Hold or sell Standard Life shares?

Question
I have about 1400 Standard Life shares. I reinvest the the income from these to give me extra shares.

There are no charges for holding these shares,but the price of them does not appear to be moving of late. What should I do with them?Answer
At the time of writing Standard Life shares are trading at around 207p, valuing your holding at around £2,900, which is well below the 230p you paid at flotation back in July 2006.

Since flotation Standard Life has concentrated on long term pension and investment business, selling its banking business to Barclays for £226 million, outsourcing life cover to LV=, offloading some annuity liabilities to a Canadian Insurer and generally cutting costs. It’s also reported to be mulling over the sale of its healthcare insurance division for around £200 million.

As for its focussed strategy Standard Life has made some headway, increasing its presence in the self-invested personal pension (Sipp) market and continuing to build a reasonable reputation for investment management.

So what’s gone wrong?

Well, the credit crunch hurt revenues through a combination of fewer customers investing new money and falling markets reducing the amount that Standard Life earns from managing investments (usually a percentage of investment value).

It also seems that the market believes Standard Life lacks dynamism and is overly reliant on the UK market – which could prove to be as fragile as its economy.

Nevertheless, 2009 results were better than expected, despite doing little for the share price. And the appointment of a new chief executive, David Nish, might inject some fresh air into the business, although I wouldn’t hold your breath.

To put this into perspective, Standard Life’s share price has risen by about 13% over the last year compared to the FTSE 100 at 45%, and fallen by about 11% over the last six months (FTSE 100 +10%). The 2009 dividend payout was worth about 6% of your investment – nice, but not enough to compensate for poor share price performance.

Should you hold or sell? Stockbrokers seem pretty neutral on the stock. If you’re concerned (as some are) that markets are due a fall then selling would seem sensible. Otherwise if markets are flat I think it’s likely you’ll continue to enjoy dividends worth around 6% of your investment, which seems worthwhile when savings rates are so low. If markets continue to race ahead then Standard Life will probably continue to get left behind, unless David Nish can really get the business firing on all cylinders. In practice he’ll probably do an ok job and get paid a disproportionately large bonus...

Hope this helps you make a decision. Personally I’d sell, primarily because I’m nervous about markets, but of course I could turn out to be wrong.

Does anyone else have a view on this? If so, please let us know by posting a comment below.

Read this Q and A at http://www.candidmoney.com/questions/question181.aspx

Does Family Investments take the stakeholder CTF crown?

Unlike most competitors, the Family Investments stakeholder child trust fund (CTF) invests globally, not just in the UK. This is a good idea; after all it’s what most investors do with their conventional investment portfolios, so why not a CTF?

When Family Investments originally launched this CTF it employed New Star to run the fund, a seemingly clever move at the time. However, New Star’s investment performance bombed versus the competition (as did New Star themselves) so Family Investments quite sensibly switched to index-tracking funds (managed by Santander) in April 2009.

Your child’s investment will be split between funds tracking the FTSE 100, FTSE Europe ex UK, FTSE USA and FTSE Developed Asia Pacific indices. Santander can alter the balance as it sees fit, but around half is usually exposed to the FTSE 100 with the balance split equally between the other three indices – disappointing this isn’t clearly displayed on Family Investment’s website.

Annual charges are the stakeholder standard 1.5%. This is excessive for tracker funds, but I’m afraid that’s just the nature of the stakeholder CTF beast. F&C’s charges are lower, but then you’re restricted to a UK only tracker fund.

There are no initial or exit charges, minimum top-ups above the basic CTF voucher are £10 and the investments will be progressively moved towards less risky investments between your child’s 13th and 18th birthdays – as per stakeholder CTF rules.

This CTF is also marketed by the Post Office, Sainsbury’s Bank, Bradford & Bingley and The Early Learning Centre amongst others. Family Investments pays small initial commissions and annual trail commission of up to 0.4% a year (not available to financial advisers), although this does not affect the charges you pay.

Overall this is a sound choice if you’re looking for a stakeholder child trust fund. It’s more diversified than competitors which should bode well longer term. However, it’s still expensive for a tracker and I’d like to see Family Investments follow F&C’s lead by shaving charges – after all, they can afford to pay commission to introducers.

Read the full review at http://www.candidmoney.com/candidreviews/review25.aspx

F&C stakeholder CTF - is cheap cheerful?

This is a very straightforward stakeholder child trust fund (CTF) that invests in a fund tracking the FTSE All Share Index.

Once you’ve invested the basic £250 CTF voucher the minimum for additional top-ups is just £10, either lump sum or monthly.

Where the F&C CTF really scores over the competition is cost. Like all stakeholder CTFs there are no initial or exit charges. But whereas most stakeholder CTFs charge 1.5% a year, F&C’s total annual charges are just 1.05%. This comprises total annual costs of 0.35% on the underling tracker fund plus an annual child trust fund plan fee of 0.7%. Yes, the overall cost is still expensive for a tracker, but that’s the nature of child trust funds and it’s a lot cheaper than the rest.

As with all other stakeholders the investment will be progressively moved towards less risky investments between your child’s 13th and 18th birthdays.

Is a tracker fund a good idea for your child’s CTF? I think that in general it probably is. There’s risk, but 18 years should give plenty of time to ride out stockmarket volatility. And although the FTSE All Share is dominated by a handful of industries and companies (your money is not invested equally across all companies), it still tends to fare well against many of the active fund managers who are paid large sums of money to try and beat it. You can read more about index-tracking funds on the trackers page in our investment section.

If you want investment choice then a stakeholder CTF is not for you. But if you’re in the market for a tracker-based stakeholder CTF this should be at the top of your shopping list, thanks to far lower charges than the competition.

Read the full review at http://www.candidmoney.com/candidreviews/review24.aspx

Is the Children's Mutual CTF any good?

This is a non-stakeholder child trust fund (CTF) that offers a choice of 11 investment funds from 5 different fund managers: Gartmore, Insight, Invesco Perpetual, SWIP and UBS.

You can invest the basic £250 CTF voucher in one fund and there’s a £250 minimum per fund for subsequent top-ups, falling to £25 per fund for monthly saving (subject to a minimum £50 overall monthly contribution).

While fund choice is probably too narrow to excite keen investors, the funds offered are generally reasonable, with highlights being Invesco Perpetual Income, Gartmore European Selected Opportunities and Gartmore US Growth. So, on the whole, fairly attractive compared to stakeholder CTFs, where your money is invested in just one fund (usually a tracker). But there’s one major difference, initial fund charges.

While the funds offered by Children’s Mutual have typical annual charges of around 1.5% (the same as stakeholder), they also have initial charges of between 3% - 5%. And if you switch funds you’ll be clobbered by the full initial charge all over again, which seems unfair. The initial charges are there because Children’s Mutual pays sales commission of 3% initially (not on the £250 voucher) and 0.5% annually to financial advisers, but given most advisers won’t get out of bed for such small sums (3% of the maximum allowed £1,200 annual top-up is just £36) it all seems a bit self-defeatist.

There’s the option to automatically shift into a less risky investment fund between ages 13 and 18, at a rate of 20% a year, which will be sensible for most.

Because this is a simple product that pays commission it makes sense to buy via a discount broker and cut costs by reclaiming some of the commission. However discount brokers don’t seem to be interested in child trust funds, probably as the amounts are so small it’s not worth their while. The only broker I’ve found that obliges is Clubfinance, which waives 2% initial commission on any top-ups and rebates 75% of any annual trail commission received, although the latter is only refunded after the child’s 18th birthday - a long wait.

Overall this is a worthy alternative to stakeholder CTFs if you reduce initial fund charges by using a discount broker. Otherwise the initial charges are mostly rather steep and the fund choice is probably too narrow for keen investors.

Read the full review at http://www.candidmoney.com/candidreviews/review23.aspx

UK/Irish inheritance tax?

Question
We live in the UK and have no children. We have made wills in the UK and in Dublin leaving everything to the surviving partner. We pay tax in Ireland and in the UK on the rental income from two houses we own in Dublin.

Will we have to pay inheritance tax on the property in Dublin as the houses are in my husbands sole name would I have to pay tax on the proceeds of them if he died?Answer
Under both UK and Irish inheritance tax rules a husband and wife can pass assets (including property) between each other on death free of inheritance tax. So if your husband dies before you and leaves the houses to you in his will then there should be no tax to pay.

However, this doesn’t necessarily mean there won’t be inheritance tax to pay in future. If your husband outlives you, or passes the property to you on his death and you own them on your death, then the resulting estate might exceed the tax-free threshold.

This will depend on the value of the properties along with your other assets and possessions as well as whether you fall under UK or Irish inheritance tax rules. The latter will depend on where you’re deemed to be ‘domicile’.

You can only have one domicile and it’s usually the country where you have your permanent home. You normally inherit your father’s domicile from birth but can change it from age 16 if you settle in another country and can demonstrate you intend to live there permanently.

Under UK inheritance tax law you can also be ‘deemed’ domicile in UK when you transfer assets if you were resident in the UK for 17 of the last 20 income tax years. And if you leave the UK permanently you’ll still effectively be deemed domicile for three years afterwards.

Assuming that both you and your husband are UK domiciled and resident then the properties will fall under the UK inheritance system (it will apply to your worldwide property). Both you and your husband have an inheritance tax allowance of £325,000 before tax of 40% is charged. If your husband passes everything to you on his death his unused allowance can be passed to you, giving you an effective allowance of £650,000 on your death (obviously the allowance could change in future).

If your husband passes the property to someone other than you (e.g. children) when he dies and it’s within his £325,000 allowance then no inheritance tax will be payable. Or if he gifts them to someone else and lives for at least seven years afterwards, they’ll fall outside of his estate so won’t be subject to inheritance tax.

If your husband is domiciled in Ireland but resident in the UK then both Irish and UK inheritance tax could apply on his death. There is however an agreement between both countries to avoid paying tax twice. In this instance he’d be liable to Irish inheritance tax on his worldwide property and subject to UK inheritance tax on any UK property, although any UK tax paid should be credited against any Irish liability on the UK property.

Hope this makes sense – international inheritance tax is not the simplest of subjects...

Read this Q and A at http://www.candidmoney.com/questions/question180.aspx

Fund charges after 2012?

Question
I use a funds broker who rebates both sales commission and part of trail commission. I make my own investment decision and receive no advice from the broker. Is the proposed abolition of commission to financial advisers results in investors paying the full funds managers initial charges?

With no commission being paid by funds managers there will be no incentive to use funds supermarket for investments in unit trust/OIEC. The loser will be the investor in the case of unit trusts/OIEC with the full charges being applied. So fund managers must all agree with the proposal because investors will have no choice but to go direct to them.

And will this be the end of Funds Supermarket?Answer
Based on the FSA announcements to date, this is my understanding of how fund charging might work from 2013.

The abolition of commission means that it will no longer be built into product (e.g. fund) charges. For example, a fund currently charging 3% initially and 1.5% annually will likely reduce its charges to 0% initially and 1% annually (assuming 3% initial and 0.5% annual commission). Any fees you pay for financial advice will be negotiated between you and your financial adviser, i.e. they’re independent of product charges.

The FSA has also proposed that product providers will no longer be able to pay fund supermarkets for administering their funds. This cost seems to average about 0.25% a year, so in theory we’d see annual fund charges fall by the same amount, meaning an annual charge of 0.75% in our above example. However, the fund supermarkets would instead charge investors, so you’ll probably still end up paying a total of around 1% annually, but you’ll be able to clearly compare the costs of using different fund supermarkets.

This means if you’re taking advice you can expect a typical fund to have no initial charge, annual charges of 0.75% and to pay a platform (fund supermarket) fee of about 0.25% a year. Will this mean it’s cheaper to buy direct from fund providers? (i.e. avoid the platform fee). Not necessarily, one of the key reasons providers pay platforms is that it removes their administrative burden, i.e. they don’t have to deal directly with the public and produce valuations etc, which saves them money. So funds bought directly might end up having an additional charge to reflect this.

There’s one final twist, the FSA does not intend to stop commission payments for ‘non-advised sales’, i.e. execution-only business (as is the case with most discount brokers). So we could end up having the strange situation where (ignoring any fees paid for advice) funds are cheaper through a financial adviser than a discount broker.

Will discount brokers be able to offer any cost advantage if you don’t want to pay for advice? I think it depends on whether fund supermarkets decide to compete head on. However, as discount brokers currently generate a lot of platform business this is probably unlikely, meaning fund supermarkets will have to charge more for buying direct from them than via a discount broker (else discount brokers will have no way of being cheaper unless they run their own platform and make money that way) – although this doesn’t make much sense to me.

Bottom line, I very much doubt you’ll end up paying more and there’s a chance of paying less – I’m just not quite sure as yet whether it’ll be through a discount broker or directly with a platform or fund provider.

Read this Q and A at http://www.candidmoney.com/questions/question179.aspx

Fidelity China Special Situations raises £460 million

Fidelity has today announced that its China Special Situations investment trust, to be managed initially by Anthony Bolton, has raised £460 million. Have investors backed a stellar opportunity or blindly followed the Bolton brand?.

Whatever the merits of the Fidelity China Special Situations trust, I reckon Fidelity would have struggled to raise £100 million had Anthony Bolton not been involved. So despite falling short of its £630 million target, the fact Fidelity has raised £460 million suggests investors’ love affair with Anthony Bolton is far from over.

I genuinely believe that Bolton was the driving force behind launching a Chinese fund. Let’s face it, he doesn’t need to work and why bother risking his considerable reputation unless he believes he can succeed. I also sincerely hope he does succeed, for the sake of both him and the many investors who have bought shares in the China Special Situations trust.

However, I’m not totally comfortable with this launch and fear that maybe Fidelity has been more concerned about milking the Bolton brand one last time than offering investors a genuinely attractive investment opportunity.

Let’s ignore Chinese investment prospects, as there are arguments for and against. And investors who don’t want exposure to the region shouldn’t have bought this fund anyway (for what it’s worth I’m keen on the region over a 10+ year timescale).

My discomfort stems from several main concerns:

Anthony Bolton lacks experience in Chinese markets

While he did, at times, have a small exposure to Chinese stocks within his flagship Special Situations fund, this amounted to just a handful of companies. I don’t doubt Bolton’s ability or expertise as a fund manager, but there is a question mark over whether he can replicate his UK success in a very different market.

Bolton has only committed to managing the trust for 2 years

This is more of a concern, especially if Bolton does perform well. Of course, Bolton may enjoy the role so much that he decides to extend his tenure, but there’s no guarantee of this. Given investors should be prepared to hold this fund long term, investing makes little sense to me when the lead manager could leave after just two years.

Fidelity is paying trail commission on an investment trust

It’s rare for investment trusts to pay trail commission. I’m sure the only reason Fidelity decided to pay 0.5% annual commission on the China Special Situations trust was to boost sales via commission-based financial advisers and discount brokers, who otherwise wouldn’t have promoted the trust.

It’s a shame because investors end up paying higher charges and trail commission on an investment trust is against the spirit of the Financial Services Authority’s proposals to clean up financial services.

Fidelity will win whatever happens

Based on the sum raised Fidelity stands to earn around £4.6 million a year from the trust (after paying trail commission) and the performance fee could push this to over £11 million. Fund growth will obviously increase these figures.

But Fidelity’s real trump card has been launching the fund as an investment trust. If there is a mass exodus of investors when Bolton retires then Fidelity’s annual fees should be unaffected. This is because, unlike unit trusts, investment trust shares are not cancelled when sold. All that happens when there are more sellers than buyers is that investment trust share price usually falls, hurting investors trying to get out. But this won’t bother Fidelity, as both its annual and performance fees are calculated on the value of the trust’s underling assets rather than its share price.

Trading begins on the London Stock Exchange at 8am on Monday 19 April. It’ll be interesting to see whether the price falls to a discount (to the net value of the underlying assets). Given the offer wasn’t fully subscribed there’s a fair chance this could happen.

Read this article at http://www.candidmoney.com/articles/article91.aspx