Building Blocks for a Novice Portfolio!!

bendix

ColinJS wrote: »

Artemis Stretegic Assets is RACEY - very strong performance but volatile. .

On the contrary, Artemis Strategic Assets has proven to be by far the steadiest performer of my 20+ fund holdings over the last sixteen months since I went back into the market.

Good steady growth. No slumps, no surges. Just solid regular positive performance.

I don't know how you can say it is racy - just look at it's major core holdings. A gold ETF, a platinum ETF and a selection of good solid defensive stocks such that Neil Woodford would be proud of - AstraZen, National Grid, BP, GSK, Lloyds etc.

If that's racy, I'm a banana.

jamesd

You need to pick a mixture where the overall mixture meets your needs. So you might start looking at something like this and adjust from here:

20% Invesco Perpetual Income, accumulation units
20% M&G Recovery
20% Neptune Global Equity
10% Aberdeen Emerging Markets
30% other

There are many other things that you could do. for example commercial property might be interesting and there's value in a corporate bond funds, though I'm not keen on those at present.

What I've tried to do with these examples is show the need for non-UK holdings and the ability to adjust the percentages of each investment that you hold to adjust to meet a risk level target.

If you wanted to reduce the overall risk level you could put the remaining 30% into a money market fund, close to being cash. To increase it you could add a UK Smaller Companies fund, Asia_Pacific or Latin American fund, or country-specific emerging markets funds. Or perhaps a relatively high risk natural resources fund.

UK large companies funds might drop by 40-50% in bad times, emerging markets funds more like 70% and even more for single country funds. Bond funds might drop by only 10% (depends on the type of bond fund involved, there are high grade corporate bond funds with low variation or emerging markets with higher).

What you do is try to focus on the mixture and get it so that at bad times you won't panic sell after being scared by the size of the drop. Those are the times to buy more, not to sell. When everyone is talking about an unending boom and all the major papers are saying get in now it's time to be thinking about moving to lower risk levels so that the value drops less during the following crash. During which you by back into the more volatile ones that fell most.

ColinJS

bendix wrote: »

On the contrary, Artemis Strategic Assets has proven to be by far the steadiest performer of my 20+ fund holdings over the last sixteen months since I went back into the market.

Good steady growth. No slumps, no surges. Just solid regular positive performance.

I don't know how you can say it is racy - just look at it's major core holdings. A gold ETF, a platinum ETF and a selection of good solid defensive stocks such that Neil Woodford would be proud of - AstraZen, National Grid, BP, GSK, Lloyds etc.

If that's racy, I'm a banana.

Ok, I accept it's currently working as a blended fund with a focus on large caps, but I don't agree that it is diverse enough to form a core holding in a portfolio. It's all relative to your point of view though (hence why I see investment as an art, rather than a science). I actually invest in the fund myself (and I am very pleased) but it is not a core holding. Why? It is totally unconstrained and can invest anywhere, in any region, asset class, company size etc (and can invest in geared investments which could compound gains or losses). Holding this fund as a core asset believing it will always invest in value stocks would be a mistake, in my opinion. Happy to be challenged, it's what makes this job interesting! :-)

jimjames

Paddy_Boy wrote: »

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 . . .

As a starting point a fund based on FTSE tracker with very low charges could be a good bet to form a core holding and then look at more adventurous things afterwards.

My favourites are HSBC FTSE All Share and FTSE 250 trackers to cover both large and medium cap companies. They have very low charges of 0.27% pa. They are not strictly Equity Income but if you want that sector then Artemis Income has done well for me.

pqrdef

Paddy_Boy wrote: »

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.

If you aren't expecting much for 10 years, you might as well leave your money in the bank. The funds will still be there in 10 years, and if you can buy them cheaper later, you'll only have lost money by buying sooner. There's no merit in having money at risk if you haven't got a good reason why you think it'll grow.

Any fund will make money if you buy at the bottom and can avoid selling into a worse bottom. If you buy in at the top of a bull market, you can't make anything until the next bigger bull run, and your opportunities to sell and come out ahead will always be limited.

The "long term" isn't some alchemy that can guarantee profits from randomly-timed investing. Maybe for a tortoise, but we puny humans don't live through enough economic cycles for a long-term trend to dominate the cyclic swings. When people quote figures for long-term growth, they're always choosing their end-points.

Of course money can be made against the markets, with luck or skill, but only ever by high-risk tactics not available to most fund managers. Your ordinary single-sector long fund won't do much different from the sector index because the terms of the prospectus don't allow it to.

First thing to do then is to find a sector that's going to go up before it goes down. UK equities wouldn't be top of my list at the moment.

Paddy_Boy

As a starting point a fund based on FTSE tracker with very low charges could be a good bet to form a core holding and then look at more adventurous things afterwards

I was thinking along those lines JimJames to be honest. Thought it might be a good starting point.

If you aren't expecting much for 10 years, you might as well leave your money in the bank. The funds will still be there in 10 years, and if you can buy them cheaper later, you'll only have lost money by buying sooner. There's no merit in having money at risk if you haven't got a good reason why you think it'll grow

If I can buy them cheaper in 10 years time?? Big if? What about the 10 years of compounding and pound cost averaging that I will have missed and if there is a crash it would not be such a bad thing as I can still buy when cheap!
I meant that as the sums invested are small I will take quite a lot of persiverance before the sum starts to look more attractive, but would that not be the case if I left it in the bank? As inflation is gonna take a nice bite out of it.

First thing to do then is to find a sector that's going to go up before it goes down. UK equities wouldn't be top of my list at the moment

Why not???

dunstonh

jimjames wrote: »

As a starting point a fund based on FTSE tracker with very low charges could be a good bet to form a core holding and then look at more adventurous things afterwards.

My favourites are HSBC FTSE All Share and FTSE 250 trackers to cover both large and medium cap companies. They have very low charges of 0.27% pa. They are not strictly Equity Income but if you want that sector then Artemis Income has done well for me.

Paddy said he liked the idea of medium risk. A FTSE tracker is further up the risk scale and the 250 tracker even higher. He would not utilise some lower risk funds to offset the higher risk ones if he did that.

jimjames

dunstonh wrote: »

Paddy said he liked the idea of medium risk. A FTSE tracker is further up the risk scale and the 250 tracker even higher. He would not utilise some lower risk funds to offset the higher risk ones if he did that.

I'm curious about risk definitions then.

I would see a FTSE tracker as exactly meeting the requirement for a medium risk UK equity fund. Using low/medium/high I would see a FTSE tracker in the low medium end of that scale with bonds as low and emerging markets as high. I would see most non tracker funds have a higher risk that they don't perform as well as the market long term.

How do other risk definitions work?

pqrdef

Paddy_Boy wrote: »

If I can buy them cheaper in 10 years time?? Big if?

Or any time in between.

Paddy_Boy wrote: »

What about the 10 years of compounding and pound cost averaging

Pound cost averaging is a euphemism for losing money.

Paddy_Boy wrote: »

if there is a crash it would not be such a bad thing as I can still buy when cheap!

Can't wait. But a crash is best if you're out of the market. Otherwise, you're losing money.

Putting it another way, if most of your portfolio at the bottom is stuff you had at the top, then the climb back up, which is the money-making opportunity, is being wasted just getting back to break-even.

Paddy_Boy wrote: »

I meant that as the sums invested are small I will take quite a lot of persiverance before the sum starts to look more attractive

I think I misunderstood, I thought you were saying you weren't expecting the markets to go very far. If you're reckoning on steady growth, fine.

Paddy_Boy wrote: »

Why not???

Well, business prospects don't seem as rosy as we thought they were last time the Footsie rose to this level. Odd that.

dunstonh

I'm curious about risk definitions then.

I would see a FTSE tracker as exactly meeting the requirement for a medium risk UK equity fund. Using low/medium/high I would see a FTSE tracker in the low medium end of that scale with bonds as low and emerging markets as high. I would see most non tracker funds have a higher risk that they don't perform as well as the market long term.

How do other risk definitions work?

The risk profiles are generally benchmarked on a scale. The scale will usually start at cash so the person can put it in context. How wide the scale is doesnt matter as long as the investor can put the risk in context. (i..e 1 to 5, 1 to 10)

Generally, medium risk would be an asset risk that is typical with a balanced managed fund i.e. mixed asset with some cash, fixed interest and equities and sometimes some property). That is why medium risk is very often referred to as balanced risk. A 100% UK equity fund would typically be medium/high (although some equity income funds can fall into the medium band). A smaller companies or mid cap fund would move further up.

There are some scales out there that benchmark equities only an an equity scale. I think the FT is one example but then they only have three risk bands which is totally inadequate. However, most investors would typically benchmark risk in relation to cash. Especially inexperienced ones.

The sectors for portfolio funds also tend to reflect the name as well. i.e. defensive managed (low) , cautious managed (low/medium), balanced managed (medium) etc.