• Chris Cohen

Are your investments suitable for you?

In my last blog, ‘Making Sense of Investments’ I gave an overview of why investing makes sense over the long term. But do you know if your current investments are working as hard as they could be? And how do you know if they are suitable for you?

If you have a pension, investment ISA, or other investment product, the chances are it is invested in either a single fund or a number of funds. However, most people don’t check their investments on a regular basis and you could have been invested in an unsuitable fund for many years. This could be for many reasons:

  1. The historical performance of the fund has not kept up with its competitors

  2. The costs are higher than they need to be

  3. The fund is invested in riskier assets than you are comfortable with

  4. The fund is invested in only one geographic region

  5. The sector that the fund is invested in has come under increasing pressure from changing technology and increased regulation

The historical performance has not kept up with its competitors

There is a wide variance between the top performing funds and the bottom performing ones. For example, looking at actively managed funds listed under the Mixed Investment 20% - 60% Shares Sector (a sector that is generally suitable for medium risk investors), if you had invested £10,000 five years ago, the difference in returns would have been stark:

Fund performance chart

Table 1: Data from Defaqto as of 17th February 2020. Filters applied: Investment Type: Unit Trust / OEIC, RDR Compliant, Available to Adviser, Currency: GBP, Distribution: Accumulation, Sector Classification Bodies: IA & ABI Sectors: Mixed Investment 20%-60% Shares

For any investor, as a first port of call it would be worth checking the historical performance of the funds that you hold. Take a look at the provider’s own factsheet and see if performance has at least been keeping up with its benchmark. Also look out for the ‘Quartile Ranking’ (if provided), which gives an indication of how the fund has performed against its peers. The difference to the value of your investment by switching fund(s) could be significant over the long term. However, be aware that past performance is no guarantee of future performance.


Every investment fund has associated charges, but not many people understand them. These are split into the following categories:

Bid/Offer Spread or Entry Charge

Some funds apply a bid/offer spread. The spread between the bid and the offer price is essentially a transaction cost for entering the fund. It’s not uncommon to see this figure as high as 5%. This means that if you were to invest £10,000, £500 would be taken by the fund upon entry, with the remaining amount invested. Not all funds apply a bid/offer spread or entry charge, but if it does, carefully consider whether this is something you would be willing to pay for.

Ongoing Fund Charge

Every fund has an Ongoing Fund Charge, which includes the Annual Management Charge (AMC), plus any other administration costs associated with the fund. The costs can vary considerably, with some of the most expensive actively managed funds having an Ongoing Fund Charge of over 2% per annum, and the cheapest passively managed funds such as index tracker funds charging less than 0.1% per annum.

Ask yourself whether the extra charges are worthwhile as often it isn’t the case that the highest charging funds provide the best return. For instance, if you have an actively managed fund, check whether the fund manager has consistently outperformed its peer group and benchmark over time. If the answer is yes, the higher management charges could still be a worthwhile price to pay.

Exit Charge

Some funds also apply a charge for exiting it. Whilst most funds do not apply an exit fee, it can be as high as 3%.

The fund is invested in primarily higher risk assets, which leads to higher volatility

Higher risk assets are by their nature more volatile and unpredictable.

If we take the example of the Baillie Gifford Japanese Smaller Companies B Accumulation fund, it can be seen that even though the fund has a high number of holdings, volatility can be high.

Baillie Gifford vs Japanese Smaller Companies Volatility

16/02/2015 – 14/02/2019: Data from FE Analytics

The unpredictable nature of high risk assets underlines the importance of diversification and a long time horizon for your investment portfolio.

The fund is invested in only one geographic region

It may be the case that the region that your fund is invested in has had difficulties. If we look at the geographic region of Latin America, it can be seen that fortunes can change quickly. The chart below from the Aberdeen Standard Life Investments Latin American Equity I Acc fund shows that the variance in performance from one year to the next can be very large. For instance, between 2015 to 2016 the fund experienced losses of 27.1%. However, the next year, gains were 89.9%. A swing in performance of +117%!

Discrete Performance

Latin America Investment Performance

16/02/2015 – 14/02/2019: Data from FE Analytics

It is very difficult to predict how a certain country or region will perform year on year. Some years will be more benign, whilst others will experience violent swings in fortunes, which can quickly wipe out all previous gains. This can be due to political decisions, economic policy or events outside a country’s control.

The sector has come under increasing pressure from changing technology and regulators

Each industrial sector such as the Natural Resources is subject to its own ups and downs. As an example, the JP Morgan Natural Resources C Accumulation fund has a high exposure to companies such as Exxon Mobil, Royal Dutch Shell and BP.

The price of oil is susceptible to political tensions, particularly in the Middle East, where political volatility has led to spikes in the oil price. On the other hand, oil producing countries have frequently increased their supply and market share, leading to lower oil prices. This has a knock-on effect to the overall performance of the sector and funds, all the while increasing volatility.

Cumulative Performance

Cumulative Preformance Chart

16/02/2015 – 14/02/2020: Data from FE Analytics

Cumulative Performance Table

The sector is also under political and technological pressure. There has been much in the news regarding the shift from the reliance on fossil fuels to greener technology. Outgoing Bank of England governor Mark Carney recently said that firms who ignore the climate crisis will go bankrupt. Larry Fink, CEO of Blackrock warned that the money will dry up for firms that do not embed sustainability at their core. Over the long term, this makes it hard to predict what the large oil companies will do in response, which in turn makes returns unpredictable.

How we can help

When assessing potential investments, we ensure they match your objectives. Before making a decision, we would assess your attitude to risk, your capacity for loss, any ethical preferences and make sure the charges on the investments are competitive. Only then would we make our selection of suitable funds, with the ultimate aim of helping you to grow your money over the long term to realise your long term financial goals.

Contact us today

If you feel that your financial wellbeing could be improved and would like a one-hour, no-obligation chat to discuss your situation, please feel free to get in contact with me on 0117 919 2680 or by email at: chris.cohen@comeragroup.co.uk

Please be aware that the value of investments may go down as well as up, so your initial investment amount cannot be guaranteed, i.e. you could get back less than you’ve paid in.