Fund choice in managed funds for retired couple

Cantillon said:

Q1. if property prices and rents have risen so much in many European countries, how come the Eurozone Property fund has done the worst? It's peak was 13,600, now at 12,400? This is the worst preforming fund by a long way.

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Eurozone property.

The Eurozone Property fund is performing poorly because some of the constituent companies in the EPRA European Property Index, in which the fund invests via an ETF, have performed very very poorly. EPRA has produced a report this month on inflation and European property values that concluded inter alia that “The current inflationary pressure is likely to be temporary and its short-term impact should represent a positive driver for the listed real estate industry in Europe”. Inflation_Analysis_-_February_2022_1644232083444.pdf (epra.com) . Of course, many would say that these reports should be taken with a grain of salt. [Note, I’ve a very small investment in this fund, and am evaluating this holding.]

Cantillon said:

Q2. Unless there is some sort of disaster, these funds will never be encashed. If cash is required for long-term care, there are deposits available. Given that, should we do a fund switch? Get out of Eurozone Property, Eurozone Equity, Dividend Growth?

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Eurozone Equity

Eurozone equities are a key holding for eurozone investors. You get equity returns without exchange rate risk. If volatility is not an issue you should consider retaining this investment. [Note, I’m retired and I’ve 20% of my holdings in eurozone equities, and I’ve no intention of reducing this investment. Then again, my attitude to risk may be different to yours.]

Cantillon said:

Q3. I realise there is overlap between these funds. The three mixed funds probably hold the same shares, but just in different weights with bonds. The three mixed funds hold eurozone equities, and bonds. Is there an argument to simply hold one mixed fund?

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All your managed funds have different objectives. If the fund managers meet these objectives, why change? Remember, fund switching costs in that you will be selling at the bid and buying at the offer.

If you have deposits, i.e. guaranteed by the Deposit Guarantee Scheme, you have, in effect, risk-free bonds, although admittedly they currently pay little or no interest. So why are you investing in the Long Bond Fund? Long term bonds carry interest rate risk, i.e. when interest rates rise, the price of fixed-rate bonds falls. The US Securities and Exchange Commission has issued an investor bulletin on this ib_interestraterisk.pdf (sec.gov) that it might be prudent to read. [I'm retired, but I've no investments in long-term bonds. It is sort of a bet on your life expectancy vs the maturity of the bond.]

[Disclaimer: The above is comment / observation and is not a recommendation to follow any particular investment strategy or to buy / not buy any particular fund or stock.]

DK123 said:

I dont think these elderly people should be encouraged to be involved in managed funds or shares or advised to do so after saving and working hard all their lives.Perhaps State Savings or cash so that they can sleep sound and have peace of mind.Just my humble opinion.

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Some managed funds / shares can be part of assets after retirement,

Retirement can be 25 years long.

IGNORE

Protocol said:

Some managed funds / shares can be part of assets after retirement,

Retirement can be 25 years long.

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Perhaps 10 to 15% maximum of the portfolio for the "ordinary working man"?.

Here is an update on the managed funds of this retired couple, aged 75 + 85.

• Original amount = 100k in 2007, Eagle Star Matrix investment bond
• 101% allocation
• Execution-only, nil commission, so broker added 3.5% to the 100k
• Therefore, worth 104,500 at the start
• Split equally across eight funds
• AMC = 1% on all funds (at the start, I note one of them is 1.28% now)

2015 first deemed disposal, 41% exit tax applied

• 49,700 gains
• 20,365 tax paid

2023 second deemed disposal, 41% exit tax applied.

• gains = 82,635, I don't understand this yet
• tax paid = 13,514
• I think the two tax amounts make up 41% of the 82,635?

May 2024 value is 173k, that's after 17 years, including the effects of nearly 34k exit tax paid.

From 104,500 to 173k means 65% growth over 17 years, not as good as I expected.

A few comments on the growth:

(1) it is 73% if you include the extra 1% allocation, and the 3.5% broker's commission refunded

(2) the 173k is below the original projection. The Eagle Star projections based on 5.62% growth pa were for 181.5k after 15 years and 221.5 at 20 years. However, these are based on 23% exit tax. Was it really that low in 2007!!!!

(3) one of the funds has performed very badly: indexed Eurozone Property, down 25% since 2007. I realise that 2007 was a peak for property prices, and I know that capital values have fallen over the last few years. In 2019 this fund was worth 13,611.


2024 values:



What to do now?

• Since I posted last year, I have not done anything, partly because of problems trying to register for online access.
• There is no short-term obvious need for these funds
• The couple have 350k on deposit, and save maybe 1,000 each month into deposit accounts
• The fund performances highlight to me the importance of holding shares over the long-run

These are my thoughts:

(1) cut the losses on the property fund? Do a fund switch into a mixed asset fund like Performance?

(2) was I wrong to hold two bond funds, given that there are some bond holdings in the three mixed asset funds? Maybe sell the two bond funds, and switch into one of the three mixed-asset funds?

(3) maybe sell seven funds, and switch everything into Performance?

I welcome any comments.

Cantillon said:

• AMC = 1% on all funds (at the start, I note one of them is 1.28% now)

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The table suggests otherwise - column 2:

Cantillon said:

Risk rating 2024	AMC on 2024 statement	Additional AMC	Other ongoing costs	Launch date	Fund size 2024	Holdings	Details
Active Fixed Income	4​	1.00​	0	0	19.06.1995	1,299	40	actively managed by Zurich
Long Bond	5​	1.00​	0	0.01	01.04.2003	71	30	actively managed by Zurich
Balanced, 50%-75% shares	5​	1.00​	0	0.04	01.11.1989	2,796	700	actively managed by Zurich
Performance, 65% - 90% shares	5​	1.00​	0	0.04	01.11.1989	2,164	700	actively managed by Zurich
Dynamic, 75% - 100% shares	6​	1.00​	0	0.03	01.11.1989	2,835	700	actively managed by Zurich
Eurozone Equity	6​	1.00​	0	0.04	01.04.2003	116	100	actively managed by Zurich
Dividend Growth	6​	1.00​	0	0.01	01.07.2005	316	170	actively managed by Zurich
Indexed Eurozone Property	6​	1.28​	0.40	0	01.08.2007	238	invests in iShares ETF

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Cantillon said:

2015 first deemed disposal, 41% exit tax applied

• 49,700 gains
• 20,365 tax paid

2023 second deemed disposal, 41% exit tax applied.

• gains = 82,635, I don't understand this yet
• tax paid = 13,514
• I think the two tax amounts make up 41% of the 82,635?

May 2024 value is 173k, that's after 17 years, including the effects of nearly 34k exit tax paid.

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The statement(s) should clarify the details of the deemed disposals.

Cantillon said:

From 104,500 to 173k means 65% growth over 17 years, not as good as I expected.

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Most likely becasuse of poor asset allocation/selection - e.g. there should be no bonds at all etc.

Cantillon said:

What to do now?

• Since I posted last year, I have not done anything, partly because of problems trying to register for online access.
• There is no short-term obvious need for these funds
• The couple have 350k on deposit, and save maybe 1,000 each month into deposit accounts
• The fund performances highlight to me the importance of holding shares over the long-run

These are my thoughts:

(1) cut the losses on the property fund? Do a fund switch into a mixed asset fund like Performance?

(2) was I wrong to hold two bond funds, given that there are some bond holdings in the three mixed asset funds? Maybe sell the two bond funds, and switch into one of the three mixed-asset funds?

(3) maybe sell seven funds, and switch everything into Performance?

I welcome any comments.

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Seems to me that you ignored some very useful comments from various contributors a year ago in this thread and are asking very similar questions again.

My original point stands:

ClubMan said:

If the investment is unlikely to be cashed in then why not simply one all/mostly equity index tracker? I'm not sure what happens on death tax wise with such a fund. Maybe direct equity investments would be better since the CGT liability disappears on death?

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And by churning the investments and seemingly trying to time the market you are most likely simply going to incur losses or at least miss out on potential gains.

ClubMan said:

Seems to me that you ignored some very useful comments from various contributors a year ago in this thread and are asking very similar questions again.

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E.g.:

Marc said:

This is like the old joke about how to get to Limerick, you wouldn’t want to start from here.

You hit the nail on the head with Q3

The original broker simply didn’t understand how to construct a portfolio.
So you shouldn’t anchor your investment decisions now to what you currently hold at all but rather consider what you should be invested in now.

For example you have three distinct multi asset strategies, balanced. Performance and dynamic each with its own risk rated asset allocation.

These are designed as a single fund selection either balanced or performance or dynamic with the asset allocation decisions being made by Zurich.

You could do a lot worse than picking the most suitable one of those options and tidying things up that way. You would also avoid having to start over with a new contract.

There would be no point whatsoever in starting a new life insurance contract with another company which would also be subject to exit tax.

However, the “textbook” answer for your circumstances would have been to have invested in a more bespoke portfolio subject to general tax principles rather than an off the shelf retail investment fund.

This would have allowed income to be taxed at your marginal income tax rates (you are not paying PRSI now and each have a USC exemption) rather than a flat rate of 41% and capital gains would be taxed at CGT rate of 33% with no 8 year deemed distribution and no CGT on death.

When I set up in Ireland in 2008 almost nobody was thinking that way and that is partially because up until the end of 2008 the exit tax rate was only 23% and has increased over the years to the now stubbornly high rate of 41%.

Everlake Guide to Investing in Ireland - Everlake

Our Guide to Investing in Ireland aims to help you understand the relatively complex Irish tax and investment landscape.

everlake.ie

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Hello,

I think the correct approach here (assuming that you are sticking with this policy) would be to allocate 100% of the assets into one of these 3 funds.
Balanced 50-75% equities
Performance 65-90% equities
Dynamic 75-100% equities

All 3 of these funds are highly diversified (700+ holdings) and also have exposure to Fixed Income Bonds, Dividends and Eurozone stocks, meaning you don't need to allocate to the other choices (unless you have a specific rationale for doing so).
So then the only question becomes how much risk are you willing to take. The higher the %, the higher the risk and probably the higher the return (as you can see from the performance so far).

Personally I would pick Performance 65-90% equities.

"Actively managed" sounds impressive if you don't know anything at all about the research evaluating actively managed funds....Actively managed funds always underperform in the longer term, as does property. Drop all the actively managed funds and the property funds. As for bonds....

Go all in with an index tracker. 5* 5* North America seems to track the S&P 500. It's (S&P) is overpriced right now, but timing the market is a mugs game and if it's a long term punt it's the best risk-reward balance.

SquirrelChaser said:

Actively managed funds always underperform in the longer term,

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You mean actively managed mixed/multi asset funds underperform 100% equity tracking funds in the longer (15/20/30?) term?

SquirrelChaser said:

5* North America seems to track the S&P 500.

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This fund (currently, with 50 holdings) seems to be tracking the S&P 500?

GSheehy said:

You mean actively managed mixed/multi asset funds underperform 100% equity tracking funds in the longer (15/20/30?) term?



This fund (currently, with 50 holdings) seems to be tracking the S&P 500?

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I stand corrected, 5 * 5* is actively managed.

The research shows that funds outperforming the market are vanishingly rare. The longer a fund has been around the lower the likelihood that actively managed funds do better than index funds. And if i recall correctly the relatively rapid retirement of underperforming funds flatters the data because the ones which have been lucky are kept....it's easy enough to google it if you doubt it!

SquirrelChaser said:

The longer a fund has been around the lower the likelihood that actively managed funds do better than index funds.

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You haven't answered my question. Are you comparing actively managed mixed/multi asset funds with 100% equity trackers?

Can you post a link to the "longer term" index tracking figures you're using for comparison purposes? Preferably ones that include platform fees for access to the funds plus other ongoing fund and portfolio transaction costs.

In your "research evaluating actively managed funds" have you compared the (after charges) figures of the 5*5 Americas with the (after charges) figures of the S&P 500?

GSheehy said:

You haven't answered my question. Are you comparing actively managed mixed/multi asset funds with 100% equity trackers?

Can you post a link to the "longer term" index tracking figures you're using for comparison purposes? Preferably ones that include platform fees for access to the funds plus other ongoing fund and portfolio transaction costs.

In your "research evaluating actively managed funds" have you compared the (after charges) figures of the 5*5 Americas with the (after charges) figures of the S&P 500?

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I'm not a search engine. It'll take you 5 minutes to find 10 links on Google. And anyway I can't post links.

AJAM said:

Hello,

I think the correct approach here (assuming that you are sticking with this policy) would be to allocate 100% of the assets into one of these 3 funds.
Balanced 50-75% equities
Performance 65-90% equities
Dynamic 75-100% equities

All 3 of these funds are highly diversified (700+ holdings) and also have exposure to Fixed Income Bonds, Dividends and Eurozone stocks, meaning you don't need to allocate to the other choices (unless you have a specific rationale for doing so).
So then the only question becomes how much risk are you willing to take. The higher the %, the higher the risk and probably the higher the return (as you can see from the performance so far).

Personally I would pick Performance 65-90% equities.

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Thanks to you and all contributors who provided answers.

Yes, what you suggest is our plan.

I have registered for online access, and we can now see live daily fund values.

The first four fund switches are free of charge. We are in the process of instructing the broker to dispose of four of the funds:



Just as you suggest, we are moving into the Performance 65-90% shares mixed fund.

We may do more fund switches in January.

I have two comments:

(1) I still can't get over the performance of the Eurozone Property fund. I know capital values of commercial property have fallen, but what about 17 years of rental income???

(2) the holder of these managed funds also has an ARF, which is in the Zurich Performance fund. Should we be concerned to have 180k managed fund in Performance fund, and ARF also?

Thanks/

Cantillon said:

Should we be concerned to have 180k managed fund in Performance fund, and ARF also?

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No, I don't think so. Again the overall question boils down to what level of risk is appropriate, which in turn translates into what is the appropriate % of the Overall portfolio to hold in cash vs bonds vs equities.

Cantillon said:

I still can't get over the performance of the Eurozone Property fund. I know capital values of commercial property have fallen, but what about 17 years of rental income???

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Looks like you invested in 2007, right before the crash. A lot of the REITs are highly dependent on interest rates too, so the recent period of rate hikes (and now rate cuts) can mess up their balance sheets for a year or two.

They are aged 75 + 85, gross income 50k approx.

Deposits of maybe 350k.

These managed funds = 180k.

ARF in Zurich Performance fund = 60-70k approx

Maybe 600k in financial assets, of which over 50% on deposit.

The Zurich Performance Fund is currently: 78% shares + 17% bonds + 5% cash

(250k) (0.78) = 195k shares
(250k) (0.17) = 42.5k bonds
(250k)(0.05) = 12.5k cash


Out of 600k financial assets, that would be:

Shares 195k = 32.5%
Bonds 42.5k = 7.1%
Cash = 350k + 12.5k = 362.5k = 60.4%

Driving the car looking inthe rear view mirror fun fact on the Performance Fund (indicative equity range 65% - 90%).

It was 35 years old (since launch) on 31/10/2024 and it's averaged 9.97% pa, after all costs, over that period.

Cantillon said:

Thanks to you and all contributors who provided answers.

Yes, what you suggest is our plan.

I have registered for online access, and we can now see live daily fund values.

The first four fund switches are free of charge. We are in the process of instructing the broker to dispose of four of the funds:

Long Bond

Dividend Growth

Eurozone Equity

Eurozone Indexed Property

Just as you suggest, we are moving into the Performance 65-90% shares mixed fund.

We may do more fund switches in January.

I have two comments:

(1) I still can't get over the performance of the Eurozone Property fund. I know capital values of commercial property have fallen, but what about 17 years of rental income???

(2) the holder of these managed funds also has an ARF, which is in the Zurich Performance fund. Should we be concerned to have 180k managed fund in Performance fund, and ARF also?

Thanks/

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Just to confuse you a bit more, I believe the Zurich dividend growth has well out performed the three Zurich funds your keeping in the last three years. In short , your disposing the best performer of the last 3 years ( just a thought)

I don't want to be picking sectors, picking shares, etc.

I want large, broad funds, with diversification.

You may be correct about the Dividend Growth fund, I have not checked. See the table and chart below.

Given that the vast majority of their overall portfolio is in Cash, you can happily crank up the % of equities within the funds.

Cantillon said:

Shares 195k = 32.5%
Bonds 42.5k = 7.1%
Cash = 350k + 12.5k = 362.5k = 60.4%

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Overall this looks like an appropriately conservative allocation (for a 75/85 year old) to me.
Make sure the Cash is earning some interest, not just sitting in a current account.