[Tactical Nuclear Penguin]

Hi everyone,

Read an article in the Sunday Times last weekend talking of the relative merits of investing medium to long term in an asset fund and it gave a case study example of this girl who had invested in Aberdeen Asset Management's Emerging Markets Fund when she was a student.

Anyone know anything about this? I've done a bit of research and the returns seem good from like 2002-2007 and in 2010 but with dips in between. There is a % charge on your initial deposit and roughly 1.5% charge annually.

Minimum initial investment is £500. Is this a good option to do at the moment, as this article suggested? Obviously this would go through a stocks and shares ISA for tax efficiency

Thanks in advance!

[SoNottingH]

My father has placed an investment for me of about £18K (I'm only 16) in several similar funds and they both have charges, he has them invested over several years in a stocks and shares ISA which he will later transfer to me, I believe he chose ones that have relatively low charges. He says that many funds don't outperform index tracker funds over the long term though, so it is hard to pick winners - he works in venture capital, so I am hoping his judgement is better than the average! Apparently you should look really closely at the charges, as they can easily eat up any gains you might make. He says there is money to be made at the moment in some markets, for example one company he is involved with are busy buying Greek assets!

[Tactical Nuclear Penguin]

(Original post by SoNottingH)
My father has placed an investment for me of about £18K (I'm only 16) in several similar funds and they both have charges, he has them invested over several years in a stocks and shares ISA which he will later transfer to me, I believe he chose ones that have relatively low charges. He says that many funds don't outperform index tracker funds over the long term though, so it is hard to pick winners - he works in venture capital, so I am hoping his judgement is better than the average! Apparently you should look really closely at the charges, as they can easily eat up any gains you might make. He says there is money to be made at the moment in some markets, for example one company he is involved with are busy buying Greek assets!

Thanks for your help! Has anyone else got any other thoughts?


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[mucgoo]

Notts right. Statistically managed funds do have no better returns than tracker funds once you've include the much lower fees; 0.25% vs 1.5% or so.
Don't use past performance as a guide to future performance. That really is true.

How much do you have and how long do you wish to invest it for is the key bit of information you've left out.

[michael321]

(Original post by dudleyian)
Thanks for your help! Has anyone else got any other thoughts?


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IMO unless you know what you're doing, now is a bad time for the stock market/funds. This whole Greece/Spain/Euro crisis will drag on for some time yet. As such I would be wary about investing unless you know what you're doing and can go for something long-term.

Also, emerging market funds (though naturally they vary) are generally quite high risk. So there may be the opportunity to lose plenty of money as well as make some.

[ruperts]

You can set up a stocks & shares ISA through an online broker and invest much smaller sums than £500 and also get discounts on the initial charge. That way you can invest monthly and thus smooth out the ups and downs (this is called pound cost averaging).

Funds are generally less risky than buying shares individually as they offer a degree of diversity, but there is still considerable risk involved.

As for active managed (as in Aberdeen Emerging Markets, where a fund manager makes the decision on which stocks to invest in and you pay for that service through higher fees) vs passive funds (index trackers which just invest in an index such as the FTSE100 which requires no manager and therefore has lower fees), it is true that there is no guarantee that the active managed fund will do any better than the index tracker, but I think active managed funds are better for getting into markets which index trackers can't do effectively, such as emerging markets.

If you want to do this I would setup an ISA and dripfeed an affordable amount into say five or six funds. When choosing funds, use trustnet.com to run an analysis of your fund choices which will show you a geographical/sector breakdown. Play with this until you are happy with your choices and then go for it.

[cl_steele]

Be careful investing these days especially if youre new to the market, my dad invested £20,000 in some fun little ISA's back in 05 watched in distain as their value went through the floor, by the time he cashed them hed lost £7500 ... be very careful investing.

[ruperts]

(Original post by cl_steele)
Be careful investing these days especially if youre new to the market, my dad invested £20,000 in some fun little ISA's back in 05 watched in distain as their value went through the floor, by the time he cashed them hed lost £7500 ... be very careful investing.

All the more reason to invest now. A full economic cycle lasts at least 10 years. Your Dad invested at almost the very top of the cycle, and appears to have sold almost at the very bottom. Buy high sell low is never a very good strategy. If you invest now you're buying low. Things could still get worse, of course, but when stocks have taken a bit of a battering like they have it's the time to buy, not the time to sell.

[DeeDub]

It is impossible for us to give an opinion as we don't know your precise circumstances. Thus it is best to restrict the information to facts rather than opinions.

There has been much research and the evidence suggest that in the long term actively managed funds do not give a better return once fees are taken into consideration when compared to passive funds. Both active and passive funds are generally designed to be held for 5+ as you need time to re-coup the cost incurred due to the front loading fees for entering the fund.

The general advice is that a person should begin their investing portfolio by starting with a cash savings amount which they leave intact, before moving into low risk investments. The cash amount prevents unexpected needs for liquidity from damaging returns due to short term adverse price movements of your non-cash investments.

You should be aware of the structured products offered by retail banks such as FTSE trackers or bonds which pay a fixed coupon dependent on the FTSE being above a certain level. The structure of these products mean they often suffer from dividend leakage which means you are only getting the price return on the index rather than the total return.

Do some research and studying yourself and perhaps seek the advice of an independent professional.

[cl_steele]

(Original post by ruperts)
All the more reason to invest now. A full economic cycle lasts at least 10 years. Your Dad invested at almost the very top of the cycle, and appears to have sold almost at the very bottom. Buy high sell low is never a very good strategy. If you invest now you're buying low. Things could still get worse, of course, but when stocks have taken a bit of a battering like they have it's the time to buy, not the time to sell.

haha see usually id agree with you but he cashed them in late 07 before the bubble burst, if hed held on well he may aswell have stuck it through the shredder

[SoNottingH]

(Original post by cl_steele)
haha see usually id agree with you but he cashed them in late 07 before the bubble burst, if hed held on well he may aswell have stuck it through the shredder

My dad says it's very very difficult to guess these cycles, even experts and famous top fund managers get them totally wrong. He says there are niches though where people make money based on there close personal knowledge of particular markets and sectors and manage to buck the trend, but that managed funds often defeat even those people just through charges.

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[ruperts]

(Original post by SoNottingH)
My dad says it's very very difficult to guess these cycles, even experts and famous top fund managers get them totally wrong. He says there are niches though where people make money based on there close personal knowledge of particular markets and sectors and manage to buck the trend, but that managed funds often defeat even those people just through charges.

This was posted from The Student Room's iPhone/iPad App

Your dad is spot on just like he was from your earlier post. It's more or less impossible to time the market. The important thing is to make sure your approach is long term enough so that you can leave your money invested right through the cycle and preferably several cycles. If you're only planning on investing for five years, then you risk buying high and selling low, but if your approach is 20 years plus, then market movements in the intervening years don't matter so much. If you invest regularly, say monthly, then downward movements in the market are actually a good thing as you get more shares for your money, safe in the knowledge that when the cycle swings around again and things start looking up you will be well placed to take advantage. A lot of people will only buy when things look safe, and by then it's often too late.