Portfolio Advice

Linton

For my taste I think you are rather low in Asia Pac (exc Japan) and rather high in US. But if your allocations represent your belief in where the returns are going to come from - fair enough.

On the tech side I think that chasing low TERs isnt going to be too successful. Tech is one of those areas IMHO where one (or ones fund manager) does really need to understand in what one is investing. Just going for a market cap weighted portfolio is going to end up with Apple, Google, Facebook etc - look at the only general Tech Tracker (TER 1%) listed on Trustnet, that provided by L&G: Apple 16%!! The L&G Tech Trackers 10 year performance is mediocre.

I must admit to being a little amused that having been convinced that one cannot beat the index you are now wanting to tweak things. Why not have the courage of your convictions and just go with a global tracker?

Hooloovoo

Linton wrote: »

I must admit to being a little amused that having been convinced that one cannot beat the index you are now wanting to tweak things.

I'm still not trying to beat the index. I'm just trying to balance between the three main world regions and the three main stock sectors. If anything, I'm trying to get equally into the whole market and thus track the global market.

You're right, if I wanted to put 33% to each world region, I need more Asia and a little less US. Likewise I need more Information and a bit less Manufacturing. Whether that would be better than my current weighing I am not sure.

Why not have the courage of your convictions and just go with a global tracker?

It's true, that would be much easier.

Doing it this way gives me an illusion of control and a feeling that I'm actually making some real decisions, as opposed to just paying money into a fund and letting someone else do the work.

I acknowledge that a global tracker may very well be better, but being a control freak I prefer attacking it the way I am currently doing. Rightly or wrongly I'll let you know in 20 years :cool:

sabretoothtigger

The UK is already invested in USA. I often object to people tracking USA as if any further exposure was needed.
If you specifically want a USA company thats different but its not really a foreign market to the UK, they are our largest trading partner in any case up or down

Swap it for tech maybe. I also own emerging bonds, apparently Investec was one of the top performers over five years and I think it should do well

gadgetmind

Linton wrote: »

I must admit to being a little amused that having been convinced that one cannot beat the index you are now wanting to tweak things. Why not have the courage of your convictions and just go with a global tracker?

It's a question of beating the index *after* fees, and also how you define "the index". You don't have to use an equally weighted global distribution if you don't want to and there is no problem with tilting your portfolio towards regions, cap sizes and "value" metrics where you feel the evidence for this delivering long-term outperformance is strong enough.

My own two largest pension pots use active asset allocation on top of low fee trackers. In one, this management is done by paid managers and my AMC is 0.5% (TER harder to determine!) and in the other I handle this allocation myself and have a TER of about 0.4%.

gadgetmind

sabretoothtigger wrote: »

Swap it for tech maybe.

Interestingly, I was graphing INX, UKX, TASX and SX5E yesterday, and while the FTSE All Share correlates closely with Europe, the Tekmark index was much closer to the US.

apparently Investec was one of the top performers over five years

Something of a hydra of a company but they do have some nice cars in their car park.

gadgetmind

Linton wrote: »

Tech is one of those areas IMHO where one (or ones fund manager) does really need to understand in what one is investing.

I'm in tech, I own a lot of tech equities and I hear a lot of what fund managers and analysts say about tech. They frequently come out with some real howlers that neatly demonstrate that they haven't got a clue.

Linton

gadgetmind wrote: »

It's a question of beating the index *after* fees, and also how you define "the index". You don't have to use an equally weighted global distribution if you don't want to and there is no problem with tilting your portfolio towards regions, cap sizes and "value" metrics where you feel the evidence for this delivering long-term outperformance is strong enough.

......

Even if "The Market" disagrees with you?

If you can use your skill and judgement to get a better return than a global index provides why cant you similarly get a better return than any other index? And if you can do it presumably anyone else can as well.

gadgetmind

Linton wrote: »

Even if "The Market" disagrees with you?

That's always the danger.

If you can use your skill and judgement to get a better return than a global index provides why cant you similarly get a better return than any other index? And if you can do it presumably anyone else can as well.

Yes, but the evidence for the long-term benefit of skewing a portfolio towards small/mid cap, value and EM isn't conclusive and the benefits are small and really do take a long time to manifest themselves (if they even do). If you splurge over a percent of fees per annum on getting someone to handle this for you, then not only won't you see the benefit, but there is *very* strong evidence that you'll lose long term.

My tilts away from global are fairly subtle. Well over 50% of my equity allocation is in a global tracker, nearly 30% in the UK (which includes a mid cap and value bias) and I then have additional global small cap holdings. OK, so my 10% in an EM tracker is harder to defend ...

BTW, Smarter Investing has a chapter or two that looks just at which asset classes are return enhancers and those where the evidence is shaky. Well worth a read.

Daniel_Elkington

I'm not sure what you are trying to achieve here.

What you have here is 100% equities, with european involvement. We all know that europe is going to be really bad this year, so if you are going to invest in this manner, why track the losing markets?

If you are going to review it regularly and manage your own portfolio, why are you going for a buy and hold strategy with everything?

If it is a long-term goal you have, where is South Korea, where is India, where is Africa (once they stop killing each other Africa will be a massive player).

What you sound like you want is a core/satellite approach.

This means you have most of your money in your core holdings. These are ones that will deliver good returns over the long term. In your case possibly 80% in these. These should be trackers as you may not want to review these in too great a detail.

These may be the three areas I discussed above. Your satellite funds are those that you reckon are astute short term investments in that these sectors/geographies will perform very well in the short term.

Something that you may want to consider as well is looking at your portfolio every month, to alter your satellite holdings and to rebalance your core holdings back to their original position. this works in that the rising markets, you are selling as they are rising and the falling markets are being bought as they are falling. This makes more money in uncertain and falling markets, however in steadily rising markets rebalancing is not so good.

Linton

Daniel_Elkington wrote: »

I'm not sure what you are trying to achieve here.

The OP is investing for the very long term - see post #1

What you have here is 100% equities, with european involvement. We all know that europe is going to be really bad this year, so if you are going to invest in this manner, why track the losing markets?

In the very long term what happens in the next year is pretty irrelevant. More to the point is whether one believes that Western Europe is going to be a global major player during the next 20 years. The current low prices may be a lucrative opportunity.

If you are going to review it regularly and manage your own portfolio, why are you going for a buy and hold strategy with everything?

Review regularly could well mean once a year with corrections when things get out of kilter. It's not an alternative to buy and hold, it's an essential part of it.

If it is a long-term goal you have, where is South Korea, where is India, where is Africa (once they stop killing each other Africa will be a massive player).

Agree that these areas could usefully be increased, especially Far East. I have a small African investment and agree that eventually it should be a major sector. But perhaps its too long term even for a 20-30 year portfolio.

What you sound like you want is a core/satellite approach.
Not necessarily - see next

This means you have most of your money in your core holdings. These are ones that will deliver good returns over the long term. In your case possibly 80% in these. These should be trackers as you may not want to review these in too great a detail.

Surely all the investments in a 20-30 year time frame portfolio should be focused on delivering good returns over the long term, not just the core ones. Some may fail, that's why one needs a good diversification.

So how does one know what these core ones are and in what way do they differ from the non core ones?

These may be the three areas I discussed above. Your satellite funds are those that you reckon are astute short term investments in that these sectors/geographies will perform very well in the short term.

Disagree - unless one is a dedicated trader, all investments should be for the long term if one is not wanting to access the money early. Investing for short term gain is too much work for too much risk.

Something that you may want to consider as well is looking at your portfolio every month, to alter your satellite holdings and to rebalance your core holdings back to their original position. this works in that the rising markets, you are selling as they are rising and the falling markets are being bought as they are falling. This makes more money in uncertain and falling markets, however in steadily rising markets rebalancing is not so good.

Rebalancing is worthwhile, but not monthly. It would lead to too much tweaking in response to transient events. Annually seems sensible and easy to remember.

All comments IMHO of course.