Passive portfolio, what do you think of it?

authentic

Looking to start a new passive portfolio in an ISA and would be grateful for any comments. My age is 40, portfolio term 20 years, risk tolerance level 60/40 (stocks/ bonds). I’m with Hargreaves Lansdown.

I based the portfolio on William Bernstein’s No Brainer Portfolio but made an adjustment in the asset allocation structure - 5x20% instead of the 4x25%. To boost returns I included some smaller cap/value funds. I’m aware that this is a riskier option. Here is what I’ve come up with:

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20% Global –Vanguard FTSE Developed World ex UK Equity Index Acc (0.30%)
Also looked into Vanguard SRI Global Stock Acc GBP(0.40%). I like the socially responsible investing bit but was slightly put offby domicile in Ireland rather than the UK due to investment protection laws.

I was also considering Vanguard Global Small Cap Index Acc GBP but also domiciled in Ireland.

20% UK Small Cap (managed to find medium cap) – HSBC FTSE 250 Index C Acc (0.10% + 0.07%)

20% UK Value – Vanguard FTSE UK Equity Income Index Acc (0.25% +0.50%)

20% Short Dated UK Gilts (I only managed tofind medium term) – Vanguard UK Government Bond Index Acc (0.15%)

Was also considering Valguard UK Inflation Linked GiltIndex Acc (0.15 + 0.10%)

20% Long Term UK Gilts however in this climate probably a cash ISA due to possibleprospect of inflation but otherwise Vanguard UK Long Duration Gilt Index Acc (0.15%+ 0.10%)


Your comments are much appreciated

richyg

Ok,

Maybe a bit too UK heavy in my opinion. With your 3 equity funds you seem to have 67% 2/3 Uk based . From what I have read and If I remember correctly USA is maybe 50% of the worlds stock market and the UK 9% maybe. If this is what you want then fine but I am not sure it is what would be said to be well diversified.

Maybe compare against Vanguard Life Strategy 60% at 0.29% auto balancing for a comparison. Well for free you can probably get an idea of what Mr Bogle thinks is balanced.

You pays your money and takes your choice I guess.

I have gone for Vanguard funds coz I get the temptation to fiddle too much. This stops me doing it as I must sit on my hands.

Sobryma

I would personally go more global, maybe add L&G or Aviva International funds or L&G Global 100. I hold the Vanguard Global Small Cap in my work pension. I think I have <10% in UK for equities.

I use SWIP Defensive Gilt for near term gilts - the version I have costs ~0.6% TER - or maybe you could go for the Vanguard Short Term Inv Grd Bond?

You may want to consider adding property (Blackrock Global Prop Sec) or resource/commodity funds (active unless you can access ETF's) - I don't hold them myself but they have some popularity as diversifiers.

ColdIron

As a young person of 40 with a 20 year investment horizon, I wonder whether 40% in gilts is too conservative

authentic

Thanks very much for your replies.

I agree that I perhaps have too much weight on the UK and should go more global. The rationale behind that was to reduce currency risk but baring in mind that the UK is 10% of the world's stock market I should reduce the 67% UK slice a bit.

In regards to the 60/40 split, yes it may bee little too conservative for the 20 year term and I should go more like 80/20. The 60/40 split was based on my risk tolerance. (ColdIron I'm flattered being called young)

And finally in regards to further diversification it does make sense but I'm trying to keep it as simple as possible. Yet I would like to have some diversification instead of just going Vanguard Lifestrategy 80 and leave it there. It will make me feel as if I'm in control of my portfolio by rebalancing it periodically. (I know, it probably wouldn't make much difference but would make me feel better). Baring this in mind I probably won't add another asset class but will tweak around the existing portfolio by increasing global exposure and reducing defensiveness of the portfolio.

richyg

I hold the Blackrock Conscensus 85 myself - but its performance albeit over a small time has underperformed its benchmark.

Hargreaves Lansdown referred to this in a recent fund update comment and mentioned that this was due to to holding cash as opposed to some specialist investments it couldn't replicate which have caused it to lag in a rising market.

My memory tells me that the fund update commentary referred to Hargreaves Landsdown having talked to the fund manager and persuaded / convinced / negotiated (take your pick) with them to change this strategy. I thought this was a bit odd with a platform getting involved like this ? Although this is HL's new super cheap indexed offering so perhaps

However when I look now at the fund update internet links - there is no reference to a conversation like this - if it was there it has been struck from history.

Just a question - did anyone else see this commentary or was it a figment of my imagination.

bigadaj

That sounds like hl bull, not an uncommon commodity.

How much are you paying hl for this fund, it would be interesting to compare as there is obviously the 0.45% charge before costs.

Edit - they claim total fund manager cost of 0.13% which is pretty low but leads to the conclusion that the average investor is paying the platform three times what the manager is getting for holding and managing the investment.

There's also no initial charge but a but and sell spread so some additional costs that isn't really made explicit.

mike88

It's all a matter of opinion but I'm 77% invested in the UK with a high value portfolio. Most large cap companies trade internationally so in that sense you are already invested overseas.

For a long term portfolio I see little point in investing in gilts.

Totton

Edit - they claim total fund manager cost of 0.13% which is pretty low but leads to the conclusion that the average investor is paying the platform three times what the manager is getting for holding and managing the investment.

I don't see the point in worrying about who gets what in terms of fees, actual performance is the key to growing your capital.

As for the portfolio itself, imho it is too heavy on UK and gilts for a 20yr horizon. The 60/40 would historically be a correct call but there is thought that nowadays this should be calculated from 120 not 100, i.e 120 less age = 80/20. (rather than 100 less age = 60/40)

Best of luck with it.
Mickey

Linton

mike88 wrote: »

It's all a matter of opinion but I'm 77% invested in the UK with a high value portfolio. Most large cap companies trade internationally so in that sense you are already invested overseas.

For a long term portfolio I see little point in investing in gilts.

One potential problem with using UK investments as a proxy for overseas is that the UK companies in the FTSE100 with strong global business seem very unbalanced to me with heavy weight in mining, drilling and financials and very little in manufacturing, global or otherwise.

An explicitly global investment would in my view give a much better sector balance.

mike88

Linton wrote: »

One potential problem with using UK investments as a proxy for overseas is that the UK companies in the FTSE100 with strong global business seem very unbalanced to me with heavy weight in mining, drilling and financials and very little in manufacturing, global or otherwise.

An explicitly global investment would in my view give a much better sector balance.

I really disagree with your conclusion. Oil and Gas, Telecoms, Pharmaceuticals, Consumer Goods, Tobacco, Fashion and Support services all have a major presence and most are large or even larger than the sectors you have mentioned. As for manufacturing I doubt whether any major global funds have a high manufacturing content.