One unitised with-profits fund, in particular, is what Geffen considers the “worst investment I ever made”.
“Twenty-five years ago, in February of 1993, I took out a £100,000 mortgage. I bought units in a unitised with-profits fund, and I was assured they would never go down,” he said.
Geffen said he invested £71,420 into this particular unitised with-profits fund, refraining from naming the insurance provider, at a rate of £234.40 per month. Despite actuaries running simulations of the fund, which showed he would get 30% to 40% more money than he put in, when the policy reached maturity this February, it was worth £62,410.
“I didn’t get my original stake back again,” he said. “That was a 25-year time period which saw extraordinary returns from property, bonds and, most of all, equities.”
Now, with the benefit of hindsight, he sees “similar vehicles” in the market which make him “incredibly worried”.
“You’re not being sold unitised with-profits anymore but you’re being sold vehicles that are so complicated. You don’t get a portfolio, you don’t understand what’s in there. The whole thing is given to you on trust.”
Geffen spoke at length about the lacklustre performance of the TAR sector. Citing data from Morningstar, he noted that 49.5% of funds in the Investment Association TAR sector did not beat inflation last year at 2.7%, and more than half failed to beat inflation at 1.6% in 2016.
Over the past three years, 38.9% of TAR funds did not beat the cumulative inflation rate of 4.5%. By contrast, 100% of the funds in the IA Mixed Investment 40-85% Shares category, in which Geffen’s £510m Neptune Balanced fund falls, beat three-year inflation.
“What we do not do is use complex, expensive products for the sake of meeting volatility targets,” he added.
“A lot of these absolute return funds pride themselves on the fact they have very low volatility. But to jeopardise your retirement, the danger of not being able to repay your mortgage by not taking some short-term volatility for the sake of very long-term assets … we’re all living a lot longer and a lot of people are going to get into drawdown.”