unit trust/oeic

bowlhead99

It's quite easy to build up way too many holdings in a portfolio simply by buying whatever seems like a good idea at the time (read something about a fund or a manager, seems good, like it, buy it) and then holding them through thick and thin. Once you have done that 20 times you have 20 funds. However, 15 of them will be working in the same space trying to buy their favourite things in that space. Eventually, you'll hold everything in that space, despite paying quite large annual percentage fees for them to each come up with their favourites!

In order to make some meaningful headway it can be cathartic to 'have a good clear out'. Knowing what you know about each of the funds and each of the managers, and being told you are only allowed 3 or 4 or 5 at the most covering the UK, which ones would you buy if you didn't currently own any of them?

Being ruthless in this way can help you more easily arrange your portfolio and avoid a situation where you can't see the wood for the trees and only notice individual funds when they have already gone down in price.

Also if they are not all wrapped in ISAs or SIPPs, you are storing up potential capital gains taxes if you allow them to grow and grow and never sell, which could be avoided by making some sales periodically and using your annual allowances.

If you are thinking long long term (e.g. ultimately these assets will pass to your kids in 20, 40, 60 years) then you have to wonder what is best for them in the long term. Your kids will be living their life in a very global economy buying washing machines from Germany and electric cars from China and smartphones from South Korea and software from USA and pharmaceuticals from Switzerland, with the prices of those goods and services linked to the local economies and world competition. Arguably you may be buying all those things right now already.

So, rather than thinking, "hey, I live in the UK and spend my money in the UK apart from the odd holiday, so should invest 80-90% of my wealth into the UK", you would be better owning assets worldwide. Certainly the goods and services you buy at the moment do not have their prices driven exclusively by local wages and local UK company performance.

Therefore, while it makes sense to buy an overseas fund as your next fund to buy, you don't need to just buy the one new fund and keep all the old ones. It may be more sensible to sell even more UK funds to have a proper clear out and rebalance.

Ryan_Futuristics

Then again the great thing with the UK is 70-80% of FTSE 100 earnings come from overseas ... So you've probably already got significant exposure to US, European and Emerging economies

But then Woodford made the point that when you strip out oil and banks from the index (which are both quite risky investments) you're left with a fairly expensive-looking UK market

So the main reason I'd look overseas would be to find value - not simply for some hypothetical notion of 'diversification'

Midass

Thanks for everyones input. A lot to think about. I always thought it was most important to consider the track record of the manager (hence 'not keeping eggs in one management basket')
Your comments on Capital gains is food for thought as a few of my funds are 20 years old and grown somewhat.
I did invest in the new CF woodford fund as I was with him in Invesco and as that fund had done well I transferred to his new fund (and it has accrued about 9% which i guess is not too bad)

bowlhead99

Ryan_Futuristics wrote: »

Then again the great thing with the UK is 70-80% of FTSE 100 earnings come from overseas ... So you've probably already got significant exposure to US, European and Emerging economies

But then Woodford made the point that when you strip out oil and banks from the index (which are both quite risky investments) you're left with a fairly expensive-looking UK market

So the main reason I'd look overseas would be to find value - not simply for some hypothetical notion of 'diversification'

It's true the FTSE 100 has a lot of overseas exposure (the overall index somewhat less; and a non-cap weighted index akin to what an active manager may use, less still).

The 'hypothetical notion of diversification' is very much worth looking for because without it you have your money stuck in just the few sectors whose companies choose to list here. You're not going to find a Google or Apple or Facebook or Samsung or IBM or BMW or VW or GM etc. Whatever your 'hypothetical notion of finding value' really means , when you only have limited sectors to choose from, you don't have a lot of hope finding the value.

You mention that when you strip out oil and banks you are left with [your opinion of value]. But basically if you strip out oil/resources and banks/financials out of the FTSE100 you have stripped out 44% of the value of the companies listed here. That gives a simple and basic indication why the net should be cast further, whether you call it "value hunting", or simply something more general like "not losing your shirt on a few key sectors when the rest of the world is playing in global markets".

It is of course comforting to know that you have global exposure when investing in UK listed companies. Exposure to income streams does not always follow the place of listing - for example emerging markets might only have 10% of world market cap but 30% of the actual customers, being served by companies listed elsewhere.

However it is misleading to think you have a nice global portfolio because you heard the stat that 70-80% of FTSE 100 revenues come from overseas. That is driven by the fact that mining companies from the $10bn Antofagasta or Fresnillo to the $50bn+ giants like Rio and BHP get 96%+ of their revenues overseas, with other big pharma monsters like Glaxo, AstraZeneca and Shire coming in at 90%+. So you are getting some types of foreign income streams, but just because you have giants like BHP or Shell selling their wares in foreign lands, you don't have anything close to a global balanced portfolio if you only take exposure to UK listed stocks.

People may take comfort that the FTSE has a lot of foreign income but that perhaps just adds to the apparent volatility of the few sectors in which most of that income is derived, what with currency fluctuations etc. Meanwhile companies like M&S, Barratt Homes, Sainsbury, Royal Mail, sure as heck aren't getting 80% of their income from overseas even though SAB Miller is probably selling 98% of its beer beyond these shores (you don't see much Milwaukee Best in the off licences round here).

So, Midass: I agree you shouldn't keep all the eggs in one 'management basket' but you should select managers who are going to deploy your capital far and wide rather than being hamstrung by you because you told them all that the product you wanted was a UK equity fund and they could only invest for you in companies listed here. It's a big world out there.

Ryan_Futuristics

bowlhead99 wrote: »

It's true the FTSE 100 has a lot of overseas exposure (the overall index somewhat less; and a non-cap weighted index akin to what an active manager may use, less still).

The 'hypothetical notion of diversification' is very much worth looking for because without it you have your money stuck in just the few sectors whose companies choose to list here. You're not going to find a Google or Apple or Facebook or Samsung or IBM or BMW or VW or GM etc. Whatever your 'hypothetical notion of finding value' really means , when you only have limited sectors to choose from, you don't have a lot of hope finding the value.

You mention that when you strip out oil and banks you are left with [your opinion of value]. But basically if you strip out oil/resources and banks/financials out of the FTSE100 you have stripped out 44% of the value of the companies listed here. That gives a simple and basic indication why the net should be cast further, whether you call it "value hunting", or simply something more general like "not losing your shirt on a few key sectors when the rest of the world is playing in global markets".

It is of course comforting to know that you have global exposure when investing in UK listed companies. Exposure to income streams does not always follow the place of listing - for example emerging markets might only have 10% of world market cap but 30% of the actual customers, being served by companies listed elsewhere.

However it is misleading to think you have a nice global portfolio because you heard the stat that 70-80% of FTSE 100 revenues come from overseas. That is driven by the fact that mining companies from the $10bn Antofagasta or Fresnillo to the $50bn+ giants like Rio and BHP get 96%+ of their revenues overseas, with other big pharma monsters like Glaxo, AstraZeneca and Shire coming in at 90%+. So you are getting some types of foreign income streams, but just because you have giants like BHP or Shell selling their wares in foreign lands, you don't have anything close to a global balanced portfolio if you only take exposure to UK listed stocks.

People may take comfort that the FTSE has a lot of foreign income but that perhaps just adds to the apparent volatility of the few sectors in which most of that income is derived, what with currency fluctuations etc. Meanwhile companies like M&S, Barratt Homes, Sainsbury, Royal Mail, sure as heck aren't getting 80% of their income from overseas even though SAB Miller is probably selling 98% of its beer beyond these shores (you don't see much Milwaukee Best in the off licences round here).

So, Midass: I agree you shouldn't keep all the eggs in one 'management basket' but you should select managers who are going to deploy your capital far and wide rather than being hamstrung by you because you told them all that the product you wanted was a UK equity fund and they could only invest for you in companies listed here. It's a big world out there.

I generally follow this ^^ approach myself - I think there is more value to be found when you cast your net, and being broadly diversified tends to ensure more even growth

I admire Murray International's example - roughly 10% in the UK, 10% US, 10% S.America, etc ... it lumbers along like a behemoth, but over the long-term this kind of performance tends to look very good

However ... It's interesting that the most successful fund managers (the Buffetts, Soroses, Woodfords, etc) don't tend to look far outside their own markets

Buffett recently said it would be easier than ever to net 50% returns if he only had a small fund to run - lot to be said for knowing your market

http://www.netnethunter.com/one-hell-of-a-net-net-stock-warren-buffett-on-western-insurance-securities-company/

bowlhead99

Ryan_Futuristics wrote: »

I admire Murray International's example - roughly 10% in the UK, 10% US, 10% S.America, etc ... it lumbers along like a behemoth, but over the long-term this kind of performance tends to look very good

However ... It's interesting that the most successful fund managers (the Buffetts, Soroses, Woodfords, etc) don't tend to look far outside their own markets

Is it really that interesting or surprising that a manager with a huge reputation for knowing his market sticks to his market rather than trying to work far outside what he knows? I'd say not - which is why I generally prefer sector specialists over generalists for anything other than very broad largecap exposure.

Buffett recently said it would be easier than ever to net 50% returns if he only had a small fund to run - lot to be said for knowing your market

That sounds odd coming from you, because you are always telling us that the region where Buffet makes most of his investments (North America) is drastically overvalued and one should not have even a tiny percentage exposure to it because the long term returns from US companies at these prices are going to be terrible. You don't seem to advocate finding and jumping into bed with any US value-seeking managers with small nimble funds, rather avoiding altogether.

So it seems surprising that you'd be publicising the fact that Buffet thinks it's easier than ever to net huge returns in his core markets.

However, per the source you quoted, Buffet did not say 'recently' that it was easier than ever to find the value opportunities. He was speaking an entire decade ago, trying to inspire a student body. It was a combination of a passing comment on the improved availability of information with which to do your research, and lamenting the fact he is running a giant behomoth of an investment company and can't invest in the small fun stuff these days, but presumably they the students, could.

Ryan_Futuristics

bowlhead99 wrote: »

Is it really that interesting or surprising that a manager with a huge reputation for knowing his market sticks to his market rather than trying to work far outside what he knows? I'd say not - which is why I generally prefer sector specialists over generalists for anything other than very broad largecap exposure.

Interesting - but not surprising

That sounds odd coming from you, because you are always telling us that the region where Buffet makes most of his investments (North America) is drastically overvalued and one should not have even a tiny percentage exposure to it because the long term returns from US companies at these prices are going to be terrible. You don't seem to advocate finding and jumping into bed with any US value-seeking managers with small nimble funds, rather avoiding altogether.

So it seems surprising that you'd be publicising the fact that Buffet thinks it's easier than ever to net huge returns in his core markets.

However, per the source you quoted, Buffet did not say 'recently' that it was easier than ever to find the value opportunities. He was speaking an entire decade ago, trying to inspire a student body. It was a combination of a passing comment on the improved availability of information with which to do your research, and lamenting the fact he is running a giant behomoth of an investment company and can't invest in the small fun stuff these days, but presumably they the students, could.

Well you've answered your own question ... 10 years ago I'd have said "Go for it!"

But I think his point is that if you were looking that closely at tiny start-ups and overlooked insurance companies, private equity, etc.. you could probably find value in any market

It's the same message from Woodford: valuations are stretched when you look beyond the energy and banking sectors, but a tiny BioTech startup somewhere in the South Oxfordshire countryside could still be a goldmine ... I don't know of any US funds like that, but there may be some