Investment Diversification Ideas

jimmyjones_2

Pensions aside, I have been investing for just over a year and took an initial strategy similar to Monevator Slow and Steady portfolio:

HSBC American Index Ret Acc - 25%
HSBC FTSE All Share Idx R Acc - 25%
HSBC European Index Ret Acc - 15%
Legal & General Global Emerging Markets Index Fund - 15%
HSBC Japan Index Ret Acc - 10%
HSBC Pacific Index Ret Acc - 10%

This is held at Cavendish online and I am contributing £750 a month re-balancing to the above percentages.

The value has reached £10k so I am considering diversifying. I keep reading that bonds are in a bubble so am holding money back in Cash ISAs with a view to transfer to my S&S ISA and buy bond funds when the bubble bursts.

Possible ideas are Small Cap, Property, Commodities, Value Stocks but I cant find any suitable funds and Cavendish don't do ETFs.

Can anyone recommend any funds available on Cavendish that would give a bit of diversification?

My plan is to stick with Cavendish until all of the Brokers have implemented their RDR changes so I am somewhat limited.

Contrary_clive

Cavendish offer ETFs from ETFS Metal Securities ltd so you should be able to get access to their gold or general precious metals fund. There is also blackrock gold available with them but the TER of 1.17% is quite pricey and possibly something a Monevator follower would avoid. Blackrock also offer a global property tracker fund with a TER of 0.238% which might be more appropriate. These ETFs do carry a 0.25% service fee though.

Linton

In my view small caps would be a sensible diversification in that your index funds will overwhelmingly focus on the large caps. And the trouble with large caps is that they will tend to operate in a global market and so your index funds may not be as diversified as you might think.

Another option is to go for funds that focus on specific industries or types of industry. eg technology, health, mining.

However I think that with only £10K any sensible level of investment in a specialist diversified fund would be so small that its hardly worth the hassle.

You can can some idea of what is available by looking on trustnet where you can sort by returns over various periods or dividend yields.

Ark_Welder

One approach would be to continue as you are until April of next year: fund platforms should have announced by then what their charges are going to (start out to) be for new business - they have until 2016 to convert existing business over to clean share classes. This way, you will keep down the number of funds that would either have to be sold or transferred to a new platform in the event of a different provider being cheaper - selling involves being out of the markets for a certain amount of time. This extra time would also give you the opportunity to decide how you might want to diversify your holdings.

Remember that some commodity and property trackers (and managed funds) will not bring diversification, just the opposite - they will bring concentration to your holdings. Examples of funds that will do this are those that hold shares of property/commodity companies rather than the physical assets themselves (or derivatives, thereof, for some commodity funds). So just be sure of what you are looking to hold, remembering that your existing holdings will already have exposure to these types of companies. Ditto for 'value' funds, where these types of companies will already be held in your trackers.

Much is said about bonds being in a bubble, but that does not mean that they should be totally ignored. There are no guarantees that they will all pop; any unwinding could be long and slow, in which case some funds might not necessarily be the automatic loss-makers that they are portrayed as being: you would have to look at when a fund first buys its bonds (e.g. at or soon after issue), whether it holds until redemption, and the types of bonds that it is allowed to hold. There are no guarantees that we're completely out of the woods, yet, with regards to economic recovery, so some types of bonds might still offer a level of diversification.

The other aspect of bonds is what your holding period is expected to be, i.e. your timescale, and whether you are looking to purchase using a lump sump or as part of your monthly purchases: the former is more prone to concerns about bubblenomics, the latter (on a long term view) gets around having to try to time markets and to guess at how bonds will unwind from hereon in. Something to ponder on, rather than being a specific suggestion to invest.

Perelandra

Although I can't answer your specific question,

If you're interested, the Blackrock Emerg Markt Equity Tracker Acc fund (available through Fidelity/Cavendish) is very similar to the L&G one, but comes at a lower TER after commission refund. As always, please DYOR before taking any action though.

Admittedly, it won't make much of an overall difference.

jimmyjones_2

Contrary_clive wrote: »

Cavendish offer ETFs from ETFS Metal Securities ltd so you should be able to get access to their gold or general precious metals fund. There is also blackrock gold available with them but the TER of 1.17% is quite pricey and possibly something a Monevator follower would avoid. Blackrock also offer a global property tracker fund with a TER of 0.238% which might be more appropriate. These ETFs do carry a 0.25% service fee though.

Thanks for the ideas, I didn't realize ETFs are available, I will investigate further.

I have already looked at the blackrock property tracker which looked great apart from the buy / sell spread of about 5%.

jimmyjones_2

Ark_Welder wrote: »

One approach would be to continue as you are until April of next year: fund platforms should have announced by then what their charges are going to (start out to) be for new business - they have until 2016 to convert existing business over to clean share classes. This way, you will keep down the number of funds that would either have to be sold or transferred to a new platform in the event of a different provider being cheaper - selling involves being out of the markets for a certain amount of time. This extra time would also give you the opportunity to decide how you might want to diversify your holdings.

Thanks for your post, some food for thought there!

I will probably so as you suggest and stick as I am until the RDR announcements. Cavendish doesn't have a transfer out fee AFAIK so adding a few extra funds shouldn't be an issue as long as I can find something suitable. I don't think they allow transfer out in-specie though.

I might revisit my diversification ideas when I am on my nice new platform with the full vanguard range and ETFs available

jimmyjones_2

Perelandra wrote: »

If you're interested, the Blackrock Emerg Markt Equity Tracker Acc fund (available through Fidelity/Cavendish) is very similar to the L&G one, but comes at a lower TER after commission refund. As always, please DYOR before taking any action though.

Thanks the the idea, I actually already did my own research on this fund. I was on the verge of switching until I noticed the ~5% buy / sell spread. It would take years for the TER difference to be worth the 5% initial charge and would certainly not be worth for me as I am transferring out in the next 12 months.

Contrary_clive

I did not think there was a bid/offer spread for the funds mentioned. I use cavendish and cannot see any spread costs in the charges document. I hold blackrock emerging mkts tracker and can confirm when purchasing no charge was applied.

Contrary_clive

Below is the webaddress containing the charging info...

cavendishonline.co.uk/investments/fund-research

Ark_Welder

It's the pre-RDR 'A' share class that has the 5% bid-offer spread. Cavendish provide the 'D' share class that has minimal spread and a lower ongoing charge.