Hate for Unit Trusts

[wondrdoggie]

This alone would require quite a bit of cummulative wisdom from investment experience you had throughout the years, my guess. Picking a fund is not easy let alone thinking of going hands-off.

Thanks for sharing.

I am only 3 years into investing actually. A ton of things I still don't know or understand. I am essentially a marketing person trying to understand finance. But to be fair, I have a lot of help from my private bankers with asset planning, execution and rebalancing. So I didn't start from ground zero and I don't mind sharing what little I know. It can be very daunting for someone who is trying his best to learn to invest because everyone is saying he should because inflation is x% while a savings account pays microscopic interest.

 

[Shiny Things]

Even if you can demonstrate to someone that they will save say 5% by DIY, I venture not many will be able to do it. If you offer to do it for them, you would have to charge them a fee too. It may not be the full 5%, maybe 2% to make it worth your while, cover your cost and make a profit. You can make do with 2% as an individual but for a larger institution, their overheads make it impossible to survive on 2, so they may have to charge 5%. So the way I see it, fees are just payment for convenience and expertise.

Yeah, I know, it's the Augean stables over here.

My counter-argument is that Vanguard manages to get by fine on double- or single-digit basis point fees - even for their actively managed funds (Vanguard Wellington, which is actively managed, charges 20bps). The fee structure is the other way up - larger institutions and larger funds generally charge lower management fees.

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The going rate for a full advisory service, last I checked - doing the investment and rebalancing and everything - is about 1% p.a. up to a million bucks, and less below. The robo-advisors charge about 25bps, but they don't provide the additional service of collaring you during a downturn and saying "don't panic, leave your money where it is". But for generic fund management, with no advisory services, it's really hard to justify anything more than 20bps (for equities) or 50bps (for bonds) when you can get an equivalent Vanguard fund for that price or less. 1.3% (what Allianz are charging) is right out.

I've thought about doing the asset management side myself, but for the moment I'm just going to stick to the by-the-hour consulting model.

 

[focus1974]

Thanks all for your input.
I will go look thru the factsheet again..

 

[yokine3a]

ST forum: Why exchange-traded funds (ETFs) are not popular here?
ST forum: Why exchange-traded funds (ETFs) are not popular here? - The IFA on Duty

 

[Keverus]

I think unit trusts/mutual funds (interestingly, i think only singapore calls it unit trusts) have certain purpose. For instance, if I am a foreign investor and wants to invest in singapore, I can buy the index. However, the index is largely made up by the 3 banks and mammoths like keppel corp. What if, I don't want to be vested in the banking sector? a unit trust can help me achieve that. What if I don't want to be vested in large caps? a unit trust can help me achieve that.

Unit trusts come at hefty prices though.

 

[alexchia01]

I think unit trusts/mutual funds (interestingly, i think only singapore calls it unit trusts) have certain purpose. For instance, if I am a foreign investor and wants to invest in singapore, I can buy the index. However, the index is largely made up by the 3 banks and mammoths like keppel corp. What if, I don't want to be vested in the banking sector? a unit trust can help me achieve that. What if I don't want to be vested in large caps? a unit trust can help me achieve that.

Unit trusts come at hefty prices though.

If you are an investor who thinks to this depth, you definitely will want to invest yourself and not rely on unit trusts.

People who buy unit trusts don't think like that.

They just think got fund manager buy for them and it's recommended by the banks; and they trust the bank a lot. Recommend by bank definitely not wrong.

They are too lazy to even do a little research themselves.

 

[Rmondo]

Hi shiny, always awed to see you pick apart structured products.

But I guess there are very good reasons why these products are multi billion dollar industries and seem to thrive and grow. People are either lazy or really not confident to DIY (Even ETFs) and the level of personal finance knowledge in the general public is really abysmal. So I don't think things will change any time soon. A lot of people will continue to shell out fees for different reasons.

Even if you can demonstrate to someone that they will save say 5% by DIY, I venture not many will be able to do it. If you offer to do it for them, you would have to charge them a fee too. It may not be the full 5%, maybe 2% to make it worth your while, cover your cost and make a profit. You can make do with 2% as an individual but for a larger institution, their overheads make it impossible to survive on 2, so they may have to charge 5%. So the way I see it, fees are just payment for convenience and expertise.

Convenience yes, expertise is highly subjective or rather doubtful if you look at it statistically. Year in and year out, statistics point that the "expertise" fails investors.

Here's an interesting study on whether or not actively managed funds, i.e unit trusts/mutual funds actually outperforms their respective benchmarks. They've looked at a variety of funds that are out there, explores how funds tend to use an inappropriate benchmark in their prospectus, etc.

Long story short for people who can't be bothered to read, generally the ballpark figure for underperforming funds is about 75-80% of the funds.

To put under performance in perspective in case people think it means strictly negative returns, it doesn't mean your fund is making losses, generally it's not going to get to that state. [They'd be closing it long before that happens.] It just means you're paying for an expertise in picking stocks that is really just not there. Any tom dick or harry who buys the benchmark index will have a better chance of a higher return for virtually doing something that is effortless.

https://pressroom.vanguard.com/cont...he_Case_for_Index_Fund_Investing_4.9.2014.pdf