Charlie Parker: Where I am investing my SIPP

At last some sound comments which cut through all the usual investment nonsense which has us running from one fund to another and lining the pockets of others.

I fully endorse John Brace's comments and thoroughly enjoyed reading a 'no bullshit' article for once!

Charlie,please write again soon!

Given your time horizon, this looks an eminently sensible strategy. I am just about to switch my European holdings into Asia-X and Emerging Markets, which will take them to two thirds of my SIPP. Sadly, I have only a five-ten year horizon to taking my pension (depending on whether I take my pension at 55 or 60), but you have the luxury of youth on your side. Don't ignore the UK, however: FTSE is dominated by multinationals which happen to have a London listing and offer fantastic and growing yields. Don't forget the importance of that over a thirty-year time horizon!

Happy investing.

A bold allocation indeed, almost made me nervous just reading it! Interesting that I share no less than five of these funds the difference as I move into my late 50's is that they provide a bit of adventure around the edges of a much more conservative SIPP!

Wow - what a superb article, I reckon it ought to be like some songs, and become a sort of Standard in the investment management world.

I'm in my early 60's and managing both my own SIPP (on asset allocation grounds first, management second) and a SIPP for my two daughters, ages close to Mr P's.

And boy, was it difficult to get out of the "conventional" mindset when trying to decide on a 40-70 year time horizon - whole countries go from hero to zero over that timescale, and vice versa (e.g. Japan, Germany).

So getting a totally clear long-term view of the current portfolio was very refreshing. A seriously useful follow up would be what Mr P will do over time. Presumably his views will change with age, but also with long-term view of relative merits of asset classes. Both/either could be highly relevant to a lot of people.

Thanks for writing it up Charlie!

All of these investments are Unit Trusts. I would have thought it would have been better to use Investment trusts to help protect against volatility.

Having followed the same sort of strategy for 20 years I know it works. However a few points.

When things go bad most investors sell and unit trust managers have to sell their underlying investments. An inv. Trust mgr can ride it out (and he can also use gearing when he wishes).

IMHO expenses are lower overall in Inv. Trusts.

At times one can buy an IT at a discount due to prevailing mkt sentiment, this is not possible in a OIEC.

Managers retire/die and so over a long period of time the investments will have to be continually reviewed (what is seen as volatility might actually be bad performance).

Selling and buying IT's is normally carried out within a few minutes, OIEC's take longer (due to valuation method etc.)

After many years I do have 3 UTs left, Perpet High Inc, Jupiter Eur, Schroder US Sml Cos. They make up 25% of my portfolio.

Templeton Emerging was my biggest holding and was 30%+ of the portfolio 2 years ago. It is now considerably less.

Having followed emerging markets etc I was tempted by Lloyds at 37p.

Planning a strategy for longterm gain is not the same as holding investments longterm.

It hardly ever happens, an article I agree completely with. "underestimates the risk of not capturing emerging trends and overestimates the risk of volatility when creating asset allocation models." Oh how true is that!!! Im 20 years older than you and I would say you will do very well with your funds as I have. Your attitude in emerging markets is right. Now where is that unit trust for Frontier markets? I will have to ETF it I think.

In answer to Craig's comments, I wonder whether the fee structure of the Hargreaves Vantage SIPP had something to do with it? We have our SIPP' with them and they charge no annual management fees if unit trusts are bought BUT my understanding is that they do charge if shares, IT's and ETF's are held- Charlie, would you care to comment?

A really interesting article- it would be good to know if you invest regulaly each month in each of your chosen funds or do a lump sum.?

Rebecca, "We have our SIPP' with them and they charge no annual management fees if unit trusts are bought BUT my understanding is that they do charge if shares, IT's and ETF's are held- Charlie, would you care to comment?"

Why not ask them on 0117 900 9000 You do get to a real person, and a quick answer whether or not you already have an account. I think it depends on the value, if less than £3,600 I think you pay an annual fee(?)

They are not all Unit Trusts, as there is a spread, I already have some of these and do not buy UT only OEICs that seem better value. If the initial fees are usually rebated 100% why are OEICs not changed more frequently like shares?

A useful insight, now to compare them all with how mine are doing! Tnx.

Excellent article by Charlie,but just one ryder to remember. The law on pensions requires you and your wife to buy an annuity with 75% of the fund. You will need to go into cash at least 1 year before purchasing to study the annuity market,as this may be the wrong time to purchase. This is the hardest bit to get right. I managed 11% some years back ,wasdn't I lucky! The alternative is go to Australia prior to retiring where no law exists on your pension money. you can continue to deploy the funds as you wish. My daughter's father in law has managed to treble his own pot whilst living off the income and finacing his Sons!

I agree with everything said but I never invest in unit trusts - give me investment trusts all the time for reasons that one of your correspondents clearly !

The comments about investment trusts are well made. My understanding is that there are charges for trading trusts on the Hargreaves platform though in truth that did not drive my decision.

I think there are many great investment trusts and some of my views could be expressed within them but not all of them. I tend to buy a manager and get as pure exposure to their skill as possible.

Some of the managers I invest in do run investment trusts. Angus Tulloch's team at First State runs one but it is not the same strategy I am invested in here so does not quite fit the bill. Jupiter has also long tried to launch a China investment trust for Ehrmann but have not secured demand. If they do I may well switch into it and out of the unit trust.

Investment trust enthsisasts may be disappointed to hear that at the rate the investment trust sector is contracting there is a very real possiblity it won't be around in 40 years time when I retire of course.

Just one point to bear in mind about investing in Emerging Markets: political stability and rule of law are as important (if not more) as great GDPs and profitable companies. Being originally from one of the emerging markets myself, I think most investors in the West focus too much on the growth story and ignore cultural differences and the fact that a well managed and profitable company is of no use in a place where there’s not much rule of law. Sadly Russia and many of the frontier markets fall into this category (remember Yukos??)

I would like to add my thanks to Charlie for an excellent article , and especially for coming back so quickly with a follow up on the IT/UT question, as I too tend to prefer ITs

I too am invested in many of the same funds, so maybe I enjoyed the article more because of that!

Quality article, not couched in the normal disclaimers or obvious sales pitches for that asset class/geographic fund.

Agree completely that your home shouldn't be your pension, but what about ISA type investments alongside the pension - similar tax treatment ultimately, extra flexibility. I balance about 80% pension/20% ISA.

Intersted in other thoughts.

Mike

PS - Maybe all Citywire contributors should have to declare their own major holdings

I to hold my SIPP with the above. I can confirm that I am charged one half a percent a yearly (debited monthly) for the priviledge of holding shares/ investment trusts with them. If you hold UTs or Oeics then the charge is nil.

As others have said I find Investment trusts better and more cost effective than UTs/Oeics, non of which I hold at all. For me UT/Oiec managers move around far to much to be dependable long term..I do not find this to be generally true for IT managers.

As to other investment vehicles I.e my share trading/ Isa A/cs then I would not hold these with them as their charges are far higher for me than my main broker NatWest Brokerline.

I believe in general that they provide the best customer service I have met and believe me I have tried a number of different ones!!

Sipp fees come in various guises. I use Barclays and my quarterly fee is miniscule. I would regard .5% as outrageous.

Unit trusts pay annual refresher fees to your manager (maybe .5%??) so its no surprise they don't charge you on top of this.

In the end of course it is the final performance net of all fees which counts.

A bad IT is worse than a good UT, unfortunately over time their relative positions can reverse several times.

What a well written article, thank you Charlie.

Could you write more in the same vein, but indicating how your strategy might vary based on, say, 20 year increments?

Oh, and maybe a word on the Annuity/ASP/Income Drawdown "choices".

I am 65 years old, retired, and have a SIPP with Hargreaves Lansdown.

agree with many - what an excellent article with no bullshit. Like many I hold investments through H -L and have been more than satisfied. I remember reading an article saying that the costs of running Unit Trusts work out about 1.5 % more than Investment trusts so you only need a return of 4.5% in IT to equal a UT return of 6%.

Charlie keep up similar articles.

I think Charlie is a good salesman.

very good article. I am older, but have a similar philosophy. Like all of the funds described, just not sure about Gold for the next few years.

Interesting article - tells me that I'm not so mad to have 30% of my shares position in emerging markets (having 60/40 split between shares and bonds, as a good schoolboy, I'm 41) .

I prefer index ETFs, however and cost cutting instead of sitting in the alpha bus - and a fixed (not percentual) charge from the stockbroker. Currently running SIPP with 0.40% costs - ETFs TCE and Barclays' quarterly fees included. And (when about performance) my position in LEME, built in three purchases - two in November 2008 and one in January 2009, has got +91.6% change since the purchase. My fixed income is spread in few currencies, with fixed and index bonds in 50:50 relationship for gilts and T-bills/TIPS and with a part of the position in SEMB (emerging market sovereigns).

UK ETF market is now relatively diverse, so bed-and-ETF rebalancing can be done for taxable portfolios, without a substantial change in the holdings (just done one on my taxable portfolio, to not double the tax bill when the expected taxation changes happen).

The last thing is of course ISA. The new 10.5K/yr quota is rather generous and lot of very useful articles here on Citywire have discussed the ISA-vs-SIPP question. Through ETF it is easy to buy fixed income instruments there too.

Errr... actually my total annual SIPP cost is 0.72% - average TCE for ETFs is 0.40%, sorry for the confusion. SIPP cost is 50+VAT quarterly

The Hargreaves Lansdown charge on holding shares/IT in a SIPP is actually capped at £200 plus VAT per annum, so on a £100k fund would be nearer 0.2%.

Over 40 years it would be rather silly to expect today's investments to endure for that period. You seem to think you are making a one off decision to invest for this period. Investments will need to be reviewed and changed in response to economic and political changes and manager changes etc. This will include shifting weights between asset classes and some degree of timing decisions, accepting that time in the market will be your main focus. You make no mention of the role of dividends or currency changes to investment returns.

I have always been nervous of commodity investment as these assets rise and fall and there is no fundamental driver as there is with the economic growth which drives equities in the long term.

Finally I do believe investment mantra is to be challenged, including the idea that older investors must go to bonds and fixed interest. A 60 year old may be retired for 35 years so long term investment criteria should still be the driver.

Hmm - fair enough for a 27y/o perhaps, but woeful diversification and an apparent disregard of political risk. To have:

23% in Neptune Russia Fund

22% in JPM Natural Resources Fund

&

21% in Jupiter China Fund

is placing an unhealthy reliance on individual fund performance and a naive or blinkered view of the value of long-term democratic rights for shareholder value.

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On a separate matter, it is interesting to see how popular the HL Sipp has become. Not sure I understand that when I pay no fees whatsoever to have my SIPP with Sippdeal - the very first online SIPP provider...