Hate for Unit Trusts

[alexchia01]

I will buy unit trust if i think the fund manager can perform better than myself as a stupid individual

If you view yourself as a stupid individual, then any fund manager can perform better than you.

Why degrade yourself?

Should view yourself better than any fund manager, even the best.

 

[Edwan@]

You are absolutely right, I asked you in this forum and your explanation made sense to me.

I also went to ask the person who tried to sell the fund to me. The answer was "don't worry, they have been paying dividend for many years already, very safe".

There are many things to be learnt from this forum, just have to make sure reading the right post from the right person. Yours for example.

did you withdrew from the fund?

 

[focus1974]

I am considering leveraging up on the Allianz Income Fund...
now yield is around 8%...
cost of funding might be 1.5%...
so net spread is 6.5%
ROIC = 32.5% pa if interest rate stays at 1.5%

 

[wondrdoggie]

I am considering leveraging up on the Allianz Income Fund...
now yield is around 8%...
cost of funding might be 1.5%...
so net spread is 6.5%
ROIC = 32.5% pa if interest rate stays at 1.5%

You mean the Allianz income and growth fund? I have quite a bit of that and I am happy with the 8% so far. But among all my managed funds, the ones that performed best are those managed by JPM managers, mostly double digit growth over 2-3 years on average (but 2012-2013 were good years for equities) And I pay 0.75% fee per year to them, I don't mind at all. No need to do any work on my part. I do think some managers can generate alpha, tricky part is picking them and past performance doesn't mean future performance. I rely on my bankers to pick them for me. So far, I am happy.

 

[Dyhalt]

Most Unit Trusts have 3 issues where seasoned investors dislike in general.

1. High management fee. 2% annual fee might sound small, but consider average annual return of 8%, 2% is effectively 25% of your profit being taken by the Trust management while you bear all the risk.

2. Lack of transparency. Yes you get the breakdown of the assets the Trust owns every month, but the way, timing and method of how the funds are being used are not disclosed in general... and yes they will give you a 170++ pages of prospectus to explain to you mostly useless stuff and hide the key facts in a sentence investors will tend to overlook.

3. Inability to claim back your investment in a timely manner. In stock if you sell your holdings you get your money within a week at most. Unit Trust the redeem process can take up to a month or longer, this is highly unfavorable when crisis struck.

 

[wondrdoggie]

Most Unit Trusts have 3 issues where seasoned investors dislike in general.

1. High management fee. 2% annual fee might sound small, but consider average annual return of 8%, 2% is effectively 25% of your profit being taken by the Trust management while you bear all the risk.

2. Lack of transparency. Yes you get the breakdown of the assets the Trust owns every month, but the way, timing and method of how the funds are being used are not disclosed in general... and yes they will give you a 170++ pages of prospectus to explain to you mostly useless stuff and hide the key facts in a sentence investors will tend to overlook.

3. Inability to claim back your investment in a timely manner. In stock if you sell your holdings you get your money within a week at most. Unit Trust the redeem process can take up to a month or longer, this is highly unfavorable when crisis struck.

The funds I have, availability is daily. And funds come in within a few days. Didn't realize unit trusts take so long to clear. Any idea why?

Anyway, I don't think funds are always evil, depends on what you prefer to spend your time doing. Doing it yourself may be cheaper (if you know what you are doing), but there are people who have no interest or aptitude or time to research, track and time. To each their own. But always diversify, even if you buy funds, don't out all into 1 fund.

 

[Terran19000]

FSM longest is T+10 to clear, not sure about other platforms or banks though.
Agreed, funds are not always evil, if it suits your risk appetite, and your objectives, constraints, by all means go for it. At the end you pay people to manage the money for you, just choose wisely.

 

[Dyhalt]

The funds I have, availability is daily. And funds come in within a few days. Didn't realize unit trusts take so long to clear. Any idea why?.

During normal circumstances if you redeem your units it can be cleared in days. But back in 2009 when the financial crisis the redeem time was extended depending on types of trusts you were in.

I have no written proof to back this information, but it was being shared by several of the HNWI associates who were invested heavily into unit trusts back in 2009. The risk of delayed payment was written into the prospectus so I believe if you are into unit trusts, you will have to be very careful with whats written in the prospectus before making the decision.

cheers

 

[wahkao3]

The funds I have, availability is daily. And funds come in within a few days. Didn't realize unit trusts take so long to clear. Any idea why?

they purposely one

dun rely on fund managers. Run your own fund. I have more advantage than them

 

[wondrdoggie]

they purposely one

dun rely on fund managers. Run your own fund. I have more advantage than them

Your posts never fail to make me laugh. The consistency with which you flog your methodology and abilities is admirable. Haha!

I do run a small fund on the side for myself for US stock. I am doing pretty well, but really a lot of work! Some nights I forget or am too tired to check, I will miss opportunities. That's why I come to the conclusion, I don't want to spend too much time on this. Plus so far my managers are giving decent returns so I am good.

 

[RM2SSG]

Anyway, I don't think funds are always evil, depends on what you prefer to spend your time doing. Doing it yourself may be cheaper (if you know what you are doing), but there are people who have no interest or aptitude or time to research, track and time. To each their own. But always diversify, even if you buy funds, don't out all into 1 fund.

Question. If one does not have the interest or aptitude or time to research/track the fund, how would one pick which fund to buy?

I think unit trusts can formed part of a person's portfolio as well but I am not sure if it is true that one can just buy any funds without proper research (hence effort/interest/time would be required.).

 

[Mancunian2]

Your posts never fail to make me laugh. The consistency with which you flog your methodology and abilities is admirable. Haha!

I do run a small fund on the side for myself for US stock. I am doing pretty well, but really a lot of work! Some nights I forget or am too tired to check, I will miss opportunities. That's why I come to the conclusion, I don't want to spend too much time on this. Plus so far my managers are giving decent returns so I am good.

His FATA is just an empty slogan along the lines of "confidence for the future"

Do either mean anything ?

 

[wondrdoggie]

Question. If one does not have the interest or aptitude or time to research/track the fund, how would one pick which fund to buy?

I think unit trusts can formed part of a person's portfolio as well but I am not sure if it is true that one can just buy any funds without proper research (hence effort/interest/time would be required.).

True, a certain amount of homework is still needed but Less effort than individual picks with a lot more diversification.

My personal approach is top down and I try my best to be systematic. I have an asset allocation plan which is global, so I will have certain percentage for say equities from the US, Europe, SG etc. that I need to fill. If i am under allocated in small/medium caps US equities, I will look for funds that fit those criteria. Or in anticipation of banks doing better when rates raise, I may want to pick up a fund that focuses on financials. In my case, I will get my bankers to recommend or just go bloomberg to check. Basically, I will look at past performance against benchmark and also the background of the manager.

Another thing to note, everyone is focused on how much alpha a manager generates against benchmark, but to me as a long term investor, I am also concerned about the downside whether the manager loses more or less than benchmark when market falls. Volatility is an important factor to consider.

 

[Shiny Things]

I am considering leveraging up on the Allianz Income Fund...
now yield is around 8%...
cost of funding might be 1.5%...
so net spread is 6.5%
ROIC = 32.5% pa if interest rate stays at 1.5%

Yeah no, this is a bad idea, not least because you're paying something like 6% p.a. in fees (1.2% * 5x leverage).

You're looking at that phat yield and thinking lustful thoughts, I can tell.

Here's a couple of things to think about:
* The fund isn't actually yielding eight percent - it's basically paying out all of its capital gains to fund that 8% yield. If they have a down year, they're going to have to cut the dividend;
* Because you're so heavily leveraged, a small drawdown will be incredibly painful. The fund had a 5% drawdown at the beginning of this year: at your leverage you're talking about, that's an instant 25% kick in the nuts;
* Your funding cost won't stay at 1.5% for long - it'll go up as soon as the Fed hikes rates.

If you won't listen to me, and you decide you absolutely have to do it, at least do me a favour and don't do it via the Allianz fund. You can make an extra 5% p.a. - five percent! - by cutting out the fund manager and replicating it using ETFs: a 60-40 mix of VTI (the Vanguard Total Market index fund) and BSJH, a 2017 target-date bond fund. (And you can trim the tax even further by buying VUSD on the LSE instead of VTI.)

Any situation where you can look at it and think "hey, that's free money lying on the ground there!" probably isn't free money lying on the ground.

Edit: For posterity's sake, here's the replication of the Allianz fund. Look at the white line (the original fund) and the orange line (the replicating portfolio) - see how the white line is always a few ticks below the orange line? That's fees sucking up your money.

 

[focus1974]

His FATA is just an empty slogan along the lines of "confidence for the future"

Do either mean anything ?

Yes, it means FATA and Confidence for the future is More Good Years Ahead. lol.
Sounds familiar..

 

[Shiny Things]

Question. If one does not have the interest or aptitude or time to research/track the fund, how would one pick which fund to buy?

Darts at the paper, that's the time-honoured method.

Seriously though, anyone who blindly buys into a fund because they like the font on the termsheet, or the colour of the salesman's tie, or whatever, should take a long hard look at themselves.

If you don't know how to research a fund, or don't want to, then the right answer is to buy a cheap, boring index fund instead.

 

[RM2SSG]

I am considering leveraging up on the Allianz Income Fund...
now yield is around 8%...
cost of funding might be 1.5%...
so net spread is 6.5%
ROIC = 32.5% pa if interest rate stays at 1.5%

I was offered the same thing by a bank. 1:1 ratio.

You forgot to put in upfront sales charge and ongoing platform fees if any, which can be very high and it applied to your own money plus the leverage bit.

Assuming you have looked through the fund prospectus and understood how they make that kind of returns, I suggest you open a spreadsheet and put in a few numbers to see at which point you have to start worrying about liquidating. It was an interesting exercise for me just playing with numbers. Sort of like what-if scenarios. A few parameters you need to vary; interest rate, NAV values, dividend. Also ask the bank at which point they will do margin call.

You mean the Allianz income and growth fund? I have quite a bit of that and I am happy with the 8% so far.

One thing I could not get good answer on Allianz Income and Growth fund was how do they pay such high interest? Did you manage to figure that out? Other friends told me likely from deposits (so is shinny in this forum) but I am curious how long can they go on like that.

 

[RM2SSG]

My personal approach is top down and I try my best to be systematic. I have an asset allocation plan which is global, so I will have certain percentage for say equities from the US, Europe, SG etc. that I need to fill. If i am under allocated in small/medium caps US equities, I will look for funds that fit those criteria. Or in anticipation of banks doing better when rates raise, I may want to pick up a fund that focuses on financials. In my case, I will get my bankers to recommend or just go bloomberg to check. Basically, I will look at past performance against benchmark and also the background of the manager.

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.

 

[wahkao3]

Yes, it means FATA and Confidence for the future is More Good Years Ahead. lol.
Sounds familiar..

His FATA is just an empty slogan along the lines of "confidence for the future"

Do either mean anything ?

here i never say anything about fata leh.
why everything I say u all will somehow link to FATA one?

 

[wondrdoggie]

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.