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

jabbahut40

Thanks to all for your informative feedback and comments. I clearly have alot to learn about portfolio creation and
balance. Any other good websites or books (thanks to jon3001 above for your suggestion) you would recommend as additional reading to increase my knowledge on this subject?

Jabba

jamesd

jon3001 wrote: »

Even a high-risk portfolio should have at least 20% in bonds. Such an allocation has historically had a negligible on returns while greatly reducing risk.

That seems pretty high for a high risk mixture.

jon3001 wrote: »

If you're serious about balancing across a range of risky assets a model portfolio might look something like this:

• 20% bonds
• 20% Domestic Stocks (including small-caps)
• 20% International Stocks (including small-caps, developed and emerging markets)
• 20% Commodity Futures
• 20% Commerical Property

That looks like something a lowish risk US investor with a typical US investor's domestic US focus might go for, based on US market returns. I'd expect to see much more international component in the portfolio of a globally oriented non-US investor.

By commercial property do you mean commercial property actual buildings (the common UK meaning) or commercial property development company shares (the common US meaning)?

bendix

gadgetmind wrote: »

What's the strategy behind holding five different income funds? I can see that you might want to have some global and Euro in there, but the Invesco and Investec funds will probably hold companies with heavy non-UK exposure anyway. How do you find their performances differ on income and capital?

I bet they all have "all the usual suspects" as their top 50-60% of holdings. I'm now tending towards holding these suspects directly (avoiding the 1.5 - 2% fee drag) and then using investment trusts and some funds to get exposure to other territories and small/mid caps.

The "usual suspects" will be Glaxo and/or AstraZeneca and/or Roche, BP and/or Shell, Reynolds and/or BAT and/or Imperial Tobacco, BT and/or Vodafone, Reckitt Benckiser and/or Unilever and/or Diageo, and then a smattering of utilities such as Centrica, Scottish and Southern, National Grid, and BG Group.

[later]

Ah, I have actually looked at the Investec fund now and see it's mainly (90%+) in high yield bonds, which does help justify its place in your portfolio.

Both Inv Per Monthly Income Plus and the Investec fund are largely bonds, the latter focusing more on high yield. Those two, together with the Emerging market local currency bond fund gives me a comfortable rating in UK and overseas fixed interest securities.

The remaining income funds are your more defensive income-oriented share funds, both domestic and international.

I'm not sure of the exact balance, but overall I'm looking at around 15-20% bonds, 20% defensive and income-oriented shares, and the balance in aggressive shares such as resources, emerging markets, BRICs, technology etc.

jon3001

jamesd wrote: »

That seems pretty high for a high risk mixture.

By what measure? The 20% recommendation comes from efficient frontier modelling. This is when asset classes are combined to produce the highest target return for the least risk. If a portfolio is light on bonds then it will be overly volatile and risky for very little extra return over the efficient portfolio.

jamesd wrote: »

That looks like something a lowish risk US investor with a typical US investor's domestic US focus might go for, based on US market returns. I'd expect to see much more international component in the portfolio of a globally oriented non-US investor.)

I wouldn't class something with an 80% allocation to risky assets as lowish-risk. The typical US portfolio I see published on mainstream websites is probably something like 60% S&P 500/40% Domestic bonds: either completely ignoring or downplaying alternative asset classes such as international stocks, property and commodity futures. Maybe they add Russell 2500 if they're feeling frisky.

What I suggested only mentioned a 20% allocation to domestic assets. Of course, you can have international property and international bonds. Commodities are by their nature global.

jamesd wrote: »

By commercial property do you mean commercial property actual buildings (the common UK meaning) or commercial property development company shares (the common US meaning)?

I prefer actual building since they're less correlated with the stock market. That's fine for the UK. There doesn't seem to be a good selection of retail funds to do that internationally so the REITs-type investments will probably have to suffice until better products become available.

James> I've attempted to provide the OP with a basic template with which he can approach building balanced portfolios in terms of synergizing and rebalancing uncorrelated assets to constrain risk and enhance return. That's a different approach from the commonly seen one of picking a bunch of stock-based funds which individually one thinks might do well.

I've tried not to overcomplicate the basic approach but you can see further details of what I do here:
http://forums.moneysavingexpert.com/showpost.php?p=21092947&postcount=17

StevieJ

Ark_Welder wrote: »

I think it strange that the FTSE 100 is used at all. It is concentrated too much to the financials and commodities sectors for me. Perhaps the maths is easier than banchmarking against the All Share

I haven't tried my own partfolio against it yet. Perhaps that will be a fun personal exercise at some point!

I don't think there is much difference between Ftse 100 and All Share the same big companies dominate both, BTW I am not sure that financials are quite as dominant as they once were.

gadgetmind

StevieJ wrote: »

I am not sure that financials are quite as dominant as they once were.

The only financials I'm having much to do with right now are the insurers, though I do hold some bank preference shares. I'm working on the theory they'll have to start paying divis at some point, and paying the coupon on the prefs needs to come first.

Ark_Welder

StevieJ wrote: »

I don't think there is much difference between Ftse 100 and All Share the same big companies dominate both, BTW I am not sure that financials are quite as dominant as they once were.

FTSE100 is around 80% of the All Share - which is a problem with the UK market [index trackers, anyone?] . Financials still make up around 17% of the FTSE100, 18% including property companies. Figures as of today. HSBC whacks in as the largest company in the index at 6.3%. And there are several insurers and a few investment groups too. Better than it was, but LLOY and RBS combined still come to 2.6%!!

Ark_Welder

Trustnet article: Time to reshuffle your portolio?

jabbahut40

I notice that none of the sample portfolios listed under this thread include an absolute return fund. Are these an alternative and viable approach to achieve portfolio balance? Would appreciate your views.

Jabba

dunstonh

I notice that none of the sample portfolios listed under this thread include an absolute return fund.

Flash in the pan, fashion investing.