Sector Allocation

EdInvestor

dunstonh wrote:

A UK smaller companies fund has a different risk and aim to a UK Equity Income fund but they both fall under the UK all companies sector.

Have another look. That's not so with either the IMA or the Trustnet sector methods, the latter being the clearer system IMHO.

Trustnet & IMA UT sectors

dunstonh

Trustnet use their own in-house system. I have no interest in using that.

EdInvestor

It doesn't matter which one you use, Small company funds (high risk) and Equity income funds (low-medium) have their own separate categories under both.

carnet

Find myself in the unaccustomed position of actually agreeing with Ed on this one .

The Specialist sector has historically just been a dumping ground for those very few funds investing in certain "areas" which did not fit into any existing sector. However, with ever more funds coming onto the market investing in a few of these areas eg Property, Resources, Latin America etc. there is certainly a case for these to be allocated their own specific sectors (although, then again, even Property funds can be very different animals).

Indeed, Standard & Poor's has been doing this for some time (perhaps going too far the other way, what with their "GBP Neutral", "Global Dynamic", "UK Flexible" etc etc )

Can't say it makes much difference to me either way and certainly not from a risk perspective (anyone investing in risk products should already know that the likes of Latin America and Russia are intrinsically riskier than, for example, Property and Global Financials !) .

Although it would perhaps make analysing performance statistics etc. just that much faster/easier .

Also, both S&P and Lipper have, for as long as I can remember, categorized UK Equity Income, UK Smaller Companies and UK All Companies (formerly UK Growth) in three separate sectors - although, again, IMHO there is so much blurring around the edges here (eg. why should exclusively investing Large Cap & Mid Cap funds be included in the UK All Companies Sector when UK Small Cap funds ain't ?) that it would make little difference to me personally if they were all lumped into a super "UK EQUITIES" sector .

dunstonh

The problem is that you cannot realistically sector allocate portfolios using the IMA categories as you end up with 29 categories. It just becomes impractical.

So, you can split it by region to UK, Europe, N America etc you can then allocate your portfolio on that basis and then decide the IMA categories within each sector.

People who deal in shares often prefer asset allocation to sector allocation but asset allocation is harder to get balanced with funds.

EdInvestor

At the moment whambamboo is entirely in equities so he has done no asset allocation at all.

IMHO he could look at putting in some Commodities and Property exposure.It's easier to check out the choice on the Trustnet site where they have separate sections for these funds. Commods is high risk and Property these days varies from high ( global property shares) to low-medium (UK bricks and mortar) with various levels in between.

IMHO he has no need to bother with bonds at this stage as he has loads of cash.

david_c_6

EdInvestor wrote:

IMHO he has no need to bother with bonds at this stage as he has loads of cash.

I've wound up with quite a lot of bonds (largely as a way of using up my maxi ISA allowances at times in the past when I thought the stock markets were too high to risk buying 100% equities), as well as loads of cash, and I'm just starting to think that that might not be sensible - too little risk, too little potential gain. So personally I'm looking at shifting the balance towards equities, but to go back to the original poster, are there circumstances when they *should* be bothering with bonds as well as, or instead of, cash?

Chrismaths

falling interest rate environment.

(Investment Grade) bonds are a bit like a fixed interest deposit account. If interest rates fall, then the value of bonds go up.