How many funds?

sandsy

Last year, I finally made the move from investing just in cash ISAs to a S&S ISA. The current ISA value is 23k. I will soon be transferring in some maturing cash ISA bonds which will increase the value to roughly £50k.


The ISA investment is on a DIY basis with the Share Centre and forms part of my retirement income strategy. My DC schemes are invested largely in equities. Contributions are going into my main DC scheme, rather than the ISA, so I can take advantage of 40% tax relief (will be 20% in retirement). I'm not in danger of breaching the LTA.


I'm hoping to start taking benefits from the DC schemes in 8 years time, using a phased approach to transfer tax free cash into the ISAs. DC schemes will provide income for the first 15-20 years of retirement (underpinned by a deferred final salary scheme) and then I'll drawdown the ISA.


My £23k in the ISA is currently invested in 5 high yielding (corporate bond) income funds with the income being reinvested. Will 5 funds be enough once the value increases to £50k or should I be looking to spread the ISA investment across more funds?

Linton

Why do you have 5 corporate bond funds? Why not one, and four other funds in different sectors? I see little point in having more than one or two funds in a particular sector, and it is not a good idea to have everything in one sector.

Before designing a portfolio you need to identify an objective in terms of how much when and a strategy to achieve it identifying which sectors you wish to invest. Then it is a matter of choosing sufficient funds to give you the required coverage. For a £50K pot I would consider any fund value of less than £5K not worth bothering about. Then you could reasonably have only 1 fund, say a managed multi asset one. At the other extreme you could have perhaps 8-10 separate funds covering the major geographies and some more niche higher risk investments and/or some balancing bond funds.

dunstonh

My £23k in the ISA is currently invested in 5 high yielding (corporate bond) income funds with the income being reinvested. Will 5 funds be enough once the value increases to £50k or should I be looking to spread the ISA investment across more funds?

One multi-asset fund would be fine on £23k. Having 5 same sector funds is poor diversification and high yield bonds are higher risk (for the sector).

Totton

5 funds at 50k is still fine, indeed a couple would do the job unless you were looking for different payment dates for income.

atush

I agree, you are not diversified and need to be. Bond funds are high now due to demand during the recession. This can and will change at some point.

mike88

I keep to around £20k per fund with one exception where I have a lot more invested. Because of that I have rather more funds than many would recommend - 15 in total with a high concentration in the Equity Income sector with UK growth, global, european and far East funds also . I tend not to chase performance as I always tended to get in too late with emerging market funds so no longer bother.

As I am comfortable with my asset allocation I tend not to switch unless a fund falls below 2nd quartile performance over a consecutive 2 year period.

Five bond funds seems a strange choice. If you are a cautious investor why not funds from the Balanced or Cautious manged sectors which combine equities and bonds. Indeed such funds are probably more cautious than those high yielding bond funds which suffer from defaults regularly impairing performance. As you are not that far away from retirement I would keep away from funds investing in the Far East and Emerging markets.

Of course you might also think that markets are expensive at present and be more comfortable with bonds. The choice is yours.

sandsy

I'm diversified in my other investments, outside the ISA wrapper. I'm happy with my ISA fund choices which, although largely corporate bonds also include some funds with high yielding equity and preference shares, and cover a number of relevant IMA sectors. I wish to keep the ISA in high yield funds in case I need to draw the income. I'm not fussed over the capital value of the funds in the foreseeable future.


I'd prefer not to have one-multi asset fund. I prefer to diversify across fund managers. The only question I had is how many is appropriate for the value of the fund.


Thanks for replying.

sandsy

mike88 wrote: »

I keep to around £20k per fund with one exception where I have a lot more invested. Because of that I have rather more funds than many would recommend - 15 in total with a high concentration in the Equity Income sector with UK growth, global, european and far East funds also . I tend not to chase performance as I always tended to get in too late with emerging market funds so no longer bother.

As I am comfortable with my asset allocation I tend not to switch unless a fund falls below 2nd quartile performance over a consecutive 2 year period.

Five bond funds seems a strange choice. If you are a cautious investor why not funds from the Balanced or Cautious manged sectors which combine equities and bonds. Indeed such funds are probably more cautious than those high yielding bond funds which suffer from defaults regularly impairing performance. As you are not that far away from retirement I would keep away from funds investing in the Far East and Emerging markets.

Of course you might also think that markets are expensive at present and be more comfortable with bonds. The choice is yours.

I think our posts crossed. I wouldn't describe myself as a cautious investor I recognise the risks from sub-investment grade bonds. And although I'm not far from my planned retirement, I don't plan on drawing down the ISA capital for about 20 years, once my pension income is drawn down.


Thanks for your comments.

dunstonh

I'd prefer not to have one-multi asset fund. I prefer to diversify across fund managers. The only question I had is how many is appropriate for the value of the fund.

You only have £23,000. You are creating a lot of work for little gain. if you take a typical medium risk investor, you would have around 3% in Asia. That is just £690. If you have one fund for each of the main sectors then that is 10 funds.

Do you think your knowledge and research is better than a multi-asset fund provider and that the time spent by you makes it worth it? Your questions suggest that you dont have the knowledge and the amount you have is suitable for a multi-asset fund.

Linton

sandsy wrote: »

I'm diversified in my other investments, outside the ISA wrapper. I'm happy with my ISA fund choices which, although largely corporate bonds also include some funds with high yielding equity and preference shares, and cover a number of relevant IMA sectors. I wish to keep the ISA in high yield funds in case I need to draw the income. I'm not fussed over the capital value of the funds in the foreseeable future.


I'd prefer not to have one-multi asset fund. I prefer to diversify across fund managers. The only question I had is how many is appropriate for the value of the fund.


Thanks for replying.

Full information does help in putting together an appropriate reply.

There is no specific number that is appropriate for the value of a £23K pot. You can have as many as you want - hundreds if you feel like it. However I find that beyond say 5-10 it becomes a hassle to manage and it becomes difficult to quickly see what is going on. So as I said before, decide what you want to invest in and then get sufficient funds to provide the coverage - the fewer the better in my view. I dont see that just having multiple fund managers in one sector provides any useful kind of diversification. If you are not willing to trust any particular fund manager go for a tracker.

Rollinghome

Linton wrote: »

I dont see that just having multiple fund managers in one sector provides any useful kind of diversification.

Though I wouldn't disagree with the general sentiment I don't think it would be sensible to assume that all funds within a sector will be the same, most especially in sectors such as Abs Return or Flexible Investment.

Funds within the same sector can be very different and it's what they actually invest in and how that you should be looking at, not just what sector they happen to be in.

Invesco Perpetual High Income is about to be booted out of Equity Income into All companies. How would someone who doesn't want more than one fund in any sector deal with that? http://www.trustnet.com/News/498813/dampier-hits-out-at-crazy-invesco-perpetual-high-income-sector-change/3/1/