Fund selection: Critique

Herge_2

Hello everyone

Been lurking on the board for a while and thought it about time to post.

I have been researching ISA funds for a while and have come up with the following, in conjunction with citywire. I have been saving 2 X £250 per month in regular savings accounts, which will give me at least £400 to place into an ISA everymonth for 2007/08. At the moment I am with Halifax in a FTSE tracker, which I am keen to move away from. There is not much in there - about £2K.

I want to go with HL, and have come up with the following:

Larger UK Shares: New Star hidden or CF Walker Crips - £140 per month
UK Bonds: Baillie Gifford Corporate or Invesco Perp - £160 per month
International: Neptune Russia - £50 per month
Smaller UK Shares: M&G Smaller Co - £50 per month

I am looking for long term growth (and to stop me spending!) and have a moderate to adventurous attitude to risk.

If I have any spare cash per month, then I may top up with some shares - just for a bit of fun, but all within the £7,000 per annum MAXI ISA allowance.

Any comments would be appreciated.

H

Debt_Free_Chick

Herge wrote:

Larger UK Shares: New Star hidden or CF Walker Crips - £140 per month
UK Bonds: Baillie Gifford Corporate or Invesco Perp - £160 per month
International: Neptune Russia - £50 per month
Smaller UK Shares: M&G Smaller Co - £50 per month

Just a couple of observations ....

Your portfolio would be 87.5% invested in the UK - is that OK with you? No US? No Japan? No Pacific Rim? No European?

I wouldn't class Neptune Russia as "International" but we may be using different terminology. "International" suggests "global" to me, which would be a fund that gave me exposure to many other non-UK markets, rather than a Country specific fund.

The Russia fund would certainly qualify as the "adventurous" part of the portfolio. The UK bonds are 40% of the total portfolio - so a 60:40 split (equities:bonds) is not particularly adventurous ..... probably "moderate - cautious", but if you are comfortable with that, it's not for me to suggest otherwise.

Personally, I would ditch the UK Large Caps - assuming that it's essentially a FTSE 100 fund. I'd combine the UK Equities into a UK Equity Growth/Opportunities/Special Situations fund. This simply gives the manager more scope and does not restrict his choice to either large, small or medium cap funds.

I would also have some Global Equities, but perhaps keep the Russia Fund for "some excitement" - although I would have chosen China or India instead.

Assuming you are happy with the 60:40 Equity/Bond split, I would have something like ....

40% bonds (UK, European or Global)
25% UK Equities - Growth, Opps or Special Sits
25% Global Equity Growth
10% "funny money" in Russia, India, China or "the Moon"

However, this is not a recommendation - just something to stimulate your thinking. You may have good reasons for the portfolio you have chosen, but I would prefer not to have such a high concentration of the equity part in the UK. And I would not wish to miss out on the Mid-Caps, but would prefer to avoid the Large Caps (too few companies, with less opportunity for growth IMHO).

HTH

cheerfulcat

Herge wrote:

I am looking for long term growth [...] and have a moderate to adventurous attitude to risk.

In that case I would be inclined to suggest that you consider reducing the allocation to bonds.

Liz_the_Whizz

I read that Europe was the top tip for 2007, so I have put a little something into two European funds (Neptune European Opps and Resolution Asset Argonaut).

Also Asia Pacific looking strong (Martin Currie is my man out east)

All looking good at the moment :cool:

moneyandmountains

Debt_Free_Chick wrote:

Personally, I would ditch the UK Large Caps - assuming that it's essentially a FTSE 100 fund. I'd combine the UK Equities into a UK Equity Growth/Opportunities/Special Situations fund. This simply gives the manager more scope and does not restrict his choice to either large, small or medium cap funds.HTH

Much of the opinion kicking around financial columns / citywire etc. is that Large Caps are undervalued, whereas Mid Caps have probably had their run for the moment. Of course, there is no such thing as a crystal ball.

Historically, Growth funds have tended to perform better in bull markets than value funds. However, Value funds (c.f.. Edinvestor HYP) have historically tended to perform better when there is a bear market.

In terms of risk allocation, mid and small caps tend to be higher risk on average than large caps. Of course, increased risk is the potential for increased gain/loss. As with all portfolios, a spread of investments across different risk and asset types is generally a good idea.

Ian_W

I agree with the others about the spread being unbalanced although it's never going to be perfect with around £5K in the first year to invest but it could probably be a bit better.

I ran your choices [as if you'd got 10 months worth of each] through the portfolio planner at bestinvest and not only was it a poor match for asset allocation, geographic & capitalisation spread, it showed that your risk rating was only just above half of that suggested for a long term moderate to adventurous growth investor.

Why limit yourself to 4 funds? Some are minimum of a £100 a month but I think most are available for £50 a month - if I'm wrong you may need to fiddle about with it - why not go for 5 or 6, shouldn't cost you any more? Using 3 out of your funds and adding 3 others I put this through and it scored much, much better on all counts.
New Star hidden £75 [each x 10 for the calculation]
UK Equity Income [I used Invesco P High Inc but you could another] £75
A mainstream European Fund £75
A global growth fund £75
Gifford Corporate B £50
Neptune Russia - £50

Comes up much better for balance, though now slightly over weight in equities which you could perhaps remedy in the future by looking at a property fund or equity and bond fund.

You might want to try it yourself:
https://www.bestinvest.co.uk/planning/portplan/index.htm

Don't treat it as gospel - it's probably quite a crude tool but should give you a better idea of how balanced your fund spread is.
HTH.