In my search for the best place to make regular savings for both my own children and godchildren I have recently reviewed a holding I have with a popular Unit Trust provider that invests predominately in UK Equities. The fund’s objective is: “To achieve longer term capital growth through a portfolio of investments in UK companies”.

In itself this seems to be a reasonable aim but does it meet all of my investment requirements? I am certainly investing for the longer-term, the eldest godson that will benefit from this holding is only 10, and my son is only just 1 so there is plenty of time to reap the reward of ‘growth’. But is an investment that focuses on UK equities the ‘best’ place to be? I find myself thinking are ‘all my eggs in one basket’ and that I am not following the philosophy of maintaining a ‘balanced portfolio’. Although the fund would pride itself as being of moderate risk couldn’t I afford to take more risk bearing in mind I am investing for 10 years or more?

One of the driving principles at Proposito Financial Planning is to keep charges to a minimum and further inspection of the funds factsheet tells me the following. There is a 5% initial (sales) charge which means for each £1 contribution made, 95 pence is invested. There is an Annual Management Charge (AMC) of 1.5% and the Total Expense Ratio (TER) is currently 1.73%. Put simply, £86.50 would be deducted from a £5,000 fund annually to pay for charges (don’t forget that a £5,000 investment has already cost you £5,263). Using round figures, over 10 years the cost of establishing and maintaining a £5,000 investment would have been over £1,000.

These charges are very much inline with what you would expect to pay for any ‘actively managed’ fund and with an overall fund size of £144.6 million, from the TER alone the Fund Manager and his team of analysts are being paid something in the region of £250,000 a year to make investment decisions on behalf of the fund’s investors. So is the fund manager earning his keep and delivering above average market returns? A further review of the factsheet reveals that the fund has under performed the sector benchmark in 3 out of the last 5 years and over the last 10 years has delivered a return of 26.54% against a sector return of 33.05%. This evidence therefore suggests that the fund manager has not outperformed the market. Moreover, I would have been better off taking advantage of a fund that tracks the market which has the additional benefits of no or minimal initial fees and much lower AMCs and TERs.

We are pleased at Proposito to be able to offer our clients these very funds, ensuring more of their hard earned money remains as part of their investment portfolio. In the coming weeks I will cover them in more detail. In the meantime if you would like to discuss whether you are getting the best from your investments then give us a call on 0845 345 3536.