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Picking funds for my ISA

Closed-end funds and OEICs
stooz
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Picking funds for my ISA

#164949

Postby stooz » September 7th, 2018, 6:31 pm

Having recently setup my first ISA (dont ask) Im presented with a wealth of funds to choose from.
I don't have a clue, nor the time to research each one.

How do you go about deciding on funds?

Lootman
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Re: Picking funds for my ISA

#164951

Postby Lootman » September 7th, 2018, 6:36 pm

When in doubt pick an index fund. They have no bias or viewpoint. And they are as cheap as collective vehicles get.

Start out with a tracker and then play around the edges if you want fun. But beware the experts.

And resist undue bias towards the UK which at this point is just a few percent of global market cap, and which is full of risk.

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Re: Picking funds for my ISA

#164958

Postby mc2fool » September 7th, 2018, 7:37 pm

stooz wrote:Having recently setup my first ISA (dont ask) Im presented with a wealth of funds to choose from.
I don't have a clue, nor the time to research each one.

How do you go about deciding on funds?

Start off by deciding what your objective is.

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Re: Picking funds for my ISA

#165021

Postby tjh290633 » September 8th, 2018, 1:17 am

Might I suggest that you consider either F&C Investment Trust (FRCL) or Witan IT (WTAN). compare them with any other global fund you might be looking at.

TJH

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Re: Picking funds for my ISA

#165081

Postby scotia » September 8th, 2018, 10:56 am

You may be looking at funds, rather than investments trusts. Funds have the advantage of allowing you to purchase small amounts spread over time, with commonly no purchase costs. With Investment Trusts (ITs) you have stamp duty and purchase costs - so you probably don't want to invest in ITs with lump sums less than £1500 to keep investment costs below 1%. Spreading your investments over time also reduces the effects of market volatility. The suggestion to purchase index funds is sound. However if you want a bit more excitement, then Fundsmith Equity, Baillie Gifford Discovery and Lindsell Train Global Equity funds spring to mind. But remember - markets can be volatile and investments should be for the long term. You will need to steel yourself to avoid selling your investments when the market falls (as it will!)

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Re: Picking funds for my ISA

#165166

Postby OZYU » September 8th, 2018, 4:43 pm

scotia wrote:You may be looking at funds, rather than investments trusts. Funds have the advantage of allowing you to purchase small amounts spread over time, with commonly no purchase costs. With Investment Trusts (ITs) you have stamp duty and purchase costs - so you probably don't want to invest in ITs with lump sums less than £1500 to keep investment costs below 1%. Spreading your investments over time also reduces the effects of market volatility. The suggestion to purchase index funds is sound. However if you want a bit more excitement, then Fundsmith Equity, Baillie Gifford Discovery and Lindsell Train Global Equity funds spring to mind. But remember - markets can be volatile and investments should be for the long term. You will need to steel yourself to avoid selling your investments when the market falls (as it will!)



Funds do have some advantages, as you say, and in a few cases are the only way to access certain exceptional managers and their approach. The major disadvantage is that most platforms, but not all, charge ad valorem just for holding those funds for you, which can become ruinous. Another great advantage of Funds is the availability of inc and acc units.

But Investment Trusts (ITs) have many advantages, and imho are a very good way to start investing.

The internal charges are competitive versus Funds. (I am not comparing with ETFs because we hold only one(to cover the Nasdaq), and therefore they are not for us as we manage easily to have seriously balanced, successful and diverse portfolio without them. Plenty of investors will prefer these ETFs, I am sure, but they are not a good learning medium for the beginner, imho).

On most platforms there is the same yearly costs holding ITs or individual Co shares.

There is a much wider range of sectors, some very specialist, available with ITs.

Investments Trust's (ITs) main advantage, imho, is that on a like for like basis, an ITs so often (not always of course, but it is very common) beat their sibling Funds over a sensible investment period when all factors are taken into account.

Not all IT purchases lead to stamp duty cost, Channel Island or Netherland hosted ones don't.

ITs offer the ability to buy at a discount at certain times, sometimes these discounts to asset values are very large when market sentiment turns nasty. Very good extra profits ensue as the SP closes on NAV. Often, even for ITs trading at a frequent premium to NAV, the bottom of that premium range will offer a good buying opportunity.

ITs have the ability to gear up: In good markets it accentuates performance, in bad markets you often get much better pound cost averaging than by holding a sibling Fund as the ITs can get hammered more as a result. Overall this ability to gear has been seen as an advantage, although quite a few ITs did gear up on very expensive debt in the past. So the jury is still out on that particular aspect.

With ITs you know clearly the price at which you are dealing (unlike Funds where you pray that the price when the actual dealing occurs is close to your target price when you put the order in).

For income production, when you buy an IT you are usually getting an income reserve thrown into the buying price, which can be a valuable asset(such as it proved in the financial crisis, IT divis just kept coming in essentially, often maintained rather than slashed). You also know well in advance through proper RNS what the divi will be, and what its pattern of payments and increases is, which can be analysed and projected in divi cagr much easier than for Funds. The quarterly cycle of divis so common with ITs is a good pattern imho.

ITs can now pay income out of capital. A two edge sword of course, but a valuable way to be able to include a growth oriented IT (Small Cos such as IPU, EAT, Bio such as IBT, or ITs investing where the divi culture is lower, etc..) into an income portfolio if required without having to sell shares.

The corporate reporting with ITs is much more easily available and comprehensive than it is with funds. There is a mine of knowledge to be picked up by the beginner by reading these reports. The AiC web site and the John Barron portfolios are valuable resources for ITs.

For illiquid assets, such as Property, ITs (REITs in that case but not exclusively), being Closed collectives, are a better route than Funds in that managers do not have to redeem units like mad at the very worse time, when the proverbial hits the fan. This is also a lurking danger for ETFs (in particular if they do hold the underlying securities through market instruments(synthetic) rather than directly) which has yet to be put to the test in the next financial serious panic. The sheer weight of EFTs held could, imho, be a major factor in further de stabilising markets in such a scenario.

ITs have lived through numerous financial crises.

So on the whole I would encourage our OP to pick a few ITs to build a new ISA. After messing around with penny shares in the late 1960s, a relation City veteran sat us down, explained ITs to my wife and I in the very early 70s, and encouraged us to build a portfolio of ITs for our first £100k (expressed in today's money) or so before going wider afield as investors. We never looked back, still holding 37% of our markets investment in ITs today (more if I count Berkshire H, not an IT of course, but I always classify it as such in my head, we have held it since early 90s). 9% is into Funds. Of course decades down the road doing all sorts beyond that as nowadays I mostly invest individual Cos, because my wife has specialised in ITs plenty enough for the two of us. We encouraged our children and grandkids to approach investing in a similar manner, and essentially they have, although (of course) one at least refuses to invest or save at all at the mo, although he certainly could and should.


Ozyu

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Re: Picking funds for my ISA

#165547

Postby LooseCannon101 » September 10th, 2018, 6:56 pm

The majority of people on this website have been investing for decades and consequently tend to have relatively complicated investment strategies.

I have been investing for over 20 years and started off with a simple ISA saving scheme offered by F&C Asset Management. This scheme only charges £72 per year for monthly payments and dividend re-investment. For simplicity, I initially chose a highly diversified global equity fund - Foreign and Colonial Investment Trust (FRCL).

After reading many investment books, I came to realise that such a fund containing over 450 individual companies, is all one really needs, plus of course some rainy-day cash. Swapping into and out of funds costs you money, and so a buy-and-hold fund is ideal. My holding in FRCL has grown by about 9% per year on average - doubling in value every 8 years.

There are of course other funds, but I would always compare the total return, with dividends re-invested, over 10 and preferably 20 years. Some specialist funds have great returns over a year or two, but then tank over the following years.

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Re: Picking funds for my ISA

#165617

Postby OhNoNotimAgain » September 11th, 2018, 8:55 am

Lootman wrote:When in doubt pick an index fund. They have no bias or viewpoint. And they are as cheap as collective vehicles get.

Start out with a tracker and then play around the edges if you want fun. But beware the experts.

And resist undue bias towards the UK which at this point is just a few percent of global market cap, and which is full of risk.


Eh, is this the same Lootman? What happened to all the baskets?

Lootman
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Re: Picking funds for my ISA

#165628

Postby Lootman » September 11th, 2018, 9:56 am

OhNoNotimAgain wrote:
Lootman wrote:When in doubt pick an index fund. They have no bias or viewpoint. And they are as cheap as collective vehicles get.

Start out with a tracker and then play around the edges if you want fun. But beware the experts.

And resist undue bias towards the UK which at this point is just a few percent of global market cap, and which is full of risk.

Eh, is this the same Lootman? What happened to all the baskets?

I'm not a basket guy. That was Luni. I do have a portfolio, however, if that is what you mean.

Some cap-weighted index funds at the heart, and some fun stuff around the edges. I have generally been reducing the number of holdings, and placing more emphasis on ETFs. I mostly use ITs for specialist areas these days.

hiriskpaul
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Re: Picking funds for my ISA

#165664

Postby hiriskpaul » September 11th, 2018, 1:12 pm

stooz wrote:Having recently setup my first ISA (dont ask) Im presented with a wealth of funds to choose from.
I don't have a clue, nor the time to research each one.

How do you go about deciding on funds?

If you don't have time (or inclination) to research, definitely invest in index funds. It is highly likely that you will beat the vast majority of portfolios consisting of actively managed funds/ITs that way. Like Lootman, I have been moving away from actively managed ITs to ETFs and index funds. I still hold some ITs/VCTs to cover certain investments not covered by index funds, or in one case (emerging markets) where I built up large capital gains I don't want to pay tax on.

There is a lot of FUD and blatant untruths put about concerning index funds, largely emanating from active managers and repeated by ill informed journalists, etc. ETFs have been around for over 20 years and have coped extremely well with what the markets have thrown at them, index funds even longer.

Just a few important things to be aware of with index investing. The first is that there are thousands of so-called passive funds, just as there are thousands of actively managed funds. Only a small handful of these are worth investing in. For the bulk of your portfolio you should choose large, physically replicated cap weighted funds/ETFs from the major providers, such as Vanguard, Blackrock/iShares, SPDR, fidelity, HSBC, L&G.

The second important thing is to check and undrstand your broker charges. Quite a few of them have high platform or custody charges and these are often higher for open ended funds than they are for ETFs. Hargreaves Lansdown for example charge 0.45% platform charge for their ISA and SIPP, charge nothing for buying/selling open ended UTs/OEICs, but the cap on the platform fee is much higher for UTs/OEICs than it is for ETFs. iWeb have no platform charge at all, but charge £5 for each trade, even for UTs. So depending on your broker and how you want to invest, you might be better off sticking with ETFs.

Thirdly, your asset allocation (or how you spread your cash across various markets). This can be a much more complicated issue. If this is intended as a long term (10+ years) investment, you could just bung it all in a single global index fund or ETF, but If you are likely to want a significant part of your money back in less than 10 years, you should probably not put it all into equities.


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