Portfolio advice

A good start in terms of a base of global funds with some more niche satellite funds. But I would question some aspects of the execution.....

1) There is not a lot of point in holdings of less than say 5%. Even if they do very well they wont make much difference. So I suggest increasing or removing the smaller allocations.

2) I assume "HSBC dynamic global" which is unknown to trustnet and google is actually "HSBC World Selection Dynamic Portfolio" a very broad fund of HSBC funds. Its so broad and unfocussed that I dont see it fitting in with everything else, and the thought of a fund of HSBC funds doesnt excite me. I think you could safely dispose of it and get more control over your allocations by putting more into both Vanguard LS100 and the satellites.

3) You are adding to your Vanguard holdings with extra AP, UK, and EM. Therefore by default you are cutting back on Vanguards % allocation of Europe and US. Why? I dont see the point of extra UK FTSE100, isnt there enough in VLS?

4) A significant omission in my view is Smaller Companies to spice things up a bit. OK you have EM, why not some extra in the other geographies or simply a Global Smaller Companies fund?

5) I am not too keen on most property funds as they are too correlated with large company equity. Property funds tend to be priced by the assessed value of their property rather than their rental income and so go up and down with the broader economic cycles. There are some interesting niche funds that do rely more on rents.

6) This looks like a fairly long term portfolio- have you no likely calls on your investments in say 10-15 years or less? If so you may want to look at bonds etc.

bertpalmer wrote: »

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4) I will take a look at a Global Smaller Companies fund. Do you recommend any?


6) Yes it is long term so Bonds don't really interest me. Am I wrong in thinking they are quite safe but the returns are small? I am self employed so this is more of a retirement fund for me.

4) I hold the Invesco Perpertual one but wouldnt necessarily advocate it. Suggest you find the funds with "Small Companies" in their name in the IMA Global Sector on www.trustnet.com

5) Bonds have a wide range from fairly safe but pretty poor returns to very high returns but likely to go bust. But, in general they are poorer return but safer than equities - at least you should get some interest back in even the riskiest. They tend to be more predictable than equities - a boring bond will stay boring and a pure gamble will probably stay a pure gamble until it goes bust.

Bonds (or cash equivalents) *can* increase your returns over holding just equities ...

e.g. if we have a big drawdown or bear market, having 25-50% of a portfolio in bonds would give you a great opportunity to buy shares cheap (whether you're just rebalancing your asset allocation, or using valuation, so you're holding more bonds when stocks are overvalued)

But now could be one of the worst times to invest in bond funds

Personally, if you want a portfolio you can just leave alone, I'd move it into something like the Murray International Investment Trust ... It's very globally diversified, run with a flexibility not available to open fund managers, it can rotate between asset classes depending on what's good value (look at its 10+ year track record against indexes and Vanguard funds and you'll see it's much better able to solidly grow an investment)

If you want to be more active, I'd work out what you want to achieve

Personally I've got my portfolio split between Income and Value

In my Income portfolio I've got a tiny handful of very strong, defensive, high dividend paying funds that I leave alone (Woodford, Murray, Newton Asian Income, Edinburgh IT, Vanguard UK Income)

And in my Value portfolio I focus on cheap regions and buying opportunities (so the asset allocation is always some way off how I want it) - and that part of the portfolio is the longer-term strategy ... At the moment I'm mainly buying Eastern Europe, peripheral Europe and Brazil

The Income portfolio is very robust, slow but steady, hasn't dropped more than a few % even through large drawdowns; the Value portfolio is all over the place, but that's where the real returns come from

Whatever you do, I'd always base your asset allocations on some underlying principle - for me it's valuation (CAPE, P/B, PEG) ... Simply being diversified offers no significant advantages over a Vanguard Life Strategy (and yes that is bile I say those three words with)

Some will want to preserve capital, others create an income, others want capital growth. Different aims which can be achieved with different asset allocations and different levels of risk.

bertpalmer wrote: »

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One thing I don't understand when people say 'work out what you want to achieve.' - Surely the only answer is make as much money as possible? What other objective is there?

I think this is the most significant mistake new investors make.

Key considerations are

1) Required return - how much return must you have to achieve your objectives. eg you may need 6% return to give you enough to retire on at 55. Anything above that you may be prepared to sacrifice in return for extra safety.

2) Timescale - buying a house in 6 years would require a very different portfolio to retiring in 30 years. The shorter the timescale the more important wealth preservation becomes. You may have multiple timescales such as a steady monthly income for 30 years.

3) Short term volatility - would you be able to stop yourself panicking and selling the lot after say a 50% fall? If the answer is no, you must arrange your portfolio so it wont happen, other than global cataclysms which would affect everything including cash.

4) Diversification - you must allow for the fact that anything you believe now as regards the future may turn out to be wrong. You therefore need to ensure that you are not over-reliant on any one asset, asset type, geography, industry sector, investment theory etc. % allocations can be used to reflect your views, but dont go too far.

In my view choosing specific investments for maximum return is a minor detail compared with the factors listed above, and is in any case unlikely to be successful. This applies to considerations such as "golden hands" managers, active/passive, historical perfomance.