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  • FIRST POST
    • aroominyork
    • By aroominyork 6th Jan 18, 12:40 PM
    • 338Posts
    • 81Thanks
    aroominyork
    Smaller companies within a wider portfolio
    • #1
    • 6th Jan 18, 12:40 PM
    Smaller companies within a wider portfolio 6th Jan 18 at 12:40 PM
    I would appreciate knowing what proportion of equities people generally hold as Smaller Companies/SMEs as I wonder if I am a little high.

    SmCo/SME funds make up 29.4%-34.7% of the equities I hold:

    UK: 35% of my equities are SmCo/SME (Liontrust UK Sm Co, the rest in LT UK)
    Europe: 43% (Baring Europe Select, the rest in Blackrock Cont Eur Income)
    US/general global: 0% (all in Ballie Gifford Global Alpha Growth, VLS and Fundsmith)
    Japan: 100% (BGFD)
    EM: 31%-64% (31% IGC which is India SME; 33% ITEQ which is Israel hi tech – not an SME fund as such but many of the holdings will be; 36% TEM).

    This is a retirement portfolio taking an 8-10 year view. I hold SmCo/SMEs variously for diversification, higher risk/reward, or (in EM) as a bit of a tilt.

    In UK and Europe I am open to rebalancing. For Japan I like Baillie Gifford but could move part of BGFD into their broader Japanese OEIC. I realise my EM holdings are not typical but I am comfortable with them.Thanks.
Page 1
    • LHW99
    • By LHW99 6th Jan 18, 1:35 PM
    • 1,068 Posts
    • 922 Thanks
    LHW99
    • #2
    • 6th Jan 18, 1:35 PM
    • #2
    • 6th Jan 18, 1:35 PM
    Small company funds make up just over 5% of my / OH's portfolio although there will be some smaller companies in other funds. I wouldn't look to have more than 10% in this sector, but that is just what we feel comfortable with.
    • AnotherJoe
    • By AnotherJoe 6th Jan 18, 1:41 PM
    • 7,937 Posts
    • 8,524 Thanks
    AnotherJoe
    • #3
    • 6th Jan 18, 1:41 PM
    • #3
    • 6th Jan 18, 1:41 PM
    I dont think i hold any.
    • economic
    • By economic 6th Jan 18, 1:45 PM
    • 2,509 Posts
    • 1,342 Thanks
    economic
    • #4
    • 6th Jan 18, 1:45 PM
    • #4
    • 6th Jan 18, 1:45 PM
    dont see any point in smaller companies. too much risk for little reward imo. if i wanted to go for smaller companies i would only consider a managed fund or individual stock selection and even these would make up max 5% of total portfolio.
    • TheTracker
    • By TheTracker 6th Jan 18, 1:46 PM
    • 1,181 Posts
    • 1,159 Thanks
    TheTracker
    • #5
    • 6th Jan 18, 1:46 PM
    • #5
    • 6th Jan 18, 1:46 PM
    IIRC my equities are split 45% developed, 12.5% property, 12.5% EM, 15% value, 15% small with no home bias. So I suppose thats 20-25% small.
    There's a lot of discussion on whether any small or size premium still exists, and if it does it takes decades to show above noise. I'm sticking with it.
    Last edited by TheTracker; 06-01-2018 at 1:56 PM.
    • aroominyork
    • By aroominyork 6th Jan 18, 1:58 PM
    • 338 Posts
    • 81 Thanks
    aroominyork
    • #6
    • 6th Jan 18, 1:58 PM
    • #6
    • 6th Jan 18, 1:58 PM
    I just took a look at Hargreaves Lansdown’s Master Portfolios where they give you a suggested portfolio of funds with sliders so you can change the allocations. For their Adventurous option their starting weightings include 15% UK micro-cap and 15% global smaller companies so that’s 30% SME. But it’s also a really strange portfolio because the other allocations are 10% Asia Pacific, 10% EM, 15% Europe, 20% UK, 15% Japan. It looks like the only USA holdings are within the global smaller companies!
    Last edited by aroominyork; 06-01-2018 at 2:04 PM.
    • jamei305
    • By jamei305 6th Jan 18, 2:08 PM
    • 276 Posts
    • 331 Thanks
    jamei305
    • #7
    • 6th Jan 18, 2:08 PM
    • #7
    • 6th Jan 18, 2:08 PM
    It looks like the only USA holdings are within the global smaller companies!
    Originally posted by aroominyork
    I wonder which funds they make least profit on...
    • firestone
    • By firestone 6th Jan 18, 2:37 PM
    • 108 Posts
    • 40 Thanks
    firestone
    • #8
    • 6th Jan 18, 2:37 PM
    • #8
    • 6th Jan 18, 2:37 PM
    I would appreciate knowing what proportion of equities people generally hold as Smaller Companies/SMEs as I wonder if I am a little high.

    SmCo/SME funds make up 29.4%-34.7% of the equities I hold:

    UK: 35% of my equities are SmCo/SME (Liontrust UK Sm Co, the rest in LT UK)
    Europe: 43% (Baring Europe Select, the rest in Blackrock Cont Eur Income)
    US/general global: 0% (all in Ballie Gifford Global Alpha Growth, VLS and Fundsmith)
    Japan: 100% (BGFD)
    EM: 31%-64% (31% IGC which is India SME; 33% ITEQ which is Israel hi tech – not an SME fund as such but many of the holdings will be; 36% TEM).

    This is a retirement portfolio taking an 8-10 year view. I hold SmCo/SMEs variously for diversification, higher risk/reward, or (in EM) as a bit of a tilt.

    In UK and Europe I am open to rebalancing. For Japan I like Baillie Gifford but could move part of BGFD into their broader Japanese OEIC. I realise my EM holdings are not typical but I am comfortable with them.Thanks.
    Originally posted by aroominyork
    having BG Japan & your liking of Sm co. have you looked at their Shin Nippon trust?
    • ivormonee
    • By ivormonee 6th Jan 18, 2:38 PM
    • 108 Posts
    • 81 Thanks
    ivormonee
    • #9
    • 6th Jan 18, 2:38 PM
    • #9
    • 6th Jan 18, 2:38 PM
    I just took a look at Hargreaves Lansdown’s Master Portfolios [...] It looks like the only USA holdings are within the global smaller companies!
    Originally posted by aroominyork
    How odd! Given that the USA large caps account for almost half of global equity that is rather surprising. I wonder what their thinking and motivation is for this!
    • Linton
    • By Linton 6th Jan 18, 2:45 PM
    • 8,870 Posts
    • 8,912 Thanks
    Linton
    In my growth portfolio I am 47% large, 28% Midrange and 24% small. As to whether the SC premium exists consider these average 5 year returns for funds in the various geographic sectors...

    UK All companies: 66.4%
    UK Smaller companies: 111.7%

    North America: 121.5%
    North America Smaller Companies: 121.2%

    Europe ex UK:87.5%
    Europe smaller companies:120%

    Japan:114.5%
    Japan Small Companies:177.5%

    Looks pretty clear to me that the premium exists except for the USA and you dont have to wait decades to benefit from it.
    Last edited by Linton; 06-01-2018 at 2:49 PM.
    • aroominyork
    • By aroominyork 6th Jan 18, 2:48 PM
    • 338 Posts
    • 81 Thanks
    aroominyork
    having BG Japan & your liking of Sm co. have you looked at their Shin Nippon trust?
    Originally posted by firestone
    Not really. I am concerned I have too much smaller companies so I wouldn't go from BGFD's SMEs to Shin Nippon's smaller cos.
    • Audaxer
    • By Audaxer 6th Jan 18, 2:55 PM
    • 804 Posts
    • 409 Thanks
    Audaxer
    In my growth portfolio I am 47% large, 28% Midrange and 24% small. As to whether the SC premium exists consider these average 5 year returns for funds in the various geographic sectors...

    UK All companies: 66.4%
    UK Smaller companies: 111.7%

    North America: 121.5%
    North America Smaller Companies: 121.2%

    Europe ex UK:87.5%
    Europe smaller companies:120%

    Japan:114.5%
    Japan Small Companies:177.5%

    Looks pretty clear to me that the premium exists except for the USA and you dont have to wait decades to benefit from it.
    Originally posted by Linton
    Linton, I'd be interested to know how often you rebalance your growth portfolio back to the original percentages of your allocation?
    • coastline
    • By coastline 6th Jan 18, 3:08 PM
    • 927 Posts
    • 1,062 Thanks
    coastline
    During a cycle small caps tend to do much better than large caps.
    In a downturn they tend to fall heavily..

    UK..

    https://d.ibtimes.co.uk/en/full/1411199/small-caps-1.jpg

    USA..

    http://www.moneysense.ca/wp-content/uploads/2015/03/Screen-Shot-2015-03-10-at-12.24.34-PM.png

    http://www.moneysense.ca/wp-content/uploads/2016/03/Screen-Shot-2016-03-08-at-2.52.36-PM.png

    http://business.nasdaq.com/media/Small%20Cap%20INDEX%20RESEARCH%20Chart%201_tcm5044-34761.JPG
    • Linton
    • By Linton 6th Jan 18, 3:21 PM
    • 8,870 Posts
    • 8,912 Thanks
    Linton
    Linton, I'd be interested to know how often you rebalance your growth portfolio back to the original percentages of your allocation?
    Originally posted by Audaxer
    I will seriously look at it once per year when I have to sell units from the SIPPs and transfer the money into cash savings or S&S ISAs. And also during the past year I have been cutting down on some duplications. In both situations the process would be to sell the unneeded funds, get a new geography/sector/size allocation report and then distribute some or all of the money amongst the remaining funds as required to get the overall allocations back close to what they were a couple of years ago.

    The allocations against geographies and company sizes are independent. So for example there is no attempt to balance Japan Small Companies against Japan Large companies - I dont hold enough funds to make that level of control practicable.
    • Linton
    • By Linton 6th Jan 18, 3:29 PM
    • 8,870 Posts
    • 8,912 Thanks
    Linton
    During a cycle small caps tend to do much better than large caps.
    In a downturn they tend to fall heavily..

    UK..

    https://d.ibtimes.co.uk/en/full/1411199/small-caps-1.jpg
    Originally posted by coastline
    I havent checked all the graphs, but looking at the UK one the % fall difference actually isnt nearly as big as it looks because of the distortion caused by linear scaling...

    From a trustnet chart graph it would seem that from Feb 2007 to the lowest point in March 2009 UK Small Company funds fell about 48% and UK all company funds fell around 42%.
    • bostonerimus
    • By bostonerimus 6th Jan 18, 3:42 PM
    • 1,431 Posts
    • 847 Thanks
    bostonerimus
    My cap weighted approach results in 6% of my equities being small and micro cap and they make up around 4% of my entire portfolio. Fama French would not approved.
    Misanthrope in search of similar for mutual loathing
    • Audaxer
    • By Audaxer 6th Jan 18, 4:29 PM
    • 804 Posts
    • 409 Thanks
    Audaxer
    I will seriously look at it once per year when I have to sell units from the SIPPs and transfer the money into cash savings or S&S ISAs. And also during the past year I have been cutting down on some duplications. In both situations the process would be to sell the unneeded funds, get a new geography/sector/size allocation report and then distribute some or all of the money amongst the remaining funds as required to get the overall allocations back close to what they were a couple of years ago.

    The allocations against geographies and company sizes are independent. So for example there is no attempt to balance Japan Small Companies against Japan Large companies - I dont hold enough funds to make that level of control practicable.
    Originally posted by Linton
    Thanks, I was looking at an example regarding the power of rebalancing and I thought in a portfolio with a lot of volatile funds peaking at different times, like probably your Growth portfolio has, that is where rebalancing once a year down to original percentages for each fund would be most beneficial.
    • Morphoton
    • By Morphoton 6th Jan 18, 8:10 PM
    • 69 Posts
    • 59 Thanks
    Morphoton
    Looking at Equities I am 47% in mid/small/micro caps. If you include the VCT's I own then the inclusive figure is 58%. (Assuming VCTs are 100% smaller).
    In fact 100% of my US, European & Japanese equity exposure is in mid/small/micro caps. However my total equity exposure is less than 50%. I have been in these for around 20 years and some areas have seen 2 drops of around 80% during this period.
    I take the view that whilst individual areas may show higher volatility in small vs large caps there is likely to be less correlation between small caps of different areas vs the equivalent large caps. Also there is some evidence that over the very long term, smaller caps over the world tend to give higher returns compared with large caps.
    Because of this I have gone with a barbell strategy of a high % of smaller caps but a modest overall equity weighting.
    As long as you are OK with the potential volatility/drawdowns then I would not worry too much.
    • davieg11
    • By davieg11 6th Jan 18, 8:43 PM
    • 264 Posts
    • 154 Thanks
    davieg11
    I have a portfolio with 85% equities and 10% of this is smaller companies. Old Mutual UK Mid Cap has 1 year +29.36%, 3 years +73.31%, 5 years +148.61, 10 years +251.26. I also have SL SLI Global Smaller Companies. 1 year +24.85%, 3 years +74.54%, 5 years +126.67%. Definitely worth having and rebalancing every year. After the next crash I'm increasing to 20% of my portfolio.
    • aroominyork
    • By aroominyork 6th Jan 18, 9:04 PM
    • 338 Posts
    • 81 Thanks
    aroominyork
    Looking at Equities I am 47% in mid/small/micro caps. If you include the VCT's I own then the inclusive figure is 58%. (Assuming VCTs are 100% smaller).
    In fact 100% of my US, European & Japanese equity exposure is in mid/small/micro caps. However my total equity exposure is less than 50%. I have been in these for around 20 years and some areas have seen 2 drops of around 80% during this period.
    I take the view that whilst individual areas may show higher volatility in small vs large caps there is likely to be less correlation between small caps of different areas vs the equivalent large caps. Also there is some evidence that over the very long term, smaller caps over the world tend to give higher returns compared with large caps.
    Because of this I have gone with a barbell strategy of a high % of smaller caps but a modest overall equity weighting.
    As long as you are OK with the potential volatility/drawdowns then I would not worry too much.
    Originally posted by Morphoton
    Interesting. So you are saying that a lower equity allocation with a high % of smaller cos, provides better returns over time than a higher equity allocation focused on large caps. Do you have any stats/articles (good ones!)/evidence to demonstrate this? Also, have you looked at the minimum period of time to make this a productive strategy taking into account risk associated with the increased volatility?
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