What do you think of my asset allocation?

masonic

TheTracker wrote: »

Vanguard UK Equity Income's top holding is 4.9%. HSBC is 4.7% of the fund.

That's not necessarily an inconsistency. I hold an S&P500 ETF, but Apple (3.9%) does not feature in my top ten holdings. In fact, 9 out of my top 10 holdings come from just one fund that makes up 18% of my overall portfolio, so the vast majority of my portfolio has no influence on my top 10 holdings. That's what happens when you hold one or more concentrated funds.

TheTracker

masonic wrote: »

That's not necessarily an inconsistency. I hold an S&P500 ETF, but Apple (3.9%) does not feature in my top ten holdings. In fact, 9 out of my top 10 holdings come from just one fund that makes up 18% of my overall portfolio, so the vast majority of my portfolio has no influence on my top 10 holdings. That's what happens when you hold one or more concentrated funds.

I thought the same. But I figured Baidu was unlikely one of his top ten holdings by company and therefore he meant his top ten funds. Like a politician, RF always leaves wriggle room for interpretation and avenue for reversal. Perhaps Baidu is one of his top ten holdings. Now that would be an interesting discussion and reflection on his investing. For someone apparently so sure of his investment style he appears remarkably shy about fully disclosing his portfolio and rather lays little breadcrumbs.

Radiantsoul

MrMartyn wrote: »

This looks like a "high yield" fund. I'm certainly not an expert, but whenever I've looked at high yield funds, it seemed like over the long term they don't perform any better than a broader market index fund (e.g. FTSE All-Share or S&P500). Then I remember a quote I heard somewhere:
"Chasing yield is like picking up pennies in front of a steam roller!".

I always thought the picking up pennies in front of steam roller was used with option strategies, where you make small profits on each trade, but take the risk on large price movements.

InvestInPoker

MrMartyn wrote: »

Re: value stocks, do you have any particular funds in mind? I noticed that in my copy of "Smarter Investing, Third Edition" by Tim Hale (page 172) it lists the following fund as "Global developed equity (value)":

Legal & General Global 100 Index Trust

.............

I thought that "value stocks" were shares in companies whose share price has been excessively reduced as a result of some event (e.g. profit warning or change in business environment), such that some investors perceived a buying opportunity based around the belief that the shares were now under-priced and therefore a bargain. The top 10 holding (approx 32 percent of the fund) are made up of companies that I imagine would be included in the S&P500 tracker that I listed in my original post (Fidelity Index US Fund P-Acc).

The "Smarter Investing" book also listed the following fund as being "UK equity (value)":

iShares FTSE UK Dividend Plus

The nearest I could find to this on my platform is:

iShares UK Dividend UCITS ETF

This looks like a "high yield" fund. I'm certainly not an expert, but whenever I've looked at high yield funds, it seemed like over the long term they don't perform any better than a broader market index fund

Yes I came across the same problem as you. It seems easy to apply a tilt towards smaller companies and emerging markets using a passive style but "value" stocks appear harder.


I made a thread on it here https://forums.moneysavingexpert.com/discussion/5166113 which got some useful replies. With the new ISA allocation fast approaching I am researching this myself.


If you take what is written literally (about the relevant stocks being distressed etc and companies being down on their luck) then there are these "recovery" funds. These appear to fit the bill but you will be paying active management fees and they appear to have a serious chance of significant underperformance from said managers. There are also some active managed funds which state they only invest in stocks that meet their "value" criteria - such as Schroeder Global Active Value fund. Again however, high fees.


It appears to me since deciding if a stock is "value" or not is pretty much subjective it has to be an active fund and passive can only be an approximation - like a specific price ratio or a high dividend. I've noticed Morningstar class basic all share trackers as "value" before - presumably only because there is a decent dividend there?


Also would like to say welcome back to Ryan Futuristics. I don't agree with a lot of what you write and I strongly have to resist trolling your posts I admit but you stir up some great arguments and I enjoy reading your posts, this forum is definitely better for having you back.

Thrugelmir

Ryan_Futuristics wrote: »

And I'm not talking about buying shares in Al Quaeda; emerging markets cover companies like Samsung, Taiwanese Semiconductor Manufacturing, Baidu ... These are in my top 10 holdings; HSBC isn't

That's a different kettle of fish to emerging markets per se. You could cover companies such as those using a global equity fund.

Companies such as Samsung are international. Their financial performance will be impacted by Western consumer markets as well i.e. Europe.

Personally I don't buy the fact that EM's are immune to the Western world's cold. There's been a stream of poor corporate results recently. China's GDP is highly questionable and one suspects overstated with a potential banking crisis looming as well.

Ryan_Futuristics

TheTracker wrote: »

I thought the same. But I figured Baidu was unlikely one of his top ten holdings by company and therefore he meant his top ten funds. Like a politician, RF always leaves wriggle room for interpretation and avenue for reversal. Perhaps Baidu is one of his top ten holdings. Now that would be an interesting discussion and reflection on his investing. For someone apparently so sure of his investment style he appears remarkably shy about fully disclosing his portfolio and rather lays little breadcrumbs.

Neither a top ten holding or top ten fund

Hth

Ryan_Futuristics

Thrugelmir wrote: »

That's a different kettle of fish to emerging markets per se. You could cover companies such as those using a global equity fund.

Companies such as Samsung are international. Their financial performance will be impacted by Western consumer markets as well i.e. Europe.

Personally I don't buy the fact that EM's are immune to the Western world's cold. There's been a stream of poor corporate results recently. China's GDP is highly questionable and one suspects overstated with a potential banking crisis looming as well.

Absolutely, and we've got a lot of FTSE 100 companies whose revenues are more concentrated in EM than many of those East Asian companies

Emerging Markets are vulnerable to western markets - and they've started accumulating debt, and it could be a hard year with a strong dollar ... But when you compare EM to the US, EM's had the corrections - when the fed rate hike was mentioned, when global growth was downgraded ... People are skittish and ready to pull money out ... While the US has kept driving on on what you could call 'irrational exuberance'

In the short-term, risk in global markets is probably fairly universal, but it's better priced into EM ... In the longer-term, better demographics, faster growing economies, a move towards consumer (rather than just export) driven economies, huge swathes getting bank accounts and education ... One of my India funds is up 99% in 12 months - I think there could be a lot of regions experiencing that as government reforms are implemented ... There's a good argument (in my opinion) for being 20-50% in EM

Linton

Ryan_Futuristics wrote: »

Absolutely, and we've got a lot of FTSE 100 companies whose revenues are more concentrated in EM than many of those East Asian companies

......

The trouble is that the FTSE100 is overweight in miners, which of course have a high EM content but I dont think they are necessarily what people want for EM, and very underweight in electronics manufacturing which is an EM speciality.

Ryan_Futuristics

bowlhead99 wrote: »

I'm not sure that's the case. Risk is better priced in is a blanket statement. The fact there has been some corrections in some EMs (after they had a bigger run up than developed markets) doesn't mean that now all of a sudden they are at a fair price and US is at an unfair price.

You can't seriously think that the 'plumping up with magic money' is not deeply embedded in the price of EM stocks today. Since the pre-credit crunch highs seven or eight years ago, the proportion of domestic EM bonds in foreign ownership has probably doubled for example, and the overall market caps in EMs have grown massively over what they were a couple of decades back, thanks partially to a decade long commodity boom which no longer exists and partially due to Western risk seeking. As your corruption chart showed, people 'piled in' to those newer entrants and less developed markets (ignoring the fundamental risk factors such as corruption and the immaturity of the markets), taking great returns from them.

Huge swathes of easy money have flowed from developed to developing markets which has financed infrastructure, corporate investment, consumerism. When the taps get turned off we see who's swimming naked (a mangled Buffett-ism), and certainly the finance houses who were keen to risk seek in EM when everything was rosy in the USA will not be doing it to the same extent when things are not rosy in the USA. There is a bit of a stay of execution while US taps get turned off if Japan taps are still on and Europe taps start opening but EM is not 'better priced'. It is simply, more cheaply priced if you look at current earnings, and there is a reason for it ; the pricing is not happening without any kind of nod to reality - it is driven by reality.

If you were an American with the free money being turned off and the prospect of a relatively strengthening currency it would not be at all a no brainer to go and invest it in the part of the world where markets are less mature and have been propped up by your countrymen who now want their dollars back.

Back on topic to the OP - it is right that 'value' funds in terms of value vs growth tend to be the ones that are paying out dividends. The argument being with a value tilt you are getting nice income streams for your money while with a growth tilt you are not seeing the income come through and you're relying on some future wealth creation that you can't see yet but hope continues. So, it's not surprising that Hale describes a high div fund or a fund made of the largest 100 rather than the smallest 100 in an index, as 'value' versus high growth.

'High yield' is something that can mean something a bit different, e.g. in the bond world it can refer to junk bonds that have to pay out high yields to get people to invest in them as they re fundamentally more risky than 'investment grade' corporate bonds. High yielding bond funds are therefore perceived as riskier than 'normal' corporate bond funds or government debt funds. While equity funds that pay higher yields by contrast are thought of as a bit more defensive because there is reliable income coming in.

It is hard to have reliable 'value' trackers because it is hard for a computer screening tool working off a formula to say whether a company is great value ; it might think a company meets the criteria because its share price is now only 10x its last dividend instead of the 30x it used to be, but needs to consider whether the dividends are sustainable and whether the company is simply priced cheaply because it's going bust rather than because it represents good vfm. It is quite hard for trackers to do that, one would think. But they are certainly more sophisticated than they used to be.

"Driven by reality" could be a difficult one to justify - if we look at the US: equities markets are priced for surging growth and optimism in the economy; bonds markets, on the other hand, seem to be predicting a nuclear winter ... As has been said, they can't both be right ...

Now if we look at global equities, the US stands at some of the highest valuations relative to the rest of the world in over 30 years, while EM is around its low-end valuations (a Price/book value of 1.5)

Obviously I'm not 100% invested in EM, but I think it's reality you're seeing reflected in today's prices, and it's half the world's GDP and most of its population you're investing in ... In 10-15 years time I expect today's EM regions will represent a much larger part of the global economy - and you'll probably regret not buying at today's pessimistic valuations

Ryan_Futuristics

Linton wrote: »

The trouble is that the FTSE100 is overweight in miners, which of course have a high EM content but I dont think they are necessarily what people want for EM, and very underweight in electronics manufacturing which is an EM speciality.

Absolutely - and this is where UK fund managers tend to really deviate from the index, often preferring tobacco companies for exposure to the growing EM consumer sector, and pharmaceuticals

But presumably at some point these perspectives will be fully priced in, while mining stocks may start to look like good value again