# Choosing funds for Standard PRSA



## Mona G (9 Mar 2020)

I am about to set up an execution only 100% allocation 1% AMC Zurich Standard PRSA.

I know nothing about investing as I guess listening to the Newstalk’s Breakfast Briefing doesn’t count. But what seems apparent is that the markets have become even more unpredictable and volatile since I have put down my initial pension query on this forum in November 2019 here https://www.askaboutmoney.com/threads/should-i-go-ahead-with-this-standard-prsa-offer.215129/

As a follow up, I was hoping to get some advice and comments on my choice of funds to invest in.

My risk profile works out as 2-3 with the Zurich risk profiler. But I was advised to go 4-5 at the beginning so I can build up a fund quicker and then move to ‘safer’ choices.

I will be starting from scratch, with €200 contributions per month, occasional lump sum.

I have reviewed the 20 funds available to choose from and none of them is index linked, so I cannot follow the advice from my previous thread. I have looked at the funds annualised performance in the last 10 years. I’ve tried to reduce currency risk, but some of the best performing funds have % of the fund invested overseas.

This is my plan:

Risk Rating 5 – 25% - Dynamic (multi asset)
Risk Rating 4 – 50% - Long Bond (bonds)
Risk Rating 3 – 15% - Active Fixed Income (cash & bonds)
Risk Rating 2 – 10% - Prisma 2 (multi asset)

What do you think?

Mona


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## RedOnion (9 Mar 2020)

You've about 20 years to retirement?
Put it in a diverse equities fund, and forget about it for 10 years. Don't look at the daily increases or decreases - there'll be many between now and retirement.




Mona G said:


> I’ve tried to reduce currency risk


Don't overestimate currency risk. Take a company like Diageo for example. Their base currency is GBP. But their income is worldwide. You've very little exposure to GBP FX risk buying them - if GBP devalues, their share price (quoted in GBP) increases. It's similar with any global company - their income in spread across multiple currencies, so your FX exposure isn't always to the currency the share is quoted in (or even for Euro based companies, they've exposures to global currency fluctuations).


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## Mona G (9 Mar 2020)

Thank you so much @RedOnion!


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## 1dave123 (9 Mar 2020)

Hi Mona G

I am extremely risk averse.  I suffered during the 2000-2003 sell off and the 2008 crisis and felt the pain.

However ...............  after 20+ years following markets I eventually satisfied myself that over the long term equities is the place to be .... particularly now with bond yields being so low.

Whilst totally understandable, I think your fund choice is too conservative.

Hopefully having learned something from past mistakes - if it were me ............... I would go with something like

* 50%    Prisma 5    (80% equities mainly USA - but has a 10% exposure to commodities)
* 20%    Asia Equities
* 20%    European Equities
* 10%    Gold Fund

Some quick points in no particular order

*   If bond yields increase the value of the bonds in your fund will reduce – Long Bond Funds particularly so.

*   Some bond yields are now close to zero – incredibly some are even negative. How much more negative can they go?  Long term – I see yields rising.  

*  Given the amount of Central Bank money printing going on – at what point will inflation make a re-appearance ....... Inflation would be very very bad for bonds espec bonds with a long duration.

*  Don’t get hung up on currency risk.  Diversify – across different currencies. Consider for a moment the risk of being 100% in the Euro.

* Rather than paying in a large lump sum at the outset you are averaging in (€200 per month) – this mitigates against volatility risk.  So for example if the equity market drops 50% between now and end of year – that is very good news for you because your future €200 p/m will be buying in at a lower price.   The current 20% equity sell off really is excellent news for you.

* The 1% FMC only tells part of the story. The real fund cost is the Total Expense Ratio (TER). From memory the TER of the Prisma 2 Fund is about 1.85% p.a. But check this with Zurich.

*  Prisma 2 is 33% Cash .... Cash that yields negative 0.4% p.a. currently .......... now add this to the Fund TER .......... So, broadly speaking 1/3 of your investment in this fund will give you a guaranteed negative return each year as things stand.  Not good.

* D don’t underestimate the value of a good nights sleep.  Fund Selection A may on the balance of probabilities deliver a better return than Fund Selection B but if Fund selection A is going to keep you awake at night then Selection A is not the right one for you.

* Finally, seriously consider sitting down with an independent Fin adviser who can flesh out some of the above and maybe correct any mistakes I have made above. An hour should do it as u know what product u want – u just want to focus on fund choice.

Best of luck !


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## Mona G (10 Mar 2020)

@1dave123 - this is brilliant, thank you for all your advice and the helpful explanation of how things work!


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## Mona G (10 Mar 2020)

10% Gold Fund is not available to me. How about if I replace it with 5*5 Global - it is also an equity fund, 'select group of up to 50 equities across the globe'?


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## Sarenco (10 Mar 2020)

IMO you could do far worse than simply investing your monthly contributions in the Zurich Balanced Fund.

Simplicity is the ultimate sophistication.


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## 1dave123 (10 Mar 2020)

That's a pity about the gold fund as I like diversity.  In that situation I would simply allocate the 10% between Asia & European equities. So I would go with 

* 50% Prisma 5 (80% equities mainly USA - but has a 10% exposure to commodities)
* 25% Asia Equities
* 25% European Equities

I remember looking at the 5*5 Global some time back and I pretty sure the TER was very high .......  >3.25% p.a . U can check with Zurich though. 

The important thing though - and I must stress this - is that this is the fund choice that I would be comfortable with for my own investments - U need to be satisfied that it is right for you.  It may not be. 

Just as an example - I wont invest in funds with any significant % of bonds - so I wouldn't put my own money in a Managed Fund or Balanced fund which frequently have 20%-30% in Bond exposure.  But that's not to say that such a fund would not be perfect for you or for someone else.

Do give some thought to speaking with an Independent Fin Advisor though.


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## Mona G (10 Mar 2020)

Thank you again @1dave123! 
@Sarenco - sound advice, but I do like an idea of investing in a variety of funds.


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## Sarenco (10 Mar 2020)

Mona G said:


> I do like an idea of investing in a variety of funds


Ok but it’s important to avoid “analysis paralysis”.

Why not start off your PRSA with the Balanced Fund and then give yourself, say, a year to educate yourself about different asset classes and how they can be combined to form a cohesive portfolio?

If you decide at the end of that year that you can improve on the portfolio represented by the Balanced Fund then you can always switch into other funds.


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## Gordon Gekko (11 Mar 2020)

Allocate 100% to the International Equity fund. And don’t look at it for at least 10 years.


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## Freddie (11 Mar 2020)

Gordon Gekko said:


> Allocate 100% to the International Equity fund. And don’t look at it for at least 10 years.


Sorry to jump in OP but I'm in a similar position with a 15-20 year timeframe. Is the International Equity fund with Zurich too? Looking for a diversified fund that I can make monthly contributions to and like you said not look at it for 15 years.


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## GSheehy (13 Mar 2020)

1dave123 said:


> The 1% FMC only tells part of the story. The real fund cost is the Total Expense Ratio (TER). From memory the TER of the Prisma 2 Fund is about 1.85% p.a. But check this with Zurich.



Most recent information I have is that the TER (or Ongoing Charges Figure used by UCITS on their KIIDS) brings the Prisma 2 to 1.02%.


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## 1dave123 (13 Mar 2020)

TER could very well be 1.02% p.a..  

Note entirely sure what this is though - pdf attached.  This is Prisma 2 on their Life Savings Plus Product (also AMC of 1% pa).  Ongoing Costs per year = 1.78%+0.14%


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## GSheehy (16 Mar 2020)

1dave123 said:


> Not entirely sure what this is though



That's a SID (Specific Information Document) introduced under Packaged Retail and Insurance-based Investment Products Regulations - PRIIPs

KIIDs (Key Investor Information Documents) provide *generic* information, address the market in general and highlight the worst case scenario to the investor. 

For this reason product providers are obliged to use the worst available charging structures in order to determine the RIY. What you're looking at is a charging structure used to determine the RIY of 95% allocation, 1.75% AMC. Therefore the RIYs shown demonstrate the worst case scenario for the client & will in practice illustrate a much higher RIY than those actually applying to the client specific policy as typically the modern charging structures are much more client favourable.

The same methodology in calculating RIY on KIDs is used on SIDs so charges are inflated a) if you're buying a product that has 100% allocation and 1% AMC and b) if there was a period of 5 years positive fund performance. 

The KIIDs and SIDs of today will be different in the future. 

There are also different SIDs, for the same fund specific information, for different savings and investment products, from the same provider.

This post is about a PRSA so these documents are not available. PRIIPs doesn't apply to pensions. The document refers to "T_he amounts shown here are the cumulative costs of the product itself, for three different holding periods. They include potential early exit penalties._ There are no early exit penalties on a PRSA.

That's my understanding of it anyway but always open to correction.


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## 1dave123 (16 Mar 2020)

That's very helpful - thanks for posting.


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## nest egg (21 Mar 2021)

1dave123 said:


> TER could very well be 1.02% p.a..
> 
> Note entirely sure what this is though - pdf attached.  This is Prisma 2 on their Life Savings Plus Product (also AMC of 1% pa).  Ongoing Costs per year = 1.78%+0.14%
> 
> View attachment 4363



Sorry to dig up an old thread, but I'm trying to find the same document for the Prisma 5 fund, does anyone know where I can find this?


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## GSheehy (22 Mar 2021)

mojoask said:


> Sorry to dig up an old thread, but I'm trying to find the same document for the Prisma 5 fund, does anyone know where I can find this?



All the funds under the different products are available here 

But, as I stated above, there are no PRSA PRIIPS documents so the information you're reading isn't really relevant for comparison purposes as there are no early exits charges on PRSAs and the AMC is maxed at 1%. 

Gerard

www.prsa.ie


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## nest egg (22 Mar 2021)

GSheehy said:


> All the funds under the different products are available here
> 
> But, as I stated above, there are no PRSA PRIIPS documents so the information you're reading isn't really relevant for comparison purposes as there are no early exits charges on PRSAs and the AMC is maxed at 1%.
> 
> ...


Thanks Gerard for responding. What I'm trying to estimate is the annual cost for Prisma 5. Based on the link you sent, I came across this document (pg3) and this one (pg2) which I think do give me the answer.

If I've understood correctly, the costs are: a Zurich AMC of 0% (for PRSAs), plus a 0.15% fund charge, plus the PRSA AMC (let's say 1%).
Meaning ~1.15% comparable TER/OCF.  Is there anything I'm missing?

_"All Zurich’s funds, including the Zurich Prisma fund range, have a base AMC of 0.4% per annum (or 0% for PRSAs), which is included in the unit price of the fund. Any further charges, if applicable, are taken via unit-deduction from the policy. The additional other ongoing charge figures (as at 31/12/2019), *can be added to the contract AMC to produce a figure that is comparable to a Total Expense Ratio (TER) or an Ongoing Charges figure (OCF) used under the UCITs regime*.

Fund Charge _

_Prisma 2 0.02% _
_Prisma 3 0.07% _
_Prisma 4 0.12% _
_Prisma 5 0.15% _
_Prisma Max 0.11% _
_Source: Zurich, January 2020"_


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## GSheehy (22 Mar 2021)

The latest figure I have for Prisma 5 OCF is 0.11% but, it's always going to vary depending on fund activity/management.

Gerard

www.prsa.ie


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## nest egg (22 Mar 2021)

GSheehy said:


> The latest figure I have for Prisma 5 OCF is 0.11% but, it's always going to vary depending on fund activity/management.
> 
> Gerard
> 
> www.prsa.ie



Good to know, thank you.
Other than those I've listed, are there any other charging types missing in terms of how I'm calculating the overall cost?


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## GSheehy (22 Mar 2021)

Portfolio Transaction Costs (PTCs). These are not disclosed within TERs or OCF's on UCITs KIIDs.

OCFs & PTCs are included in the unit prices of the funds, so the 'performance figures' of the fund has these built in.

Gerard

www.prsa.ie


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## Gordon Gekko (22 Mar 2021)

GSheehy said:


> Portfolio Transaction Costs (PTCs). These are not disclosed within TERs or OCF's on UCITs KIIDs.
> 
> OCFs & PTCs are included in the unit prices of the funds, so the 'performance figures' of the fund has these built in.
> 
> ...



Hi Gerard,

Thanks for all that information; it’s very helpful.

I think it gets to the nub of the issue.

I could be wrong, but it seems to me that elsewhere on AAM, people have painted “insured” pension products as ridiculously expensive based on misleading information. Or am I wrong?

It appears as if the disclosure documents paint the worst picture possible (e.g. high AMC plus broker taking a big commission).

But I have a PRB through one of the life companies at 0.5% and it’s invested in their own equity fund. I don’t think the total cost measured in MiFID terms would be much higher than that.

Am I wrong in that?


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## nest egg (22 Mar 2021)

GSheehy said:


> Portfolio Transaction Costs (PTCs). These are not disclosed within TERs or OCF's on UCITs KIIDs.
> 
> OCFs & PTCs are included in the unit prices of the funds, so the 'performance figures' of the fund has these built in.
> 
> ...



Appreciate you clarifying the situation. Those costs exist in all funds, whether actively or passively managed, I would assume. In that respect, am I as well to ignore them for the purposes of comparison, at least within a Zurich portfolio?


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## GSheehy (23 Mar 2021)

@mojoask

Yes, they exist on all active/passive funds. As they're not explicitly disclosed, but reflected in the (Zurich Life) unit prices, you could park them for the purpose of your exercise.

Gerard

www.prsa.ie


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## GSheehy (23 Mar 2021)

Gordon Gekko said:


> I could be wrong, but it seems to me that elsewhere on AAM, people have painted “insured” pension products as ridiculously expensive based on misleading information. Or am I wrong?



There's good value in some sectors of the 'insured' market for the €100 per month regular contribution plans and larger single (& some regular) contribution plans.  



Gordon Gekko said:


> It appears as if the disclosure documents paint the worst picture possible (e.g. high AMC plus broker taking a big commission).
> 
> But I have a PRB through one of the life companies at 0.5% and it’s invested in their own equity fund. I don’t think the total cost measured in MiFID terms would be much higher than that.
> 
> Am I wrong in that?



For a broad, in house, equity fund the OCFs shouldn't average more than 0.1% on top of the AMC.

Gerard

www.prsa.ie


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## Gordon Gekko (23 Mar 2021)

Thanks Gerard. That’s completely at odds with what’s been contended elsewhere on the site, and it’s more in line with my own thinking. If I’m in Zurich’s International Equity fund at 0.5%, institutional trading costs behind the scenes obviously won’t be zero, but they can’t be much more than 10bps.


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