Bond funds/ Share funds (rabo)

Tiesto

Hi guys..
Im been wanting to get into investment over the last few months and just after spending a while looking about the rabo web site..
I think it would suit me as the initial investment can be just a 100 quid if you want ..

Anyways I was looking at the different funds..
One thing that I cant seem to find info on tho is the potential ROI..

With the bond funds, how do you make money from it.. Say you purchase one for 100 euro. Is it simply hoping that the purchase price goes up, and your return is the difference when you sell it? Or is there coupons involved??

With the share funds also? Is there dividend actions or?

cheers

A Random Walk

As far as I'm aware Rabo does not pay distributions, so your fund value will reflect the capital gain and any distributions paid out.

Bond funds will generally rollover their holdings, i.e. you're holding a mix of bonds and not just one. Bond funds have often been seen as short term vehicles, you might want to take a careful look at the expense ratio there.

RaboDirect

All the funds offered by RaboDirect are capital growth funds, ie, dividends are reinvested in the fund. We don't currently offer distribution funds. The annual management fees on the bond funds are lower than those of the equity based funds. You can see the growth in each fund on the Fund Details page of the site and you can also download the fact sheets provided by the fund providers. If you are new to investing it's wise to start with considering your appetite to risk, eg, if you invested 10,000 in a fund and it went down to 7,000 would it cause you sleepless nights?

Reyman

You need to look carefully at the expenses charged on a Bond fund versus the likely return. Your average return will be way below what you will get over time with equities
Eg. If you're only getting 5% on the bond and Rabo are taking 1.5% you're getting a nett of 3.5%.

You'll get much more by investing your money directly with Northern Rock or indeed with Rabo themselves if the amount is under €10,000

GP

Reyman wrote:

You need to look carefully at the expenses charged on a Bond fund versus the likely return. Your average return will be way below what you will get over time with equities
Eg. If you're only getting 5% on the bond and Rabo are taking 1.5% you're getting a nett of 3.5%.

You'll get much more by investing your money directly with Northern Rock or indeed with Rabo themselves if the amount is under €10,000

But that 5% is per year ?

For example on one fund I invested in has gone up 5.25% in about 1.5months.

RaboDirect

The Robeco Bond funds have lower annual mgmt charges - 0.7% up to 1.0%. They represent a lower risk classification with a potential for lower returns than Share funds which are higher risk and require a more complex level of asset management. The trade off being more risk increases your chance of superior returns. It often sounds like a cliche but past performance is no guarantee of future returns. The historical performance is an important factor when making an investment decision as a fund manger's track record is important but it's crucial that you don't just focus on it.

One of the advantages of investing in a managed fund is that it offers the investor diversification - your investment is spread over a range of companies often in different countries (although this depends on fund of course). So your eggs are not all in one basket.

Investing by its nature is subject to volatility and it is recommended that people looking to invest in equity based instruments should take a medium-long term view. That being said, there is nothing to prevent any RaboDirect customers from selling all or part of an investment fund at any time - the standard exit charge of 0.75% applies. There are no early encashment penalties.

Time Magazine

RaboDirect wrote:

One of the advantages of investing in a managed fund is that it offers the investor diversification - your investment is spread over a range of companies often in different countries (although this depends on fund of course). So your eggs are not all in one basket.

Can you give any indication into the level of diversification Rabo engage in? Not looking for exact details of course, perhaps a "more than x" level of confidence?

Reyman

RaboDirect wrote:

The Robeco Bond funds have lower annual mgmt charges - 0.7% up to 1.0%. They represent a lower risk classification with a potential for lower returns than Share funds which are higher risk and require a more complex level of asset management. The trade off being more risk increases your chance of superior returns. It often sounds like a cliche but past performance is no guarantee of future returns. The historical performance is an important factor when making an investment decision as a fund manger's track record is important but it's crucial that you don't just focus on it.

One of the advantages of investing in a managed fund is that it offers the investor diversification - your investment is spread over a range of companies often in different countries (although this depends on fund of course). So your eggs are not all in one basket.

Investing by its nature is subject to volatility and it is recommended that people looking to invest in equity based instruments should take a medium-long term view. That being said, there is nothing to prevent any RaboDirect customers from selling all or part of an investment fund at any time - the standard exit charge of 0.75% applies. There are no early encashment penalties.

I take your point but given the low return over inflation from bonds - perhaps 1-2% historically. I can't see why anyone should pay an annual charge of 1% and exit charges of 0.75% as well as possible entry charges?. It's easier to lodge directly in Rabo at 5% .

Am I missing something in my argument?

RaboDirect

Re diversification - the point is that when you say, invest €10,000 in direct equities in a stock like AIB or CRH etc etc, all your money is in one basket. Of course you might have other investments in other stocks and create a diversified portfolio. This takes time and experience to manage and comes with its own costs - brokers fees, stamp duty etc. This isn't meant as a criticism of investing directly in equities by the way.

When you invest in a managed fund you get the benefit of spreading your investment. A small point - the funds that RaboDirect offers are not managed directly by us.

For example, take the Henderson Pan European Equity fund fact sheet: from a sectoral perspective it invests:
- Germany: 20.2%
- Switzerland: 17.1%
- France: 14.8%
- UK: 13.3%
- Netherlands: 8.0%
- Others: 19.7%
- Cash: 1.8%

-Industrials: 28.9%
-Healthcare: 12.3%
-Consumer goods: 12.7%
-Oil & Gas: 8.3%
-Technology: 5.5%
-Other: 10.7%

Of course each individual fund will have a different objective and strategy. So in the above example your €10,000 is invested across different countries and sectors. This helps to reduce your risk. So if one particular sector is underperforming it won't drag down your total investment.

Re the query on bond funds:
They are a lower risk asset and will yield a lower return and at current returns a 5% risk-free deposit currently offers a greater return than the Robeco Luxo-Rente and Robeco All Strategyt Euro bonds. The Robeco High Yield Bond has given better returns than deposit accounts.

Reyman

RaboDirect wrote:

Re diversification - the point is that when you say, invest €10,000 in direct equities in a stock like AIB or CRH etc etc, all your money is in one basket. Of course you might have other investments in other stocks and create a diversified portfolio. This takes time and experience to manage and comes with its own costs - brokers fees, stamp duty etc. This isn't meant as a criticism of investing directly in equities by the way.

.

As I understand it when Rabo quote Management fees they are quoting the cost of managing the deposit/investment in a situation where there are no transaction costs etc. i.e it is quoted as a zero activity fee for fair comparison purposes ?

RaboDirect

The fees payable are outlined on our site http://www.rabodirect.ie/investments/fund_details/selection_exchange.asp

We do charge transaction costs of 0.75% on entry and 0.75% on exit except when there is a special offer on a fund or funds (all JP Morgan fees have no entry fees this month). So if you were to invest €10,000 it would cost you €75 in entry fees. The minimum investment is €100 per fund so the entry fee is 75 cent for these amounts.

The fund providers, ie, Blackrock/Merrill Lynch, JP Morgan, Robeco, Henderson, Oppenheim all charge an annual management fee for actively managing the funds. These fees range from 0.7% on bond funds up to 2.0%. On average they are about 1.5%. This fee is included the daily price of the fund.

We do not charge early encashment penalties, operate bid/offer spreads and the like.

Time Magazine

Reyman wrote:

It's easier to lodge directly in Rabo at 5% .

Am I missing something in my argument?

The 5% is only guaranteed until the end of the year, so you've quite possibly less than 6 months left on it.

Tiesto

ok thanks for all the useful replies, especially Rabodirect..

So Ive managed to scrape together around 800 euro ..Now ive looked at the different funds offered by quinn and rabo.. There are funds from both companies which appeal to me.. From reading other posts... I see quinn are cheaper as they dont have the entry and exit fees...
I mean 1.5% entry and exit is fairly substantial (ok i understand there are offers)
So now im thinking... why would I consider Rabo when quinn dont charge these fees. I think it would be foolish to choose rabo.. . or am i missing out on something..

BendiBus

Tiesto wrote:

So Ive managed to scrape together around 800 euro ..Now ive looked at the different funds offered by quinn and rabo..

Note that if you want to make an initial lump sum investment with Quinn then you need €1270 to start. After that you can make smaller lump sum investments. However Quinn also offers a regular saver option with a monthly investment as low as €51.

RaboDirect

It's worth bearing in mind that the funds offered by RaboDirect are actively managed funds. Geneally speaking the annual management fees will be higher than index funds (which Quinn Life offer) that are passively managed. There are lots of arguments about whether actively managed funds are better than index funds and vice versa. For example, when an index fund's objective is to mirror the return of the index it tracks so you won't beat the index or shouldn't do any worse than the idex (although to be more precise, an index fund will never exactly match an index's return due to management costs and tracking errors). A good test of an actively managed fund manager is to see if they have been able to reduce losses in a negative market by actively managing the fund.

RaboDirect has chosen to offer actively managed funds from international fund managers and the majority of the funds have independent ratings from Morningstar and/or Standard & Poor's.

RaboDirect's transaction charges are 0.75% on entry and again on exit. We are allowed to charge up to 5% on entry by the fund managers but this would be highway robbery. The online platform we provide has the highest level of online security than any other bank in Ireland and you can trade your funds online 24/7. This comes at a cost so obviously we need to recoup some of this as well as the transaction charges we have to pay to settle customers' trades. On an investment of €800 you would pay €6 on entry.

The minimum investment amount is €100 - you can invest a lump sum or choose to set up a Regular Investor Plan.

A Random Walk

RaboDirect wrote:

A good test of an actively managed fund manager is to see if they have been able to reduce losses in a negative market by actively managing the fund.

Oh please. The only test that matters is whether or not the actively managed fund outperformed the index (the competition) over long periods - say 5,10,20 years.

So now im thinking... why would I consider Rabo when quinn dont charge these fees. I think it would be foolish to choose rabo.. . or am i missing out on something..

Rabo give you access to a greater variety of funds and are probably the cheapest on the market for actively managed funds. Quinn offer index trackers on a few major indices.