ISA Funds

[Matt..]

I'd like to expand the number of funds within my S&S ISA. At the moment i have two, Vanguard Life Strategy 60 and CF Woodford. The amounts in the account are very low, but i've just started out and am looking at 5yr+ investments (likely longer). The money in this ISA isn't strictly required, so i don't mind exposure to risk.

Does anyone have suggestions for funds to buy into?

I'm a little unsure of where to go with purchases at the moment due to 'Brexit'.


Thanks

[Ginge R]

Matt,

If the volumes that you have are really low, let your money grow steadily in something very low risk, and with low volatility. If you're heavily in equities and take a hit at outset, you get clobbered and it's even more difficult to recover. It's best to get traction first. So, if you don't have a cash fund, build it up in the bank first, or consider investing in something like Vanguard Life Strategy 40 or L&G Multi Asset which should offer you lower swings in performance. There are some very good robo advice propositions out there too, but if you're just starting out and have nothing else, get your cash fund sorted out first.

[Matt..]

Ginge R said:

Matt,

If the volumes that you have are really low, let your money grow steadily in something very low risk, and with low volatility. If you're heavily in equities and take a hit at outset, you get clobbered and it's even more difficult to recover. It's best to get traction first. So, if you don't have a cash fund, build it up in the bank first, or consider investing in something like Vanguard Life Strategy 40 or L&G Multi Asset which should offer you lower swings in performance. There are some very good robo advice propositions out there too, but if you're just starting out and have nothing else, get your cash fund sorted out first.

I have cash funds, so this S&S ISA isn't strictly required, it's just a bit of investment fun that hopefully gains a little money.

[BoRED S2upid]

Find a global fund that's performed well over the last few years if your concerned about Brexit. I know they say past performance isn't a sign of future performance but I always think if they have performed well for the past 5 years they should continue to do so. It's a theory that's working so far.

[basherX]

Matt.. said:

I have cash funds, so this S&S ISA isn't strictly required, it's just a bit of investment fun that hopefully gains a little money.

https://www.vanguard.co.uk/uk/portal/detail/etf/overview?portId=9505&assetCode=EQUITY##overview

Or similar.

Then, lots of those people you see on the tube (or whatever), or you read about in the business papers, or when you see massive queues outside the Apple store....all working for you in a way. All the risk that comes with equity exposure but nicely diversified within that class. Exposed to USD/GBP particularly. Some (9%) exposure to emerging markets. ETFs are usually a low cost way of investing.

[sidicks]

basherX said:

https://www.vanguard.co.uk/uk/portal/detail/etf/ov...

Or similar.

Then, lots of those people you see on the tube (or whatever), or you read about in the business papers, or when you see massive queues outside the Apple store....all working for you in a way. All the risk that comes with equity exposure but nicely diversified within that class. Exposed to USD/GBP particularly. Some (9%) exposure to emerging markets. ETFs are usually a low cost way of investing.

I wouldn't be so sure, the implications from the prospectus are that currency risk is typically hedged.

[basherX]

sidicks said:

I wouldn't be so sure, the implications from the prospectus are that currency risk is typically hedged.

I just find it hard to understand how they can do that on any reasonable basis (nor actually why they'd want to in a global ETF but that's another issue). The underlying cash flows of the companies an investor in that ETF is ultimately invested in will currently (and for some time) have a strong USD bias and I can't see how you could reasonably/cost effectively hedge that.

Or am I talking bks (again)?

[sidicks]

basherX said:

I just find it hard to understand how they can do that on any reasonable basis (nor actually why they'd want to in a global ETF but that's another issue).

1. See below
2. An equity fund is about taking equity risk, not currency risk - if you want currency exposure, buy a currency fund!

basherX said:

The underlying cash flows of the companies an investor in that ETF is ultimately invested in will currently (and for some time) have a strong USD bias and I can't see how you could reasonably/cost effectively hedge that.

Rolling FX-forward hedging - standard approach used by most fund managers! Very liquid market and hence cheap!

That's the case with most 'asset class' funds - current exposure is (typically, broadly) hedged so that the key exposure is the asset class exposure.

Edited by sidicks on Sunday 25th September 19:45

[basherX]

sidicks said:

Rolling FX-forward hedging - standard approach used by most fund managers! Very liquid market and hence cheap!

That's the case with most 'asset class' funds - current exposure is (typically, broadly) hedged so that the key exposure is the asset class exposure.

Edited by sidicks on Sunday 25th September 19:45

I see, thank you.

So the UK vote for Brexit, and the attendant currency depreciation specifically (were it possible to isolate that), hasn't had an effect on UK investors in this fund and their subsequent/ongoing returns? Genuine question, not trying to be a smartarse.

Or are you saying the fund hedges its current Sterling position (through fx forwards which I agree are cheap) but that it's at the mercy of future changes?

[sidicks]

basherX said:

I see, thank you.

So the UK vote for Brexit, and the attendant currency depreciation specifically (were it possible to isolate that), hasn't had an effect on UK investors in this fund and their subsequent/ongoing returns? Genuine question, not trying to be a smartarse.

It depends!

As I said it is 'typical' that currency exposure is hedged for many of these funds, but most also have the flexibility to leave currency unhedged to some extent if they choose. Other funds will deliberately take currency exposure - it will depend on the benchmark against which the fund is measured.

basherX said:

Or are you saying the fund hedges its current Sterling position (through fx forwards which I agree are cheap) but that it's at the mercy of future changes?

It would normally hedge it's overseas positions against Sterling, not its Sterling positions!! The cost of FX hedging is unlikely to be a problem.

[85Carrera]

Ginge R said:

Matt,

If the volumes that you have are really low, let your money grow steadily in something very low risk, and with low volatility. If you're heavily in equities and take a hit at outset, you get clobbered and it's even more difficult to recover. It's best to get traction first. So, if you don't have a cash fund, build it up in the bank first, or consider investing in something like Vanguard Life Strategy 40 or L&G Multi Asset which should offer you lower swings in performance. There are some very good robo advice propositions out there too, but if you're just starting out and have nothing else, get your cash fund sorted out first.

This is why I don't use IFAs!

OP is in low risk funds and says he is prepared to take on more risk and doesn't need the money and you recommend low risk funds ...

[Ozzie Osmond]

OP could usefully IMO look at investing in a mainstream global equity fund.

[sidicks]

Ginge R said:

Matt,

If the volumes that you have are really low, let your money grow steadily in something very low risk, and with low volatility. If you're heavily in equities and take a hit at outset, you get clobbered and it's even more difficult to recover.

That doesn't really make much sense (unless I'm missing your point):

(1+x%) * (1+y) * (1+z)... = (1+z) * (1+y) * (1+x)...

[Ginge R]

85Carrera said:

This is why I don't use IFAs!

OP is in low risk funds and says he is prepared to take on more risk and doesn't need the money and you recommend low risk funds ...

Read my context, and read the opening post. Matt didn't say he was prepared to 'take on more risk'. And if you did have an IFA, perhaps you could explain why you think Matt's two existing funds are 'low risk'? You don't need an IFA, you just need someone simply prepared to execute and validate your perception of investment genius, and I guess that that's not me. Your perception and mine are light years apart.

Edit: If it's any consolation, I don't bother much with solicitors either. Especially ones who can't read a brief.

Edited by Ginge R on Sunday 25th September 22:45

[Ginge R]

sidicks said:

That doesn't really make much sense (unless I'm missing your point):

(1+x%) * (1+y) * (1+z)... = (1+z) * (1+y) * (1+x)...

Again, it's my context.

If a client was investing for fun (absolutely nothing against the OP, but I was enough of a smartarse to remember Matt posted the other day he may be about to be made redundant) and I didn't think it was safe or suitable in context or under the circumstances, I wouldn't take on the business. I stand by what I said, in terms of that context. If the client has a good reserve and lots of slack, that's different.

[sidicks]

Ginge R said:

Again, it's my context.

If a client was investing for fun (absolutely nothing against the OP, but I was enough of a smartarse to remember Matt posted the other day he may be about to be made redundant) and I didn't think it was safe or suitable in context or under the circumstances, I wouldn't take on the business. I stand by what I said, in terms of that context. If the client has a good reserve and lots of slack, that's different.

But the key point is that, given that returns are multiplicative, when you have a 'bad' year is irrelevant in terms of the overall return that will be achieved!

Regardless of the 'context', the following statement is nonsense!

Ginge R said:

If you're heavily in equities and take a hit at outset, you get clobbered and it's even more difficult to recover

Edited by sidicks on Monday 26th September 00:33

[Ginge R]

Once more, I refer you to context - you choose to use only part of what I was saying. More of that later.

In the meantime, actually, no.. the key point is that you're dealing with a human being and not selling them an infallibility based on a glossy formula which is the sort of trick that alienates folk from financial services. Yes, I'm sure it has investment management relevance, but does it have client relevance?

Sure, you could sit down with a client like Matt at the end of year one, look them in the eye and say "You're annoyed, I can tell. You're annoyed because you are invested in funds that were manifestly unsuitable for you, and now you want to sell at a loss. But don't worry.. it's not my fault, because (if you remember) I pulled out some bullst snake oil formula out of my shiny lizard skin briefcase to hide behind and sell you some waffle".

If I'm working with a client who wants to take risk, I want to know why. If the client wishes to override me, one of two things will happen. I'll look at it in context, ie; is the intended course of action a harmless play fund within the scope of everything else, or is the risk systemic? If systemic, I won't do it, so I (or the client) will walk away (I'm not an order taker). What I won't do is crowbar the client into a formula derived solution just to keep my accountant happy.

Returning now, to what you referred to as 'nonsense'. You suggested a few hours ago (and I haven't played the PH quote game for years!)..

"But the key point is that, given that returns are multiplicative, when you have a 'bad' year is irrelevant in terms of the overall return that will be achieved!"

Let me refer to what you said a few weeks ago;

?"In practice, if you invest in equities you will likely experience volatile returns, with +20 - 30% returns in some years and -10% - -15% in other years etc and everywhere in between, meaning that the actual return achieved will be very dependent on when in the 10-year period the different returns occur."

Which one do you stand by?

I'm inclined to have more faith in the one that you posted a few weeks ago and which supports what I was trying to say yesterday. Sure, of course methodology is needed but a good adviser does so much more than get a tail to wag a dog and keep the compliance team beaming. It's the difference between advising and selling, knowing the price of something compared to the value of it, not being dogmatic and having the integrity to walk away.. and above all, appreciating that all clients are different.

Which is why, I suppose, I don't (happily) work for something like the SJP sales force or any one of many other beautifully brochured 'wealth managers', investment banks or discretionary fund managers.

[TFP]

GingeR, respectfully....

None of that is relevant to your statement about equity fund returns being wrong.

Context is irrelevant if your base claim is manifestly wrong.

Two investors in the same equity fund, one with £1m and one with £1,000. Its not easier for the one with £1m to recover from losses just because the volume is greater.

You also forgot to declare an interest when promoting Robo

[Ginge R]

Fair enough, and respectfully noted, thank you.

I didn't suggest that equity returns were wrong, and (being subjective again) the size of the fund within the context of individual circumstances is the important thing here, not the principle (one size advice doesn't fit all). I mentioned this. Sequential return risk (albeit with fresh money, and as Sidicks referenced) *is* important to individual circumstances and may be a factor for one person but not another.

You are absolutely right that a £1,000,000 fund stands to be impacted by drops as a £1000 portfolio does, but the important thing is how that loss impacts the individual owners and their objectives. They may be identical, they may not be. If the impact of a loss is more pronounced on one person but not the other, then advice must be tailored accordingly too, and that's what I was touching upon.

I mentioned robo in general, I made a point of not referring to mine. And in principle, I absolutely stand by this too - some robos are well worth a look, there are a few out there now.

[sidicks]

Ginge R said:

Returning now, to what you referred to as 'nonsense'. You suggested a few hours ago (and I haven't played the PH quote game for years!)..

"But the key point is that, given that returns are multiplicative, when you have a 'bad' year is irrelevant in terms of the overall return that will be achieved!"

Let me refer to what you said a few weeks ago;

?"In practice, if you invest in equities you will likely experience volatile returns, with +20 - 30% returns in some years and -10% - -15% in other years etc and everywhere in between, meaning that the actual return achieved will be very dependent on when in the 10-year period the different returns occur."

Which one do you stand by?

Both are correct.

The above quote was in relation to a monthly invest policy - where a customer is making ongoing contributions then the return they experience over their whole portfolio will be very dependent on when those good & bad returns occurred. Their actual return could be very different than the average return over the period.

Ginge R said:

I'm inclined to have more faith in the one that you posted a few weeks ago and which supports what I was trying to say yesterday. Sure, of course methodology is needed but a good adviser does so much more than get a tail to wag a dog and keep the compliance team beaming. It's the difference between advising and selling, knowing the price of something compared to the value of it, not being dogmatic and having the integrity to walk away.. and above all, appreciating that all clients are different.

Which is why, I suppose, I don't (happily) work for something like the SJP sales force or any one of many other beautifully brochured 'wealth managers', investment banks or discretionary fund managers.

The more recent quote was regarding a single investment, when the fact remains that when a bad year occurs will not affect the ultimate fund value, all other things being equal.

I'm certainly prepared to accept that, after a bad year, someone might take actions that would affect the investment strategy going forward and hence 'all other things would be be equal', but your claim that 'it's more difficult to recover' is economically untrue.

Hopefully that clarifies things?