Monday 28 April 2014

Buying Clean (Part 2)

There has been a lot of discussion about "buying clean" in the investing world recently, and it's not been about solar power and wind farms.

If I understand it correctly the whole charging system has been given an overhaul in order to ensure that customers can be totally clear about what they are paying, and what for. Previously fund managers, brokers and fund supermarkets were allowed to "bundle" charges which meant the various components of the fee could not be pulled apart and seen individually (better explanation here). 

In practice this has meant that, during the transition phase, many funds now have more than one "class", one clean and one. The dirty ones are gradually being phased out. 

In practice this has only affected me in a minor way as iii will deal with transferring over my funds into the clean class for me where necessary (thank goodness) but it has meant that I have had to delete two of my regular investments (Fundsmith Equity and BlackRock CIF Emerging Markets tracker) and add them in again as the "clean" version.

The process may only have caused a minor headache as far as managing my investments goes, but it has made me realise that although I do take notice of charges (I chose my trackers partly they are very low cost and I know that this is why passive funds often end up beating actively managed funds in the long term), I have never actually documented the charges I pay. 

So, this seems a good place (and time) to do so:

Baille Gifford Shin Nippon - Investment Trust, Dealing Charges Only
iShares S&P Global Clean Energy - Exchange Traded Fund, Dealing Charges Only
Herald Investment - Investment Trust, Dealing Charges Only
BlackRock CIF Emerging Markets Tracker (D) - 0.20%
FundSmith Equity - 0.9% (0.15% rebate) - 0.75%
HSBC European Index - 0.25% (0.10% rebate) - 0.15%
HSBC FTSE 250 Tracker - 0.25% (0.10% rebate) - 0.15%

Charges Before the Transfer
The charges we have been paying on our CIS Funds (paid directly to the fund manager) are:

CIS Sustainable Diversified 1.55%
CIS UK Growth 1.50%
CIS UK Income with Growth 1.54%
CIS US Growth 1.56%

(I don't even want to think about the 5% initial charges we paid on all these )

Once they are transferred to ii they will be discounted to:

CIS Sustainable Diversified 0.70%
CIS UK Growth 0.70%
CIS UK Income with Growth 0.70%
CIS US Growth 0.70%

This amounts to a saving of around 0.85% on the CIS funds.

In addition ii charges £20 per quarter platform fee, which includes 2 free trades per quarter. As part of my transfer offer (which hasn't completed yet) I will also get £20 cash and £120 dealing credit. Transferring my husbands ISA over into ii as well means that the two accounts can be linked and we only pay one set of fees. All-in-all a very good deal. £80 a year for two ISAs. As we have £54,000 between us this amounts to somewhere around 0.15% to add into the charges above. Which means that overall, when all charges are taken into account, we will be saving 0.70% by moving to iii.

At our current level of investment this comes to around £380 pa. 
(even without taking the transfer offer into account)

Having just sat down and worked this all out properly for the first time I'm pretty amazed at how much difference the combination of being careful to pick low cost funds and finding the right platform can make.
Being aware of charges and making positive steps to reduce them is key. Clean charging plays an important part in helping us do just that.

Sunday 20 April 2014

Buying "Clean" (Part 1).

I made another small buy into risk this week - £250 into iShares S&P Gbl Clean Energy. I did deliberate fairly long and fairly hard before doing so as it did feel like a bit of an indulgence. I don't know much about the industry and it is almost as risky as Shin Nippon with a TrustNet score of 176. But I really like the ethos behind the fund.

The S&P Global Clean Energy Index offers exposure to the 30 largest and most liquid listed companies globally that are involved in clean energy related businesses, from both developed markets and emerging markets

The news for clean energy has been an interesting mix recently (both on the ground and in the investment arena ) which means it is difficult to predict how things will go, but the amount I have put in is very small, I have nothing else in the energy/commodity range, it is an ETF so the fees are minimal and I do feel in tune with the product. I shall probably not add to this more than 3 or 4 times a year, possibly in rotation with the Shin Nippon.

So, I think my appetite for a little risk taking should now be satisfied.

I was finally spurred on to let myself have these two small indulgences by a comment I read on the moneysavingexpert forum. It was made in response to someone who, like me, has a decent public sector pension waiting for them at normal retirement age but who was wondering how to manage their investments in order to supplement this. Someone made the suggestion that perhaps they could think of their pension as a whole load of inflation linked gilts and plan the rest of their allocation accordingly. I had a bit of a light bulb moment when I read this because it makes perfect sense and gives me a reason to put my ISA funds into equities without having to worry too much about balancing this with fixed income.

I appreciate that the time-frame is important with all this and that when I am going to need the money I will have to start moving the risky bits into something that is less likely to bomb but, as far as the biggest part of the ISA is concerned, this shouldn't be for around 8 -10 years.

The SIPP that I have just started is a different matter and I intend to take a lot more care with ensuring that this will not be prone to massive jumps and dips as I will definitely need that in 8 years. My FSAVC, which I will need in 5, is invested in a very safe fund with a Trustnet risk rating of 8, so I'm not going to worry about that one especially as I phoned them this week (I am well overdue an annual statement) and it has risen by around £1,300 over and above what I put in this year and so seems to be on track to give me the £22,000 I will need in 5 years time.

So, all-in-all, I'm not feeling too reckless and irresponsible by raising my risk profile and investing in the future of the planet (and that's a whole other post).

Saturday 12 April 2014

Big In Japan

This is what we're up against:

Ruffer Tips 50% Upside in Japan within three years
Experts warn Japanese revival is doomed

These articles appeared on Trustnet within a few days of each other recently and, to my mind, this demonstrates the main reason why the majority of people in the UK still feel that investing is not for them and instead scratch about looking for an extra 0.01% in savings accounts.

Not only are most of us not experts in financial matters it seems that even if we were to become so and join the people who are "in the know",  it wouldn't protect our cash because even "experts" cannot agree as to what best to do with it. When your savings are important to you and you can't afford to lose them, having confidence about what you do with them is essential. The bottom line is that the investment universe, and all who live in it, do not inspire confidence. There is so much "talk" that we can't keep up with it all, there is too much "buy this or lose out", quickly followed by "buy this and lose out". In a way the only rational thing to do is keep well away.

I don't mean to say that we don't have faith in the big picture, I think that the majority of people believe that the markets can be relied upon to self-regulate, bounce up and then drop down again but ultimately recover. It is more that there is a bewildering gap between what looks to most of us as if it should be a science (graphs, statistics, pye charts ad nauseum) and the apparent behaviour of those who deal in it and seem to be ruled by rumour, incantation and superstition (how can we call it anything else when there is rarely any consensus and the "experts" cannot produce any reliable results based on any proven methodology).  There is no firm ground. "Information" and advice cannot be trusted.

In these days when being able to rely on our own abilities to look after our money is becoming even more important it is a scandal that the financial press seems so often to delight in what is, in effect, a tabloid-esque treatment of its subject.

Personally I am currently reading a lot of this stuff because I am trying to learn (and as a whole it is useful in order to get a grip on the basics) but more than 90% of the little I do know has not come from all the journalistic "noise" but from reliable sources such as Monevator and individuals on the moneysavingexpert forums. Maybe it's just the nature of the beast but it does make me more than a little cross that the world of personal investing acts as if it deserves to call itself a science when it seems to be sadly lacking in solid technique.

(btw I put £300 in Baillie Gifford Shin Nippon this week but only because I hadn't got any Japan - otherwise the net result of reading both articles would probably have been inertia ).

Saturday 5 April 2014

Balancing Action

In light of the pension reforms in last month's budget and, after much consideration and deliberation, I finally took the plunge and opened a SIPP with Fidelity.

The charges on this product are low considering how much I expect to hold in there (only 0.35%) and "switching" funds (ie dealing) is free. So this all seems good. The only slight fly in the ointment is that the documentation talks about needing to take (paid) advice before you can start to draw down the money but hopefully this requirement will be something that is either dealt with when the budget changes are formalised next year, or it will disappear naturally over time as the new ways of working for pension funds becomes embedded.

I set the fund up with a £1000 lump sum and initial monthly contributions of £200. The money is sitting there as cash at the moment waiting for me to decide how to invest it. This is my task for the weekend.

What I Have and What I Want.

I must admit I'm struggling a little to make a decision. I know that I have a very "unbalanced" pot at the moment. The bulk of my money is in my S&S ISA (which, btw, still shows no sign of landing in my iii account - in fact I received a Manager's Annual Report from CIS this week so they still obviously have me on their books) which is invested entirely in a UK Equities Growth Fund (apart from a tiny bit in a US Fund which is a legacy from when I sold that fund off as part of a mis-selling dispute (long story).

I have started to spread my investments around a little since I set up my account on iii, but I will only be able to grow any of these new holdings very slowly with my monthly drip feeds unless I sell some of the CIS fund (when it arrives). I'm still not sure how to go with this.

However I ran my current holdings through Trustnet's portfolio tools and this is what came out:

Asset ClassesTotal(%)
UK Equities60.3
Money Market16.8
UK Corporate Fixed Interest6.6
US Equities2.5
Europe ex UK Equities1.6
European Equities0.2
Global Corporate Fixed Interest0.2
North American Equities0.1
Asia Pacific Equities0.1
Other Holdings11.6
Therefore I have a fair amount of rebalancing to do given that I would ideally like to follow the asset allocation given in the the example by Monevator (Slow and Steady Passive)
  • UK equity: 20%
  • Developed World ex UK equity: 50% (North American equity: 27.5%, European equity ex UK: 12.5%, Japanese equity: 5%, Pacific equity ex Japan: 5%)
  • Emerging market equity: 10%
  • UK gilts: 20%
However I have to admit that I do not plan to stick to passive funds only. The reasons for this are complex, not very scientific and mostly down to my personality and how I approach "projects" (which is how I see my goal of retiring when I want to). However full discussion of this is something for a future post I think.

In the meantime I have the problem of how to position my SIPP in all this. Added into the mix is the fact that I have a specific time-frame and amount requirement for the fund. I want to use it to help fund the 6 years between 60 and 66  at a level just below the tax threshold (ie somewhere just below £10,500 on today's figures). Given that I will have a very small pension from an old job, plus some rental income from our studio flat, this means that I ideally want to draw a further £8,000 a year from the my personal pensions. I will then use the ISA to top up to the £15,000 per year I've calculated we will need as a household until my LGPS and state pensions kick in.

My existing CIS FSAVC should see me safely through 60-63 as it should total around £24,000 by the time I need it, but the SIPP has to work quite hard to cover the years 63-66. Given the tax advantage, I would still need to put in at least £250 a month and gain a 6% return to reach my goal. This is within what I can afford (just) but ideally I don't want to have to resort to funding the ISA much less than I originally intended, so I'm not quite sure how things will balance out. I may need to make a judgement call on this at some point but for the moment I'm just going to see how things pan out.

In addition, and from the point of view that the SIPP has a specific job to do in a very tight time scale, I'm wondering whether to treat the pension as a different pot altogether rather than try to balance it in line with the rest of my stuff. 

Decisions, decisions...