Investment allocation question

adamcartney

Hi,

I have an investment question regarding the allocation of my funds in a SIPP. I'm a first-timer so just looking for a bit of re-assurance, if possible!

By way of background, I'm thinking of starting a SIPP with Fidelity and will hold the Vanguard LifeStrategy 80 fund. (I figure that as I am only 30 I can handle this level of risk in equities and, in any case, the fund holds trackers rather than actual shares). I'll probably only pay in about £200 a month plus a £1000 initial investment; but I'll be holding for the long term (ie over 20 years) and hope to gradually increase contributions.

But I've noticed that the VLS 80 has a low allocation to emerging market and property trackers, so I'm thinking of maybe diversifying my holding by also opening these two cheap trackers:

BlackRock Emerging Markets Equity Tracker Fund Class D Acc
BlackRock Global Property Sec Eq Tracker Class D Acc.

I would probably only have 5% of my total SIPP holding in each of these. Would you consider this a sensible thing to do? If not, any other ideas would be appreciated. Is it necessary to do this or would it be fine to leave everything in the VLS 80?

In case it helps, my only other investments are a company pension which I having been max-ing out for the last two years and an ISA with Fundsmith that I started a few months ago and starting drip-feeding money into.

Thanks

Adam

coyrls

It's probably best to work out what you want your asset allocation to be first and then look for the best funds to achieve it. I found the Tim Hale book Smarter Investing useful.

Linton

Adding to the EM % seems a reasonable thing to do if you want to go further up the risk/return line. I am not so sure about property. In the past Property was seen as a safe diversifying asset something like bonds as it provided a steady income from rents. Nowadays, the property sector is heavily influenced by the wider economy as the calculated capital value of city centre office blocks rises and falls with demands on office space. There may be property investments around that have the old-style characteristics but you wouldnt find them with a tracker.

Another sector which may be useful to you is Global Small Companies, again providing extra risk/return.

ColdIron

5% is not unreasonable in EM or SC but on £1,000 it's only £50 and hardly worth the bother, also you probably won't be able to pay in £10 a month. I'd just stick to the VLS until your holding was a lot larger. With a 20+ year horizon you might want to consider the VLS100, you don't need bonds at your age

BTW you say you can handle the risk due to your age and the fund holds trackers rather than actual shares. The trackers themselves hold shares and has no bearing on the volatility

Kendall80

Linton wrote: »

Adding to the EM % seems a reasonable thing to do if you want to go further up the risk/return line. I am not so sure about property. In the past Property was seen as a safe diversifying asset something like bonds as it provided a steady income from rents. Nowadays, the property sector is heavily influenced by the wider economy as the calculated capital value of city centre office blocks rises and falls with demands on office space. There may be property investments around that have the old-style characteristics but you wouldnt find them with a tracker.

Another sector which may be useful to you is Global Small Companies, again providing extra risk/return.

The L&G UK property feeder appears a very consistent fund. It rarely experiences drops (at least not since 09) and has returned 14% in the last 12 months.


Another vote for global small caps here too. Up 6% for me in the last fortnight - dragging my portfolio along.

guymo

You might also want to consider the overall asset allocation between your SIPP and your company pension, taken together: after all, these things together make up your retirement fund. If a 5% holding in your SIPP represents 1% overall, there's not much point in having it there. And if the company pension is heavy in one sector or geography, you might want to reduce exposure to that in your SIPP.

Bill Bernstein's book "The Intelligent Asset Allocator" is a good read and explains the main points of asset allocation pretty clearly.

Linton

Kendall80 wrote: »

The L&G UK property feeder appears a very consistent fund. It rarely experiences drops (at least not since 09) and has returned 14% in the last 12 months.


Another vote for global small caps here too. Up 6% for me in the last fortnight - dragging my portfolio along.

The purpose of holding the property fund is for diversification more than maximum capital growth. You could have got a better return just keeping the money in a FTSE/Global tracker.

Over the past 5 years the economic landscape has been pretty constant. You need to look at what happens in different circumstances. If you look over 10 years the fund broadly followed the FTSE100 down during the Credit Crunch Crash and so would not have helped smooth out the large falls.

adamcartney

Thanks everyone. I'll look into the small cap option.

I appreciate what you say about duplication between my company pension and the SIPP. I also think to a certain extent I'll duplicating my Fundsmith ISA which is heavily invested in US and UK equities. As I'm only brave enough to invest in equities and bonds I think I will have to live with the fact that my funds duplicate themselves to a degree. I'm kinda regretting putting all my ISA savings into Fundsmith not because of its performance but because if I'd have gone to a platform I could have combined it with something more adventurous.

richyg

adamcartney,

I think that putting you isa in fundsmith - which i assume you mean directly on the website and not on a platform might do you a favour with a bit of luck. If Terry is as good as his word and you forget about this for a while as it isn't on the radar you might get a nice surprise in 25 years.
:beer: and best of luck

R

dunstonh

VLS is one option but the L&G multi-index funds have a wider spread

Ryan_Futuristics

I've got Legal & General's UK Property fund and it's been very consistent, and a great alternative to bonds

Just watch out for the bid/spread (takes quite a few months to earn back the initial loss - which also, given that it's a fairly slow and stable earner, means it's not ideal for rebalancing)

My concern with property is that may be in a property bubble now, so it might not be a great time to buy in (London property prices have just slowed, and it may be a sign that the market's going to take a dive at some point)

On the topic of bid/spreads, I prefer Vanguard's Emerging Markets tracker - effectively a 5% buy in fee on BlackRock's

(Although Lazard Emerging Markets and M&G Global Emerging are my preferred ways to invest)

Right now emerging markets have a Price/Book ratio of around 1.5 - if you look online, there's some recent research by JPMorgan that says when Emerging markets fall below 1.5, it's a very strong buy signal