Critique my fund choices

MyLastFiver

Hi all, I'd like your honest opinions on my investment strategy please.

The situation:

1. My aim is to pay my son through university in 15 years' time, and I will not need the money before then.

2. For this reason I am prepared to accept some high risk.

3. I have a Hargreaves Landsowne S&S ISA into which I've been paying £100 per month (only for the past 3 months) split 50/50 between HSBC FTSE All-Share Tracker, and Aberdeen Emerging Markets.

4. From 2011, I will be increasing my monthly investment to £150 and am therefore looking to buy a new fund.

5. I like index trackers due to low charges, and my belief, to some extent, in "being" rather than "beating" the market.

6. It is my view that, over the period of my investment, Asian and emerging economies will grow faster than the developed West.

With all that in mind, these are the funds I'm considering:

L&G Global Emerging Markets Index
This tracks the FTSE All-World Emerging. I like it because it provides exposure to "secondary" emerging markets. I may consider dumping the Aberdeen EM fund in favour of this in future. I may run them alongside each other for a year, then compare growth.

L&G Pacific Index
Tracks developed economies - a good hedge against volatility in my EM holdings?

HSBC Japan Index
Japan's gotta go somewhere eventually

To repeat, I am considering adding ONE of these funds to my current portfolio of HSBC All-Share tracker and Aberdeen Emerging Markets.

What do you all think?

Thanks

G_M

Your thinking appears sound. My only comment is that, whatever you think about Asia Vs other areas, diversity is important. You already have Aberdeen Emerging Markets.
Do you see yourself managing/switching the portfolio over time, or just leaving it for 15 years?

MyLastFiver

G_M wrote: »

Your thinking appears sound. My only comment is that, whatever you think about Asia Vs other areas, diversity is important. You already have Aberdeen Emerging Markets.
Do you see yourself managing/switching the portfolio over time, or just leaving it for 15 years?

Thanks for replying. Re diversity, I thought that holding the FTSE tracker brought diversity, plus the Aberdeen EM fund invests globally, not just Asia. Happy to be told I'm wrong though.

Re managing/switching, yes if I had to. For example, switching from the Aberdeen fund to the L&G EM tracker might provide similar performance for lower costs. On the whole, I'm a "time in the market" guy rather than a market timer. Timing the market is what I'm paying the managers of the Aberdeen fund to do, and if they can't get it right then I don't think I'd be able to do better than them Of course, when my son is taking his GCSE options I would look to start crystallizing (any) gains by moving out of equities, in order to cash out when he is going to university.

MyLastFiver

There is, of course, another answer. Forget sectors, geography and diversity risk, and put everything into a FTSE All-World tracker. Is this a really stupid idea, and if so, why?

G_M

MyLastFiver wrote: »

Re managing/switching, yes if I had to. For example, switching from the Aberdeen fund to the L&G EM tracker might provide similar performance for lower costs. On the whole, I'm a "time in the market" guy rather than a market timer. Timing the market is what I'm paying the managers of the Aberdeen fund to do, and if they can't get it right then I don't think I'd be able to do better than them Of course, when my son is taking his GCSE options I would look to start crystallizing (any) gains by moving out of equities, in order to cash out when he is going to university.

The managers will certainly (in theory!) time buy and sell decisions of shares in emerging markets as best they can, but they will always stay in emerging markets. That's what the fund does.

You, however, may decide to move out of EMs and into, for example, USA if and when you think their recovery is starting (some people say now!).

jimjames

Rather than the L&G Pacific tracker how about the HSBC version as it has much lower charges - for a tracker the charges are the main criteria.

Not sure about the FTSE World tracker, it sounds a bit too unfocussed and really depends how the country allocations are made - I would guess that there is a very large proportion in the USA which doesn't feature at all in your original selection.

Linton

MyLastFiver wrote: »

There is, of course, another answer. Forget sectors, geography and diversity risk, and put everything into a FTSE All-World tracker. Is this a really stupid idea, and if so, why?

Because that will automatically have most of its investments in the USA and Europe. The OP believes the emerging markets and the Far East will perform much better than the western countries.

Linton

I believe you should be looking to diversify. This rules out the emerging tracker. In any case aberdeen emerging markets has greatly outperformed the only emerging index fund I could find with some historical data, and the L&G fund has only been running 2-3 months.

The Pacific (exc Japan) area looks good for the future. How about a good Far East fund (look at First State or Fidelity). Again the First State fund has greatly outperformed a tracker (HSBC was the one I checked).

There is no point in going for a tracker if a managed fund can outperform it. In the specialist sectors I believe knowledge is worth paying for.

Japan looks like a jump and hope type of investment.

For something more likely to perform well, I suggest you have a look at Technology, Small Companies, Natural Resources.

You can review most funds and make comparisons on https://www.trustnet.com.

dunstonh

Regular contributions take much longer to make money and can often appear to underperform when in reality its a problem over the way you pay. For example, if you get a 40% crash in year 2 after paying £100pm then a value of say £1800 loses just £720. However, the contributions that follow in the years after potentially stand to make a lot more money. However, lets move forward 12 years and say that value is now £18,000 and that 40% drop occurs. That is now a £7200 loss and with just a few years left until the money is needed means that the drop is unlikely to have enough time to recover.

The areas being proposed to be invested in are high risk and single sector with some of them being 70% loss potential. Not a problem in the early years as if that occurs its good news but it is a problem in the later years.

So, if you are going to do random selections of sectors which are high risk then you need to make sure that you periodically get some of those gains out and protected into lower risk areas. You cant just sit back and invest and forget. If you think that invest and forget is likely what you will end up doing, then go with self balancing funds instead. They wont make as much in the good times but they wont lose as much in the bad. Random hit and hope fund selections rarely come out best over the long term anyway. How much of a risk do you want to put on your son's university costs?

MyLastFiver

Thanks for taking the time to reply.

dunstonh wrote: »

if you are going to do random selections of sectors which are high risk

I don't think they are random. My portfolio will reflect my view that growth in Asia, and in Global Emerging Markets, will outperform growth in the developed West, over the period of the investment. You could debate that my view is wrong (and if you believe so, please say!) but I am creating a portfolio which reflects that view. Unless we all invest in the "whole of the market" of global capitalism (I did throw this into the mix a few posts back) then we are all choosing investments that we believe will outperform others, which we ignore. But maybe I'm naive. If it were your money and your son, what would your approach be?

You need to make sure that you periodically get some of those gains out and protected into lower risk areas.

Taken and noted.

Random hit and hope fund selections rarely come out best over the long term anyway.

OK fair enough - I'm a newbie. Could you suggest an alternative strategy then?

How much of a risk do you want to put on your son's university costs?

A very valid point. I should have put in my original post that I save £1200 per month, and of this only £150 is going into equity investments. The rest is in cash, offsetting the mortgage interest and being saved in order to buy a bigger house in 4 years' time. If I lost my shirt on the S&S ISA, I would be pig sick but it wouldn't prevent my lad from going to uni. I would have other savings, plus a large monthly budget surplus.

Totton

If I were adding the £50 I would consider a general global growth fund such as Ecclesiastical Amity International to sit alongside the other two or perhaps a balanced fund such as Troy Trojan etc. I'm not a fan of trackers for a 15 year investment though.

HTH,
Mickey