Core funds for a portfolio

utigers

Hi there, in the near furture we will be upping our monthly DD to achieve retirement asap. Without going through the usual questions, I am looking for suggestions and the logic behind your selection of funds which you consider as core.

My idea on a Core fund is something of average or below in terms of risk, also funds that hold a bit of almost everything and is pretty reliable in terms of returns. Is that your interpretation?

I thinking of these or a combination of, as it would be for split between 2 of us.

Vanguard 100% or 80%
Newton Real Return
CF Milton Special Situations
Trojan O
Stan Life Inv Global Absolute Return Strat
SJP Strat Managed.

Whats your thoughts and ideas on core funds, and would you suggest any others for me to research?

How much as a % would you hold in core funds?

jamesd

As some core I use a mixture of:

1. Vanguard developed world tracker, no emerging markets or UK.
2. DB X-trackers FTSE World ETF tracker XWXU, includes emerging markets, not UK.
3. ETFS LUK2 FTSE All Share leveraged two times ETF tracker. I like leverage at the moment, an unleveraged tracker would be better long term.
4. An emerging markets fund.

Add your choice of bond funds. I then decorate a lot around that with active managed funds of various types in the pension. The ISA is pure active managed and higher overall volatility level.

How much you hold in the core funds depends on how much you want or need in the others. If you want to reduce volatility you might need quite a lot in bond funds outside an equity core, to increase you might need more or add more emerging markets and leverage. Or you might add more smaller companies to be in the same markets but with higher volatility and growth potential at times.

My view is that global tracking is core for the accumulation phase, perhaps with some bonds for those who are fairly cautious.

Linton

jamesd wrote: »

As some core I use a mixture of:

1. Vanguard developed world tracker, no emerging markets or UK.
2. DB X-trackers FTSE World ETF tracker XWXU, includes emerging markets, not UK.
3. ETFS LUK2 FTSE All Share leveraged two times ETF tracker. I like leverage at the moment, an unleveraged tracker would be better long term.
4. An emerging markets fund.

Add your choice of bond funds. I then decorate a lot around that with active managed funds of various types in the pension. The ISA is pure active managed and higher overall volatility level.

How much you hold in the core funds depends on how much you want or need in the others. If you want to reduce volatility you might need quite a lot in bond funds outside an equity core, to increase you might need more or add more emerging markets and leverage. Or you might add more smaller companies to be in the same markets but with higher volatility and growth potential at times.

My view is that global tracking is core for the accumulation phase, perhaps with some bonds for those who are fairly cautious.

I thought the idea of a core holding was as the OP said "something of average or below in terms of risk, also funds that hold a bit of almost everything and is pretty reliable in terms of returns."

Under current volatile circumstances do these types of funds, especially leveraged, really meet the requirement? During 2008/2009 global general funds appear to have suffered much the same as EM. Is the concept of safe core and riskier satellites for added growth potential still valid, or might you just as well stay with a set of satellites, balanced by fixed interest?

Interested in views, I am not conveinced either way.

jamesd

I don't generally agree with "My idea on a Core fund is something of average or below in terms of risk, also funds that hold a bit of almost everything and is pretty reliable in terms of returns. Is that your interpretation?" in the money accumulation part of retirement planning.

That spec basically requires the use of a balanced managed fund as the core holding. That's because equity funds are likely to be above average in risk and not offering year on year consistency.

I think that's a bad idea and that people who can select funds would be better off with a mixture of equity funds and bond and other funds as a core selection. That makes it easier to adjust the split to hit whatever the desired volatility target is. It also makes it possible to rebalance from time to time and potentially improve returns that way.

During the retired time I'd go with a mixture of equity income and bond funds for the income-producing core. Equity income might be good as part of the core for someone approaching retirement but not quite there yet.

I don't think that a concept of a safe core and riskier satellites has ever been a good one while accumulating money for retirement, though perhaps it depends on how "safe" is defined. For me "safe" eliminates equity funds and forces the use of bond funds and cash. At the moment I think that bond funds are actually in a bubble and at a risky part of their cycle and I'd prefer a fairly high commercial property allocation to much of a bond allocation.

I was describing what I'm currently using as core. I agree that leveraged wouldn't be a great idea for most people long term, or even for most at any time. I'm using it at the moment because it's been appropriate for the conditions during which I've been using it - a substantial market rally.

Linton

Interesting response - if the Core isnt to provide a safe base, what is its purpose? Why have one? IMHO every investment one buys should be for a specific purpose so there is a good reason to sell it if appropriate.

jamesd

I think of a core as something to provide market returns and/or a substantial part of the core focus of the investments. So for the accumulation phase that would mean equity tracker funds mostly if the risk tolerance is suitable, with bonds and commercial property to adjust the average core risk down if necessary. I wouldn't restrict the core to only funds with the core target risk level but instead use a mixture of funds of different risk levels.