VLS80% plus what (if anything)?

Kendall80

Ryan_Futuristics wrote: »

This is NOT how you should pick funds btw

Past performance is usually a very good indicator of future underperformance

In Murray's case though, it's still averaging a CAPE around 15, P/B around 2, and dividends of around 4% ... This means it's achieved good solid growth (and income) without staying in overvalued assets (effectively, it looks as good today as it did 10 years ago ... with an index - and many funds in general, especially smaller companies - performance and valuation tend to creep up together)

I agree it shouldn't be the only factor. However, given long periods of many peaks and troughs (ie since 99) it is certainly beneficial to compare with the sector. Check whether it falls as quickly/by as much... or rises to a greater value afterwards. I also like to compare the fund manager to their peer group for actively managed funds.


This does then often lead to further research. Choosing between Neptune Japan opportunities and Baillie Gifford Japan was a particularly difficult one I found although there is an argument for holding both in that instance to cover different caps.

Ryan_Futuristics

Kendall80 wrote: »

I agree it shouldn't be the only factor. However, given long periods of many peaks and troughs (ie since 99) it is certainly beneficial to compare with the sector. Check whether it falls as quickly/by as much... or rises to a greater value afterwards. I also like to compare the fund manager to their peer group for actively managed funds.


This does then often lead to further research. Choosing between Neptune Japan opportunities and Baillie Gifford Japan was a particularly difficult one I found although there is an argument for holding both in that instance to cover different caps.

Absolutely, but I do think you have to weigh it up against valuations

e.g. If you look at the Jupiter European Opportunities IT against Neptune European Opportunities, the performance couldn't be much further apart



But if you buy Jupiter today, you're buying the most expensive regions in Europe (long-term growth estimates around 11%) - buying very much after the ship's sailed ...

Whereas if you buy Neptune, you're buying some of the cheapest regions in the world (with growth estimates almost 40%)

So you can take the same region, but only valuation can tell you whether you're at the bottom of a market that's likely to rise, or at the top of one that's likely to fall

And if you look at them over longer periods



You can see it wouldn't take much of a reversal of fortunes for Neptune to start looking like the more consistent performer

Neptune's the fund Hargreaves are recommending (and while I don't always agree with them, I think they're right there)

masonic

Ryan_Futuristics wrote: »

You can see it wouldn't take much of a reversal of fortunes for Neptune to start looking like the more consistent performer

Well I have to give credit to anyone who has the conviction to invest in the worst performing fund in its sector over 3 years. But I suppose with these valuation based approaches, the timing could be out by 5-10 years or more.

I suspect the main reason JEO has outperformed is due to gearing, so if European markets do badly there could well be a reversal of fortunes even without the Neptune fund doing particularly well.

Ryan_Futuristics

masonic wrote: »

Well I have to give credit to anyone who has the conviction to invest in the worst performing fund in its sector over 3 years. But I suppose with these valuation based approaches, the timing could be out by 5-10 years or more.

I suspect the main reason JEO has outperformed is due to gearing, so if European markets do badly there could well be a reversal of fortunes even without the Neptune fund doing particularly well.

Well that's sort of it - valuation is the most consistent long-term strategy there is - and if you find a good value-based fund, 3-5 year performance is not what you want to be going on

That Neptune fund is about the 3rd best performing European OEIC over 10 years, and its position there is probably less down to luck than the majority of others

The outstanding performance of JEO is down to the fact it's invested in the parts of Europe which have risen heavily in value (it's held them after a value fund would've sold) - so you can probably assume it's using a growth or momentum strategy ... So it's great at profiting from bubbles, but also more liable to fall (so investing after a period of good performance is probably not a good idea) ... Gearing may have helped, but it's unlikely to account for that much outperformance

Linton

Ryan_Futuristics wrote: »

Well that's sort of it - valuation is the most consistent long-term strategy there is - and if you find a good value-based fund, 3-5 year performance is not what you want to be going on

That Neptune fund is about the 3rd best performing European OEIC over 10 years, and its position there is probably less down to luck than the majority of others

The outstanding performance of JEO is down to the fact it's invested in the parts of Europe which have risen heavily in value (it's held them after a value fund would've sold) - so you can probably assume it's using a growth or momentum strategy ... So it's great at profiting from bubbles, but also more liable to fall (so investing after a period of good performance is probably not a good idea) ... Gearing may have helped, but it's unlikely to account for that much outperformance

perhaps the difference is more to do with the industrial sectors each fund invests in:

Neptune

---

Finance 27%
Materials 15%
Telecomms 15%

JEO

---

Support services 28%
Pharmaceuticals 16%
Finance 13.8%

I think this breakdown is more important than geography. Finance and materials have hardly been out performers in the past few years.

System

Thanks to the contributors of this thread as it has really got me thinking about my own investments.

I have my core investment in the Fundsmith Equity fund. I like to think this is a defensive equity fund to give me a stable core. It has done very well for me so far.

I looked on Morningstar however and noticed it has a price/prospective earnings of 19.33 and a price/book of 4.66! OK a good chunk of the fund is in the US, but taking HSBC American Index for example has a P/PE of 17.62 and price/book 2.45.
Interestingly as well when I plotted a graph of fundsmith vs US tracker they are virtually the same. So whilst I thought the fund has been flying it has barely outpaced a bog standard US tracker. I've always been very pro active and anti-tracker (basically my dad always drummed it in to me that active hammers passive over the long term), but not so sure any more, especially in developed markets.

Not saying I am going to jump ship as like the fund and the manager (although I feel the AMC could and should be less), but has led me to do a little more research....

masonic

Ryan_Futuristics wrote: »

The outstanding performance of JEO is down to the fact it's invested in the parts of Europe which have risen heavily in value (it's held them after a value fund would've sold) - so you can probably assume it's using a growth or momentum strategy ... So it's great at profiting from bubbles, but also more liable to fall (so investing after a period of good performance is probably not a good idea) ... Gearing may have helped, but it's unlikely to account for that much outperformance

I wouldn't say JEO has done particularly well recently (it's only just outperformed the index over 2 years), but picking when to buy into a fund based on past performance sounds dangerously like market timing to me.

Ryan_Futuristics

Linton wrote: »

perhaps the difference is more to do with the industrial sectors each fund invests in:

Neptune

---

Finance 27%
Materials 15%
Telecomms 15%

JEO

---

Support services 28%
Pharmaceuticals 16%
Finance 13.8%

I think this breakdown is more important than geography. Finance and materials have hardly been out performers in the past few years.

It would probably support the value vs growth approaches - but I'd be reluctant to say geographic allocation wasn't fairly central to their differing performances and investment strategies

I think Neptune's position in financials probably represents where the best buying opportunities have been in countries like Italy recently

teepee83 wrote: »

Thanks to the contributors of this thread as it has really got me thinking about my own investments.

I have my core investment in the Fundsmith Equity fund. I like to think this is a defensive equity fund to give me a stable core. It has done very well for me so far.

I looked on Morningstar however and noticed it has a price/prospective earnings of 19.33 and a price/book of 4.66! OK a good chunk of the fund is in the US, but taking HSBC American Index for example has a P/PE of 17.62 and price/book 2.45.
Interestingly as well when I plotted a graph of fundsmith vs US tracker they are virtually the same. So whilst I thought the fund has been flying it has barely outpaced a bog standard US tracker. I've always been very pro active and anti-tracker (basically my dad always drummed it in to me that active hammers passive over the long term), but not so sure any more, especially in developed markets.

Not saying I am going to jump ship as like the fund and the manager (although I feel the AMC could and should be less), but has led me to do a little more research....

I'd tend to agree ... I think there can be rationale for buying expensive-looking stocks when they offer good income, or when they're managed by an exceptional manager

But active funds investing in the US generally have a hard time beating the index ... It's such an overanalysed region, any off-piste opportunities tend to get piled into, which drives up valuations (in my opinion a testament to the abilities of active managers which unfortunately isn't reflected in returns)

Having said that, matching the S&P 500 while only being 63% invested in the US is certainly better than you'd have done with trackers

System

Ryan_Futuristics wrote: »

I'd tend to agree ... I think there can be rationale for buying expensive-looking stocks when they offer good income, or when they're managed by an exceptional manager

But active funds investing in the US generally have a hard time beating the index ... It's such an overanalysed region, any off-piste opportunities tend to get piled into, which drives up valuations (in my opinion a testament to the abilities of active managers which unfortunately isn't reflected in returns)

Having said that, matching the S&P 500 while only being 63% invested in the US is certainly better than you'd have done with trackers

Indeed yes, he has done well, but wonder how much of that is riding on the back of US holdings. Obviously his non-US holdings (mainly UK) have done considerably better than the FTSE. He is of course a 'buy and hold' man, so will expect periods of underperformance. The fund has done very well so far - nearly up 100%, so I suppose it stands to reason that the companies he originally picked at good valuations are now looking on the pricey side. Unfortunately I haven't been in the fund for that long, so have missed most of those gains. The trouble is the fund is not even 5 years old, so it is hard to put Terry Smith in the 'exceptional manager' category as of yet.

Ryan_Futuristics

masonic wrote: »

I wouldn't say JEO has done particularly well recently (it's only just outperformed the index over 2 years), but picking when to buy into a fund based on past performance sounds dangerously like market timing to me.

Well don't be neurotically put-off market timing just because the average investor gets it wrong ... It's a fairly good assumption that the average investor gets every investment decision wrong

But in this case it's buying at low value - which tends to (but doesn't always) accompany low performance