Help me rebalance my failing S&S ISAs Portfolio - Sept 2011

jabbahut40

Hi,

I am been investing in S&S ISAs for the last five years and currently have a portfolio consisting of the following funds:

JPM Natural Resources A Acc 21.2%
First State Asia Pacific Leaders Acc 19.7%
* Neptune European Opportunities Acc 11.3%
Gartmore China Opportunities Fund 11.0%
Schroder US Mid Cap Acc 8.7%
Aberdeen Emerging Markets Acc 7.1%
* Neptune Global Equity Fund Acc 5.5%
* Fid FIF Special Situations Fund 4.7%
* Jupiter Financial Opportunities Fund 4.3%
M&G Global Basics Fund A Acc 3.4%
Marlborough Special Situations Fund Acc 2.8%
First State Greater China Growth Fund 0.4%

I have been disappointed with the performance of funds marked with * and would welcome thoughts on what switches I could apply to rebalance my portfolio for longer term growth over the next 5 years.

Any recommendations would be gratefully received.

Jabba

le_loup

Re balance!
Wow, I would have thought balance might be more appropriate.

jabbahut40

Thanks. Any suggestions out there what I should consider to create more balance and what funds people recommend based on my portfolio? As you can see I am comfortable with higher risk funds and am looking to invest for 5+ years for growth.

Jabba

Ark_Welder

What you could try is feeding your portfolio into the Trustnet protfolio tool as this will give you an indication as to its geographic and sector spread, and also give you a risk score.

You look to have a large exposure to China, which could turn out to be correct, but there are potentially increased risks there due to political intereference and corporate governance issues. There have been some instances of Chinese stocks listed on US stock exchanges that have been suspended because of doubts about their accounts. Both the Aberdeen and First State funds have exposure to China and between the two they might be enough without the need for a specific China fund.

Although the Neptune fund has not performed as well as some of the others it has been in line with the sector over 3 years and outperformed over 5. So perhaps look to change this only if you believe that another european funs will do better in the future.

M&G Global Basics has some overlap with JPM NatRes. Do you need both?

The other '*' funds - except, possibly, for the Neptune European - along with M&G GB, look at merging them into a single fund with global exposure, such as M&G Global Dividend or Threadneedle Global Equity Income. 'Income' might not sound very exciting but dividends have in the past, and over longer periods, been a large part of the return from equities.

You may also want to read up on corporate bond funds, especially strategic bond funds with the way things are right now with interest rates. Not necessarily to invest in them now, but so that you can take a view on them at some point in the future.

All the above is merely my observations and thoughts, and are there to be discarded! My only recommendation is to look at the Trustnet tool to see how it might benefit your decision making. It is free (my favourite four-letter word) to register with them.

http://www.trustnet.com/Home.aspx

Ark_Welder

Trustnet article today: http://www.trustnet.com/News/Research.aspx?id=252273

jabbahut40

Ark_Welder wrote: »

What you could try is feeding your portfolio into the Trustnet protfolio tool as this will give you an indication as to its geographic and sector spread, and also give you a risk score.

Thanks Ark Welder. I fed my portfolio into the Trustnet portfolio tool as you suggested. This gives a wealth of information and is more extensive than the Portfolio X Ray tool provided by Fidelity (my current provider). I also liked the "News & Research | Tailored to your holdings" links. Very useful and saves alot of web searching.

Will take a look at the funds and links you have provided in more detail.

Thanks again,

Jabba

jabbahut40

Thanks. Any other suggestions on 'what to do' or 'what not to do' to rebalance my S&S ISA portfolio?

Jabba

Jegersmart

Hi Jabba

I hold a number of the funds you mention albeit in a different allocation spread. On the natural resources side, I can see the attraction as these are in the long term finite and will become scarcer - however the funds generally tend to invest in the *equities* of the companies in question susch as miners and so on. There hasn't always been a good correlation between their shareprice and the price of the commodity in question. This has been due to poor reinvestment in operations by certain mining corporation, and also a lack of transparency in terms of the cost of mining the commodity in question in the relevant geogrpahical area. Just an important note to remember when investing in "natural resources" funds........I personally prefer the Investec Enhanced Nat Res purely because it seems to be more resistant to share price falls and is less volatile. I hold no more than 5-6% in the natural resources/energy focussed funds currently.

Rather than go into a long tirade about the specific funds you hold and the allocation I would take it a few steps higher up than that and to put forward some ideas on how to manage. There are so many funds in so many areas that are chosen for so many personal reasons that it would take forever and not be any good to you.

I would do the following:

Think about which geographical areas that you want to invest in and why. Look at the performance of these markets - are they near highs/lows - why? Which types of instruments are going to be best suited to your risk profile in that geographical are - equities? bonds? Local currency or not?

Look at sectors across the geographical areas. Are financials now oversold in Europe/UK/US/EM's after the torrid time they have had? How much exposure would you want? Perhaps consumer funds are good?

Try to be clear on what your aims are, do the research which will define your views in terms of geography and asset class and stick to that as long as the reasons for your decisions are still valid. If they change consider your next move carefully. No one can tell you what is best for you, although hopefully we can share ideas and profit.

Managing funds is not like trading of course, they are far too cumbersome for that. to my mind what you need to be doing is to decide what your geographical allocations will be, and in terms of asset class and any other parameters you see fit and then go from there. Let us take an example:

One thinks that at this point in time the geographical allocation should be:

UK 8%
Europe 12%
China 7%
Japan 3%
Emerging Europe 10%
Africa 5%
India 10%
US 10%
Latam 15%
Asia (generic) 15%
Russia 5%

At this point you can also decide what sort of assets you want to hold - equities, bonds, etf's and so on so that you come up with a view on not just geography but also whether you want a 40/50/70/90% exposure to equities or whatever it happens to be.

When things go very well or tits up of course, review your geographical allocation first. Are the above still valid? If so, do I want to make a change to the asset mix in those areas? Do I want to take some risk off the table and go 50% bonds in Asia, China and Latam? You will usually find that this helps to define the funds that can create that type of exposure.

I rarely reallocate large parts of my portfolio at the same time unless there are signs of severe distortions in themarkets. I rarely allocate more than 10-15% of my holdings in one go. Recently, I rotated about 30% of my holdings of UK and European rquities into Gilts, Cash and some Emerging Markets bonds. This has definitely saved me some of the paper losses I would be nursing however if I had got it wrong I would still be 60% "in".....they way I see it is that we can try to "smooth out" some of the wild swings in order to better seize opportunities, or at least when it looks really bad take some risk off the table.

Obviously all this depends on how much time and information and expertise you have - but hope it maybe highlights some of the thinking or methods that canbe used if you don't already.

I personally would not be over 20% invested in the equities of mining companies (largely) at any one time - mostly because of the aforementioned lack of correlation to the physical commodity's value is present in my view. If you look at Rio and BHP for example, commodities have in general gone nuts to a much greater degree than either equity. In fact in the case of RIO the "performance" is dubious. I don't follow mining stocks in detail so there could be many reasons for that and of course the Nat Res fund managers should be able to select some that are good for growth.....hopefully......

If you want to share ideas offline about fund selection and so on - let me know!

HTH, IMHO and DYOR

J

dunstonh

Wow, thats about the highest risk portfolio I have seen. You would have to put the short term loss potential around the 70%-90% mark. Are you really that risky?

At the moment it looks like fashion investing. It lacks diversity and balance and a gung ho risk profile and wouldn't be surprised if it was picked purely on past performance.

If its only £10,000 you have in it and its a a plaything you have where you have say £100k in cash then fair enough. However, if its a larger investment amount or you have limited cash savings and its a serious investment portfolio, then it needs some work pronto.

Jegersmart

in terms of your funds marked with an asterisk, one of the is certainly mainly invested in banks and financials so this is not surprising and I would wager that the others probably have some significant exposure to the same. Whenever there is a debt crisis, liquidy crisis (i.e. banks increasingly depositing funds with central banks and so on) or any sort of lack of confidence, banks and financials tend to get hit more than others. the Jupiter fund in question I may consider again soon because I think that banks have probably been hammered too much so far and could prove to be quite lucrative in the next 2-3 years. I would only be looking at a 3-6% allocation though personally. My view on Europe at the moment is a bit bearish. In the longer term I think they will either be able to save the banks OR the Euro - not both - so having decreased my expsoure recently I am probably going to stay away for now - unless I change my mind! Perhaps for a 4-7 month hold on Europe now as I feel that whilst the problems are very big we might have overdone the sell-off somewhat......very IMHO

jamesd

For some variety you might consider European, US and/or other smaller companies funds. They won't adjust the risk level downwards much, and if they replace the *'d ones they will shift it up a bit.

For risk reduction you might take a look at commercial property funds that hold real properties, not property company shares. You won't be impressed by capital growth, they are an alternative to corporate bonds but without all of the heavy buying that has produced something of a bubble in that area, particularly the high quality part. By contrast, the commercial property sector is very much unloved at the moment.

JPM Natural Resources holds a fair bit of gold but swapping some for some Blackrock Gold and General might reduce volatility a little with some possible upside if the gold shares resume tracking the physical gold price. But it's also a high risk fund, so any possible risk reduction comes from the natural resources fund dropping if economic prospects look bad, while gold might rise. Both will drop in a stock market sell-off.

If you're positive on the oil price you might consider some Neptune Russia and Greater Russia. Forget the story about it being invested in the consumer in Russia, it reacts very strongly to oil price moves so it's almost like an oil fund. But perhaps cheaper. This won't reduce the risk level, it'd probably increase it, depending on what it replaced.

If you want another resource driven area you might consider something like First State Latin America. Compare the moves to JPM Natural resources before bothering. It'd increase the risk level.

I'm not keen on high grade corporate or government bonds at the moment because I think that they are in a bubble but they would reduce the risk level. A strategic bond fund with lots of emerging market and other lower grade debt might not be in such a bubble but would reduce the risk level - though these are quite high risk.

Do you have a target maximum drawdown (bad time maximum credible drop) that you're aiming for?

At the moment you have a selection that's strongly pointed in the direction of global economic recovery and you'd suffer a lot if there was a sustained period of doubt about that, similar to the recent one.