Reasonable Portfolio?

simonhgreen

This gets more interesting!

In principle why should the size of a fund negatively impact its performance?

If the fund has (say) 85 holdings, does it matter if each holding is £1000 or £10m?

Are you suggesting that the number of holdings is too unwieldy to enable flexibilty, or are other factors important?

ReportInvestor

The market makers see you coming, and you can't nip in and out.

So Neil Woodford at Perpetual has 9% of one fund in tobacco stocks. The market makers in those three tobacco companies wouldn't be able to take his sell order if he decided it was time to take profits.

simonhgreen

I see, so ultimately it looks as like really good managers can be the architects of their own (funds') downfall?!

With the choice on offer and differing opinions (not advice, obviously) I was wondering why people haven't pushed multi-manager funds.

HL & Fidelity (as well as others) have recently been pushing these and they claim to have experts doing what we have been trying to-sort the wheat from the chaff.

Is there a reason why they should be avoided or are they a good opportunity for investment in many of the funds we have been discussing?

carnet

There have been numerous academic studies carried out on fund size.

The impact of size depends on various factors such as the investment style of the manager, the cap size of the companies it invests in - large cap growth funds will be less affected than small cap funds where, as the fund size grows, the manager may have to increase weightings towards larger caps. Turnover may also be a factor - it is argued that funds with a higher turnover of stocks may have a lower capacity of assets ie a fund with 110% turnover will have a lower tolerance to size than one with 20%. For example, Neil Woodford's average holding period is 3 to 5 years - hence he is one of the very few where size has not adversely impacted on his funds .

To give some examples, recent research by CSAM has found that ;

In the 12 months to 30 June 2005, the top-performing funds in 20 out of 26 IMA sectors had assets of less than £100m.

In the 12 months to 30 June 2004, it was 18 out of 26 sectors.

In the 12 months to 30 June 2003 it was 21 out of 26 sectors.

In the same 26 sectors, in the year to 30 June 2005, 280 funds below £100m in assets were in the top quartile compared to 160 funds with more than £100m.

In the year to 30 June 2004, 270 funds below £100m were in the top quartile against 140 above £100m.

In the year to 30 June 2003 it was 226 against 139.

Focussing on 12 IMA sectors, 25% more funds deliver consistently above-average returns 3 years in a row among sub £100m funds than those above.

30% more funds under £100m are consistently top-quartile 3 years in a row.

Is it any wonder then that so many funds have been either soft-closed, capped (either at outset or subsequently) or, now, split ?

EdInvestor

I don't mind if the large size of Fid Spec Sits has impacted performance, as it's performance is still outstanding. Obviously he main holdings of such a big fund will tend to be in the very large liquid shares, but this serves to reduce risk, so it doesn't bother me if it blunts the outperformance a bit.

There are plenty of small funds around which ought to be suitably nimble, but are the managers able to capitalise on their flexibility?

Of course past performance is no guide to the future blah blah blah, but I suspect most people will usually prefer big funds with competent managers and a nice long track record and won;t mind sacrificing a bit of outperformance in return for lower risk.

simonhgreen

Any comments on the Fid & HL Multi-manager funds?

carnet

simonhgreen wrote:

Is there a reason why they should be avoided

Not really - if you have more faith in the manager's ability than your own to pick the right funds in the right sectors/asset classes/geographical areas at the right time.

Although, due to double charging (for unfettered FoF, at least) the charges will be higher.

carnet

simonhgreen wrote:

Any comments on the Fid & HL Multi-manager funds?

If I was considering MM funds I would look first at the offerings from (alphabetically ) Credit Suisse, Jupiter and New Star.

al_yrpal

ReportInvestor wrote:

You're overthinking this courtesy of posters above.

Such volatile markets should not make up more than 10-15% of your portfolio at most.

On the other hand you could ask where the action is in the world and begin to realise that we currently live in a growth investment backwater (service economies don't need so much investment). I would be thinking about where folk don't yet have bank accounts, mobiles, vehicles and homes, and want them. There is no rule that says such places should form so small a part of a portfolio. In fact they are the most logical area to concentrate carefully watched investment. As for volatility, look at the last three years in these sectors and compare their actual crashes with ours, and the reasons behind them. You end up wondering which economies are the volatile ones, first or emerging?

ReportInvestor

But that's not a "risk" you would find recommended by an IFA as they would have to answer to the consequences if it went belly up.

Although who's to say you're not right .