Critique My Fund Portfolio

JamesU

1. Growth expectation – 18.0% p.a. (lower expectation)

---Maybe optimistic within 3-5yrs

2. Average cost vs. Growth expectation – 1.47% : 18.0%
3. Cost effect on returns – 6.0% (suggested) - 1.53% = 4.47%

---Meant max 6% growth, though 9% may be realistic too.
At 1.5% annual charge, approx 25% of profit in costs after 5yr at compound growth rate of 6%. Care with 1-2% charges, forward compound calculations according to expected annual return, time and charges. Then normal building blocks for diversification fine with trackers (0.2-0.5% ter). Higher spend on funds only when specialist/strategic or additional alpha to justify cost.

4. Non-correlation of funds – fund choices being updated for highlighted correlations
6. Risk vs. Growth vs. Timeline – unsure how to accurately measure risk in this regard?

---Global tech/global resources/global EM all high risk. Dev small caps without large cap or blend also more volatile.
http://www.amazon.co.uk/Smarter-Investing-Simpler-Decisions-Results/dp/0273722077/ref=sr_1_1?ie=UTF8&qid=1297899713&sr=8-1

I agree on the overlap for CF Amati UK Smaller Companies (Accumulation) and Threadneedle Pan European Smaller Companies (Accumulation). Threadneedle Pan European Smaller Companies (Accumulation) will be removed.

---No view on this decision, depends on overall balance of dev large/small cap and regions covered in the final choices. Still feel % weightings of global resources/global tech/global EM much too high.

Have fun with the final asset allocation and weightings.

Post an x-ray and other breakdowns including % split on equities when completed, will be interested to see the end result.

JamesU

mike88

Coeus. Your portfolio is now looking much better in that you have begun a strategy that will help preserve your existing capital combined with an adventurous way forward. While I think your forward projections are optimistic given anticipated downturns in some markets - and there is still an imbalance between large and small caps - your portfolio is now better balanced than when this thread started out.

I have re-looked at your justification for investing in small caps. What you have said is correct. But remember in a rising interest rate environment small caps find it more difficult to raise money, pay more in interest and, unlike large companies, most are unable to raise cash through corporate bonds meaning that performance may be stifled going forward. Small caps tend to perform better when there is easy and cheap availability of money in a low interest rate environment and that is likely to be reversed within your investment timescale. Arguably their recent performance is based on the back of capital raised prior to the banking crisis which may not be repeated as investment loans have since dried up. But you must follow your own instincts as this is merley my personal assessment.

That is why I have gambled on switching virtually all my own portfolio into large caps but I could be wrong - and often am as this investment game is often more a question of timing and some luck than judgement.

An interesting exercise for you now to undertake will be to use the portfolio tools on Trustnet by scanning in the results. You will be able to see the sectors in which you are invested, the country breakdown and the performance of that portfolio over a time period you choose. That may help you see the bigger picture and understand where your funds overlap.

Coeus

Thanks for your continuing posts! Just to let you know I copy these and print them out so I can read in detail on the sofa. I will begin posting the updated allocations and weightings after each post when necessary to show the ‘evolution’ in the final stages.

JAMESU

Growth Expectation
My original aim was for 15%. I moderated this up based on previous performance of the funds (however am very well aware that this is no guarantee of future performance!). Would you say 15% is a more reasonable expectation over a 3-5 year period?

Cost-effect on Returns
At 1.5% annual charge, approx 25% of profit in costs after 5yr at compound growth rate of 6%. Care with 1-2% charges, forward compound calculations according to expected annual return, time and charges. Then normal building blocks for diversification fine with trackers (0.2-0.5% ter). Higher spend on funds only when specialist/strategic or additional alpha to justify cost.

Had to read few this a few times but believe I understand. As noted EFT funds have a lower TER and as such unit funds most achieve a reasonable alpha over this to warrant the higher TER – correct? I will build an Excel spreadsheet tonight to compound charges against annual returns over a 5 year period – see what the result is.

Risk vs Growth vs Timeline
Thanks for the link to the amazon book! Take it as highly recommended – is it fund strategy specific? As you and Mike88 have noted the risk in my weightings for global resources/global tech/global emerging markets I have further moderated these in favour of less risky funds.

Final Asset Allocation and Weightings
As funds wont clear for within 9 days (hopefully!) I will continue to refine the asset allocations and weightings until then. A deadline so to speak. If you could continue to offer your opinions I would be most grateful.

MIKE88

I am much happier and knowledgeful about the risks in my portfolio – many thanks to you guys! As both you and JamesU have noted my growth expectation is a little optimistic – I have moderated it to 15% - more reasonable?

Imbalance between Large and Small Caps
Both you and JamesU have commented on the overall balance of large/small cap with B Blank also noting the small cap focus in earlier posts. Would you suggest allocating a % of my inital/subsequent investment in favour of a large cap fund – any suggestions on which sector/funds to focus on?

I do think the imbalance needs addressing just unsure as the best way to do it with my existing funds.

Trustnet Portfolio Exercise
Thanks for this idea – seems a really good way to learn more about my investment strategy! JamesU has posted interest about the final allocation and weighting so this should make for interesting conversation. I’m gonna try to do this tonight with the cost-effect on return forecast.

Coeus

INITIAL INVESTMENT

FUND NAME

---

SECTOR - % OF PORTFOLIO - TER

CF Amati UK Smaller Companies (Accumulation)

---

UK Smaller Companies - 10.0% - 1.62%
AXA Framlington Global Technology (Accumulation)

---

Technology and Telecoms - 10.0% - 1.58%
Chelverton UK Equity Income (Accumulation)

---

UK Equity Income - 10.0% - 0.02%
Newton Real Return (Class A) (Income)

---

Absolute Return - 40.0% - 1.62%
Prudential Growth Accumulation (Active Managed)

---

Active Managed - 30.0% - 1.71%

SUBSEQUENT INVESTMENT

FUND NAME

---

SECTOR - % OF PORTFOLIO – TER

CF Amati UK Smaller Companies (Accumulation)

---

UK Smaller Companies - 20.0% - 1.62%
AXA Framlington Global Technology (Accumulation)

---

Technology and Telecoms - 15.0% - 1.58%
First State Global Resources (Accumulation)

---

Specialist - 15.0% - 1.59%
Chelverton UK Equity Income (Accumulation)

---

UK Equity Income - 15.0% - 0.02%
Prudential Growth Accumulation (Active Managed)

---

Active Managed - 5.0% - 1.71%
HL MM Special Situations Fund

---

Special Situations - 10.0% - 2.11%
Aberdeen Emerging Markets (Accumulation)

---

Global Emerging Markets - 15.0% - 1.88%
Newton Real Return (Class A) (Income)

---

Absolute Return - 5.0% - 1.62%

psychic_teabag

Coeus wrote: »

INITIAL INVESTMENT

Chelverton UK Equity Income (Accumulation)

---

UK Equity Income - 10.0% - 0.02%

0.02% seems a nice small TER, but is it correct ? H-L also lists the annual charge as 1.5% with no annual saving, which seems inconsistent. Or am I missing something obvious ?

Simplified prospectus says TER 1.25%. (But that's still less than the 1.5% annual charge ..?)

mike88

Coeus. A possible solution for you to consider for your lump sum might be to invest in one fund in the UK All Companies Sector and one in the Global Growth Sectors where the manager has the flexibility to invest in companies that are likely to give the best return. In effect you leave it to fund managers to decide whether it is best to go small or large. The problem with many Trusts is that they restrict the manager unduly so pick one with a wide remit. As a starting point City Wire is helpful. Chart below for UK Companies but all sectors are covered on this site.

http://citywire.co.uk/money/fund-and-fund-manager-performance/-/unit-trusts/uk-all-companies/fund-league-table.aspx?CitywireClassID=9&RankModelID=9

I am not invested in either of these setors as I am now concentrating on Equity Income funds where my old friend (and largest single holding) Invesco Perpetual High Income has turned my initial investment of £8000 into £40000 over a 15 year timescale. Its a very large fund though and a good core holding but will probably not be for you - and certainly not for the impatient.

One further point. I see little point in investing monthly into Newton Real Return; it was suggested merely to preserve your initial capital. However it could be a good choice if you want to top up your investment with a lump sum periodically bearing in mind that your ISA allowance will increase to £10680 from the 2011/2012 tax year.

As regards returns your aim should be to select funds in the top quartile and to beat the relevant indices. That is not always as easy as it may seem.

It would be interesting to see how your portfolio ends up and the TrustNet breakdown.

mark13

Good luck with your portfolio.

Coeus

PSYCHIC TEABAG

Hi! Thanks for your post and pointing this out. I got the TER of Hargreaves Lansdown with does indeed say 0.02% - a typo maybe? I have input a TER of 1.25% to be safe.


MIKE88

LARGE CAP SOLUTION
I like the idea of investing part of my initial lump sum into both the sectors: (i) UK All Companies and (ii) Global growth. Giving the managers the flexibility to seize opportunities was one reason for investing part of my regular investments in the HL MM Strategic Situation fund – albeit the other is an expectation that they can outperform me! As such I have killed two birds with one stone so to speak in relation to my initial investment:
- 5% (weighted) reduction of investment in CF Amati UK Smaller Companies (Accumulation) to total 5% weighting.
- 5% (weighted) reduction of investment in AXA Framlington Global Technology (Accumulation) to total 5% weighting.
- 10% (weighted) reduction of investment in Newton Real Return (Class A) (Income) to total 30% weighting.
+ 10% (weighted) in MFM Slater Growth (Accumulation) (UK All Companies)
+ 10% (weighted) in First State Global Resources (Accumulation) (Global Growth - Specialist)

REGULAR INVESTMENT IN NEWTON REAL RETURN
As this is not particular relevant for a regular investment I have substituted it in favour of MFM Slater Growth (Accumulation) (UK All Companies) to (i) increase exposure to large cap investments and (ii) increase general expected net return. I have also given more thought to my risk preferences and (in co-operation with a fair few concerns raised) have further moderated allocations away from the riskier investments.

FUTURE TOP UPS
Thanks for this one Mike88. I will continue to post progress on this forum so when I do have some extra funds or wish to vary my portfolio in the future I will keep this in mind (of course after consulting with you knowledgable people!)


MARK13

Thanks very much! As mentioned above I will keep posting on progress/thoughts/opinions as my fund develops over the next 3-5 years. Hopefully it will all be good stuff


Thanks again all! Keep it coming – more to come soon!

Coeus

INITIAL INVESTMENT

FUND NAME

---

SECTOR - % OF PORTFOLIO - TER

CF Amati UK Smaller Companies (Accumulation)

---

UK Smaller Companies - 5.0% - 1.62%
AXA Framlington Global Technology (Accumulation)

---

Technology and Telecoms - 5.0% - 1.58%
Chelverton UK Equity Income (Accumulation)

---

UK Equity Income - 10.0% - 1.25%
MFM Slater Growth (Accumulation)

---

UK Equity Income - 10.0% - 1.90%
First State Global Resources (Accumulation)

---

Specialist - 10.0% - 1.59%
Prudential Growth Accumulation (Active Managed)

---

Active Managed - 30.0% - 1.71%
Newton Real Return (Class A) (Income)

---

Absolute Return - 30.0% - 1.62%

REGULAR INVESTMENT

FUND NAME

---

SECTOR - % OF PORTFOLIO – TER

CF Amati UK Smaller Companies (Accumulation)

---

UK Smaller Companies – 12.5% - 1.62%
AXA Framlington Global Technology (Accumulation)

---

Technology and Telecoms - 12.5% - 1.58%
First State Global Resources (Accumulation)

---

Specialist - 12.5% - 1.59%
Chelverton UK Equity Income (Accumulation)

---

UK Equity Income – 12.5% - 1.25%
HL MM Special Situations Fund

---

Special Situations - 12.5% - 2.11%
Aberdeen Emerging Markets (Accumulation)

---

Global Emerging Markets – 12.5% - 1.88%
Prudential Growth Accumulation (Active Managed)

---

Active Managed - 12.5% - 1.71%
MFM Slater Growth (Accumulation)

---

UK Equity Income - 12.5% - 1.90%

Funnily enough, though not starting anywhere near, the weighting for my regular saver portfolio is a straight 12.5% per fund for 8 funds

pressuredrop_2

Coeus wrote: »

Hi! Thanks for your post and pointing this out. I got the TER of Hargreaves Lansdown with does indeed say 0.02% - a typo maybe? I have input a TER of 1.25% to be safe.

0.02% TER? Fund size £22 billion?

Trustnet is useful.

Fund Monthly Fact Sheet is useful.