Returning to Investing with a Robo SIPP?

[Chukky]

Fellow Fools,

I'm delighted to have found the new home of the old TMF Forums and comforted to see the sage words of the likes of Gengulphus, tjh and Luniversal to name but a few.

I'm returning to investing after a 6 years of moving my investing focus to property.
I held a pretty decent HYP for about 7 years and sold up in 2014 to fund a house deposit, it did rather well in terms of growth with dividends reinvested. Browsing my old spreadsheets tempts me back to the HYP but I fear I will lose enthusiasm to keep a close eye on it this time around.
I held several index trackers alongside the HYP and there was respectable growth there too.
I was never one for tinkering and reviewing the portfolio, lazy I suppose or I would really just prefer a 'set and forget' strategy now.

I would now like to set up a SIPP for the next 17-20 years until retirement and also run an ISA concurrently.

I was thinking of some Investment Trusts for the ISA and a tracker / ETF based SIPP

I'm rather intrigued by Robo funds such as Nutmeg and Moneyfarm.

I've also had a look at the offerings from Vanguard Life Strategy funds.
However the Robo funds with the automatic rebalancing and de-risking during market crashes / sell-offs seem worth a little extra expense to me.

Does anyone have any views or experience of the Robo Funds?

Any help is really appreciated, I'm pretty rusty at the moment

[tjh290633]

If it were me, I would stick to the IT route. You don't know how long the gimmicky outfits will be around, but the ITs should endure.

TJH

[Chukky]

Good to hear from you TJH!

Which IT's are your particular favourites?

[tjh290633]

Good to hear from you TJH!

Which IT's are your particular favourites?

I don't actually hold any for myself, but I have Witan, F&C, Alliance and BMO Capital and Income (Formerly F&C Cap & Inc) in bare trusts for my grandchildren.

One day, if I have enough notice from the Grim Reaper, I may move into a selection of higher yield ITs, like City of London, Dunedin Income Growth, BMO Capital & Income, Invesco Income Growth, JP Morgan Claverhouse, Merchants, Murray Income, Perpetual I&G, Scottish American, Schroder Income Growth, Securities Trust of Scotland and Temple Bar, for example.

Maybe add in Witan and F&C for good measure.

See Luniversal's Baskets for other ideas.

TJH

[Urbandreamer]

Everyone is different.

I like picking individual shares, but the complexity of doing so is starting to tell, so I'm moving into IT's.
Others are huge fans of index trackers, which they pick for themselves or balanced funds (ie Vantage 60-40).

Yet others don't want to put that effort in. My wife has some money with Nutmeg. The advantage is that they do the work of tayloring your investment to a percieved risk level for you.

Neither they or Vantage predict market falls and position to avoid them. They would rebalance after the fact.

I like Nutmeg (though have not used them myself), however last I heared their offering wasn't as popular as they expected. As TJH remarks, this could be an issue going forward.

As I understand it Nutmeg is a "sortov" Robo adviser. They use a robot for the initial selection, however as they offer advice and are regulated they do use humans as well.

I wish you well with your SIPP, but don't forget that in 10 years or so you will need to revisit the decisions that you make today. For example you might choose to go heavy on the equities, as I did, but as you approach retirement conventional wisdom suggests gradually reducing the risks as you move towards a time when you need to draw upon your funds. Recent opinion tends to argue that you will still need some equities when retired, as most now have a long retirement.

[Muddywaters]

The main robos have all had institutional money pumped into them. The figures don’t stack up at the moment and they’ll need real volume to make it work but the main 4/5, which includes nutmeg, will be around for a long time imo.

It’s heading down the route of hybrid, the skill is in the advice but the money is made in the investment management side. It’ll serve a purpose for a portion of the market. It’s just up for debate as to how long it’ll take to take hold. It’s a tough gig in the UK as being anti-markets is in the psyche of the masses, which isn’t he case with the US so it’s harder to get people to invest without human intervention

[Hariseldon58]

The Robo concept would be ok for the OP but a Vanguard Life Strategy or similar , would be just as good and possibly better.

The Life strategy funds do automatically rebalance very frequently and since it is internal to the fund , the fund manager can use inflows and outflows , it will be at the lowest cost.

Don’t believe for a moment that a fund manager or robo algorithm will help you at marker lows, the chance of them reliably timing action prior to a market low is zero and ‘derisking’ at a market low would be very destructive of wealth...

The second and not so obvious point is to look at the underlying portfolio mixes used by the robo advisors, it requires signing up to view the scheme to view portfolio mixes, I have done so and I was surprised for a supposedly passive approach using ETFs , how active and regional their broader asset allocation was..

This active regional allocation would concern me greatly, they sell a passive black box approach but it’s merely active management* disguised as the computer knows best and we know very little about the competence and ability of the managers.

The Life Strategy approach is much simpler and more transparent and probably cheaper.

*quite a few of the wealth managers, behave like the Robo advisors, have a set number of portfolio mixes and use low cost passive vehicles , allowing them to keep more of the fees for themselves, It’s the flip flopping of regional allocations that would concern me..

[Muddywaters]

The robo isn’t in investment algorithms really, it’s in the advice part. They all have investment committees that do the asset allocations, the algorithm just maintains the current house view. How often they trade is up for debate

As for overtrading mifid helps there because trading costs neeed to be factored into their overall cost, and it’s very cost centric industry. In fact you can see trading costs on at least some of their fee calculators

Incidentally you can view the fact sheets on at least some without signing in. I should know because I wrote them for one company and made sure they were viewable before sign up!

[Hariseldon58]

@muddywaters

I take your point about the advice side and that could be very important for the average Joe.

My concern would be the asset allocation, not so much the cost of trading.

When I looked closely , probably 12-24 months ago, I saw some quite heavy bets on the regional asset allocation, it’s good if they get it right...

I was surprised that they didn’t take a more passive approach.

[Urbandreamer]

I was surprised that they didn’t take a more passive approach.

How passive were you expecting, and what do you mean by passive anyway.

For example I would regard a FTSE 100 tracker or ETF as entirly passive, and totaly inappropriate under certain circumstances and at certain times of life.

The vangard lifestratergy offering mentioned is a mix of index trackers and bonds. Already we have stepped away from a truely passive approach. Instead the offering is intended that you actively choose the appropriate funds for your situation and time of life.

For example in your 30-40-50's you might choose 100% equities and then in the 10 years before you retire, gradually sell some and replace them with 20-80% equitiy-bonds until it's mostly bonds or cash. Finally selling the portfolio and buying an annuity. This is more or less what most pension funds would do, save that an adviser would find your risk tollerance for you and may start with less than 100% equities and finish without buying an annuity but going into drawdown.

Then we have the aspect of what index trackers are in the portfolio. You could go for a single global tracker, or UK tracker. The first has the disadvantage that when you need your pension you will need it in £'s and you are exposing yourself to currency risks. The second excludes parts of the world that may be gowing faster than the UK. Again these are decissions and hence can you argue they are passive? There is an argument that you should start global and as you approach retirement move your investments to the UK to loose the currency risk.

Can asset allocation ever be passive?

What is the obsession with passive investment? Passive funds and ETF's may have low costs and be a great way to invest, but the investment process needs to consider so much that it can't itself be passive.

Personally I think that the person best placed to think about these things is the one who will benefit or not. For the most part these days it's not too difficult, you just have to learn a bit and accept that you will need to keep up to date with the changes that the government makes.

However as I said, some people don't want to put that effort in. Thankfully there are pleanty of companies who will take on some or all of that for them.

[Hariseldon58]

@urbandreamer

Robo advice that suggests an appropriate equity / bond mix is sensible and appropriate,but in one case that I previously looked at, there was about a 10% allocation to Korea, this seemed a pretty big bet.

A quick glance at Nutmeg last night shows something pretty akin to a Vanguard Life Strategy approach but why pay for this advice through a chunky % ?

I can see people starting with Nutneg and pretty quickly doing the sums when assets build up ... keeping 10k with Nutmeg and doing a copy on the side.

I don’t personally obsess the active passive choice and agree there is nothing truly passive about any choices.

Nutmeg and the like could just as easily be an app that you answer the questions, provides a risk level and suggested mix of assets, which you take to your chosen provider.

A little like an optician... you take the test and you can buy your glasses there or take it elsewhere.

I can’t see the Nutmegs et al surviving , they will never get the volume , Hargreaves or Vanguard might run with the idea.

(Hargreaves would be reluctant to offer the low cost assets though Insuspect ....)

[Urbandreamer]

.
Nutmeg and the like could just as easily be an app that you answer the questions, provides a risk level and suggested mix of assets, which you take to your chosen provider.

Actually they couldn't. The likes of A J Bell do that, but are very clear that they are not offering advice and not regulated to do so. Nutmeg are regulated advisers, as I said, involve humans at some point, which comes at a cost.

There is a VERY strict. distinction between advice and guidance. If the latter.is ok then you can save a bit going to A J Bell. Nothing wrong with that, as long as you understood the choice and the difference.

As I said, I'm confident enough to skip either option, but some are not. Personally I think it better that they do something, rather than nothing, stymied by the fear of getting it "wrong".

[Hariseldon58]

Well Nutmeg and the like could provide advice and the investor could take that advice to their chosen broker fund manager.

The difficulty is getting the consumer to pay for that advice....

[Urbandreamer]

Well Nutmeg and the like could provide advice and the investor could take that advice to their chosen broker fund manager.

The difficulty is getting the consumer to pay for that advice....

And of course getting the consumer to pay for the insurance and litigation. Regulated advisers have liability don't you know?

Like I said, "Advice" is strictly defined.

If "you", by which I don't mean Hariseldon58, don't know the difference between "advice" and "guidance" then find out. For goodness don't trust what either he or I say any more than you would the man in the pub who's downed a few pint's. Please, please find out more than either he or I say.