Managed Fund Advice

[Milner Magic]

Looking to get into managed funds for the first time, does anyone have any advice? Bad experiences, good deal, etc.

I am looking at ING (no fees) and Perpetual atm. Have been told to avoid Colonial First State though.

Thoughts?

 

[Catman]

I'm with Perpetual. Fairly satisfied with it so far, but not too worried as it is a long term investment. Not a huge amount of growth so far but my monthly savings plan buying the units will hold me in good stead should it suddenly increase in price.

Had a Colonial fund which I lost a fair bit on, although that was in the IT industry which crashed not long after I joined.

It's hard to pinpoint the best funds so I suggest you go to this site which I've used before to get a little bit more info on the many funds around. There you can search by a vast list of criteria to narrow down the search.

Morningstar

 

[Milner Magic]

Thanks for that!!

 

[1jasonoz]

Looking to get into managed funds for the first time, does anyone have any advice? Bad experiences, good deal, etc.

I am looking at ING (no fees) and Perpetual atm. Have been told to avoid Colonial First State though.

Thoughts?

Depends on the fund you pick. Im with Colonial First State, am in their Global Resource Fund, its up about 53% in the 2 years i have been in the fund.

 

[Frodo]

Lotto

But better than it sitting in the bank

 

[kriles76]

A good question.

Managed funds are particularly good for those not confident enough to directly invest in the share market themselves. The advantages are that you still invest in the stock-market (and other equities such as property or cash) and have seasoned experts picking the stocks. The disadvantages are that this comes at a price, fees…. namely management expense ratios (MER). You are paying for their expertise, their research and the broking costs incurred in investing.

I first decided to invest in managed funds in September of 2000 after being dazzled by the potential returns offered by BT Funds in a magazine (15% p.a over the prior three years). So I invested in a managed fund with international exposure and it lost value immediately. PANIC! In reality, I bought in at the worst time. The markets were at their peak, the bull market was coming to an end, US recession was just about to kick off, the Australian dollar was starting to climb, and the fund manager made some ‘speculative’ investment decisions. I didn’t sell though as crystallising a paper loss is a last resort action or unless you really need the money bad. I still persist with this fund and overall I’m still down 8% on it, but it will return to being profitable if the $A drops. With the US economy starting to take off now and looming Australian interest rates rising, this looks extremely likely.

But after a few educational experiences (read: paper losses) and some great wins (30+ % returns on some funds), I’m ahead and appreciative of my fund portfolio. The trick is to diversify and not put all your eggs in the one basket. One market is sure to be up if others are down. Also do your research. Don’t pick the first thing that comes along as I unfortunately did.

What you have to ask yourself is what kind of investor you are and what level of risk you are prepared to take. Many good investment broking websites have a risk profile calculator (a series of multiple-choice questions), which asks you questions such as – will you sleep at night if your holdings go down a little… or will you sell out at the first sign of a loss… and how long you intend to invest. This will churn through your answers and suggest to you a risk profile – where you should invest your money.

The other question you need to ask yourself is how long you are prepared to invest for. If it’s only for a year, stick to an internet savings account that will offer you a decent return for no risk. If you’re saving for a home loan deposit and want the money by a certain date – do not invest in funds/sharemarkets because there is every chance you could make a loss and if you need the money then and there at a certain time, you will crystallize that loss. Funds and shares are generally long-term investments – and you need to take a 5 to 7 to 10-plus year view.

If you are prepared to invest in growth and higher risk equities over the medium to long term, you could do worse than to pick a portfolio that consists of 30 to 40% in Australian shares, 30 to 40% in international shares, about 10% in property security fund, and the rest in a balanced/diversified fund.

Australian share funds are good because the Australian market traditionally pays high dividends, meaning you should receive good distributions. Thanks to franking credits, you will also receive a benefit come tax time as much of the tax from your earnings should have been paid already on your distributions by the companies you’ve invested in.

International markets are good because they make up 98% of the world markets. You can indirectly invest in global highfliers such as Microsoft, Exxon-Mobil, General Electrical, Pfizer, Nokia, et al, that you can’t on the Australian Market. I think now is a particularly good time to buy international shares/funds because the oil prices have driven the share prices down and our over-valued Australian dollar will at some stage fall when the US economy kicks into gear. Not only will you enjoy value growth from increased share value, but the appreciation of the $US will add to your gains. I bought into some AXA global value shares in February this year when the $A was 78c and now that its 70c, I have made almost a 10% profit in six months alone.

This is the opposite to me buying into international shares in 09/2000 when the $A was about 50c. As the $A is now about 70c, I in theory have made a 40% loss on currency conversion alone. Lucky for me there has been some growth to cushion some of that loss. Some of these funds will break-even for me when the $A hits the low 60c mark. If it returns to the $A 50c I initially bought in at, I should be 20% ahead if the shares retain their current value. Dollar-cost averaging has helped drop the average price as well.

Property funds are great money spinners because they invest in commercial and industrial property – like office buildings and shopping centers, not residential which is more cyclical. Returns are greater than residential property typically. Commercial tenants are much more reliable and generally tenants lock in medium to long term leases and you don’t have to worry about ********ty tenants that default on their rent and do the bolt or trash your place. 10+ % returns over the past 3 to 5 years and a great addition to any diversified portfolio.

Balanced/Diversified funds are a good entry-level investment because they themselves invest in a little bit of everything, such as domestic and international shares, property and cash and bonds. Less risk equals lower returns but if you’ve only got a bit to invest this is the way to start.

Cash/Bond/Income funds are very low risk and therefore reflected in low returns. Only consider this if you’re retiring in a few years and don’t want to risk losing money or just saving for something you want to buy in a short-term period.

Dollar-cost averaging is a great strategy to consider. Okay, so you’ve invested $1,000 in a fund and in a couple of months the price goes down 5% (one of my funds lost 10% in value from June to August this year – a great opportunity, not time to panic). Why not invest some more at the lower value to reduce your average price per unit (share). If the prices return to the original investment price, you will have made a profit! A monthly investment plan is strongly advised, particularly straight out of your pay packet. Invest the money before you get a chance to spend it on crap you don’t need – apparently a concept many Australians don’t understand. Timing is important but not everything. Dollar-cost averaging through regular investment helps to smooth out those timing blemishes.

Also consider re-investing your dividends back into your fund. This means you are effectively getting shares for free (less tax of course) at a post-distribution price. This also works to lower your average fund unit price. It also takes advantage of the compounding effect – wonderful phenomenon that it is.

As for a suitable fund manager…. tough choice… Perpetual is generally well regarded (although I haven’t invested with them myself)… Colonial First State (CFS) I have found to be excellent (has made me heaps of cash- 20+% per annum returns over the past 2-3years)… BT Funds (erm… not so great but with some well-performed funds)… Platinum is the cream of the crop (but at a $25k entry level a bit out of reach for most unless you consider a margin/equity loan). Direct bank-owned funds (such as those run by CBA, NAB, ANZ etc… ) are relatively crap although there are exceptions – and that being said a lot of fund managers are owned by the banks anyway – CFS owned by Commbank, BT funds owned by Westpac and so on.

My advice is to visit a website such as www.commsec.com.au or www.investorweb.com and these will have information on just about any fund there is and functions to allow you to sort them by type, returns, and ratings (reputation), even download a prospectus. DON’T invest directly through a fund manager but through a broker such as Commsec, as this may save you anything up to 5% on the investment price, typically because the brokers offer a discount on the entry price.

And don’t be fooled by glitzy ads spruiking a 30% return in the last 12 months – it’s probably done its dash already and there’s no guarantee it will do the same after you invest into it. For instance, any Aussie share fund that hasn’t returned at least 10 % over the past 12 months is crap. Likewise most international share funds over the same period.

In addition to the above, consider how your super is invested. Most of it is invested in managed funds anyhow. Most super funds these days allow to choose your investment strategy. If you are reasonably young like me (<30 y.o.a), consider a high-risk/high-growth strategy as it should return the most and if you have 20-40 years to make it grow, it will comfortably absorb any market losses. My investment split is 70% aggressive shares (read: local and international blue-chips), 20% balanced/diversified investments and 10% property securities. Don’t consider super as some out of reach entity you’ll obtain in 30-40 years time. Make it begin working for you now.

Consider that $1,000 invested now at a return of 5% p.a. will grow to in excess of $7,000 in 40 years time. So its important to invest it wisely now and not leave it too late.

Good luck!

 

[1jasonoz]

Good advice Kriles76 .

 

[kriles76]

Hi Jason,

How are you travelling - still working on those ships?

Btw, that CFS Global Resources fund was a great buy. I luckily bought just at the right time last year in January and bought into the CFS Developing Companies, and Geared Share funds just before the market picked up again. Small Caps have done very well for me.

All the best for the Roos next year!

K

 

[Mong]

I've been in CFS for a few years now. Can't remember exactly when I joined off the top of my head but I think it was around 2000.

I started in the Future Leaders fund, then after a while I withdrew half of that and split it into Developing Companies and Global Resources, slowly adding into each over time.

I had substantial losses over the first year or two but it recovered well and is now doing nicely, although my overall profit at this stage is lower than I'd hoped (I too was drawn initially by figures of 20-30% pa for year prior to when I joined). But now I am around 30% up on my initial investment which isn't great over 4 years but there were some very poor returns on a couple of years that hopefully are the exception.

My advice is to be prepared to stick through the tough times. A decent fund will come out on top eventually.


****

 

[year of the roo]

Sensational advice Kriles76!!

 

[lenny&carl]

Very short answer? Exactly what Jason said.

Long answer? Well there's a lot to it! Trying to keep it as brief & to the point as possible???, one of the most incisive and insightful investment ideas I've ever heard was via Marc Faber (known as "Dr. Doom" which makes him sound like a fringe wacko, but he's actually quite establishment and very sensible and convincing and successful,) what he said was that in order to be a sucessful investor you really only need to make one or two correct decisions per decade! He don't mean one or two big trades or lucky breaks, rather he means that you have to understand what the megatrend is that's in play. For sure it's a hell of a lot easier in retrospect, but for example, in the early 70's commodities were mega cheap but rose 10-20 fold by 1980. At that stage the prices were getting nutzo, and some went parabolic at the end there, which is the sign to leave the party on the first real price breakdown or sooner.

But at the same time then, general equities were completely hated, only losers bought them, but God they were cheap compared to today looking at p/e ratios, dividends, price to book etc. Sure it would've taken courage to buy right at the bottom, but smart cookies were buying then on strong rational basis', popular impressions be damned. Same goes for bonds at that time (I'm talking USA here, because it's all I know.) If you bought big on general stocks and bonds at that time, and had the you-know-whats to moreorless hold hold hold and ride the tiger all the way to it's destination, you would've made amazing cumulative returns. Same goes for Asian shares through the 80's, or especially tech in the 90's. Getting out of tech sometime after 99, and into property at that time would've been an awesome move... I was bearish on property even by then - missed a huge party. I'm still negative, and still being proven wrong. Late 90's tech was one of the most insane episodes in the recorded history of markets... a bit like when a single tulip (yeah the flower,) was worth more than a house in Holland way back when. A website selling dog food and other petshop crap was worth many billions of dollars... seems nuts now, but only a few years ago you had all sorts "experts" explaining why they should really be worth 10's of billions of dollars.

I'm pretty confident that commodities are back in a big way for the next 5-15 years, (and oil/energy is going up for the next 100 years barring some serious left-field out-of-the-blue turn-up,) because of pure supply/demand...prices have been so low for so long that nobody bothered building any new capacity, or finding new resources etc, allthewhile all of us kept consuming them...as a "system" we were thinking electricty comes from a socket, oil comes from a servo, molybdenum comes from a... hang on, I've never thought about it for a single second of my life.

But guessing the next trend is uh slightly trickier than understanding the dynamics of the previous big trends, of course. But if you don't want to be a semi-full time trader type... watching every chart, listening for every buzz, jumping in & out, then you only really want to be making very few decisions ideally. You want to work out what's on sale, what's unloved despite its positive future, what's kicking arse and paying off despite a general disregard. We all go largely on other peoples' say so, whether it's some alleged expert, or the suburban finacial planner-jobber sitting in front of you. It's not so easy. but charts can help. A 5 year chart on every sector out there will help pretty much anybody.... i reckon most people innately can read a pattern and say up, down or sideways. But then to get fancy you want a 20 or 30 year chart, converted to constant dollars, to give more of a hstorical perspective.

Hang on, this has turned into War & Peace, and I haven't got to fund selection yet. You want to pick one or two sectors which you have good reasons and feelings for, and then you want to pick the better fund managers in those sectors. Going with 2,3 or 4 choices is nearly always better than sticking with 1, even with funds, because you want to be substantially involved in THE mover of the times, (most the rest will be going backwards or nowhere - except in '03) so by going with your top pickS rather than your top pick, you increase the probability of being there for the ride. Following this logic, you could buy a "hooray for everything" fund, but that way you might only have 3 or 5% exposure to the hot scene, rather than probably 25%+. Ardunno, that's my theory this evening whilst drunk.

 

[kriles76]

One more thing to consider.....

Considering that we are just about to pass the 3rd anniversary of 9/11, remember that share markets took an absolute belting soon after that.

The consequence of that now is that 3 year-returns for most funds are going to start going through the roof in the next month or so because the prices 3 years ago dropped heavily.

The 3 year return is basically a comparison of price now vs. the price 3 years ago. If the price from 3 years ago dropped for some reason and the current-day prices are constant, it raises the 3-year return.

Don't believe the hype the fund managers give about great returns in this instance and take the 3-year returns for what they are.

 

[hoss]

I've had a good run lately with Perpetual and Colonial First State, though some analysts have downgraded CFS in the last year, due to mainly a guru funds manager leaving the company (they haven't done that badly the last 12 months actually.) I had a terrible first 4 years with Perpetual, but they've come good too.

Although, funds have a degree of diversity by nature, you may want to consider a few different companies and/or asset groups. I have a bit in smaller co shares, international, industrial, SE Asia etc in a few companies. This is more important if you are investing with a margin loan (gearing).

With a high Aussie dollar much of the international gains are cancelled out, so you might possibly just consider Aussie shares at the moment.

Most important advice is probably - "buy them...then forget about them". Also buy when you can afford to, sell some if you absolutely need to. Don't try and time the market, just get into it ASAP. Whats that saying "It's time in the market, not timing the market which is most important". Also look into dollar cost averaging and get your dividends reinvested.

Pretty much what others have said.

Good luck with it all.

Also use a company like Direct Access, Neville Ward or Trading Room to get your prospectuses - you probably won't have to pay any entry fees which can be as high as 5%. I've never paid any entry fees through Direct Access.