SCM Direct

[bitchstewie]

Stumbled on them whilst looking at articles about fees.

Anyone used them or know anything about them?

[bitchstewie]

Guess that's a no then?

[JulianPH]

I had never heard of them.

I like the simplicity of what they do, it is a fully managed service at a relatively decent price.

I would be somewhat concerned though that after eight years trading their turnover was only £353,649 last year, giving rise to a loss of £155,155.

However, it is run by Alan and Gina Millar (of Brexit legal challenge fame) and they are not short of a bob or two.

This fact alone my wish you would like to support them or steer clear of them!

[bitchstewie]

JulianPH said:

I had never heard of them.

I like the simplicity of what they do, it is a fully managed service at a relatively decent price.

I would be somewhat concerned though that after eight years trading their turnover was only £353,649 last year, giving rise to a loss of £155,155.

However, it is run by Alan and Gina Millar (of Brexit legal challenge fame) and they are not short of a bob or two.

This fact alone my wish you would like to support them or steer clear of them!

Thank you and that was what made me take a look i.e. it seems simple & transparent.

Is there a layman's explanation of what the benefit (if any) is of that managed service vs. stick a bunch in (you've guessed it) a Vanguard LifeStrategy?

I'm still trying to learn but it seems almost "active passive" for lack of a better term

Let's assume the intention is ISA and plan is to keep for the long term so I'm actively trying to avoid anything where I can tinker as I know I'll fk myself over

[xeny]

The arrangement rather reminds me of the Nutmeg managed fund arrangement - similar active management of a selection of ETFs, and not dissimilar pricing.

[bitchstewie]

xeny said:

The arrangement rather reminds me of the Nutmeg managed fund arrangement - similar active management of a selection of ETFs, and not dissimilar pricing.

Good thing or bad thing?

[xeny]

With Nutmeg I was left thinking that they traded ETFs to give them something to make them appear active - it never really seemed to achieve performance better than a cheaper tracker. I've not looked at SCM, but the model feels similar, albeit without the manic marketing. I note that SCM's blog disparages Nutmeg's economics.

[bitchstewie]

xeny said:

With Nutmeg I was left thinking that they traded ETFs to give them something to make them appear active - it never really seemed to achieve performance better than a cheaper tracker. I've not looked at SCM, but the model feels similar, albeit without the manic marketing. I note that SCM's blog disparages Nutmeg's economics.

Looks that way, just looks kind of no bullst though of course 0.9%-1% is still more than 0.4%.

Their articles on Nutmeg are interesting as when you get beyond the large print with Nutmeg there's quite a bit of cost that isn't so obvious.

[JulianPH]

bhstewie said:

Thank you and that was what made me take a look i.e. it seems simple & transparent.

Is there a layman's explanation of what the benefit (if any) is of that managed service vs. stick a bunch in (you've guessed it) a Vanguard LifeStrategy?

I'm still trying to learn but it seems almost "active passive" for lack of a better term

Let's assume the intention is ISA and plan is to keep for the long term so I'm actively trying to avoid anything where I can tinker as I know I'll fk myself over

I'l try and give you an overview of the differences between managed portfolio services and funds (including passive ETFs and active funds).

Let's start with funds. Funds are collective investment vehicles, that is to say every individual investor in a fund will have the exact same holdings as all other investors.

Funds focus on either stock selection (active) or index replication (passive).

Funds are also sector specific. They do not address an individual's risk/reward requirements or provide proactive asset allocation in line with this, amended at any point in line with economic cycles and underlying markets.

In a nutshell, a fund is tied to its investment mandate (or sector) and cannot stray from this. This mandate could be very specific (UK Smaller Companies, for example) or very wide (Global Equities, for example).

So funds (be them passive or active) are only one part of investment management. People who select their own funds should only be doing so after assessing their personal objectives, the risk/reward level they are prepared to take and having established the asset allocation model required to satisfy these factors.

It is only having done all of this that you approach the actual fund selection. You also need to keep monitoring any changes the driving factors and any external influences that could impact on your asset allocation and require a subsequent change in your funds to keep in line.

When it comes to managed investments you have hit the nail firmly on the head when you describe these as active/passive (although you can also get active/active).

Managed Portfolios (often call Model Portfolios) have in place an investment manager who ensures the portfolios follow the (ever changing) asset allocation required to stay in line with a portfolio's specific risk/reward objective. They select, monitor and amend the underlying funds in line with this at all times and also ensure rebalancing at regular intervals. This is the active part that you are paying for.

The portfolios can either have active underlying investment funds or passive ones, with passive now being vastly more popular due to cost reductions.

So the approach you choose to take will depend on whether you want to do the risk/reward management, calculate the resultant asset allocation model required to reflect this and select the appropriate funds yourself, or whether you would prefer to pay a professional investment manager to do this for you.

A very crude analogy is cooking. Let's say you had access to thousands of different ingredients (the funds). You are allowed to select the ingredients of you choice and cook your own meal. It's not that difficult after all and you should end up with a decent meal.

However, if you had a profession chef (the investment manager) do this for you, then their qualifications/experience/training and skill should result a far superior meal.

To stretch this tenuous analogy further, let's do this for 25 years and factor in the need for a particular level of nutrition/flavour (risk/reward) that when you are younger may be more flavour biased but as you age shift to becoming more nutritionally biased. Again you can do this yourself, but the professional chef is going to be better at this than you and certainly earn their money by maximising flavour (rewards) when you want to reduce risks.

So, given that it is widely regarded that working within the appropriate level of risk/reward (at any given time) is very important and that asset allocation is the main driver of investment performance, the question is do you want to handle this yourself or get a professional to do this for you?

There is no right or wrong answer to this question in general, but at an individual level it is a very important question. Given that active/passive management is available at a lower price point than most DIY models using active funds, the question is are you happy with the value added at this already lower price point or do you simply want to achieve the lowest price point available.

I hope this is helpful and am sorry it became so long winded!

[bitchstewie]

Julian thank you, not long winded at all and very useful in that thankfully I found myself thinking "Yes, that's how I understood it to be" on quite a bit of it.

I was reading an old thread on here where I won't name or link but it was along the lines of "I've invested in a pork bellies fund and it's gone down in value, why hasn't the fund manager done something about it?" which highlights your point about sector v risk i.e. that if a fund only covers pork bellies and the global pork bellies market nosedives because pork bellies are incredibly high risk, the fund manager can't go out and and buy low risk beef ribs because whilst it might be financially sensible it's professionally forbidden.

That was a bit of an eye opener around being careful on both sector and risk.

Right now active/passive feels sensible, I guess to use your chef analogy I'd trust a chef more but also I know I have times when I'm very interested in cooking and other times when I just want a McDonald's which may be the most convincing argument for not tinkering and trusting a professional to do something sensible commensurate to my risk level.

Now choosing a risk level is a fun one as everything I fill in says I'm balanced risk but aren't we all until we wake up one day and a real £100k is worth £60k?

[xeny]

Thanks - I found that helpful in at least understanding what the service potentially offers - I don't think I'd really considered before why people might want it, but you give me more of an idea.

[JulianPH]

bhstewie said:

Julian thank you, not long winded at all and very useful in that thankfully I found myself thinking "Yes, that's how I understood it to be" on quite a bit of it.

I was reading an old thread on here where I won't name or link but it was along the lines of "I've invested in a pork bellies fund and it's gone down in value, why hasn't the fund manager done something about it?" which highlights your point about sector v risk i.e. that if a fund only covers pork bellies and the global pork bellies market nosedives because pork bellies are incredibly high risk, the fund manager can't go out and and buy low risk beef ribs because whilst it might be financially sensible it's professionally forbidden.

That was a bit of an eye opener around being careful on both sector and risk.

Right now active/passive feels sensible, I guess to use your chef analogy I'd trust a chef more but also I know I have times when I'm very interested in cooking and other times when I just want a McDonald's which may be the most convincing argument for not tinkering and trusting a professional to do something sensible commensurate to my risk level.

Now choosing a risk level is a fun one as everything I fill in says I'm balanced risk but aren't we all until we wake up one day and a real £100k is worth £60k?

No problem, I'm glad it helped confirm your thinking.

You are 100% correct in your Pork Belly analogy. A fund is limited to what a sector(s) it is mandated to invest in (whether active or passive) and if the bottom is falling out of such sector(s) the fund cannot really do much about it.

This is often cited as a major reason to use active fund management, as the fund manager can shift weighting an liquidate vulnerable positions (whereas a tracker cannot). The reality, however, is that an active fund manager remains as constricted by the rules of the fund as a passive manager, and can't turn elsewhere other than to a limited holding in cash. Even when they are able to do this the movement is after the event and the returning upside can be missed in order to ensure the fund's track record is not further damaged.

This is the only problem with fund management/stock selection/alpha. It works great when markets do what you thought they were going to do, but can be a nightmare when they don't.

Remember too, you don't have to use the same approach with all your investments. You can go with the chef for x% of your meals, yet cook yourself whenever you feel like it. Many people do this by having their pensions managed and running their ISA's themselves (for example), though you don't have to split this way - you can ask an investment manager to run x% of your money and leave you y% to run yourself, regardless of the wrappers involved.

I recommend this because after 5 years in you can clearly see whether the investment manager is adding value or not.

Everyone is classed as 'balanced' simply because no one can get into trouble for arriving at this point. You can either identify with, with this (as most people do) or if not then you end up being pulled away from the other two options in order to ensure the company can not be over liable for anything.

Rule of thumb:

If you want a future income from your investments;

10 years plus - Adventurous/Growth (different names for the same thing, usually) - risk/reward rating 5/7

10 to 5 years - Dynamic/ the one in between Growth and Income (a halfway house) - risk/reward rating 4/7

5 years before wanting to take an income - Balanced/Income (both the same thing, with different names) - risk/reward rating 3/7


If want a lump sum to withdraw from your investments;

10 years plus - Adventurous/Growth (risk rating 5/7)

7 - 10 years - Dynamic (risk rating 4/7)

4 - 7 years - Balanced (risk rating 3/7)

2 - 3 years - Cautious (risk rating 2/7)

1 - 2 years - Defensive (risk rating 1/7)


As I said, that is a rule of thumb. Others will have their own opinions.

Cheers

[JulianPH]

xeny said:

Thanks - I found that helpful in at least understanding what the service potentially offers - I don't think I'd really considered before why people might want it, but you give me more of an idea.

No problem. That is the real issue, so many people now pick their own investment funds, but have no idea what they should be basing their selection on.

It therefore ends up based on past performance, despite the fact that, by definition, this was an historic event.

Asset allocation is key to investment returns. There is no point being in the best performing fund in a badly performing sector when the worse performing fund in the the best sector gave massively higher returns.

Cheers

[bitchstewie]

JulianPH said:

You are 100% correct in your Pork Belly analogy.

Eddie Murphy has a lot to answer for

JulianPH said:

you can ask an investment manager to run x% of your money and leave you y% to run yourself, regardless of the wrappers involved.

I think my dilemma is that I don't really want to end up with multiple S&S ISA's to juggle and when you look at managed services like SCM, or Scalable, or Nutmeg or whomever, all your ISA eggs for a year are in that one basket.

JulianPH said:

10 years plus - Adventurous/Growth (different names for the same thing, usually) - risk/reward rating 5/7

That's what this is intended for.

JulianPH said:

so many people now pick their own investment funds, but have no idea what they should be basing their selection on.

It therefore ends up based on past performance, despite the fact that, by definition, this was an historic event.

That hit home I've found myself looking at a selection of funds and thinking "Well that's done well" but if you asked me why I think it should continue to do so I wouldn't be able to tell you.

I said on another thread but I put together a simple portfolio with these -

Scottish Mortgage IT PLC
Lindsell Train Global Equity A GBP
Fundsmith Equity I Acc
Baillie Gifford Managed A Acc
Vanguard LifeStrategy 60% Equi A Acc

And the performance looks amazing and can be balanced by shifting the percentage of LifeStrategy held and using a different equity/bond ratio LifeStrategy - but I feel like a bit like the football manager who's changed 9 players and won

Today's plan is to read Investing Demystified and then do something.