Which portfolio is better?

innovate

A friend has asked me to comment on his two investment portfolios. Apparently portfolio A is performing better than B. He has had both since 2008 with just one change, the addition of the Vanguard funds sometime last year.

He says he is reasonably happy with the performance of portfolio A, but the first 3 funds in portfolio B are apparently big loss makers and he isn't sure whether he will hang on to them. He is 41 and dreams of retiring at 50, when he would start drawing money from his investments (ahead of drawing on the pension he invest in through his company). I.e. he has at least 9 years to go.

I have suggested to him that he should look at both portfolios combined since they make up his total investment. The allocation looks slightly different when he does that.

What do people think about his portfolios? Has he got enough UK coverage?

Portfolio A

30% - Artemis Strategic Assets Retail Accumulation - (B3VDDQ5)
28% - ETFS Commodity Securities Gold (GBP) - (BULP)
25% - Vanguard LifeStrategy 40% Equity GBP Accumulation - (B3ZHN96)
5% - iShares plc FTSE UK Dividend Plus - (IUKD)
12% - iShares plc FTSE 100 - (ISF)


Portfolio B (this is his ISA)

5% - Fidelity China Special Situations PLC Ordinary Shares 1p - (FCSS)
11% - JPMorgan Natural Resources Income Units - (B1XMTQ8)
14% - Neptune Russia & Greater Russia Class A Retail Accumulation - (B04H0T5)
27% - Vanguard LifeStrategy 40% Equity GBP Accumulation - (B3ZHN96)
8% - db X-trackers MSCI Emerging Markets TRN Index - (XMEM)
24% - db X-trackers FTSE All-World ex-UK - (XWXU)
12% - iShares II plc FTSE EPRA/NAREIT US Property Yield Fund - (IUSP)


Combined view
8% - Neptune Russia & Greater Russia Class A Retail Accumulation - (B04H0T5)
7% - JPMorgan Natural Resources Income Units - (B1XMTQ8)
12% - Artemis Strategic Assets Retail Accumulation - (B3VDDQ5)
26% - Vanguard LifeStrategy 40% Equity GBP Accumulation - (B3ZHN96)
11% - ETFS Commodity Securities Gold (GBP) - (BULP)
3% - Fidelity China Special Situations PLC Ordinary Shares 1p - (FCSS)
5% - iShares plc FTSE 100 - (ISF)
2% - iShares plc FTSE UK Dividend Plus - (IUKD)
7% - iShares II plc FTSE EPRA/NAREIT US Property Yield Fund - (IUSP)
5% - db X-trackers MSCI Emerging Markets TRN Index - (XMEM)
14% - db X-trackers FTSE All-World ex-UK - (XWXU)

jimjames

I also hold Neptune Russia. It hasn't done well recently but in some ways that is not a reason to sell but to buy if you are still comfortable with the reasons for having it. I still think it is a good fund to have in my portfolio and have added more during dips. It does seem like quite a high percentage and if he has held a while could have been a major proportion of his portfolio.

I'd agree with you that he needs to consider the whole not just compare one against the other.

dunstonh

Dont like either of them. They both appear to be random selections where a mix and match of different types of funds has been selected. e.g. why pick a portfolio fund to then pick single sector funds as well which overlap with the portfolio fund throwing the asset weightings out. Portfolio B is very high risk.

Picking a portfolio fund and then maybe the odd niche fund to cover areas not included in the portfolio fund is quite normal but Portfolio A is overweight in UK and commodities. Portfolio B seems to be a good example of fashion investing. half the portfolio in higher risk specialist funds is a roller coaster ride waiting to happen.

Combining the two still has it heavy in high risk and its out of balance compared to what you would typically expect to see. Noting that we dont know the risk profile for him but the spread is very high risk. Timescale of just 9 years would push that up further. Indeed, its the sort of spread where you are probably likely to either hit target or miss it by a mile.

Why has he running two portfolios? It seems a strange way to do it unless the timing is different for withdrawal.

Linton

Sorry, but this looks like a random collection rather than a portfolio.

Portfolio A

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The Artemis fund invests in whatever the manager thinks is a good thing to buy. If you want to hold this fund you must trust the manager - fair enough. But in that case why add extra Gold, and UK shares?

Next we have the Vanguard fund. That focuses on the UK and holds a defined balance of 40% shares and 60% bonds. If that's what you want why upset the balance by buying extra UK equity?

IUKD has been dangerous in the past - it invests heavily in shares which pay large dividends. Which shares were these prior to the crash? The banks. So it really crashed in 2008.

Looking at the equity holdings other than in Artemis there is considerable commonality. All invest mainly in large UK companies.

So we have an unadventurous ill-diversified set of funds.

Portfolio B

---

A high proportion of higher risk niche funds and a bit strange. Normally if you want a rounded Emerging Markets exposure you may reasonably buy an EM tracker and a few specific funds if you believe the tracker doesnt provide the balance you are after. But in this portfolio the tracker is a small % compared with the niche funds.

On the specific niche funds, the China fund has always been disappointing after its highly publicised start and a star manager, unfortunately not one with any experience in China. The other two are fine if you want to invest in Russia and raw materials. Russia seems a bit of a punt, Natural Resources I believe is something one should be in though it has performed badly for the past 2 years it did pretty well prior to then. My concern arises from asking the question "Where does Russia's wealth come from? You guessed it: Mainly natural resources.

Combined view

---

This does look rather better!

As to what he should do next: Assuming that the value of the total portfolio is fairly high, say 50K+, I think he should take out a blank sheet of paper and think through what he wants to invest in and in what proportions. Then he can choose the funds that best provide the coverage. If it is a much smaller portfolio then just look at a balanced fund. Nothing wrong with the Vanguard one but I would go for a higher % of equity. (and some global!)

srcandas

Enjoying this thread :beer:

Looks to me as others have suggested like a portfolio created through isolated tactical decisions and not an overall strategy. But my portfolio has a very clear strategy and yet I'm sure it might raise similar comments

I can see why he looks at them as two pots. But presumably the more important pot is his pension which he cannot get to for 14 years.

Is the objective of the portfolios A&B just to tide him over for the 5 years to when he gets at the pension? If so I can see why he is asking.

Jegersmart

I think the main problem here is that there will be no portfolio
that will be in any way optimised for the next 9 years without some changes along the way, and that will take some work and research or trust if you get someone else to do it.

For the next 3-6 months those portfolios should do reasonably well, but we are probably going to have a massive equities shakeout before we set up for a 4-5 year bull run starting in late 2013 or into 2014, so the question is whether these funds should be held through that or whether some steps will be taken to avoid the massive drop?

J

grey_gym_sock

Jegersmart wrote: »

we are probably going to have a massive equities shakeout before we set up for a 4-5 year bull run starting in late 2013 or into 2014

that's a good theory, but i wouldn't like to bet on (or against) it. i understand that you like to have a very "unbalanced", or conviction, portfolio, but most ppl probably don't want that. or may have different convictions.

JohnRo

Is it a fair conviction to think we still have several big dark clouds rumbling towards us? European disintegration and US debt woes the obvious two..

It's my view we have a rocky road ahead (what powers!!) and I'm aiming for as much diversification across all regions and sectors as I dare with index tracking and managed funds, leaning on an emphasis of managed smaller company funds in most regions for the eventual sustained recovery (yeah right).

innovate

srcandas wrote: »

Is the objective of the portfolios A&B just to tide him over for the 5 years to when he gets at the pension? If so I can see why he is asking.

I doubt he will get a company pension when he is 55. Though he has now told me portfolio A is a SIPP, so obviously he can't get at that at age 50.

Thanks everyone for responding. Not sure I can add value by relaying the answers to him - so I suggested he might want to sign up here so he can answer questions / explain more about his thinking. And/or to go to an IFA because I understand he has almost 150K in the investments.

Jegersmart

grey_gym_sock wrote: »

that's a good theory, but i wouldn't like to bet on (or against) it. i understand that you like to have a very "unbalanced", or conviction, portfolio, but most ppl probably don't want that. or may have different convictions.

You won't bet on OR against it? Mind the splinters....:D

I don't want an "unbalanced" portfolio all the time, but I certainly don't want a "balanced" portfolio most of the time.

What is balance anyway? Placing a chip on all the numbers in roulette?

J

grey_gym_sock

Jegersmart wrote: »

You won't bet on OR against it? Mind the splinters....:D

... i mostly meant that i don't try to time the market - i try to get my money invested (mostly in equities) as soon as possible, and then keep it invested for as long as possible.

What is balance anyway?

it is debatable ... there are a few things i'd look at, without following any of them exactly:

spread money around the world in proportion to market capitalization of each region's stock markets (e.g. buy a world tracker).

spread money around in proportion to GDP of each region.

divide money in equal amounts among regions of the world. (though this is ambiguous depending on how you define regions.)

i think there's something to be said for each of those approaches, or at least at looking at how near 1 is or isn't to each of them.

though that's just geographical balance. there's also balance between asset classes.