Too many funds? What is the problem?

utigers

Hi there, I read every so often on here that holding too many funds is a problem.....why?

I understand it can be time consuming to monitor them, but you can quite easily check quartile positioning etc...quickly on TN.

I have 2 funds that have done well for me in the past, but over the last 5 years have performed poorly. Artemis UK Special and Schroder 250 I have held for 10 year+ and they have made decent money, but both have gone well off the boil possibly down to size of AUM.

I dont particular want to transfer all the money straight into one fund as I prefer to slowly build gain confidence in the fund/manager and monitor. Some top performers currently could be flash in the pans but some could be the new Brough/Thomas/Bolton, hence I want to edge my bets.

Schroder replacements:
Neptune mid cap
F&C uk mid cap
Axa mid cap.

Numerous funds to replace the other one, but due to the amount of £ in them both I wouldnt want to transfer it all into a direct replacement. Eg may use 2 funds from the above to replace the schroder one, poss 3 for the Artemis one. Whats wrong with this?

srcandas

Before I worry about the number of funds I look at sectors, asset types, geography. I never want a balanced portfolio. I use four targets at the moment.

Within each of my targets I might go 2 or 3 funds max. To do more in say Emerging market bonds will give me an average return and I play the game to try and get better than that (note 'try' ).

My SIPP has 7 funds and will go to 10 max.

I believe in general the less number of funds the greater the volatility and thus the greater my potential gains, the greater my potential losses.

But as they cost little in overhead fixed costs I'd say there's no rule.

And a few lines on the porfolio graph add to the fun :beer:

Totton

My thought is that holding too many funds increases the likelihood that you are just holding the market, therefore why not just buy a tracker? If you want outperformance then as srcandas suggests you may need to go for more risk. If you just want the market then get a tracker.

On a personal level, I find having too many funds causing me too much work. Looking at a funds performance is one thing but you also need to know what you are invested in, what duplication do you have, what is the composite risk of those funds etc, it is manageable and I have held 20 or so holdings quit easily but much prefer keeping it to no more than 10. At the moment I have just 8 holdings within a portfolio that is split 65% core and 35% satellite, with the sats I tend to have around 5-10% whilst with core I tend to have 10-20% in each fund.

Another reason for me to limit the number of investments is that in addition to the platform listing, I have my portfolio listings set up with my Morningstar, Trustnet, LSE and FT, all of which offer different analysis but which also means I have less updating to do if I keep things simple :-)

Happy Investing!
Mickey

utigers

I understand were you are coming from, however I have gone for one fund in a particular sector previously and got it wrong. In managed funds that is putting all your eggs in one manager in one sector, which is what I'm trying to avoid from now on.

Was thinking of HSBC 250 tracker but this underperforms the index on 10/5/3 & 1 yearly figures and then a £2 a month charge.

bigadaj

A managed fund would be putting everything with one manager, but by definition in multiple sectors as they have the discretion to invest where they think best.

Any tracker fund will underperform the Market because of fees, unless there is a bizarre tracking error over a long period of time.

Wonder why you what the 250 tracker now as the big boys seem to be making all the money currently.

Lokolo

utigers wrote: »

I understand were you are coming from, however I have gone for one fund in a particular sector previously and got it wrong. In managed funds that is putting all your eggs in one manager in one sector, which is what I'm trying to avoid from now on.

Was thinking of HSBC 250 tracker but this underperforms the index on 10/5/3 & 1 yearly figures and then a £2 a month charge.

All trackers will under perform their respective markets because they have costs associated with them, and tracking error. Your best bet is to get the lowest cost tracker with the lowest tracking error (so close as close can be to the market), but you will never get one to the market or above it.

Totton

A tracker will not necessarily underperform, it depends on how they are comprised, for example they may hold different weightings or their retrospective manipulation may be a positive or a negative.

I don't hold any trackers so please don't think that I am arguing the case for them, I just find that all trackers are not the same and do not always under perform their index, plus you have to take account of the time and cost that they have saved you :-)

The point about holding just one fund in a sector is well made but that's not the way I do it. I will hold just one fund in say 'health' but that is supported by my core holdings which will also hold elements of that sector. I go back to the earlier post about risk, if you want outperformance then you probably do need to avoid holding the market.

MrMalkin

utigers wrote: »

Was thinking of HSBC 250 tracker but this underperforms the index on 10/5/3 & 1 yearly figures and then a £2 a month charge.

One thing to bear in mind regarding trackers and tracking errors, the charges of tracker funds have been falling since Vanguard entered the market in 2009, so tracking errors have been reducing too. Any 5 or 10 year chart does not take this into account, so be a bit wary. 1 or 3 year stats will be more relevant, but it depends on the individual fund.