Professional IFA HELP needed for £80,000

EdInvestor

Obviously the more riskier the fund is the more potential growth there is over the years

Who told you that?

Chrismaths

Anthony Bolton lost money on: iSoft, Partygaming, Sportingbet, 888. That's not being distracted, that's just making a few bad calls. Harder to reverse them when you own 10% of the company...

I met him and Jorma Korhonen at a breakfast in September, just after the fund split - the split basically took a week.

si1503

EdInvestor wrote:

Who told you that?

I was under the impression risk and returns go pretty much hand in hand, certainly when looking at financial risk models they do.

For example compare the average returns of a risk free investment such as a government treasury bill, with those of a bank account and then with those of an equity fund. I think you'll find the correlation between risk and returns to be a positive one.

dunstonh

Risk and potential do change a bit. The sector allocation models I use are updated quarterly to reflect the changes. You arent talking a lot of difference though.

EdInvestor

For example compare the average returns of a risk free investment such as a government treasury bill, with those of a bank account and then with those of an equity fund. I think you'll find the correlation between risk and returns to be a positive one.

Yes but when you look at equities on their own, you often find that equity styles seen as lower risk often outperform styles seen as higher risk.

eg Mr Bolton (higher risk growth/special situations stocks) vs Mr Woodford (lower risk equity income approach).Both top managers with a long term record. The latter has outperformed consistently in recent years.

carnet

EdInvestor wrote:

I am not sure about the this alleged size problem.

If it was not an issue why then has even the mighty Anthony Bolton considered it necessary to split in two his massive Fidelity fund ?

Why is there an increasing trend to soft close funds - such as Axa Framlington Equity Income, certain GAM funds, Schroder Japan Alpha, JOHCM Japan, Martin Currie Japan Alpha, Fidelity American SS, Rensburg Micro Cap Growth, Old Mutual UK Smaller Cos etc. etc. ?

Why have groups such as JOHCM and Walker Crips set predetermined caps on the size of certain of their funds from the outset or subsequently ?

The larger a fund grows beyond its optimum size (which is dependent upon its investment remit) the more difficult it becomes to maintain outperformance.

So just how is it that you think you know better than these professional fund management houses, especially considering that these measures will actually reduce their revenues and yet they have deemed it necessary to introduce them anyway ?

Of course there are a very select few such as Woodford, French, Dobell, Smith, McVeigh, Nutt - and Bolton and McCarron up until recently, whose ability allows them to continue to defy gravity.

But for every one of them there are hundreds who have been unable to cut it when their funds become too big (and unwieldy for them).

When I first began fund investing I would rarely consider any fund above £50million but, as fund sizes (and company values etc.) have generally increased over the years this was lifted to £100M and now stands at £200M (although, as with all things to do with investing, one has to be flexible and sometimes there is no option but to break this "rule").

OK, if you want to invest with those managers listed above you could obviously do a lot worse and, indeed, Woodford's two UK Equity Inc. funds are currently more or less top of their sector (BTW, did you know that Woodford also manages a third, very much smaller fund ?).

But my view is that it is more difficult for them to maintain this outperformance and sooner or later something will have to give - either outperformance will stop (as has been evidenced time and time again, over many years of fund watching) or they will have to do a Fidelity Spec. Sits. type overhaul.

So I would rather put my money into relatively small funds where I know the managers track record and abilities and where the size of the fund allows for the very real prospect of "easy" outperformance.

Its worked well enough for me for over 20 years.

si1503

EdInvestor wrote:

Yes but when you look at equities on their own, you often find that equity styles seen as lower risk often outperform styles seen as higher risk.

eg Mr Bolton (higher risk growth/special situations stocks) vs Mr Woodford (lower risk equity income approach).Both top managers with a long term record. The latter has outperformed consistently in recent years.

Obviously if you are looking at individual funds you will find exemptions. Funny how you've chosen an example of a manager that has had a bad year (your words in a previous post) with one that has had a very good one. The year prior to the last Fidelity SS outperformed Invesco Income by around 4%.

On average you will find that returns from UK smaller companies have been higher than UK equity income. Over the past year the UK smaller companies sector had an average return of 18.9%, compared to 14.4% for UK equity income.

EdInvestor

Carnet

Could you explain exactly *how* you think smaller size contributes to outperformance?

What is the precise connection between size (amount of money invested in a fund) and its performance?

SI1503

Don't forget to add in the dividends

prudryden

Smaller size conceivably could underperform because of liquidity problems. One or two large holders liquidate at the same time and manager has to sell a holding at the wrong time rather than take out of cash.

carnet

EdInvestor wrote:

Carnet

Could you explain exactly *how* you think smaller size contributes to outperformance?

What is the precise connection between size (amount of money invested in a fund) and its performance?

Basically a fund manager only wants to invest in his very best ideas.

This usually means a limited number of holdings (hence the popularity of launching "Alpha" funds, with far fewer holdings than hitherto in recent times - as few as 20 in some cases).

The sheer weight of money that can flood some funds (more of an issue with small caps and some spec sits funds than with large caps such as the likes of Woodford's) can prevent the manager from acquiring as much stock as he would like of certain companies. He has to invest the money somewhere so, by necessity, has then to resort to his "second (or maybe even third or fouth) best" ideas. This is obviously less than ideal.

I read somewhere recently that Fidelity Spec Sits. had, before the split, something in the order of 600 holdings. If even a few of these doubled in value overnight it would not make much of an impact on the overall fund value. Might as well hold a tracker.