And it isn't a 'simple' technique because the vast majority of personal investors in my experience, do not put in the effort to research funds, instead they tend to go for the most 'popular', the one that they see mentioned the most or those in the 'popular' sectors. Investors can't rely on advisors because there is a tendency for them to highlight the funds that offer them the best commission rather than the funds who are the best performing.

If you read for example Bruce G McWilliams' brillant 'Picking the Right Unit Trust' or even Robert Cole's 'Getting started in unit and investment trusts' you can see the technique in action. I have been using it since the late '90's and have been averaging an 11% return after tax by using consistent outperformers in the UK All Companies, Corporate Bond, Gilt, & Property asset classes and it rarely fails.

Ultimately these funds do consistently well because they have something in common, which is having managers or teams who are very good, have a wealth of experience behind them, and their 'calls' have been proven to be very succesful.

Any 'lingering doubts' are out weighed I have say on the actual results- with trackers you just go up and down as Mr Market says so, and of course, some trackers tracking techniques leave something to be desired. From a personal viewpoint, I would rather have my money with humans then a computer....

10:24 on 28 January 2012

CONGRATULATIONS TO ALL THE ABOVE.

Intelligent and interesting input without a political comment in sight!

12:19 on 28 January 2012

> sgjuaghsdg-there is plenty of evidence to show that there are consistently outperforming managers/teams, although they are not great in number - I think at present around 2% of funds can be regarded as Top quartile in each of the last 5 years.

Yes, some funds do perform well over several years, but there is no way to predict which these will be in advance.

> And it isn't a 'simple' technique because the vast majority of personal investors in my experience, do not put in the effort to research funds

So, if people are prepared to put in the effort, what's the technique? Looking for star managers, or funds with historical out-performance doesn't work, and managers of multi-manager funds don't seem to be able to pick the winners any more than pure chance would dictate, so what approach should PIs use?

> If you read for example Bruce G McWilliams' brillant 'Picking the Right Unit Trust' or even Robert Cole's 'Getting started in unit and investment trusts' you can see the technique in action.

What technique?

> their 'calls' have been proven to be very succesful.

So what? That doesn't mean their future calls will be as many studies into "stickiness" of performance have shown.

> I would rather have my money with humans then a computer....

Fine, make the UT managers happy. If you really do have ninja skills in picking the right funds in advance rather then you're onto a winner, but most people don't have this lucky dart and will be much better off avoiding high fees and using trackers.

14:41 on 28 January 2012

sgjhaghsdg- this is all interesting stuff but I would argue that you can assess who the outstanding funds and managers are based on the only thing you have at your disposal which is their record, their values and their approach. There is of course no assurance that they will not under deliver or the manager may leave in the future but I would argue it is an improvement on reliance on the 'market' which is prone to emotional and dodgy psychology

Take a fund such as CF Ruffer Total Return that has been 1st quartile in each of the last 4 years and 2nd quartile for the 5th and it has delivered a positive return in every single time period- over 5 years it has delivered after charges a 60% return compared to around 3% for a conventional FTSE All Share Tracker.

And there are plenty of similar other examples.

The 'technique' is fairly straightforward - look for a fund or a manager or team who has been top quartile in each of the last 5 years, look at the charges and you will soon produce 20 or 30 funds to consider. I would contend that this approach on a balance of probabilty with a diverse portfolio will serve you much better than just putting money into a series of trackers, where you are at the mercy of the market over or under reacting. Look at the funds that did well during recent down turns -none of them were trackers- they were all active funds.

I would also argue that the use of active managers also allows you to address the charges element - because it is argued of course that with an active fund you are paying over the odds.

But you can buy consistently outperforming funds with no upfront costs (the same as trackers) plus have up to the annual charge rebated to you through a variety of places like HL, Best Invest, or Alliance (if you play the longer game).

I would also strongly argue that this approach is not 'luck', it is about who in the market place is good at managing your money, who has proven time and time again that they can make substantially better returns than the market and who deserve to look after your investment, and, as I say, you can do whilst still paying a minimum set of charges. It is close to 'win/win'!

17:30 on 28 January 2012

> There is of course no assurance that they will not under deliver or the manager may leave in the future

Studies show that managers leaving tends to make little difference. In fact, when a manager underperforms and gets kicked out, he/she then tends to go on to beat their shiny new replacements. Regression to mean x2.

> Take a fund such as CF Ruffer Total Return

Yes, and I hold some of it, and the Ruffer IT, but I also hold other UTs and ITs that held every bit as much promise, but which are now stinking up my portfolio. If you have the balls/stupidity to stick it all on what turns out to be a winner, then great, but that's a double big ask.

> I would contend that this approach on a balance of probabilty with a diverse portfolio will serve you much better than just putting money into a series of trackers

There have been *many* studies done regards this, across many markets, and many multi-decade periods, and the trackers win. Yes, this seems wrong, but you can't rail against the facts.

> But you can buy consistently outperforming funds

No, you can't. You can buy those that have outperformed over recent years and cross your fingers.. If they keep on tossing heads, then great, if they revert to mean and your savings dwindle, then not so great.

> I would also strongly argue that this approach is not 'luck'

I find your argument persuasive up until the point at which I look at the multi-decade data on how unit trusts have performed.

If you are *convinced* that you've finally found "the system" that lets you always pick the winning horse, then good on you, you go for it. But all those in the past who've relied on "hot hands" or "recentism" have slowly lost versus trackers.

Of course, the past underperformance of active management does not ...

18:05 on 28 January 2012

For most of the last decade would trackers (if you had a fairly average range ) would they have beaten cash by any meaninglul amount for a basic rate tax payer?. Most of my money over this period was in cash and averaging 6% before tax as invested usually in 3 - 5 year fixed accounts. Just curious as its only in the last year that I have started investing. Still very much a beginner and need to say a big thank you to everyone who frequents this board and answer my frequent questions.

Anthony, I agree Personal Assets Trust does not go to a large premium but of course this is becuase they issue more shares once about 2% premium, They are currently on 2.1% premium so will they issue more shares soon do you think? If thats likely is it best to wait rather than investing now? Presumably the share price goes down at that point?

Re the idea of picking unit trusts which have been in top percentile for five years with same manager - how do you screen for which ones they are? Apart from this (and I presume you can do the same thing with ITs) what else can an inexperienced investor do except this and read the more well thought of the financial commentators? Certainly I must read the books suggested, I have heard them mentioned before.

sgjhaghsdg, how did you pick your diversified trackers - did you just pick them from Vanguard? Presumably you are not using HL as that is costly now for trackers.

Thanks again everyone!

20:38 on 28 January 2012

Well, if its fair play and transparency you want I came across a fund which claims to keep its TER close to 1%, doesn't churn its portfolio and perhaps more importantly it seems to have ridden through the autumn shocks delivering +15% since inception 14months ago. It invests in a small select bunch of global equities. I couldn't find the fund it listed with the low cost execution brokers that I normally use presumably because the fund doesn't pay commision. If you have an IFA wanting a 0.5% trailing fee then it can be arranged by investing in a different class of share - with a higher TER of course to pay for it.

How refreshingly transparent is that. Normally I avoid oeics and UT's in favour of Investment Trusts but if all oeics worked on this basis I would buy more of them.

These are its other claims (from the website) :

•No performance fees, •No initial fees, •No redemption fees

•No overtrading, •No leverage, •No shorting, •No hedging

•No derivatives, •No over diversification ,•No closet indexing

•No lack of conviction, •No other equity strategies.

As I mentioned - the fund wasn't listed with my brokers so I invested directly online by direct debit. Again the whole account opening process was quick and refreshingly straightforward. No I don't have any connection with this fund other than being a fairly recent investor in it.

I hope I continue to feel good about it as time goes on.

https://www.fundsmith.co.uk/TheFund.aspx

22:44 on 28 January 2012

Hilary,

The statistics are published, but unfortunately the average stock market investor, especially those of us using IFAs and OEICs, are are unlikely to have done much better than your 6%,

It has been a bad 10 years with ups and downs but I look on the FTSE being no higher now as a reflection on the performance of the economy, for whatever reason or excuses that politicians make.

Personal Assets may be a trust suitable for us all in the present troubled time as it invests in a wide range of assets only approx half in shares 15% gold and is less volatile than a purely equity based fund.

Both this and the Fundsmith global equity fund run by terry Smith (thanks to john_r for the reminder) should be good homes for our hard earned savings.

23:02 on 28 January 2012

Thanks for comments on the Fundsmith fund - I only came accross it by accident and have never seen in recommended anywhere eg in IC or Money Observer

Does anyone else have experience of it?

00:50 on 29 January 2012

continuing about Fundsmith should have added, has anyone read any independent reports of it?

00:51 on 29 January 2012

sgjhaghsdg- I still contend that this is not about luck. Luck is closing your eyes, going through Money Observer and investing in what particular fund you finger rests on.

This is about quality an detailed research on who are the extraordinary performers and avoiding the mundane, and those who flatter to deceive. If a manager beats the index over one year, then yes- that could be luck, but if they do it in the 2nd year, is it luck?, if they do it again for a 3rd year, is that still luck, and if they repeat it in years 4 is that still luck? I say no- that is actually skill.

Take as an example Julie Dean with the stellar Cazenove UK Opportunities fund in the UK All Company sector. Over the last 5 years (to 1/12/11) , it has returned 31% compared to just 3% if you had invested in a tracker, but look more closely:

Year 1 returned 6%/Tracker 2.5%

Year 2 returned 17%/Tracker 9%

Year 3 returned 40%/ Tracker 27%

Year 4 returned (28%)/ Tracker (32%)

I don't believe that Julie and her team have been 'lucky' over this period. I suspect if you have funds that are 'stinking up your porfolio' then you might need to look at how you select those funds - is that process based on a scientific approach or due to amazing results for a very short and discrete period?

I wouldn't disagree with the broad principle that the majority of active managers tend to underperform trackers, and indeed over a few rare periods, Julie's fund has underperformed its indices, but for the vast majority of the time it has signficantly outperformed the FTSE All Share/FTSE 100

The debate on what is best - tracking a market or finding the truely good manager will continue, take for example HL's most recent study in this area (read Matthew Vincent in this weekend's FT for an analysis) indicates that for funds with a 10 year record, active managers have beaten the market 100% of the time, over 20 years, active funds have performed significantly higher. I think Money Observer recently argued that nearly 30% of active managers beat the wider market - so it can, and is done.

I still believe that if you do your research you will uncover gems!

10:38 on 29 January 2012

Hilary - I think it is great you are asking these kind of questions before investing - understanding the 'science' of it (whether you think trackers or active manager is the answer, or a combination of them before )is important, and I wish you luck!

On your question about whether trackers/the market have done especially better than cash over the last 10 years, it can be a difficult one to answer because the figures I have seen (Money Management tends to be the most useful) assume that people use a very average and poor paying deposit account rather than being as shrewd as yourself in finding the better rates.

However the latest figures indicate that if you had put £1,000 in a cash account 10 years ago, you would now have £1,108 or a 11.08% return over that period. If though you had put it in a FTSE 100 Tracker then you would now be sitting on £1,058 or a return of 5.8%.However, and it is a BIG however, if you had reinvested the dividend income (i.e. purchased accumulation units) then you would now be sat on a very tidy £1,509 sum - or close to a 51% return. This of course just shows that the what really drives stock market returns is the income/dividend.

Effectively you would have doubled your money by staying in cash compared to investing and taking the income from your funds, but if you had reinvested as you went along, then you would have beaten cash by 36% over the decade. But as I say, if you had the money in the fixed rate arena then even reinvesting the income would not have beaten an average 6% return in a cash account. FTSE 100 with reinvestment would give you 5.8% a year, just under your 6% figure, Hilary

With regard to the idea of picking funds who are top quartile for 5 years you asked how you screen for which ones they are. The best way I find to do that is to get Money Management as it was one of the very few publicatiions/media sources that show the quartile marking for discrete years and they helpful put in bold the top quartile performers so they kindly set the investor up to do their homework? I find it interesting that Money Management is intended for advisers and is being withdrawn from public sale from May, which will make it harder to do your research unless you subscribe as most websites tend to compare funds to their benchmark such as UK All Companies, not even the index and even then, it is not clear what quartile a fund is in. It is by how much a fund beats its sector average that determines whether it is 1st, 2nd, 3rd or 4th quartile.

In terms of purchasing trackers I would recommend somewhere like Best Invest where you can buy some trackers with no platform fee and you also get a rebate on the commission back.. Or you could try Alliance Savings where apart from a £12.50 upfront charge (50% or so of the HL annual cost) you get 100% of the annual commission refunded to you-often on a monthly basis: result!

11:02 on 29 January 2012

@HR Man - But what about the funds that don't have a 10 year track record because they started off well, and attracted loads of money, but then regressed to mean (as they all tend to do) and were quietly forgotten about?

Until Hargreaves Lansdown introduce a feature to let you sort funds by future performance, I'll be increasingly "going passive" because investing in active funds is far too much like juggling with chainsaws for my liking.

11:16 on 29 January 2012

With regard to Fundsmith, I suspect the reason it has not been on too many people radar is that it does not have any real track record as it has only been going for just over a year.

Personally, I would not invest in something without any real track record although Terry Smith has been promoting it highly and you don't know if it will end up like 'Bedlam' who came in with new ideas to change fund management and have not mad many inroads to the industry.

Terry Smith is well known as a very good stockbroker and he was the Chief Executive of Collins Stewart the broker and he has put money into the fund himself. Below is a link to the only 'indepenent' article I have come across (in the Telegraph) which is a case of 'wait and see'.

As I say, I am always reluctant to invest in something so new (you just don't know if it will be a stellar performer or in a years time it will end up like Manek Growth and be bottom of its sector)- its first year of returns seem impressive although I notice over shorter periods it is 20% below the sector it is benchmarking. Also, Trustnet show it as having a TER of 1.66%- nothing radical there, then!

http://www.telegraph.co.uk/finance/personalfinance/investing/8113655/Terry-Smiths-Fundsmith-will-investors-clean-up-with-low-cost-funds.html

11:24 on 29 January 2012

My attraction to the Fundsmith equity fund was the stated philosophy of investing in a LOW number of select companies that can prosper in all weather conditions.... which leads to LOW churn rates ... which leads to LOW expenses which leads to LOW management charges. Remember the difference between 5% return and 6% return over 25 years on a £100K fund is a £48K in your pocket.

No this fund won't be shooting the lights out. I use it for a proportion of my fund where I want lower risk and my hope is I can keep it patiently on the back burner without inflated management charges eating at its value. Time will tell.

So with a cost efficient fund I should also have a cost efficient broker. For me that excludes the likes of HL and Alliance Trust (even with their John Lewis vouchers). My own preferences are Sippdeal and First Direct Bank (you need a bank account with the latter). I have found them both efficient and certainly less painful on the pocket in terms of dealing charges and annual / incidental charges for both ISA and Sipp accounts.

Again every little bit regularly saved can make a big difference over 25 years.

13:48 on 29 January 2012

The Fundsmith approach is essentially the Warren Buffet one i.e. buy a select number of holdings at a good price and hold them pretty much for ever on the basis that they are of good vintage and will still be around.i.e Becton Dickinson, Nestle et al.

Certainly if the fund does have a low Portfolio Turnover Rate (PTR) then that will limit the charges to the fund. I think it has been estimated that if a large cap equity fund who say sold or purchased half of its holdings in a 12 month period could result in a 1.8% cost and it is very difficult to work out what the PTR for individual funds are- although of course by selling and buying a fund that 1.8% could also lead to a significant windfall

As for brokers, I think once you factor in rebate of both initial and annual charges/commission places like HL (providing you avoid trackers and firms that don't pay them commission) and Alliance very good-basically if you don't trade too often you are trading for free!

14:05 on 29 January 2012

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14:09 on 29 January 2012

The IMA sample was only part on one sector, not a representative sample of all UT. Why?

In the other sectors the active funds have much higher charges.

The range of charges quoted by FSA for managed funds is far too low, there are funds charging well over 4%

The average charges quoted for tracker funds are far too high. They include all funds in that group, some of which are very old, have ridiculously high charges, no one is buying them and are just withering on the line. The ones doing all the business now, charge 0.2- 0.5%.

The funds IMA has xchosen are benchmarked by their managers against other indices which over the period selected have performed better than the FTSE All Share, with which they have been compared.

Why does the TER not include ALL the charges, as its name says?

Why is the TER not quoted in all advertisements, as it is in the US by law?

Why is the AMC which is lower, but is of no interest to the investor, quoted every where, rather than the TER?, Why the misleading name annual management charge, any way?

Why does the industry never show the effect of charges beyond 10 years?

A managed funds with TER 2.5% and initial charge 5%, will in 40 years take 65% of the assets.

No end of academic studies in many countries, repeated over the years, including that by FSA a few years ago, have shown with monotonous regularity, that fund performance is random, and index trackers outperform about 85% of managed funds.

This IMA study is hugely flawed and seems designed and presented with the intention to mislead simple people. Can they really have such low opinion of those in FSA who will assess it? I am surprised Saunders has stooped to this. Of course as politicians and IMA know, statistics can be manipulated to show any thing you want.

14:27 on 29 January 2012

Mr Lumsden,the chief of IMA has not "debunked" critics claims, he has denied them. Watch your sloppy English. Regards

14:56 on 29 January 2012

@HR Man - But what about the funds that don't have a 10 year track record because they started off well, and attracted loads of money, but then regressed to mean (as they all tend to do) and were quietly forgotten about?

No, I fully accept that- it's a bit like the government promoting the John Lewis Mutual model - they are successful but what about the various mutuals that have collapsed over the years? I'd still argue though that there are sufficient funds that have made it to 10 years to make a very decent comparison and frankly I am not keen on investing in any fund that has not been around for at least 10 years- I need 5 years worth of outperformance but newer funds/houses worrry me - hence my reservations about Fundsmith et al

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Until Hargreaves Lansdown introduce a feature to let you sort funds by future performance, I'll be increasingly "going passive" because investing in active funds is far too much like juggling with chainsaws for my liking.

But of course that will never happen -no one knows the future - the comment "No one knows anything" is both apt and wise here. If we knew what lay ahead for us we would probably put our lump sums on the 3.40 at Uttoexeter, bag our winnings and bugger off to a hot climate somewhere.

But what you can do however is have a portfolio of investments/funds that are diverse and non correlated enough to do well in the vast majority of economic circumstances that we are likely to face - you can guage that by the fact that nothing has really changed in the last 300-400 years of stock markets - manias, crashes, terrorist attacks, booms, recessions, depressions you name it, the markets will do one thing and that is react to what it thinks it knows and react accordingly. If it thinks that any tech firm is going to make a mint then tech stocks will boom, but then if they think that actually it is all a mirage then they will burn.

I am a great advocate of people like William Bernstein (Intelligent Asset Allocator) in terms of the fact that around 90% of our investment returns are due not to what fund or company you pick but what your asset allocation is.

Invest in a broad range of investment areas - Equities, Bonds, Commerical Property, Commodities- apportion your money based on your risk and needs. Use Pound Cost Averaging to reduce the risk of getting your timing wrong, rebalance from time to time and you are likely to do well. If the economy picks up your equity funds should do OK, if you get a depression then as in 1929 et al, the Gold and Gilts in your portfolio should protect you.

Where I divert from Bernstein and others is to believe that you have to use trackers within your strategy -as you know, I feel that a (small) number of active managers can give you better VFM. Where there are sectors without these managers (Infrastructure & Gilts might be such areas) then trackers would be appropriate

15:16 on 29 January 2012

@HR Man - yes, both Bernstein ans Hale (Smarter Investing) speak a lot of sense, and provide all the required back-tested evidence.

> Where there are sectors without these managers (Infrastructure & Gilts might be such areas) then trackers would be appropriate

As it happens, I think the fixed interest market is *more* complex than equities, and I am using some active management there. Ditto with private equity (RIT), commercial property (I've chosen low-geared REITs, and infrastructure. For the latter, I'm showing some inner conflict in that I've gone for closed-ended funds such as HICL and JLIF, but also the open-ended First State Global Listed Infrastructure. I'll probably reduce my holding in the FS OEIC over coming years.

The BIG problem with trackers tends to be that people go for something like the high-fee Virgin tracker and then only have FTSE 100 exposure. Vanguard are very low fee and have plenty of variety such as Global Small Cap, Pacific, EM, etc., so you can put together a portfolio to suit your risk and macro-economic views.

16:15 on 29 January 2012

Interesting- I too have invested in RIT and am going quite big with HICL - as an ex public sector employee I can't see the government for all its words making serious inroads (if you pardon the pun) into PFI- it offers a great income stream with limited downside !

I certainly concur that if you are to go down the tracker route you need to choose well- an ETF like i-shares may only charge 0.40% compared to say Virgin which I see does cover the FTSE All Share but at a 1% annual management charge cost.

Certainly the ETF universe now means that you can invest in pretty much whatever you want!

17:11 on 29 January 2012

@HR Man - *Only* 0.4%? Only! Even with my ITs, REITs, and active funds for some bonds and infrastructure, I'm still a shave under 0.4% overall, and this is with small cap and EM coverage.

BTW, HICL have just announced a C share issue during February, which should be worth doing. You may also like to consider some other infrastructure - I just added Bilfinger Berger, and not just because it sounds like it ought to be a Bond villain!

RIT is an interesting example of what choosing the high fliers can bring: their performance this year has been lacklustre at best, and a lot of people are already jumping ship as shown by their handsome premium turning into a small discount.

I recently added them at £12.03 in my SIPP as I like their multi-asset approach, like some private equity in there, and like discounts. However, this has come from the 5% of my portfolio marked as "themes" which also includes some biotech and a few other assets that are a long way from being core.

17:44 on 29 January 2012

HR Man,

I think that I am going to use ETFs rather than try and move my trackers from HL I just have FTSE all share and S&P at the moment - am not sure what would equate in an ETF for the all share. I will use iii as they are not the cheapest broker but allow easy and cheap reinvestment of dividends.

Which sectors do you think that its good to have ETFs rather than actively managed funds or ITs, please? Isnt it considered better to use actively managed in emerging markets?

17:45 on 29 January 2012

HR Man thank you for commenting that I am doing my homework - I think its really necessary and I dont know how I would do it without all the useful people who frequent this forum and MSE. Of course, I sometimes feel a bit of a nuisance , then I think, oh well, later I will be able to help others.

Just wanted to ask - is Money Management a monthly mag the sort you can get at Smiths? I have a recent Money Observer, must see if they do same thing.

18:08 on 29 January 2012

Re discussion of Fundsmith further up the thread there is a discussion here on MF

http://boards.fool.co.uk/fundsmith-isa-12123010.aspx?sort=whole#12458253

18:11 on 29 January 2012

HR Man you say "Take as an example Julie Dean with the stellar Cazenove UK Opportunities fund in the UK All Company sector" This seems an excellent choice of fund , curious to know, why the stumble on year 4? Is the fund currently picking up?

18:19 on 29 January 2012

Hilary -I think if you are going to track then ETFs are probably the way. For trackers, iii are probably OK. I had considered them for my active funds but they usually only discount about 80-90% of the upfront charges but of course that is not an issue for ETFs.

If you are going for a broad diversified approach I would suggest the UK market, ( FTSE All Share), the world equities (MSCI World),, fixed interest ( iBoxx Sterling Corporate Index and the FTSE All Stocks Gilt index) commercial property ( EPRA/NAREIT Developed World Property Dividend Plus), I'd also suggest access to Gold for any 'Black Swan' events yet to come-(ishares have a very good Gold ETF)

However you might want a more aggressive approach. My personal view is that for a balanced portfolio you need investments in Equities, Fixed Interest, Commercial Property & Commodities. The above should give you a yield of around 3% but still have potential for growth.

Other areas to consider if you fancy high income would be Infrastructure funds although there is an ETF for that (MacQuarrie Global Infrastructure 100 Index) and if you fancy high yielding equities rather than just growth you could do worse than go for the FTSE UK Dividend Plus ETF that is yielding 5.2% at present.

There are also some excellant equity income, corporate bond and gilt funds out there but that may not be an approach you would want to take.

For Emerging Markets, there are a good number of really good active managers out there (First State Global Emerging Markets Leaders & Schroder Global Emerging Markets) but I don't think that as a sector demands in itself active managers, more than anywhere else although. personally I would go for someone like First State (15% AGR over 5 years compared to 10% for an ETF), but then again, I am an 'Active' Man! Best of luck

18:21 on 29 January 2012

Hilary- yes you can currently get Money Management at some of the larger W H Smiths - it comes out monthly and although it is pricey at £7.25 I find it very useful indeed.

In terms of the Cazenove fund there was no actual stumble in Year 4 as it lost 4% less money than the index - it under performed in Year 5, but it has had 4 straight years of top quartile performance and in the last 12 months is up almost 7% when the market has been down around 3%. It has little publicity- very few advisers recommend it but that might be because it offers less commission to them than other fund groups...

18:57 on 29 January 2012

HR Man thank you this is an amazing post, I wish we had a thanks button on Citywire, I wanted to reply anyway but sometimes people post and it would be nice just to express appreciation

I AM planning a properly balanced portfolio I want to get all my ideas together and then invest over the next few months as opportunites arise. I am using money my mother left me, so far all in cash but its not the way forward in the next few years so far as I can see. But I must be slow and careful

By and large I am just as keen on active funds as trackers. So far I have just had a couple of trackers to play safe (got them in Sept when market lower) plus Invesco Perpetual High Income. Will probably end up with some mix and match at least to start with. Also like investment trusts.

You have been very kind and suggested some ETF/Index trackers. I am certain that a number of people will find your post very useful.

Its a bit of a cheek but would you suggest a few active funds and I will leave you in peace! First State I knew was a good choice for emerging markets, Newton Asian Income(?) seems to be another than advisiors like. The problem is with reading the mags and papers that you get the flavour of the month rather than help and suggestions from experienced long term investors. Its a bit like having your garden landscaped and then finding that the gardener has put in only what was in the nursery that month and then it all flowers just one portiion of the year!

Thanks again for your help - in particular I guess its fixed income funds and bonds that confuse me most I cant seem to get a handle on those. But all and any suggestions any sector would be so welcome and I can spend some time looking them up.

19:03 on 29 January 2012

Hilary - no worries -I am pleased if I can help because having gone through put ting together a balanced portfolio myself to invest my redundancy lump sum I can easily appreciate how daunting it can be and it can be difficult to know what to invest, who with and how!

I also have money in IP High Income -it is a very good fund. In terms of active funds I can recommend the following has places where there is a very good track record with managers who know their stuff although you will want to be comfortable with the risks inherent in how they manage but then you can check them out at places like Trustnet etc:

Global Equities/Income:

Newton Global High Income

Newton Asian Income - a stunning vehicle

UK Equities

AXA Framlington UK Select Opportunities

Cazenove UK Opportunities

Threadneedle UK Monthly Income

Lowland (IT)

Temple Bar (IT)

Both the ITs are higher risk but could be a good play when the economy recovers

UK Corporate Bonds

Fidelity Money builder Income - a very 'steady as it goes' fund

M&G Corporate Bond M&G are the Corporate Bond kings/queens

M&G Strategic Corporate Bond

Gilts

M&G Gilt & Fixed Interest

Henderson Index Linked Gilts

High Yield Bonds (Yield of 7%+)

Kames High Yield Bond-

IP Monthly Income +

Axa Global High Income

Property

Ignis UK Property - about the only property fund that offers monthly income

F&C Commercial Property (IT)

I hope that these will give you food for thought, Hilary, these funds are very reliable, have impressive records and in relative terms are not hugely risky. Put together as part of a well balanced portfolio they should not let you down.

20:01 on 29 January 2012

ETFs should be the nail in the coffin for Unit Trusts and their exorbitant fees.The City has always been a particuarly keen participant in rip off Britain....

22:03 on 29 January 2012

ETFs will certainly help to drive down the fees that other funds currently charge, but I think that UTs will still survive and indeed thrive, because it's not all about fees and charges. Performance is key and if a fund delivers say a 25% outperformance then I reckon a 1.00% -1.5% annual charge can be merited.

Take for example a fund such as Newton Asian Income - an OEIC that is at the peak of its game. Over the last 5 years it has outperformed its index by over 60%. To pay 1.5% a year for that kind of outperformance is not a hardship.

Or Axa Framlington's UK Select fund that over the 5 years has returned close to 30% compared to 5% for the FTSE- I am happy to pay 1.5% a year to get a 25% outperformance.

And of course, bear in mind that if you are shrewd in how you invest, you can get around a third of the 1.5% charge rebated to you through somewhere like Alliance- so you can get 30-60% outperformance for around 1% a year- by their own definition, an ETF can't outperform its index unless there is a tracking error somewhere!

22:38 on 29 January 2012

Whoa ..... lets just back up a moment to the subject of the article --- ' Are unit trusts a rip off'?'.

A fairly recent article (Sep 2011) in the D/Telegraph quoted average unit trust performance +53pc over the last 10 years compared to average Investment Trust performance +98%. I wonder how the missing 30% performance is accounted for. Could it be the fact that investment trusts by law are not allowed to offer commission payments down the chain - yet unit trusts can? This analysis has been repeated from time to time down the years and as I remember always with similar results.

So I offer my personal view 'yes' units trusts are a rip off. (http//www.telegraph.co.uk/finance/personalfinance/investing/8767542/Citys-best-kept-secrets-beat-unit-trusts-hands-down.html)

00:19 on 30 January 2012

Yes, Investment Trusts tend to perform better and have lower fees, but there is no such thing as a free lunch. Just as with UTs, many ITs show a lot of volatility with respect to the index, so will spend multi-year periods under-performing both the index and perhaps their peers. Would you be OK with this? Would you keep holding or jump ship to a different IT that has just done well for a while?

07:54 on 30 January 2012

I am a fan of ITs, partly because a lof of the fund management companies such as F&C, Henderson etc offer very attractive savings plans that make it very affordable to buy into them.

Also we should remember that they have been around for much longer than UTs-the first UT was set up I think around 1930, whilst the first IT was created in the mid to late 1800's. They have proved their worth for the best part of 150 years whilst the UT model has barely done more than half of that time.

Their other main advantages (which is also their current weakness) is that there is no upfront charge apart from dealing costs (0.5% Stamp Duty and a dealing charge -although savings plans can reduce the latter to around 0.2%), but at present advisers will not recommend an IT even if it is the best investment choice for you because they can't make any money out of it-although that will probably change when changes to how advisers are remunerated take place.

Certainly ITs tend to be better performers on average. If you say compare the UT Equity Income average return over 5 years (-1.2%) to that of the IT Growth & Income (+3.9%). In the North America sector UTs have done 17% over the same period, whilst their IT cousins have on average returned 26% This tends to give you the general idea. In fact over most sectors, all but the years of major market declines, ITs easily beat UTs. There are other differences of course:

a) ITs are companies and can and do borrow money to invest in other companies (something UTs can't do apart from selling more units) that gives them a real boost in the good years but works against them in downturns);

b) UTs are, from memory, required to pay out all remaining income as a dividend but ITs are allowed to retain up to 15% of income in their reserves that allow them to maintain and increase dividends in difficult years-indeed there are some ITs such as Personal Assets, Temple Bar, City of London etc who have increased their dividends in each of every one of the last 10+ years working out at average increases of around 10-15% per annum. When you consider how amount reinvestment of dividends is to your overall return, this can be a real boon! There are though more volatile - the UK Growth & Income sector for example is about 35% more volatile than its UT sector

c) where ITs do have a weakness is that they are not strong in important areas of a well balanced portfolio such as Gilts and Corporate Bonds- they are though at their best in the equity and privatie equity areas or frankly anywhere where growth is expected because they can really really motor!

09:37 on 30 January 2012

Good Morning the lot of you are just full of it.

Fund managers need to get off their behinds and prove their worth just as Independent Financial Planners & Advisers have to do.

But…. My main point is this; if the cost of everything is an issue then why don’t you grow all your own vegetables, keep some chickens out back, a cow for your milk and a few pigs in the muck at the corner of your back yard, you could even feed them your scraps; Very Efficient.

Some are doing this, but you won’t will you? It’s much easier to go to Tesco’s or some other supermarket where it has all been done for you but at what price? Do you care? Who cares? Absolutely no one (except a few that have fallen out of society) because the alternative means having to do it yourself.

When we were children we where taught to share because sharing makes the world go round, that’s why sharing is such an important lesson to learn and maintain, because what goes around comes around. It even takes care of those that take too much cream, in one way or another.

It is important that we take a rain check from time to time to ensure that we haven’t become complacent or out of touch or even Greedy.

But remember this, without the man from the Pru, with his bicycle clips, and all the Financial Advisers what ever the denomination, much of the Financial World would look a lot different.

Most of us will adapt and survive whatever we do. The question is will you?

Be fair children, learn to share there’s enough for everyone, what goes around comes around.

10:01 on 30 January 2012

No it is fair to say that advisers contribute to our investments and certainly play their role but I suppose what we are saying is that excessive charges - and that word excessive is I think critical here- are both a drag on your returns which a good number of us need to live on and also, frankly, unfair.

Take for example a fund such as Invesco Perpetual Corporate Bond- irrespective of its performance -whether outstanding, average or dreadful (I think it belongs in latter category of late!) it rakes in around £50m of fees each year. Now, does it cost IP £50m to run the fund? Aren't they the ones being greedy -isn't that something for pretty much nothing? Plus the annual charge works out at 50% of its total return. It has returned 1.9% in the last 12 months, yet you are paying 1% a year for that. Are we really being greedy by for example questioning that?

I certainly think we should all consider if we are being greedy from time to time -it does help if you can invest mindfully if I can use that expression and yes, if you have made enough money, if your investment has done its job then sell and use the proceeds for whatever it is intended for.

I've already made the point I think that paying 1.5% for someone returning say 10% in the Corporate Bond sector is perfectly fine, it's when you end up paying 1% for something that under performs a savings account that you are entitled to register criticism

11:12 on 30 January 2012

John Bruce,

Haha.

I would think most of us do grow at least some of our own vegetables and give to the neighbours and charity. I certainly do.

I would suspect that most of the correspondents on Citiwire are of a generation that realises that the world does not owe either us or this country a living, and have worked hard all their life for their savings.

Hence the widespread resentment at the leeches of overpaid fund managers and directors' bonuses etc..

11:13 on 30 January 2012

sgjhaghsdg - If you make a list every month, as I do, of the investment trusts which have outperformed the FTSE All-Share over 1, 3 and 5 years (easy to do on Trustnet), and keep a tally of the number of times each trust appears, you will find there is a hard core of about 20 which keep popping up. These are not always the ones you would expect - for example Aberdeen New Thai and F&C Global Smaller Companies. Alliance Trust and Foreign & Colonial and British Empire Securities & General hardly ever appear.

Unit trusts are a con perpetrated on unsuspecting punters by unscrupulous IFAs. Just say no.

11:41 on 30 January 2012

John Osborne- Upthread you and I disagreed about investment trust expenses. I said they had declined over the past ten years as a percentage of trust assets.

Here are the stats for a number of leading ITs. First, ten-year average percentage of end-year NAV absorbed by expenses of the year; then the same ratio for the latest financial year:

ASL 1.21 1.43

ATST 1.14 1.41

BNKR 0.62 0.45

BSET 0.74 0.67

BTEM 0.87 0.67

BUT 0.78 0.71

CLDN* 0.98 0.82

CTY 0.50 0.41

DIG 0.67 0.59

EDIN 0.54 0.63

EUK 0.35 0.29

FCI 0.74 0.85

FCS 0.85 0.69

FGT 1.16 0.93

FRCL 0.60 0.56

IVI 1.09 0.95

JCH 0.96 0.66

JMGS 1.57 1.53

KIT 1.38 0.96

LWI 0.79 1.00

MNKS 0.63 0.59

MRC 0.59 0.44

MRCH 0.64 0.57

MUT 0.86 0.71

MYI 1.16 1.02

PLI 1.45 0.97

RCP 1.51 1.38

SCAM 0.96 1.10

SCF 0.96 0.98

SCIN 0.62 0.68

SHRS 1.07 1.05

SLET 1.04 1.39

SMT 0.52 0.46

TEM 1.28 1.17

TIGT 1.40 1.28

TMPL 0.69 0.55

WTAN 0.69 1.10

*7 years only

Last year saw many NAVs shrinking, and since fees are less elastic you would expect expense ratios to rise. Yet for 27 out of 37 the latest ratio is lower than the long-run average, and only one, JMGS, was above 1.5% against sixteen below 0.7%.

As I wrote, this data is incomplete for all types of mutual fund: portfolio churn costs are left out and not always separately disclosed. All the same, the principal reason for the overall outperformance of UTs by ITs cited above is the disparity in expenses, which in turn is explicable by the tauter oversight exercised by directors. ITs are quoted public companies; open-ended funds are not. ITs have long lives, strong identities and active shareholder involvement; UTs are gimmicky, shapeshifting affairs whose holders are treated like pigs being driven to market.

11:54 on 30 January 2012

John Osborne, SEE Maverick and grow your own,

there is a difference between growing some Veg, and running the Farm yourself.

Maverick did you read the article, the only time you know what the charge is when it is disclosed. Other wise you have now idea

Maverick you have no idea if the info you’re looking at correct or not, you just think it is, which one do I trust? Who have they trusted?

Some people even believe news papers

You’re all so naive it’s not true and that’s way you should stick with the principle of sharing.

But don’t worry if you don’t, what goes around comes around.

12:27 on 30 January 2012

William Phillips,

Many thanks for that.

I was concerned with the nvestment Trust directors fees disproportionally increasing in what seems only the last few years.

Does the source where you found the above expenses also contain details of the director's salaries? If so could you share it with us?

13:14 on 30 January 2012

HR Man,

I couldn’t agree with you more

14:05 on 30 January 2012

Managers/owners, posses the data and can tweek the outcomes in their favour. Rule One to suit Owner/Managers, conceal, obfuscate and bury. Rule One for Investors/competition, disclose, disclose and disclose. Who do you think coined the expression "too much regulation".

14:52 on 30 January 2012

John Osborne- I do all my own calculations from accounts archived on line.

Expenses include performance-related and other management fees plus admin costs which include directors' fees.

I don't think the latter are excessive as the financial world goes. There is a Scottish tradition of frugality and accepting an IT directorship as an honour which, along with shareholder scrutiny, limits extravagance. Most boards are midlife or recenly retired pros who do more than roll up once a month and have lunch. They may be non-execs, but they have to supervise the manager and take strategic decisions such as asset allocation and benchmark choice.

Take City of London, one of the biggest generalists. The bill for boardroom services in the year to June was £137,000, shared among six directors: 0.02% of the trust's gross assets of £722 million. The chairman, which in effect is a part-time job, got £37,000.

"No director has a service contract with the Company. There

are no set notice periods and a director may resign by notice

in writing to the Board at any time. There are no long-term

incentive schemes provided by the Company and no

performance fees are paid to directors.

No other remuneration or compensation was paid or payable

by the Company during the year to any of the current or

former directors or third parties."

CTY does not pay expenses to directors either. Contrast with the wilful miasma of obscurity which is a unit trust's accounts. Unitholders have almost no control over what their managers take home. IT directors have the same fiduciary responsibility as any public quoted company's officers. Besides, they are more likely to have substantial investments in the business, which aligns them more with us outsiders.

In the 144 years since Foreign & Colonial was launched, the IT industry has often been accused of being tired and outdated, but has very rarely been the locus of scandal.

19:00 on 30 January 2012

Interesting discussion - is there any way of printing the discussion pages please ?

22:56 on 30 January 2012

William,

Thank you again for all that research.

As you suggest, the IT structure hardly seems an outdated particularly as has stood the test of time, delivers professional management independently watched by the board and for many trusts they have actually reduced the overall fees. As an investor, can we ask for any more?

But caveat emptor as in all walks of life.

23:05 on 30 January 2012

82 yo

You can highlight each contribution of interest to you, or complete sections, and copy them into a Word (or other word processor) document.

23:21 on 30 January 2012

Love William Phillips comment! Did I read some reports that City of London is one of the most ethical, carefully run, cost controlled and averse to overpaying their Managers/Directors on the planet. (see their recent interim and annual reports) If I am right, Mr Phillips is using the very cover-up selective disclosure tactics which I suggest is the main problem. Like I said Disclose, disclose, disclose...then they might all emulate City of London.

01:10 on 31 January 2012

Love William Phillips comment! Did I read some reports that City of London is one of the most ethical, carefully run, cost controlled and averse to overpaying their Managers/Directors on the planet. (see their recent interim and annual reports) If I am right, Mr Phillips is using the very cover-up selective disclosure tactics which I suggest is the main problem. Like I said Disclose, disclose, disclose...then they might all emulate City of London.

01:10 on 31 January 2012

Love William Phillips comment! Did I read some reports that City of London is one of the most ethical, carefully run, cost controlled and averse to overpaying their Managers/Directors on the planet. (see their recent interim and annual reports) If I am right, Mr Phillips is using the very cover-up selective disclosure tactics which I suggest is the main problem. Like I said Disclose, disclose, disclose...then they might all emulate City of London.

01:10 on 31 January 2012

Love William Phillips comment! Did I read some reports that City of London is one of the most ethical, carefully run, cost controlled and averse to overpaying their Managers/Directors on the planet. (see their recent interim and annual reports) If I am right, Mr Phillips is using the very cover-up selective disclosure tactics which I suggest is the main problem. Like I said Disclose, disclose, disclose...then they might all emulate City of London.

01:10 on 31 January 2012

Sean

Do you have a keyboard problem!

Do you have a keyboard problem!

Do you have a keyboard problem!

Do you have a keyboard problem!

09:57 on 31 January 2012

are you lot still here

do some work

@ Sean Cawley, hear hear or here here

12:23 on 31 January 2012

HR Man

Thank you for listing some excellent funds and ITs for me, I would have expressed mythanks sooner but for some strange reason I couldnt log into the site yesterday.

I was glad to see some ITs because all other things being equal they are cheaper, there was an article in IC some months ago which I must dig out, it compared UTs and ITs where they were mirror funds and the ITs were cheaper. However with some articles I am never sure whether they are comparing costs fairly becuase obviously many online brokers discount initial fund charges and rebate some ongoing commission

Some of the ITs you see recommended regularly by the likes of IC are at a huge premium eg Murray. I suppose if its always going to be like that it doesnt matter but if the market improved and money is spread around more then it could come down. I wondered about Edinburgh IT which apparently made more for its investors than the IP high income and income funds but given that it costs to get in and is at a premium of 3.93% I am not sure if I wouldnt be better off with the fund. Is there any sort of rule of thumb for making this decision where an IT an UT have much the same investments? I always go for acc funds or else re-invest dividends as its growth overall I am interested in at the moment. I am 65 but my mum lasted to 97 and I would llike to be in a position with pensions and investments not to sell the house to pay for care at the very end of my life. I have 3 lovely children I want to benefit!

12:38 on 31 January 2012

Maverick you said:

If you make a list every month, as I do, of the investment trusts which have outperformed the FTSE All-Share over 1, 3 and 5 years (easy to do on Trustnet), and keep a tally of the number of times each trust appears, you will find there is a hard core of about 20 which keep popping up.

Could you explain how to do this please?

Also , when Trustnet says 2/24 does that mean its CURRENTLY in that place, its not some sort of agregated score over 5 years?

Can you do the same think for UTs on Trustnet as you can for ITs?

12:43 on 31 January 2012

I work in a library and am lucky enough therefore to be ablle to read Money Observe, FT, Telegraph and Investors Chronicle on a regular basis. As a newbie investor that more than keeps me busy along with Citywire, Morningstar and MSE.

Of the magazines neither cover funds in any detail, in fact IC not at all on a regular basis. I wonder why this is? Is there another publication which does have a bias to funds or is this left to the online services? Thanks

12:47 on 31 January 2012

Hilary Hames - Go on to Trustnet and click on the "Tools" tab. Scroll down the page till you find "Indices" and click on that. Go down the list till you find the FTSE All-Share and make a note of the 1 year, 3 year and 5 year percentages. Go up to the top of the page and in the left-hand corner click on "Advanced search". It'll take a little while. When it appears, in the "Universe" box at the top click on "Investment trusts" or "Unit trusts" as you wish. In the "Performance" boxes put your percentages, but bear in mind it won't accept negative figures - if the 1-year percentage is -3.2% you have to enter 0%. Scroll down the page to the "Search" button and click that.

I find it's best to set the list to 50 matches rather than 20.

Trustnet is very flexible, and well worth finding your way around.

With investment trusts, ignore discounts and premiums. You are buying shares in the investment trust, not the underlying assets. All you should be interested in is the share price performance.

16:59 on 31 January 2012

Thank you Maverick and thank you everyone esle who has contributed to this excellent thread and particularly those who have answered my specific questions. May all your investments do well in 2012 -perhaps we should report back at the end of the year!

23:48 on 31 January 2012

The world of investment is one in which investors are the losers - there is not one private pension fund investment which has yielded what was promised to them when they invested in whatever - price of eggs will go up or down.

If you still think you can make a fortune on the market, then it has to be assumed that the money you invest, you could afford to lose.

No one needs millions to live on, all you need is a roof over your head & to earn sufficient to keep the privatised utilities & their CEO in millions of profit, or the supermarkets who can charge you what they like for food they have purchased for a fraction of the cost they charge their customers.

The whole world does not go on because Bill Gates or his millions, but the acts of kindness we do for each other.

11:47 on 01 February 2012

Of course, you could invest your retirement savings in the shares of supermarkets and privatised utilities...

13:39 on 01 February 2012

No Rose, one doesn't need millions to live on but in one's latter years one does need something to live on. Consequently, investing for the long term is actually an excellent idea. Just control it yourself through a SIPP, and don't rely on a manager, particularly a large Insurance Company (with the possible exception of Standard Life) who do appear to take fund management seriously. If Rose you are planning on living off the state pension, then best of luck!

19:58 on 01 February 2012

Hilary - thanks for your thanks-always happy to help a fellow investor! You raise a very important point in my mind about how publications comparre funds in terms of their costs because the charges vary considerably depending on just how you invest in them.

Even if a publication or website ignores the upfront charge (and not all, do) there is the thorny issue of annual charges. If you invest in a UT/OEIC through a range of stockbrokers you will probably end up paying the full charge -take the most popular Fixed Interest fund at present - M&G Strategic Bond for example: the publication will probably assume that you are paying 1% each year from your fund, but if you invested through somewhere like Alliance Savings you will get around half of the commission that Alliance get rebated to you, and a little bit less if you go through Best Invest or HL.

This is where the debate on charges/cost can get quite tricky, which is why I say that although fees are important (especially for the traditionally low return funds such as the Fixed Interest arena), it is not as important as Performance - why pay 0.50% annual charge if the fund itself underperforms by say 5% a year!

"Some of the ITs you see recommended regularly by the likes of IC are at a huge premium eg Murray. I suppose if its always going to be like that it doesnt matter but if the market improved and money is spread around more then it could come down. I wondered about Edinburgh IT which apparently made more for its investors than the IP high income and income funds but given that it costs to get in and is at a premium of 3.93% I am not sure if I wouldnt be better off with the fund. Is there any sort of rule of thumb for making this decision where an IT an UT have much the same investments?"

The merits of Edinburgh v IP High Income is intriguing because Neil Woodford Manages both funds and as you might expect from the IT version, Edinburgh tends to do better in better times but suffers in downturns but there is not much between them. Both funds have been 1st Quartile in 3of the last five years and both have been in the bottom quartile in the same year (08/09) but that says more about the investing style of Woodford than anything else.

The premium for Edinburgh is now very marginal I think (just 0.3%) - my feeling has always been that if a trust is at a premium then that is a good sign that it is in demand that you need to pay a bit extra to get into it. For example, a great favourite of mine is the F&C Commercial Property Trust which is at a 4% premium at present but for that you get a fund purely investing in direct commercial property that has delivered a 112% return over 3 years, is trouncing its benchmark (+6% this year against a -12% benchmark) and you also get 6% monthly income - what more could you want from a fund?

Both Edinburgh and IP High Income have very similar levels of volatility -around 3.5%-4.0% but my view on how to choose between similarly performing funds, all things being equal, is the level of their volatility/risk acceptable to you? and then..charges- if you can compare, Performance, Volatility/Charges the winner should become clear

< I always go for acc funds or else re-invest dividends as its growth overall I am interested in at the moment. I am 65 but my mum lasted to 97 and I would llike to be in a position with pensions and investments not to sell the house to pay for care at the very end of my life. I have 3 lovely children I want to benefit!>

I think you sound very sensible Hilary in terms of reinvesting dividends because over any reasonable timespan, it is the dividends that will drive the growth in your portfolio-I think you are on your way!

11:10 on 02 February 2012

@HR Man

Thanks for all your comments still dithering about fund or trust for Woodford, the premium on the trust is over 5% premium according to website

http://itinvestor.invescoperpetual.co.uk/portal/site/ipitinvestor/prices/ although trustnet has it as .30% . I think that more than one kind of premium/discount can be quoted but I dont know which to trust?

22:19 on 02 February 2012

Hilary

Bear in mind that Edinburgh Investment Trust is not a 'connected' company to Invesco Perpetual. The latter has a renewable contract to manage investments of the former. If performance is unsatisfactory then expect Invesco Perpetual to be 'fired' and replaced by another manager. I call that a good incentive to do well with the investment trust. As for the IP's own open ended fund the same consequence isn't a threat. This is only one aspect of comparison but my overall view is always steer toward the transparency of investment trusts. An example in an Interactive Investor article compares a JPM Emerging markets fund which is available as a Unit trust and as an Investment trust by the same managers. The comparison shows that after 5 years the investment trust is 8% ahead.

Investors Chronicle also has a good article '' Why investmernt trusts beat open ended funds.''

http://www.investorschronicle.co.uk/2011/09/15/why-investment-trusts-beat-open-ended-funds-A29Q0pByJ7lfpYuOtjw4XP/article.html

The second point is that I would recommend you take time in finding a cost efficient broker for your needs. The cost of changing brokers once you have built up a number of different holdings can quickly become prohibitive so choose wisely. For me this means low transaction charges and zero amc.

23:25 on 03 February 2012

john_r

thank you for your useful comments. I knew about the IC article but I never know with these articles if they are comparing like with like due to it being common that with a fund initial charges are refunded usually plus part of amc. However I think that where there is a mirror trust I shall go for that rather than unit trust and otherwise in a sector go on basis of performance.

There seems to be pluses and minuses with all brokers if you want a mix of funds, trusts and trackers plus dividend reinvestment cheaply . I don't bother with ISAs except cash but for those who do those charges are another thing to compare. Can I be cheeky and ask who you use? Thank you again.

00:10 on 04 February 2012

Hilary, After 20 years of investing (writing off five years as expensive learning) I now have eSipp and ISA accounts with Sippdeal (£9.95 / trade - no other charges). I also have an Isa account and a normal dealing account with First Direct (£11 / trade - no other charges). I am pleased with the quality of both providers having no criticisms at all but note that First Direct doesn't do open ended funds. An attraction of First Direct for me is linking my share dealing account to my bank/saving account so that I don't have to move money around - it occurs automatically - purchases taken out, and sales or dividends paid in. I should point out that all of my holdings on these platforms are either direct company shares, warrants, investment trusts or etfs. I personally have no attraction to open ended investments so Alliance Trust or HL are not appealing providers simply on a costing basis. For example look at AMC's for ISA accounts, higher dealing charges, charges to take up rights issues etc and the difference becomes noticeable versus Sippdeal or First direct who levy dealing charges only.

I'm sure there are also many other good providers around - take care reading the the small print as it can become expensive to move later.

18:30 on 04 February 2012