Critique My Fund Portfolio

Coeus

INITIAL FUND

Coeus

REGULAR FUND

JamesU

Growth Expectation
Would you say 15% is a more reasonable expectation over a 3-5 year period?

---% growth unrealistic and time-frame too short as in previous post.

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.

---Not correct. Just because you pay more for "alpha", does not mean you will actually get it. This is a very usual active vs passive fund debate which is a bit off topic on this thread. Etf trackers more expensive to hold in your HL ISA account as low %ter (usually 0.2 - 0.75%), but + 0.5% HL charge (capped to £200 + VAT/yr, see their T+Cs). Depending on which fund trackers available at HL (e.g. probably HSBC one's if available around ter=0.3% (no HL charge, but these might change post RDR). Both etf (exchange traded funds, various providers) and HL index funds (various providers) are passive funds (no management, just tracking indices so lower ters). Then you have e.g. actively managed funds sold at HL with higher ter e.g. 1 - 2.5%, higher premium because of active management and possible overperformance relative to e.g. index trackers. But as in graphs previously, check if such funds are actually justified costwise. Some will be for sure, others not.

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.

---Based on discussions so far, I feel it would be a very good idea to read Hale's book (previous link) to cover the ground necessary for you to design your own strategy (%growth/timeline/risk) first. Based on your questions and efforts to date, I am sure you will find it very enlightening, an enjoyable read, and will assimilate the fundamentals in no time, saving a lot of time and money on top it. Then see how the fundamentals match with your expectations. Also scrutinise and assess the basic building blocks for asset allocation that are discussed in the book for diversification. Then search for asset allocations at HL which meet your criteria and strategy, combined with an appraisal of costs. Then try to match basic core building blocks at lower cost together with more strategic/specialist active managed at higher cost depending on your objectives. Easier to discuss options with interested OPs and their experiences at this stage.

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.

---9 day deadline: you save 2.5%/yr doing nothing with cash at HL (say previous 1.5% Halifax fund charges + 1% ISA wrapper). So in a year your cash fund will devalue by no more than 2.5% (5% inflation - 2.5% previous Halifax) or £15/mth on £7K.

Nothing to loose by holding back for a while on purchases and being out of market for a while, better than jumping in too soon and making costly mistakes.

JamesU

Coeus

JAMESU

Thank you for the continuing posts! Your posts are always technical and to the point – makes for good reading as will the book you recommended (just ordered it)

GROWTH EXPECTATION
Given my time frame and the asset allocation and weightings provided – would you suggest a more appropriate expectation for a 3-5 year period? Or is this time-frame itself too limiting to work within?

COST-EFFECT ON RETURNS & RISK VS GROWTH VS TIMELINE
I’ll be perfectly honest – know little about EFTs, how they run, costs, expectations etc. I do get the general point that unit funds should be picked with the aim of beating indicies otherwise you could purchase and EFT tracking that indice at a lower TER?

Does the book you recommended cover much on EFTs? Seems a good way to balance out risk in a portfolio especially if some of the managed EFTs are a reasonable expectation of a guarantee.

FINAL ASSET ALLOCATIONS AND WEIGHTINGS
Very true about the deadline. I had a few secondry motives to complete this set-up within the period but definitely understand the need for caution and patience. To mention them (i) would like to finish investments for the tax year 10/11 ideally set up with a regular saver to continue into 11/12 and (ii) from ~ Mar to Jul this year training for exams hence not having to focus on setting up the investments would be a weight off the mind.

GENERAL
I have posted up the asset allocations – had to figure out a way to do it mind you:

1. Complete the TrustNet Screening Portfolio
2. Printscreen image and copy to paint
3. Upload to an image supporting web-based server
4. Copy the URL into the ‘insert an image’ box in MSE post box

Is there an easier way! Quite good with IT but this seems very round-about! Is this the process you meant by an ‘X-ray’?

psychic_teabag

Coeus wrote: »

Does the book you recommended cover much on EFTs? Seems a good way to balance out risk in a portfolio especially if some of the managed EFTs are a reasonable expectation of a guarantee.

There's an FT book that covers portfolio management using ETF's :
http://www.amazon.co.uk/Financial-Times-Guide-Exchange-Traded/dp/0273727834/ref=sr_1_1?s=books&ie=UTF8&qid=1297976884&sr=1-1

to my untrained eye, it covers similar material to the Tim Hale "Smarter Investing" book, but more from an ETF perspective. Both advocate passive rather than active products.

JamesU

psychic_teabag wrote: »

There's an FT book that covers portfolio management using ETF's :
http://www.amazon.co.uk/Financial-Times-Guide-Exchange-Traded/dp/0273727834/ref=sr_1_1?s=books&ie=UTF8&qid=1297976884&sr=1-1
to my untrained eye, it covers similar material to the Tim Hale "Smarter Investing" book, but more from an ETF perspective. Both advocate passive rather than active products.

Yes, this one is much better for just etfs for sure, essential reading on basic building block etfs, a lot of newer etfs missing though.

Hale's book covers both building block etf and fund trackers and the latter would be more cost effective using HL, e.g HSBC. In fact, although the fund tracker range is more limited than etf range, fund trackers are quite often better value.

Hale's book will answer a plethora of Coeus's fundamental questions though. Enlightenment over a w/e.

JamesU

mike88

Asset Model for GROWTH-ADVENTUROUS Investors</B>

[FONT=Verdana, verdana, Helvetica, sans-serif]Asset Class [/FONT]

[FONT=Verdana, verdana, Helvetica, sans-serif][SIZE=-2]Equities [/SIZE][/FONT]

[FONT=Verdana, verdana, Helvetica, sans-serif][SIZE=-2]69%[/SIZE][/FONT]

[FONT=Verdana, verdana, Helvetica, sans-serif][SIZE=-2]High Yield Bonds[/SIZE][/FONT]

[FONT=Verdana, verdana, Helvetica, sans-serif][SIZE=-2]3.5%[/SIZE][/FONT]

[FONT=Verdana, verdana, Helvetica, sans-serif][SIZE=-2]Quality Bonds [/SIZE][/FONT]

[FONT=Verdana, verdana, Helvetica, sans-serif][SIZE=-2]9%[/SIZE][/FONT]

[FONT=Verdana, verdana, Helvetica, sans-serif][SIZE=-2]Property[/SIZE][/FONT]

[FONT=Verdana, verdana, Helvetica, sans-serif][SIZE=-2]4.5%[/SIZE][/FONT]

[FONT=Verdana, verdana, Helvetica, sans-serif][SIZE=-2]Hedge[/SIZE][/FONT]

[FONT=Verdana, verdana, Helvetica, sans-serif][SIZE=-2]7.8%[/SIZE][/FONT]

[FONT=Verdana, verdana, Helvetica, sans-serif][SIZE=-2]Commodities[/SIZE][/FONT]

[FONT=Verdana, verdana, Helvetica, sans-serif][SIZE=-2]3.7%[/SIZE][/FONT]

[FONT=Verdana, verdana, Helvetica, sans-serif][SIZE=-2]Cash[/SIZE][/FONT]

[FONT=Verdana, verdana, Helvetica, sans-serif][SIZE=-2]2.5%[/SIZE][/FONT]
[FONT=Verdana, verdana, Helvetica, sans-serif]Equity Splits [/FONT]
[FONT=Verdana, verdana, Helvetica, sans-serif]Geographical [/FONT]
[FONT=Verdana, verdana, Helvetica, sans-serif]Capitalisation[/FONT]

[FONT=Verdana, verdana, Helvetica, sans-serif][SIZE=-2]UK Total[/SIZE][/FONT]

[FONT=Verdana, verdana, Helvetica, sans-serif][SIZE=-2]41.5%[/SIZE][/FONT]

[FONT=Verdana, verdana, Helvetica, sans-serif][SIZE=-2]Largecap[/SIZE][/FONT]

[FONT=Verdana, verdana, Helvetica, sans-serif][SIZE=-2]61%[/SIZE][/FONT]

[FONT=Verdana, verdana, Helvetica, sans-serif][SIZE=-2]Europe[/SIZE][/FONT]

[FONT=Verdana, verdana, Helvetica, sans-serif][SIZE=-2]14.5%[/SIZE][/FONT]

[FONT=Verdana, verdana, Helvetica, sans-serif][SIZE=-2]Midcap[/SIZE][/FONT]

[FONT=Verdana, verdana, Helvetica, sans-serif][SIZE=-2]22.5%[/SIZE][/FONT]

[FONT=Verdana, verdana, Helvetica, sans-serif][SIZE=-2]North America[/SIZE][/FONT]

[FONT=Verdana, verdana, Helvetica, sans-serif][SIZE=-2]19%[/SIZE][/FONT]

[FONT=Verdana, verdana, Helvetica, sans-serif][SIZE=-2]Smallcap[/SIZE][/FONT]

[FONT=Verdana, verdana, Helvetica, sans-serif][SIZE=-2]16.5%[/SIZE][/FONT]

[FONT=Verdana, verdana, Helvetica, sans-serif][SIZE=-2]Japan[/SIZE][/FONT]

[FONT=Verdana, verdana, Helvetica, sans-serif][SIZE=-2]7%[/SIZE][/FONT]

[FONT=Verdana, verdana, Helvetica, sans-serif][SIZE=-2]AsiaPacific[/SIZE][/FONT]

[FONT=Verdana, verdana, Helvetica, sans-serif][SIZE=-2]11%[/SIZE][/FONT]

[FONT=Verdana, verdana, Helvetica, sans-serif][SIZE=-2]Other[/SIZE][/FONT]

[FONT=Verdana, verdana, Helvetica, sans-serif][SIZE=-2]7%[/SIZE][/FONT]

This is a largely equity based portfolio with a significant exposure to overseas equities. The minimum suggested timescale for such a portfolio should be 6 years.


Based on historical data for the last three years, we would expect this portfolio to have an annualised volatility of 16.7%. The chart below shows the expected distribution of returns, based on this volatility and our estimates of an annualised return of 6.5% per annum. Please note that volatilities change over time and that actual returns are likely to be different from the estimate. The chart is intended to be used to illustrate the potential divergence of returns in order to assist selection of an Asset Model with an appropriate risk profile.

This chart shows the expected range of returns based on these estimates for return and volatility. The light blue area of the chart represents the range within a 67% probability band, the outer edges of the dark blue band represent the boundaries of a 95% probability band. Actual returns may fall outside these bands.

This is one broker's suggestion for an adventurous portfolio and I have posted it merely to illustrate that the anticipated timescale of Coeus's investment strategy is short and the projected returns optimistic as mentioned previously. And of course there is always the possibility that investments can lose money as markets are influenced by many factors over which investors have no control. But I think this is understood as is the fact that the advice obtained from me at least is from an enthusiastic amateur who has made many mistakes along the way in many years of dabbling with stock markets.

The above asset model anticipates an annualised 6.5% return over a minimum 6 year period. Personally I don't like the suggested split and wonder why bonds are included but it is relevant to note that large caps account for 61% of the total. It will be interesting to see how the TrustNet analysis records the large/small cap split for the new portfolio.

Some interesting points about ETFs are mentioned; they are certainly cheaper as indeed are all tracking mechanisms and, as I have mentioned previously, many actively managed funds fail to beat indices. But my understanding (possibly from an earlier thread but I may be wrong)) was that the original poster wanted to invest in unit trusts in order to gain an understanding of stock markets as a learning experience. Am I right in believing that buying ETFs through HL is relatively expensive?

It will be interesting to see how the eventual portfolio pans out and whether ETFs are included.

Coeus

Hi Mike88! Hope all is well Was your above post from TrustNet? JamesU has suggested a FT book for to learn more for ETFs however I will get through the first one I ordered before ordering this. May utilise ETFs later if either (i) studies shows it suits my investment strategy more or (ii) risk suffered in the portfolio is not warranting the returns generated.

Was this a standard model then for Adventurous growth? I have revised my expectations on growth especially considering the shorter 3-5 year investment period. As such I have decided to merely aim for CPI+1.0% on an annual basis (last I checked CPI was about 4.4% thus 5.4% is the target). I do feel that this is much more achievable than my previously over-optimistic expectations - less chance of being disappointed unless it all goes tits up

I have done a bit more work on my portfolio:

INITIAL INVESTMENT

To further protect my initial investment I have decided not to invest in either (i) CF Amati UK Smaller Companies (Accumulation) (UK Smaller Companies) or (ii) AXA Framlington Global Technology (Accumulation) (Technology and Telecoms). This brings the total number of funds invested in to 5. I also substituted MFM Slater Growth (Accumulation) (UK All Companies) in favour of Standard Life Inv UK Equity Unconstrained (UK All Companies) based on OEIC, greater fund size, greater number of holdings - seems overall less risky to be.

REGULAR INVESTMENT

I substituted AXA Framlington Global Technology (Accumulation) (Technology and Telecoms) in favour of MFM Techinvest Technology (Technology and Telecoms). MFM Slater Growth (Accumulation) (UK All Companies) in favour of Standard Life Inv UK Equity Unconstrained (UK All Companies) as in the initial investment. I substituted the Hargreaves Lansdown MM Special Situations (Special Situations) as I do not think the risk merits the MM TER of 2.11% - this has been substitued with Baillie Gifford Managed (Accumulation) (Balanced Managed) - overall a move to lower risk IMO.

THOUGHTS

Compared to my original portfolio I do feel much happier. A greater spread of funds, covering more markets with lower risk allocations and weightings. I would be very grateful to hear any more thoughts on the portfolio. My Halifax S&S funds have been sent to Hargreaves Lansdown (except for a small !!!!-up on Halifax's behalf - investment on 10-02-11 of £425 (£430 now) was not sent with it for some reason though showing in the total portfolio balance - weird) so now starting the regular saver process of identity registration - these money laundering regulations can be a pain in the !!!!!

I will post my new portfolio after this post ANY SUGGESTIONS ARE WELCOME!

Coeus

INITIAL INVESTMENT

FUND NAME

---

SECTOR

---

% OF PORTFOLIO -- TER

Standard Life Inv UK Equity Unconstrained (Accumulation)

---

UK All Companies---- 15.0%

---

1.90%
First State Global Resources (Accumulation)

---

Specialist

---

15.0%

---

1.59%
Chelverton UK Equity Income (Accumulation)

---

UK Equity Income -- 15.0%

---

1.25%
Prudential Growth Accumulation (Active Managed)

---

Active Managed ---- 25.0%

---

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%
MFM Techinvest Technology (Accumulation)

---

Technology and Telecoms

---

12.5%

---

1.60%
Standard Life Inv UK Equity Unconstrained (Accumulation)

---

UK All Companies

---

12.5%

---

1.90%
First State Global Resources (Accumulation)

---

Specialist

---

12.5%

---

1.59%
Chelverton UK Equity Income (Accumulation)

---

UK Equity Income –

---

12.5%

---

1.25%
Aberdeen Emerging Markets (Accumulation)

---

Global Emerging Markets –

---

12.5%

---

1.88%
Prudential Growth Accumulation (Active Managed)

---

Active Managed

---

12.5%

---

1.71%
Baillie Gifford Managed (Accumulation)

---

Balanced Managed –

---

12.5%

---

1.53%

JamesU

Coeus, think you are confused somewhat, so for clarity: in the graphs posted (now removed) I used "e.g." etf trackers to compare against active funds not because you should use etfs per se, but to illustrate general principle of tracker vs managed fund and any merit in using the latter. In reality, if you eventually use trackers as part of your folio, fund trackers available at HL such as the HSBC fund index trackers with low ter are preferable, (typically ter approx 0.3%, check costs if used) and not etfs. Was just a little lazy, as easy to pop etf trackers into the graphs without looking for HL alternatives (probably none for global tech and resources anyway) as I had them filed already. Less thought needed on your side on etfs....Hale explains difference between etfs and index funds.

GROWTH EXPECTATION
Given my time frame and the asset allocation and weightings provided – would you suggest a more appropriate expectation for a 3-5 year period? Or is this time-frame itself too limiting to work within?

If you need the invested money within 3-5yrs for a house deposit, I would not invest anymore than you already have in your ISA, and save the rest elsewhere. If there was a substantial market downtrend at the time you needed to buy, say 30-40%, would you be prepared to wait up to 2 yrs or more for a recovery before buying a home? Worth considering carefully.

COST-EFFECT ON RETURNS & RISK VS GROWTH VS TIMELINE
I’ll be perfectly honest – know little about EFTs, how they run, costs, expectations etc. I do get the general point that unit funds should be picked with the aim of beating indicies otherwise you could purchase and EFT tracking that indice at a lower TER?

Ignore etfs for now. Actively managed funds (and as above, passive index funds an option too)

Does the book you recommended cover much on EFTs? Seems a good way to balance out risk in a portfolio especially if some of the managed EFTs are a reasonable expectation of a guarantee.

Etfs are mentioned alongside index fund trackers in this book. But index trackers do not balance risk as such unless they are used for the purpose of diversification to reduce risk. Otherwise they just track the index or sector they are supposed to track as it goes up and down (with some tracking error, which can be checked against index/sector itself before choice of provider).

JamesU