How many funds in a portfolio?

lemon26

Hi again,

As I've said before, I'm in the process of building my portfolio, the breakdown of which can be found in another of my post - I'll try to post a link to it later.

http://forums.moneysavingexpert.com/showthread.html?t=2175583&highlight=lemon26

Currently my potfolio has less than £3k in it so I was wondering how many funds I should have in it - I've currently got 9 and may be adding a further 2 so that'd be 11. Is that too many funds for this small amount just I;m wary of having all my investments in only 2-3 funds whereas now I'm fairly regionally and asset class diversified. If I do add the further two that will be it and I'd just build monthly on the funds that are in my ISA.

Thanks again for your patience! L

jon3001

I don't think there should be any arbitrary limit as long as you have a clear strategy and are prepared to handle the extra complexity and time commitment it demands.

dunstonh

With £3000 then you probably need only 1 or 3. You could go to full sector allocation potentially and have 8-13 but on a sum that small, its not really worth it at this stage...in my opinion.

Often it could be worth £1k per fund until you get to a higher value if you are actively reviewing the investments.

Rollinghome

I'd instinctively agree that a couple of funds would be enough. Thinking about it more logically I suppose as it doesn't effect the costs then the same principles would apply for £3k as for £300K - provided it's worth the additional effort for the smaller amount. I also know people with huge amounts in just a couple of generalist funds and that simple approach works for them.

At the other extreme some have separate funds for Korea, China, India etc. and possibly over-estimate their asset allocation skills. Unless it's something they're very good at they'd often be better off with with slightly less specific funds with a professional manager making the detailed decisions for them.


.

lemon26

Hi gents, thanks for your thoughts. If I do have too many, which should I get rid of? My current portfolio is:

Artemis Strat Assets R Acc: 18.43%
HSBC Pacific Index Acc: 10.43%
IP Corporate Bond Inc: 9%
IP High Income Acc: 20.54%
JPM Natural Resources A Acc: 7.18%
Jupiter Financial Opps Inc: 7.82%
Jupiter India Acc: 6.85%
Jupiter Int'l Financials Acc: 9.48%
Threadneedle UK Property Acc:10.27%

Which should I keep and which should I get rid of? Should I merge the two financial funds into the International Financials Fund? Any thoughts are very much appreciated! If it's any use I was thinking of adding AEGON High Yield Bond and M&G Global Growth to my portfolio as the other two funds I mentioned in my initial post.

Thank you all once again, L

jon3001

lemon26 wrote: »

If I do have too many, which should I get rid of?

The other posters are wondering if it's worth the effort to manage a more complex portfolio given the modest amount at this stage. If you managed a 2% return above a less complex portfolio that would amount to an extra £60. But how many extra hours over the course of the year would it take in terms of research and management? What would your personal hourly rate be?

If you enjoy dealing with this stuff then I say go ahead and have a complex portfolio.

If you do want to limit the complexity then think initially in terms of asset allocation rather than funds. A classic 3-fund equity portfolio might include the following sectors:

1. UK Large-caps
2. UK Small-caps
3. International Large-caps (developed markets)

Looking at your original fund selection I suspect you might find that a bit boring...

Rollinghome

If you're happy with it then it's just right. I don't think anyone would suggest it's "balanced" if that's what you had in mind but then neither is what I hold. Obviously the more specific the areas you invest in are then the higher the reward if you get it right but the higher the risk of getting it wrong. It's your call on what approach is right for you.

As the total amount isn't very large then you probably won't be jumping out of a window if it doesn't quite go to plan and should have some fun if it all comes right. Good luck with it.

greenface

lemon if it suits you keep it as it is , I think you enjoy "playing around" with your portfolio >with 3k in it at present you wont make a million (or you just may)but you will be able to understand markets and learn lots as hopefully you can add to your funds as you and it grows. Good luck

QuietDragon

lemon26 wrote: »

Hi again,

snip

Currently my potfolio has less than £3k in it so I was wondering how many funds I should have in it - I've currently got 9 and may be adding a further 2 so that'd be 11. Is that too many funds for this small amount just I;m wary of having all my investments in only 2-3 funds whereas now I'm fairly regionally and asset class diversified. If I do add the further two that will be it and I'd just build monthly on the funds that are in my ISA.

Thanks again for your patience! L

Hi Lemon,

Several questions in there, so here's my 2p worth...

lemon26 wrote: »

how many funds I should have in it

Should? Any number you need to fulfil your current investment requirements overlapped with how many you expect to need for your near future requirements.

lemon26 wrote: »

Is that too many funds for this small amount

I would say no.

1. At this size of portfolio there are no financial cost implications in having multiple funds rather than one fund because (so far as I am aware) the funds you have bought into are all based on percentage holdings for their management/annual charges.

1a. Exception to the above might exist in the case of a very high value portfolio where the sheer number of funds and the distribution of the investment value would obviate the investor investing in funds in which the minimum investment was much higher than "usual" but the annual expenses much lower.

Two examples:

Aegon High Yield Bond A
Min. investment £500, annual expense ratio 1.09%

Aegon High Yield Bond B
Min. investment £250,000, annual expense ratio 0.59%

First State Asia Pacific A
Min. investment £1,000, annual expense ratio 1.84%

First State Asia Pacific B
Min. investment £500,000, annual expense ratio 1.07%

2. Your current investment requirements, and your planning for your future investment payments might require that you take a small holding in a fund in order to gradually add to it as your future cashflow allowed.

3. You might approach a high-risk fund with its smallest possible buy-in and then simply watch it with interest as the months and years roll by.

4. Whereas in the pencil-and-paper past, working out a large-number-of-funds portfolio's overlaps and gaps would be a tedious and painful process, now with the advent of software or online portfolio analysis tools (for example Morningstar's Portfolio X-Ray or trustnet's Portfolio Scanner), this is a easy process. Furthermore, once diversification gaps are found, they can be "plugged" fairly easily.

Take a look at these for some sparkling insight into diversification and its relationship with portfolio risk:

www.investopedia.com/articles/basics/05/diversification.asp

www.investopedia.com/articles/02/111502.asp

www.investopedia.com/university/risk/risk4.asp

www.investopedia.com/articles/01/051601.asp

Hope this helps.

mr_fishbulb

lemon26 wrote: »

Which should I keep and which should I get rid of? Should I merge the two financial funds into the International Financials Fund?

Do you realise that the HSBC Pacific Index has 33% exposure to financials, Jupiter India Acc has 26% and Artemis Strat Assets R Acc has 17%? You've got a lot more financials than you probably think.

lemon26 wrote: »

Any thoughts are very much appreciated! If it's any use I was thinking of adding AEGON High Yield Bond and M&G Global Growth to my portfolio as the other two funds I mentioned in my initial post.

I like the M&G global growth fund, but the Artemis fund you already have has the same scope (growth from international equities) albeit seemingly different majority holdings.

QuietDragon

lemon26 wrote: »

Hi gents, thanks for your thoughts. If I do have too many, which should I get rid of? My current portfolio is:

Artemis Strat Assets R Acc: 18.43%
HSBC Pacific Index Acc: 10.43%
IP Corporate Bond Inc: 9%
IP High Income Acc: 20.54%
JPM Natural Resources A Acc: 7.18%
Jupiter Financial Opps Inc: 7.82%
Jupiter India Acc: 6.85%
Jupiter Int'l Financials Acc: 9.48%
Threadneedle UK Property Acc:10.27%

Which should I keep and which should I get rid of? Should I merge the two financial funds into the International Financials Fund? Any thoughts are very much appreciated! If it's any use I was thinking of adding AEGON High Yield Bond and M&G Global Growth to my portfolio as the other two funds I mentioned in my initial post.

Thank you all once again, L

Piece by piece answers...

lemon26 wrote: »

If I do have too many, which should I get rid of?

You don't, so don't!

lemon26 wrote: »

Should I merge the two financial funds into the International Financials Fund?

The two financial funds - Jupiter Financial Opportunities and Jupiter International Financials - have no identifiable overlap, so ostensibly they can coexist without any problem. so long as their combined value (in the financial sector) doesn't throw out your overall sector allocation requirements.

lemon26 wrote: »

Any thoughts are very much appreciated! If it's any use I was thinking of adding AEGON High Yield Bond and M&G Global Growth to my portfolio...

Build your portfolio in Morningstar's Portfolio tool as is (which I think you have already done), and then X-Ray it. Then add the two extra funds and X-Ray it again, noting whether it changes/damages the style, sector, region, stats and overlap reviews.