# Rabo direct - managed funds. Which to choose?



## johnmurf83 (30 Apr 2010)

I am considering investing 20k spread across 5 investment funds from the rabodirect list of 50 odd funds. This is my first investment in equities. I wish to have an aggressive portfolio so am considering only highest risk funds. I am aware of the dangers and that value of a fund may go down as well as up and all that jazz. what i am asking is can anyone recommend 5 funds to invest in from those offered or indeed alternatives to these rabodirect funds and reasons for their choice. Thanks


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## hippy1975 (30 Apr 2010)

Don't know anything about the Rabo funds specifically, but the two absolute things I think you always need to check are 1) what are the Mgt Fees, retail funds usually have much highe fees, I would look to pay not more than 1.5% ,    Also 2) are there any exit fees on redeeming or switching within the first few years, I would not invest before getting those waived in writing, so at least if something does go south you gave the opportunity to cut your losses and put your mneu elsewhere

Good luck


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## PeterBrennan (1 May 2010)

Highest risk means you will lose your money more quickly than the others.

Then they will say 'well you wanted the highest risk'. 

You should worry more about the return of your capital (note I did not say the return on your capital) than about the fees.


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## johnmurf83 (1 May 2010)

If thats the case Peter why are the likes of J.P Morgan and companies such as these that rabodirect have access to in existence if all they do is lose peoples money. A little cynical in your outlook if you dont mind me saying. Equities have ups and down. Highest risk means the potential returns as well as losses are greater. Im sure if you look at the medium to long term returns on any of these funds listed they show a greater return than keeping money on deposit or bonds etc.


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## PeterBrennan (2 May 2010)

'Im sure if you look at the medium to long term returns on any of these funds listed they show a greater return than keeping money on deposit or bonds etc'.

Well show me the performance then.


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## Marc (2 May 2010)

This is an interesting debate about what matters most to investors.

We are all different and some of us prefer more security for our savings - the return *of* our capital that Peter talks about. That is fine and there is nothing wrong with this preference. For some people that is all that matters and we tend to think of them as savers.

However, for some people - let's call them investors - return *on* their capital is more important. They understand that risk and _expected _return are related. If I want a higher expected return,I have to be willing to bear more investment risk. 

Note that I say, *expected return*, the extra return is not guaranteed that is why it is a risk, if there was no risk there would be no extra return (this is why a tracker bond doesn't work)

So, if we compare a sample of investments over a reasonable period of time, we should find that some of these will have performed better than cash and some will have done worse.

For example if we look at the period since the birth of the Euro to the end of March 2010 (a reasonable period) which includes a lot of risk, we get the following results:

   [FONT=&quot]Cash  - German 3 Month Money Market Rate                          3.13775%pa[/FONT] 
  [FONT=&quot]Equities - MSCI World Index (gross div.)                                      1.34595%pa[/FONT]
  [FONT=&quot]Global Real Estate - S&P Global REIT Index (gross div.)                              8.31470%pa[/FONT]
  [FONT=&quot]Emerging Markets - MSCI Emerging Markets Index (gross div.)                12.89847%pa[/FONT]
  [FONT=&quot]Commodity - Gold                                                                                     12.92264%pa[/FONT]
  Source:MSCI, LBMA.org.uk,Bundesbank

So, "Stocks" as measured by the MSCI World Index had a bad time - but really this is a measure of the performance of large company stocks in the developed world.

Emerging Markets have had a great run and clearly investors were compensated for the risks they took. 

The conclusion I reach is that investors can clearly be compensated for taking investment risk, but that they also need to diversify their investments across different asset classes in order to reduce the risks.

However, the real problem here is not one of risk preference but as another poster correctly identified one of fees paid for active management.

The additional premium that an investor expects as compensation for taking investment risk can be largely swallowed up by management and trading fees and in our studies as much as 3%pa can be lost in fees and expenses.

This is the real reason not to invest in the Rabo funds - they are actively managed and therefore have high management and trading costs which reduce the returns for an investor.

For more on this subject click [broken link removed]

For an investment of €20,000 I would recommend that you check out Rory Gillen's InvestRCentre. They will help you look at the merits of a portfolio of Exchange Traded Funds (ETFs) which have considerably lower fees than the Rabo funds.


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## PeterBrennan (3 May 2010)

Marc,

I am no expert in this area but ETF's are directional bets many of them with 'hidden' fees or derivative risks. They are the latest 'flavour of the month' investment vehicle which usually means there is no 'edge' in buying them.


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## Marc (4 May 2010)

Peter, 

Fortunately I have a lot of experience advising on ETFs and have been doing so for the last 10 years. 

The original poster is looking for an "investment" not a trading strategy. They also specifically state that this is their first investment in equities.

Provided they receive competent advice about what is inside an ETF (i.e. they avoid leveraged, or swap-based contracts) and they purchase a broadly diversified index (rather that some of the highly concentrated offerings) then the "edge" that they will be obtaining over the actively managed funds offered by Rabo is a clear and transparent cost advantage.

This is an extremely simple solution for a smaller investor looking to simply buy and hold to capture the expected return from investing in equities with the assistance of a competent adviser to guide them through the maze of nonsense in the financial markets.


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## PeterBrennan (4 May 2010)

Marc,

I am sure you know a lot more about ETF's than I do. However, a fees advantage is not an 'edge' in the market. Any financial product packaged up and sold to the public has no edge. Again, ETF's are a directional bet with the subsequent risks that go with that. 

Few people understand the way the markets work which is quite simple really - the market rewards the smart money and punishes the dumb money. Why would the market reward you for purchasing a packaged financial product. Its the smart money that sells these things and makes fees in the process.


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## Marc (4 May 2010)

Peter,

The fees advantage I was referring to relates to the original posters request for a comparison with RaboFunds. The clear fee advantage between RaboFunds and an ETF means that an ETF will outperform the average actively managed fund at every single instant - this is a distinct edge in my book. In the words of Bill Sharpe:

_[FONT=&quot]"If "active" and "passive" management styles are defined in  sensible ways, it must be the case that :

(1) Before costs, the return on the average actively managed euro will  equal the return on the average passively managed euro and 
(2) After costs, the return on the average actively managed euro will be  less than the return on the average passively managed euro. 

These assertions will hold for any time period. Moreover, they depend  only on the laws of addition, subtraction, multiplication and division.  Nothing else is required."[/FONT]_
 [FONT=&quot]William F. Sharpe, Nobel Laureate in Economics, 1990, The  Arithmetic of Active Management, The Financial Analysts' Journal Vol.  47, No. 1, January/February 1991[/FONT][FONT=&quot].[/FONT]

I believe that you are having a separate debate about the merits or otherwise of a "traders edge" which has already been extensively debated elsewhere on askaboutmoney.

The Theory of speculation published in 1900 concluded that the expected return from speculation (broadly any trading strategy) is zero less costs. For you to win your bets, I have to lose mine but over time the expected return of all bets placed in the market is zero less the trading costs.

A "directional bet" as you call it is more usually referred to as a buy and hold strategy (assuming we are referring to long-only positions) or as I defined it - an investment. 

To conclude: Why would an investor purchase an ETF rather than taking a trading position in a stock? The answer to this is simple -diversification. You reduce the stock specific risks by holding a diversified portfolio of stocks in a fund.

For investors this is all that matters and it has been described as the only free lunch in investing. If you don't believe this, ask anyone with a big position in Anglo Irish Bank, or Northern Rock, or Enron.....etc.


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## Rory Gillen (16 May 2010)

PeterBrennan said:


> Marc,
> 
> I am sure you know a lot more about ETF's than I do. However, a fees advantage is not an 'edge' in the market. Any financial product packaged up and sold to the public has no edge. Again, ETF's are a directional bet with the subsequent risks that go with that.
> 
> Few people understand the way the markets work which is quite simple really - *the market rewards the* *smart money and punishes the dumb money*. Why would the market reward you for purchasing a packaged financial product. Its the smart money that sells these things and makes fees in the process.


 
Not sure where the logic highlighted in bold stems from. As Marc has outlined, an ETF will get you the return on offer with minimal cost interference. If markets are overvalued when you buy an equity ETF, then yes the returns will likely be poor. The markets deliver postive returns over the medium term assuming they are priced sensibly at the outset. Quite what smart money and dumb money has to do with that is lost on me.

What johnmurf83 is after, I believe, is an understanding of values - and whether equity markets offer value at present. A late reply given that he posted the query at end April. But Mr. Brennan's answers tend to deal with issues not relevant to the query that I felt obliged!


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## pbcup (22 Aug 2010)

I was also considering these RaboDirect investment accounts.  The fees are quite high but there are a couple of advantages to the setup for first timers like me.  There are frequent promotions waiving the entry fees, so if anyone out there is considering them too, you should be able to get them to drop these.

You can put as little as 100 euros into the different funds making it realtively easy to diversify a smaller investment, also you can withdraw your money at any time, exit fees apply.

I am not too confident when it comes to EFTs, so I like the idea of the managed fund.  Do you think that these packaged investment funds are a bad idea in general?  Or, do you think that for someone who just wants to have a chance of making a little over the terrible deposit rates on offer they are worth a punt?


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## mercman (22 Aug 2010)

To all that are considering Investing in Manged Funds in Ireland (especially), please take a look at this thread http://www.askaboutmoney.com/showthread.php?t=104059&page=2, and especially the last 6 posts on Page 2. You will then get an insight as to how these companies make their money from hidden charges without having to advise in the Irish market.

pbcup, you have listed all the reasons why not to invest in managed funds and now you simply are advising investors to get ripped off. And be advised when a problem does occur you will never get to the bottom of it. I am near 4 years trying to have problems sorted and no nearer to getting matters finalised. That is what happens when one invests in Irish funds.

PeterBrennan, please do not state massive errors. Explain as to why ETFs are classed as one of the fastest growing investment products to hit the market for years. Like all investments one must learn the knowledge, but in this market the facts are withheld from Investors.


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## Monksfield (23 Aug 2010)

In relation to both the Rabodirect funds and ETFs people should be fully aware of the tax position.In fairness the notes on the Rabo website are very comprehensive and honest (no sneaky stuff....) but be clear about it - each purchase and sale is a separate taxable event - that means no losses are carried forward .

People who invest through unit-linked funds of life companies pay higher charges but can make switches among the funds to which the policy is linked without a taxable gain/loss arising.

Essentially,ETFs or the Rabo funds make sense provided you do not intend to trade.


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## mercman (23 Aug 2010)

Monksfield said:


> Essentially,ETFs or the Rabo funds make sense provided you do not intend to trade.



Trading ETFs is a different animal that normal funds. Best to learn about each prodyct before placing your money with either.


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## pbcup (24 Aug 2010)

> pbcup, you have listed all the reasons why not to invest in managed funds and now you simply are advising investors to get ripped off. And be advised when a problem does occur you will never get to the bottom of it. I am near 4 years trying to have problems sorted and no nearer to getting matters finalised. That is what happens when one invests in Irish funds.



Just to be clear, I'm not advising anyone to invest in anything!   I just wondered if any of the knowledgeable people on the site thought that these products were good for know-nothings like me.  The answer seems to be to go out and educate yourself and go for an ETF instead.  Thanks.


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## wudyaquit (2 Sep 2010)

+1 for the ETFs.
From what I can tell, it seems the entry and exit fees go to Rabobank just for advertising the funds - they're all run by other investment house (JPM / Blackrock). Rabobank don't seem to have anything to do with them. 
For a couple of hundred euro, these funds might be better for the convenience of it, but if investing 20,000, that's 300 gone aas soon as you invest for funds that don't seem to perform especially well.
If you're going for funds, Quinn Life seems a more sensible option - much  better performing and no entry or exit fees.


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## Pauliwalnuts (31 Dec 2010)

wudyaquit said:


> +1 for the ETFs.
> Quinn Life seems a more sensible option - much better performing.


 
Seems like a very broad statement to make. Have you got any facts to support this ?


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