Pensions Investments – Gilt Funds

[emicen]

After some discussion on another thread on here, regarding who actually knows what funds their pension is invested in, I finally got my backside around to actually investigating what is in mine.

To this point I’ve had no interactive management over the pension, it’s a stakeholder plan I entered via my work and aside from checking an initial box regarding my attitude to risk I’ve left it to do its thing.

Currently the investment is spread across 2 funds; Fund A [~85% of total pot] bought in to up to the end of the 2014 tax year, Fund B [~15% of pot] bought in to since then. As I expected before checking it out, with the market volatility over recent months, its not been a great year. In fact, the return is negative this year against double digit returns in every previous year.

Hence why I’m curious about Gilts. Analysing the funds available to buy through the plan, Gilts are fairing much better than my current funds.

Fund	YTD	Past 6 Mnths	Past 12 Mnths
A	-3.84%	-3.83%	3.05%
B	-2.08%	-5.58%	-3.99%
15Yr UK Index Gilt	6.83%	7.30%	5.51

I am not considering selling the other funds [and thereby incurring fees to transfer them], rather considering swapping to buying in to Gilts for some months until the stock market calms down a bit.

The issue I have is the Gilt fund I’m looking at has much stronger returns than the %s I can see quoted for what Gilts are currently being sold at. Over the past 5 years the same fund has averaged ~13%, again, higher than Gilts have been sold at.

Is there anywhere I can educate myself a bit more about Gilts and their index linking?

[My apologies in advance if I’ve missed an already running pension thread this could have been placed in, didn’t see one on the search]

[emicen]

All data is through the fund unit values tables I've downloaded from Fidelity's planviewer website and charted in excel.

Gilt fund I'm looking at is "FIDELITY BLACKROCK OVER 15 YEARS UK GILT INDEX FUND - CLASS 4."

Also looked at "FIDELITY BLACKROCK OVER 5 YEARS INDEX LINKED GILT FUND - CLASS 4" but whilst its growth over the 5 year term is only ~4% lower (61.x vs 57.x iirc, don't have my excel sheet to hand), it has performed significantly less well in the last year.

My 2012-2015 annual statements showed returns in the 14-25% region. I don't expect that out of any Gilt fund but it seems a decent way of offsetting this tax year's current -5.7%

Edited by emicen on Tuesday 2nd February 18:07

[emicen]

Thanks for the replies guys.

Having had a read of the article on Gilt returns and done some more data research, I’m a bit more cautious of a knee jerk reaction.

I’ve previously been guilty in share dabbling of bailing out on the down rather than buying more stock to capitalize on the rebound, which somewhat feels like the position I’m in just now.

Comparing both funds against the FTSE 100, they haven’t taken as bad a battering as the market as a whole has. Without knowing the underlying diversity/makeup of investments its hard to know/predict/guess what the future holds sadly.

I’m 33, so a little young for playing it safe, plus safe isn’t really in my nature

I’m not expecting interest rates to go up much if at all this year, but acknowledge it will inevitably come. At that point it would cost me to trade out of Gilt based funds incurring costs so using them as a hedge wouldn’t be as effective. Drilling in to the data a bit further, the 15yr Gilt fund I was looking at has only really got the 5 year returns it has due to strong 2011-2012 and 2014-2015 tax years, other years it hasn’t been overwhelming

Doing the numbers over the 5 year period I’ve had the pension; the larger fund is in the top 15% of the 40 funds available, the lesser value fund is in the bottom 10%

Time to read some books and educate myself about pension funds a bit more I think. I'm looking at upping my contributions going forward and I think no matter what, the pay ins will be getting spread across more funds, even if it is just 2 or 3.

[emicen]

Bit of an update, doubled my pension contributions going forwards based on some projections and the realization, I need to stop ignoring pension provision entirely, even if I do have other plans on funding at least part of my retirement.

The fund I was being invested in to, I have stuck with [sort of]. Its bottom 10% performance in terms of growth possibly reflects a certain element of stability within the fund, it has not taken as big a bath as most have in the last 3 months. Some reading in to what exactly my “multi asset allocator growth fund” is in to revealed;
- 58% equities [UK and North America elements being over 40%, the rest mostly Europe and Japan]
- 15% in commodities [no further detail]
- 13.5% in UK and global fixed interest bonds
- 12% cash
- 8% property

The cash element isn’t very appealing but there is at least quite a broad spread of underlying assets which seems sensible.

When I said I have “sort of” stuck with it, I’ve re-distributed how future contributions will be invested, spread evenly across 5 funds; the aforementioned multi asset fund, a global real estate fund with some cash and stocks also held, a UK equity fund and 2 North American equity funds.

Criteria for selection? My personal view/feeling/guess at how the underlying stocks in each fund will probably fair going forwards and combining that with looking at a lot of data for their quarterly performance for the last 5 years and how they have been doing this year. Global real estate fund isn’t stellar in terms of past 3 years performance, but it also hasn’t shrunk this year which is something no other available fund [within my provider’s selection] can say unless it is purely a cash / Gilt / corporate bond affair.

So, now I’ll just have to see how the markets perform…

[emicen]

Definitely.

The global asset fund has some Japan, Pacific ex-Japan and emerging market equities in it, a total of about 8% of the fund.

The real estate fund has more exposure with Australia, Japan, India and Asia ex-Japan.

There's been some strong results from Australia recently, like their Dominos franchise owner, but wary of how much impact mining has on their whole market at the moment. Similarly, China seems a wobbly prospect. India on the other hand seems quite prosperous. Need to do more research on the various areas before committing to anything.

[emicen]

So, 1 month after changing the funds future payments are invested in to;

"Malc's 5" +1.23%
FTSE100 -0.91%
Dow Jones +4.17%

Reasonably happy with that, numbers were better yesterday but there was quite a drop in UK and US markets yesterday. Obviously not as good as a straight Dow Jones tracker over the period but the majority of the gain there came from recovering the absolute spanking it took in January, up 4% in the first 2 weeks of the month, over the last 2 weeks, its been a lot more stable.

Against the fund my provider was investing me in, which in fairness I have retained as part of the 5 funds;
3 of my choices are beating it by 1% or more
1 is underperforming against it by 0.1%

I'm no Neil Woodford, but pretty much daily price watching is certainly more interesting than vaguely leafing through an annual summary booklet!