Vanguard Emerging Markets or Small Cap

DoctorW

Just as the title says - I realise no one can give a definitive answer on this, and i'm already showing an amount of stupidity by even asking the question! - but wanted to kind of 'shoot the sh*t' with folks.

I've finally got my SIPP opened in the last few days with a £500 monthly amount going into it from my business. Have a 25-30 year investing horizon, and a high risk appetite. Have mentally prepared myself for all sorts of volatility and brutal 50% downward swipes over that horizon. May well eventually hold both Vanguard EM and SC but wondered what the MSE lot's current thoughts were.

As background, all I have invested currently is an ISA with 95% in Vanguard Lifestrategy 100% Eqq Acc and 5% in an individual stock.

I am leaning towards the Emerging Markets Index at the moment. I've read a number of bloggers/experts who appear to feel there is an element of over-valuation in the US market (not that it bothers me too much as I am in the VLS100, I would just lump sum as much as possible in after any corrections) - but I feel with that info it might be a better idea to start off with the EM index and maybe delve into the Small Cap (51% US weighting) in the future.

Oh and if anyone has a reason for neither Vanguard EM or SC but another provider then please shout up! (especially as they have recently lowered fees even further!)

Thanks for any and all replies,

D

TCA

My own preference for EM exposure is via investment trusts, not an index tracker. Your VLS100 contains nearly 8% of their EM index fund, so I presume you want more than that proportion?

And I'm almost ditto for small cap exposure. I've held Vanguard's Global Small Cap Index Fund before and might do so again, but it seems a bit counterintuitive to buy an index for smaller companies that's weighted towards the larger ones. Too much US exposure for my liking at present so I've bought into Aberdeen Asian Smaller Companies Investment Trust.

Linton

I dont believe a tracker is too good for either sectors. The small cap one seems a little bizarre in being a tracker of a capitalisation weighted index it invests preferentially in the largest small companies - if small companies is a good thing to invest in why would you aim for the largest ones? The EM tracker makes more sense to me, also it would provide better diversification.

collingbone614

How about the Aberforth UK Small Companies:

http://www.morningstar.co.uk/uk/funds/snapshot/snapshot.aspx?id=F0GBR04C7Q

This Marlborough Micro Cap fund looks interesting also:

http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/m/marlborough-uk-micro-cap-growth-class-p-accumulation

Monevator on small cap funds:

http://monevator.com/how-to-invest-in-small-caps-passively/

bowlhead99

Linton wrote: »

I dont believe a tracker is too good for either sectors.

I tend to agree with that. Investing cheaply via an index for general exposure might be fine in very developed markets where everyone has perfect information and everything is perfectly fairly priced (ok, this is the pipedream) and the only choice to be made is how do you construct the index (equal weight, cap weighted etc). In markets that are less well developed (e.g. EM) or where information is less perfectly distributed and pricing volatile (both EM and smallcaps) I would prefer to use an active manager.

Investment trusts are ideal as they don't generally have the risk of growing to an out-of-control size which makes it difficult to deploy capital, nor of needing to exit illiquid opportunities to get cash back to investors who want to redeem out in a downturn.

Having said that, like TCA I have had the Vanguard global smallcap fund once or twice, and made money on it, but am not in it at the moment. It might not be the optimum way to get to small or midcap holdings but it was cheap and cheerful and geographically diverse (OK, so it's half USA but I didn't mind that at the time; and it's certainly a broader proposition than investing in a pure UK smallcap or US smallcap fund). If I was wanting to get heavily into smallcaps I would probably use multiple regional managers, but at the moment I'm not because it's a relatively expensive place to be.

As others mentioned, you already have the Vanguard EM index within your lifestrategy so if you want to increase the exposure there I would pick a different, active, holding rather than simply doubling it up.

DoctorW

Thanks a lot for the replies all, very, very helpful. Definitely take on board the points regarding the conflict of an index tracker which tracks the small companies based on capitalisation.

I do like the look of the Aberforth Smaller Companies. I realise it has had a lot of seriously good performance over the past few years which some may seen as a negative, but in actuality we couldn't say it will under/overperform for the next 5 years? As it would be a very long term investment I would be prepared to stick with it.

http://www.theaic.co.uk/companydata/169 - according to the AIC, it is currently at a discount of -7.9%?

(The AIC format really confuses me - is a discount of -7.9% a premium? or is it currently at a price of -7.9% to NAV??) but anyway, I've read the Monevator articles on why not to get too excited about these figures but still something to consider. Any advice on which particular parts of the fund you guys would investigate most closely before committing?

My only further question would be, are there any positives/negatives to holding this fund in a SIPP? I feel a bit as though learning about the many facets to these investments is only half the battle, learning how to wrap them/where to put them/platforms etc etc. is the other half!

Thanks again all, really appreciated.

D

Linton

Aberforth SC is priced 7% below Net Asset Value at the moment - Small Companies have performed poorly in the past 6 months. So if you want to invest there it looks like a good time to buy.

If I was considering buying I would look at what it currently holds to check it really was investing in the sort of companies I would expect (some funds dont) and that the diversification as regards industry sectors was reasonable.

DoctorW

Thanks Linton.

Have read through the factsheets on the Aberforth website. To my relatively un-hardened investor eyes the Top 10 Holdings look appropriate etc.

As for where to hold the IT - is a SIPP an inherently good/bad/OK place to hold such an investment?

On the BestInvest platform (where I currently have my SIPP) the factsheet for the fund doesn't show any details regarding the discount. Assuming this doesn't mean the discount is not there and that it is applicable to anyone buying into the fund from any platform while the discount is still active?

All in all, it seems to be a fairly reasonably priced (for an actively managed investment), increases my risk in line with my intentions/investing horizon and adds additional diversification to the Vanguard Lifestrategy 100 holdings. I always struggle to finally commit and press the buy button but it looks OK.

JohnRo

I've struggled to find a virtual portfolio that shows reliable and easily accessible NAV and premium/discount data. I've tried badgering my current platform, Charles Stanley Direct, over the last few months to source a feed for this data and include it their otherwise excellent account data retrieval services, but to no avail. They seem to have given up trying, if they ever were, and politely told me it's not going to happen.

Morningstar seem to carry the most comprehensive and easily accessible Investment trust snapshot data, with particular regard to the NAV and premium/discount which are key metrics.

[URL="http://tools.morningstar.co.uk/uk/cefreport/default.aspx?SecurityToken=E0GBR01NFP]2]0]FCGBR$$ALL"]http://tools.morningstar.co.uk/uk/cefreport/default.aspx?SecurityToken=E0GBR01NFP]2]0]FCGBR$$ALL[/URL]

Linton

DoctorW wrote: »

Thanks Linton.

Have read through the factsheets on the Aberforth website. To my relatively un-hardened investor eyes the Top 10 Holdings look appropriate etc.

As for where to hold the IT - is a SIPP an inherently good/bad/OK place to hold such an investment?

On the BestInvest platform (where I currently have my SIPP) the factsheet for the fund doesn't show any details regarding the discount. Assuming this doesn't mean the discount is not there and that it is applicable to anyone buying into the fund from any platform while the discount is still active?

All in all, it seems to be a fairly reasonably priced (for an actively managed investment), increases my risk in line with my intentions/investing horizon and adds additional diversification to the Vanguard Lifestrategy 100 holdings. I always struggle to finally commit and press the buy button but it looks OK.

I hold Aberforth SC in my SIPP.

The Discount value is purely a characteristic of the fund itself as it is the % difference between the current market price of the fund and the market price of its investments. The Discount is not affected in any way by the platform.

DoctorW

JohnRo/Linton, thanks to you both. Good on you for trying John with regard to CSD! Nevermind eh!