Building Blocks for a Novice Portfolio!!

Paddy_Boy

Hi there.

Am just starting my first steps into S&S Isa investinment and am just wondering if my thoughts make sense?


My "core holding" I would like to be uk based and then add to that accordingly over time when I get more experienced. In terms of sectors I was undecided between Uk Equity Income and UK all Companies.

For the time being I will only be able to afford one fund per month,(due to my wedding plans) however once that is out of the way I should be able to spread the monthly installments to 5 funds.

My specific thinking was M&G Recovery(all companies) or Invesco Perp Inc(UK Equity Inc). I am naturally more inclined to head for All companies as I dont need to touch the money and am taking a long term view on this which should point me towards growth? But there is a voice in my head saying the sensible thing to do would be the Equity income route as that is likely to be less volatile and form a good foundation.

Some one I know suggested "stick it all in some Emerging Market thing and watch the thing grow"!
However I want have a long term view and not chase the quick buck, which i imagine for the first 10 years is not exactly going to set the world alight. I am nearly 30 years old, so in no big rush.

Are the sectors mentioned above good starting points?

Many Thanks

dunstonh

Some one I know suggested "stick it all in some Emerging Market thing and watch the thing grow"!

What they mean is stick it all in emerging markets and strap yourself on for the rollercoaster ride.

i imagine for the first 10 years is not exactly going to set the world alight.

It can take 10-15 years to build up a lump sum that can make a noticeable difference if your regular is small. And if you go too high risk its more at risk of a crash hitting it harder in the later years than in the start. Ideally you want one in the early years. Although you know full well that you will get one at some point.

Paddy_Boy

It can take 10-15 years to build up a lump sum that can make a noticeable difference if your regular is small.

Exactly so although I can only invest small at the minute , this will change nexy year. Do my chosen sectors fit with what i have mentioned?

ColinJS

Hi

The two funds you have mentioned are managed with very different aims.

M&G Recovery is pretty speculative itself so be wary, although it is in the 'all companies' (which would imply diversity) it is quite concentrated. Having said all that, it is one of my top picks and the manager, Tom Dobell is very highly rated. Invesco Perpetual Income (Neil Woodford) is much more conservative. It will generally underperform in a growth phase as the manager is quite bearish. .

Howeber, in my opinion, you would be better to build a core holding with a much more diverse fund. A fund which not only invests in equities, but also in bonds, cash, property, hedge funds, and has the ability to 'short' (make money when an asset class falls in value). Look at Standard Life Global Absolute Return Strategies. In my opinion, it would make a great core holding, you can then develop your portfolio with other 'tactical' plays as you see fit later on. The 'total expense ratio' for very diverse funds can be higher than a single asset class fund (as there are more expenses incurred by the manager) but the net results have been pretty compelling so far. One thing is for sure, a highly diverse fund will not be as volatile as a single asset class fund.

Cheers

Paddy_Boy

Howeber, in my opinion, you would be better to build a core holding with a much more diverse fund.

I had not thought of absolute return as a core holding but it would offer more diversity for sure. Will check on the fund mentioned, only funds I had thought of along those lines are Jupiter Abs Ret and the Artemis Strategic Assets, however they are both pushed BIG STYLE by H-L, to the point of obsession. Like you say what I want to do is have a good solid fund to begin with that can be added to next year when I can add more funds, and construct a portfolio.

ColinJS

Artemis Stretegic Assets is RACEY - very strong performance but volatile. Have no idea why HL push one fund so hard over another........ without knowing much about HL's charges, I'd wager the size of rebates have something to do with it.

Paddy_Boy

Have had a look at the fund and it looks interesting, my only questions would be the following.
How are they(absolute return) less volitile than say Equity income funds, when they invest in derivatives and short positions etc?
Is not the whole basis of these been succesfull, relient on the fund manager making the right call regarding the above. Which surely makes the risk profile higher?

Or is it that there are no restrictions to what they can do with the portfolio the thing that offers the diversification?As Woodford can't pull out of BT and stick it on the euro etc to rebalance?

I understand risk is part of the deal, I'm just trying to understand the product a bit clearer!

dunstonh

Have no idea why HL push one fund so hard over another

Platforms can be paid to promote funds. Marketing bonuses are something that the FSA have proposed to be abolished with the unbundling rules in conjunction with the retail distribution review. Although its possible that non-advice platforms will still be able to get them. Although there is opposition to that as it would allow an unfair competitive advantage as it will prevent unbundled platforms being able to compete with bundled ones that get cross subsidy and fund house incentives.

Paddy_Boy

So in order of risk, where do Absolute Return, UK Equity Income and UK all companies come in laymens terms?

Are Balanced/Cautious managed funds suitable? They strike me as the types that your pension is thrown into unless you specify otherwise.

dunstonh

So in order of risk, where do Absolute Return, UK Equity Income and UK all companies come in laymens terms?

You have named the generic types but you can find lower risk absolute return funds through to higher risk ones. Equity income generally comes around medium/high to high but again, it varies. UK all companies is a catchall that can cover mid caps, large caps or combinations. Again the risk can vary.

Are Balanced/Cautious managed funds suitable?

Potentially if you dont have the funds or time to diversify yourself and want mixed asset classes.

They strike me as the types that your pension is thrown into unless you specify otherwise.

Pensions have exactly the same choice as ISAs. If your pension is in a balanced managed fund then its because that is what it is in. Not because its a "pension" fund. All the funds mentioned on this thread so far can be held in pension. Pensions are no longer a product but a tax wrapper (although you can still buy product based ones).

Paddy_Boy

Right am with you now. So basically I need to decide what would fit my criteria? Do I want a fund that is of a more conservative nature( by which I mean the main holdings been in what you might call defensive/conservative stocks)? Or one which is extremely cheery about the outlook and exposed to say banks and retailers?( Very broad strokes I know).


Or do I go for a fund that can basically adapt to anything that is thrown at them? Using all these types of derivatives/instruments and is not limited in what they can do?

Well to be honest I like the sound of a medium risk UK Equity income fund, can anyone name me a few so I can l have a few options to have a gander at? Or tell me the best way to find some . . .