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Struggling to understand difference between OCR & RIY
chubby bunny
Posted: 14 January 2018 16:08:05(UTC)
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Yeah, £45 is a good deal for those with larger share portfolios. Fidelity have followed suit with their recent platform upgrade, undercutting HL's trading fee by £1.95 while having the same cap of £45.
Mickey
Posted: 14 January 2018 16:13:15(UTC)
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chubby bunny;55377 wrote:
...It is indeed quite expensive to hold small amounts in ITs on HL, and someone investing £5000 would be better off using cheap, flat fee brokers like iWeb, X-O and SVS.


That seems a strange comment to me. Any amount of IT's are free to hold in a HL Fund & Share account, maximum annual fees of £45 in an ISA and £200 is a SIPP.
Big boy
Posted: 14 January 2018 16:28:41(UTC)
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It would be interesting to see what the bid/offer (savings/mortgage) spread is on a building society a/c.

King Lodos
Posted: 14 January 2018 17:10:00(UTC)
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Stephen B.;55370 wrote:
Personally I'm always skeptical that performance fees make any difference at all to how a fund gets managed, it may be more that a performance fee is an easier sell if the performance seems to be good. And if the fee is asymmetrical, i.e. not negative for underperformance, it's if anything an encouragement to take risks, with a benefit if they come off and no penalty if they don't. Private equity is different, there it's a standard part of how it works, and the managers generally are taking an active involvement in the running of the investee companies.

As for closet trackers - I'll offer to run two funds, once with the 50 biggest companies and one with the next 50, and take a performance fee if I outperform the FTSE ... hey, I'll do it with only the performance fee. (A variant on the old betting scam - I'll give you a tip, you only have to pay me if you win.)


There's a short chart of fund rankings vs performance fees .. In some sectors it might seem it correlates with better performance.

Often the performance fee is applied for beating an arbitrary benchmark, like Libor +3% .. So then the aim is just to post the highest return they can, while the board's aim is to find the best manager they can .. I think if you view a trust as a business, then incentivising better performance potentially gives you a better business .. If you think markets are efficient – and managers are guessing – then performance fees are insane

http://www.moneyobserver.com/sites/default/files/UK%20sector%20investment%20trust%20performance%20fees.png
2 users thanked King Lodos for this post.
Tim D on 14/01/2018(UTC), Mike L on 14/01/2018(UTC)
Stephen B.
Posted: 14 January 2018 17:28:36(UTC)
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If you have a manager you think is good who absolutely insists on a performance fee then it may be acceptable, but private equity aside that isn't my impression, I think the fees are just part of the negotiation between the board and the manager. It's also worth remembering that the fees are paid to the fund management company, not the actual manager - it may well be that the manager gets a personal bonus regardless of the fee arrangement, and certainly their perceived rating (e.g. from Citywire) will depend on their performance which will count for a lot more in the long run. Also the total size of the fund has a lot more impact on the cash amount than any bonus - if managers were really that concerned about money they wouldn't take contracts for small funds at all. Also the work may be shared over funds, e.g. if there's a similar but larger OEIC the IT may effectively cost very little to manage.
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Tim D on 14/01/2018(UTC)
King Lodos
Posted: 14 January 2018 17:36:50(UTC)
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The fact it goes to the board means there's incentive to kick slacking managers out, and pay a premium for talent.

And re: size .. If you can achieve a better return (and fee) with a smaller fund, it incentivises doing more distributions (as hedge funds do) to keep the fund an optimum size .. Something Standard Life GARS *really* could've done with – there was no incentive for them to stop the fund growing to £27bn (as flat performance didn't matter).

These are the kind of things I think are good arguments for performance fees .. The biggest problem I see with active management is apathy .. You think how difficult it is to get on a trading desk for a top hedge fund – where you're going to be supported by MIT graduates and machine learning – and then you find retail funds over here run by a pair of Art History grads with 3 years investing experience .. There are large parts of this industry where they don't feel they have to try
3 users thanked King Lodos for this post.
Tim D on 14/01/2018(UTC), chubby bunny on 14/01/2018(UTC), Alan M on 15/01/2018(UTC)
Stephen B.
Posted: 14 January 2018 17:55:41(UTC)
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If I imagine myself as a fund manager I find it hard to see what difference a performance fee would make to my decisions. In fact I *am* a fund manager - I manage my own funds, and my reward is all performance-related and is growing over time with the size of the fund, but I don't think it makes much practical difference to how I invest.
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Mickey on 14/01/2018(UTC)
chubby bunny
Posted: 14 January 2018 19:01:44(UTC)
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Mickey;55383 wrote:
chubby bunny;55377 wrote:
...It is indeed quite expensive to hold small amounts in ITs on HL, and someone investing £5000 would be better off using cheap, flat fee brokers like iWeb, X-O and SVS.


That seems a strange comment to me. Any amount of IT's are free to hold in a HL Fund & Share account, maximum annual fees of £45 in an ISA and £200 is a SIPP.


By expensive, I meant relatively speaking. It's only £22ish a year which, though pocket change for some, is still 0.45% you wouldn't be paying using flat fee platforms. If you're a smaller investor and £5000 is what you have in an IT ISA, HL is not the best choice. If that £5000 is part of a larger portfolio, HL is a good option.
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Mickey on 14/01/2018(UTC)
King Lodos
Posted: 14 January 2018 19:35:44(UTC)
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Stephen B.;55389 wrote:
If I imagine myself as a fund manager I find it hard to see what difference a performance fee would make to my decisions. In fact I *am* a fund manager - I manage my own funds, and my reward is all performance-related and is growing over time with the size of the fund, but I don't think it makes much practical difference to how I invest.


But your returns *are* your performance-related pay.

If you were paid £20 a day regardless of how you did, but you'd lose your portfolio if you underperformed the FTSE100 for too many years, you'd probably invest like the FTSE100.
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Mickey on 14/01/2018(UTC)
Stephen B.
Posted: 14 January 2018 19:49:26(UTC)
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If a significant fraction of my income depended on performance relative to the FTSE then I'd have to be aware of the index and not stray far from it, regardless of the fact that I think it's a poor strategy. If I'm simply paid a fraction of the total, as in fact I am from my own investments, then I just try to make it grow at a reasonable rate as best I can. However I don't work harder at it as I get richer - probably the reverse if anything as further gains get less important.
King Lodos
Posted: 14 January 2018 20:11:36(UTC)
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If hitting a 20% year means you take home twice as much as 10%, you're going to swing for the fences.

It's astonishing how many retail funds look virtually identical to the benchmark .. There isn't a single major hedge fund manager who manages their own money like that – it's just not what you'd do if the incentive is to outperform


martin b.
Posted: 18 January 2018 14:29:49(UTC)
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As I understand it with HL the £45 cap on fees for ITs in an ISA is not for each individual IT but for the total amount held in ITs.

eg.

If I have 15,000 in each of 4 oeics = total 60,0000.
HLs annual cut is 60,000 x 0.45% = £270

Buy if instead
I have 15000 in each of 2 ITs and 2 ETFs = total £60,000.
HLs annual cut will be £45. (Not 45x4 which would be £180)

Is that right?
Martin
Stephen B.
Posted: 18 January 2018 14:35:38(UTC)
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Yes, £45 max for any amount of ITs, ETFs and shares.
Jim S
Posted: 18 January 2018 14:36:47(UTC)
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martin b.;55593 wrote:
As I understand it with HL the £45 cap on fees for ITs in an ISA is not for each individual IT but for the total amount held in ITs.

eg.

If I have 15,000 in each of 4 oeics = total 60,0000.
HLs annual cut is 60,000 x 0.45% = £270

Buy if instead
I have 15000 in each of 2 ITs and 2 ETFs = total £60,000.
HLs annual cut will be £45. (Not 45x4 which would be £180)

Is that right?
Martin


That was my understanding but I don't think its explicitly stated as 'across all holdings' (unlike for SIPPs where that is clearly stated on the website)
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martin b. on 18/01/2018(UTC)
Stephen B.
Posted: 18 January 2018 14:37:19(UTC)
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Indeed for shares they make their money from trading commission and the more holdings you have the more trades you're likely to do, so it wouldn't be in their interest to push people to limit the number.
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martin b. on 18/01/2018(UTC)
Jeff Liddiard
Posted: 26 January 2018 19:38:06(UTC)
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King Lodos;55329 wrote:
RCP is fairly unique.

Any other defensive fund is basically going to be some combination of stocks, bonds and cash .. Ruffer's worth a look, but in most cases the appropriate Vanguard Lifestrategy probably does better just because it's cheaper.

But if you take this view that stocks and bonds are so expensive, thanks to QE, they're almost guaranteed losers, then a fund like RCP that can generate returns from lots of other sources (like macro trading and long/short), and do it well, is adding something to a portfolio that won't necessarily show up looking at 5 year returns




So which Vanguard LIfestrategy fund is the appropriate one to use instead of RCP to obtain the same /similarly defensive position at the lower fee?
Mickey
Posted: 27 January 2018 09:14:22(UTC)
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Jeff Liddiard;55997 wrote:
So which Vanguard LifeStrategy fund is the appropriate one to use instead of RCP to obtain the same /similarly defensive position at the lower fee?

I would suggest that none of the Vanguard LifeStrategy funds is an alternative for RCP, they are different beasts.
2 users thanked Mickey for this post.
Jeff Liddiard on 27/01/2018(UTC), Tim D on 29/01/2018(UTC)
Rishan
Posted: 29 January 2018 16:57:24(UTC)
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Thanks for starting this thread martin b. I had not looked at a KID document before because everyone says they're nonsense. The expected performance certainly looks that way. However, the RIY is eye opening and in the case of RCP, eye watering. So much so that I have just sold my holding (only bought before xmas) at a loss of dealing fees and stamp duties.
Big boy
Posted: 29 January 2018 17:31:53(UTC)
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When paying cleared funds from my HL a/c its paid within 2 hours whereas from my Halifax a/c it takes 2/3 days.

Has anyone a view on this issue. I have spoken to Halifax and they seem happy with their procedures..... its even more annoying that both payments go into my Halifax Bank a/c.


Jim S
Posted: 29 January 2018 18:08:58(UTC)
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Rishan;56093 wrote:
Thanks for starting this thread martin b. I had not looked at a KID document before because everyone says they're nonsense. The expected performance certainly looks that way. However, the RIY is eye opening and in the case of RCP, eye watering. So much so that I have just sold my holding (only bought before xmas) at a loss of dealing fees and stamp duties.


Thanks for the heads up Rishan, 4.03% does seem very high indeed. I will be paying more attention to these kiid docs from now on

It would be nice if the RIY figure was more readily available in lookup tables in morningstar, trustnet etc.

I wonder if it will be 2 more years before we learn the true cost we pay for OEICs
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