Funds Return/Performance

remorseless

masonic wrote: »

There's no option that covers the space between 10-15% (not that I'd have chosen that one).

Good spotting!

redmalc

I invested in a couple of property funds and they have been very lucrative,14% on the year.

N1AK

remorseless wrote: »

over 25% would definitely be hard to achieve... but you never know!

I'd argue difficulty has little to do with it. If I go to the casino and bet it all on black 13 and win I'll have a very nice return but it wasn't difficult to achieve

I'd completely ignore anything said by anyone who says they will achieve 25%+ over an extended time period. Theoretically it isn't impossible, but it's so overwhelming unlikely that it isn't snake-oil it isn't worth my time to listen.

Linton

redmalc wrote: »

I invested in a couple of property funds and they have been very lucrative,14% on the year.

You can get high returns for a niche area for a while. You can also get high losses. The important thing is the average of a broad range of investments over an extended period. The Biotech Growth Trust has provided me with 35%/year average return for the past 3 years. But it would be foolish to base one's plans on that continuing

remorseless

Linton wrote: »

The Biotech Growth Trust has provided me with 35%/year average return for the past 3 years. But it would be foolish to base one's plans on that continuing

When do you decide to sell / switch when a fund is performing well?
Is there any signal? Going back to FX with charts and graphs!

Is it reading about the fund's composition and react to news?
Is it a hunch?

Linton

remorseless wrote: »

When do you decide to sell / switch when a fund is performing well?
Is there any signal? Going back to FX with charts and graphs!

Is it reading about the fund's composition and react to news?
Is it a hunch?

Only sell when the fund's % of the overall portfolio or its sector's % is too high. Bring the % down to what you want and use the proceeds to buy more of a fund whose % is too low. That's rebalancing, and a standard activity in long term portfolio management. It helps you sell high and buy low and prevents the portfolio losing diversification.

In this case its still a safely small part of the overall portfolio and so I havent sold any. Health/biotech funds are still at a reasonable %.

Thrugelmir

I'm a conservative 2% above inflation as an average.

Then anything above this is a bonus.

Looking at my SIPP portfolio as I type. My top performers are currently Catlin, Laird, Secure Trust Bank, Prudential and Paragon Bank. All currently up over 30%.

My dogs which are down between 15% and 28% are WH Ireland, Cenkos and Standard Chartered. Until recently SC was down as low as minus 35%.

So there's no telling what the outcome is going to be. As long as winners exceed the losers. That's all that matters. In fact I'm still a keen buyer of WH Ireland. Best time to buy a share is when it's out of favour.

Thrugelmir

N1AK wrote: »

If I go to the casino and bet it all on black 13 and win I'll have a very nice return but it wasn't difficult to achieve

If you were given 37 shares and asked to pick one that would given a return times 35 you'd struggle. 10 baggers are elusive enough and normally require getting on board at the ground floor.

remorseless

Linton wrote: »

That's rebalancing, and a standard activity in long term portfolio management. It helps you sell high and buy low and prevents the portfolio losing diversification.

Maybe this should be thread #3 :j but how do you determine what to switch with beside reading past performance and funds composition?
How do you make an informed decision?

bowlhead99

Linton wrote: »

Only sell when the fund's % of the overall portfolio or its sector's % is too high. Bring the % down to what you want and use the proceeds to buy more of a fund whose % is too low. That's rebalancing, and a standard activity in long term portfolio management. It helps you sell high and buy low and prevents the portfolio losing diversification.

remorseless wrote: »

Maybe this should be thread #3 :j but how do you determine what to switch with beside reading past performance and funds composition?
How do you make an informed decision?

Yes it should be another thread. But here goes:

Like Linton said, you consider what weighting you want to have in a particular sector given your own risk tolerance and goals. As you suggest, past performance or assumptions based on the performance of similar types of funds can give an indication of the risks you face with a particular fund.

When coming up with your allocation across different asset classes and sectors, you might skew your allocations a bit, based on what you perceive to be the medium term prospects for the sector, if you feel you're clever enough to judge those (most do not try; some do, but it is not easy). Otherwise, if you do not feel you can predict the medium term future because you are only human, you would just stick to a basic plan using long term assumptions. Then from time to time, perhaps every year or six months, simply consider whether you are over- or underweight in the sectors against your target allocation at that point in time and re-allocate

For example. UK equities and other developed world equities might go up 20-30% in a year or down 40% in a year, with a long term average of +8% over the last hundred years. Emerging markets equities might go up 40% or down 50% with a long term average of +12%. A super specialist fund focussed on just one volatile niche, like biotech, might go up 70% or down 80% but with an average, in recent decades, of +15%. Real estate might go up 20% or down 20% with an average of 6%. A holding of government bonds might go up 15% or down 15% in a year with an average of 5%. Gold or platinum might go up 25% or down 25% with an average of 5%. And all these things will move in different directions at different times.

So on day one, a person might decide that they are investing with a 25 year time horizon and so they can afford to weather the ups and downs, so they will allocate most of their money to equities, and some in quite risky equities, and within the mainstream equities, they should have some money at home and abroad, and then they should have some money in bonds and real estate because they want some downside protection when things inevitably don't always turn out so rosy, and they will ignore gold because it seems to be at a very high price and inflation is very low and they are not a big fan.

So, they will come up with an allocation and say right, I am putting 20% of my money in UK equities, 50% in international developed equities, 10% in emerging equities, 5% in UK real estate, 5% in global real estate, 8% in bonds, and 2% in a very specialist biotech fund just for fun.

They then go and buy a fund or a set of funds which give them those allocations.

After a year they look at the portfolio again. Overall the whole £10000 has turned into £11000 so is up 10% which is very nice. However there are some big swings in the categories. UK did really well and is now 24% of the portfolio. International equities did well too, not quite as well, but is now 51% of the portfolio. Biotech did extremely well and the fund almost doubled so is now nearly 4% of the portfolio. Emerging markets did badly and the fund has dropped to only being 6% of your current, enlarged portfolio. The two real estate funds dropped and now you only have 8% in property. Bonds which were 8% didn't really increase, so now the overall portfolio is bigger they only make up 7% of the current portfolio.

So, what do you switch and how much? If nothing has changed in your overall outlook and your overall goals and ambitions, there is no reason for your portfolio to look any different than it did last year. You had come up with an allocation plan that you were happy with. But now everything grew at different rates and messed it up. So you look at what you have.

You've now got almost a quarter of your portfolio in UK equities, 24%. But that is more than you want, because you had decided that 20% UK equities was right for the long term. You wanted no more than a fifth of your money exposed to the UK stockmarket. And at the same time, you want to keep 10% in emerging markets, but because it fell, you only have 6% there.

So the obvious thing to do is to sell some of the UK fund(s) and 'rebalance': buy some more of the emerging markets fund. In this way, you are selling UK while it is high and buying emerging markets while it is cheap, relative to what you paid previously. Sell high, buy low. That's how you make money. You don't sell all the UK fund because you still want 20% there. Just because it had a good year doesn't mean it will have a bad year next. Overall it generally goes up. But if it has gone up more than normal you should probably trim it back a bit and use the proceeds to buy more of the cheap stuff that's below your target allocation.

Same story with the biotech. It is a niche sector and quite specialist. You only want 2% of your money in it. But it went up so much that you now have 4% of your money in it. It is a volatile fund and could easily give back those gains next year. So, makes sense to trim it back to the target 2% level and perhaps put the spare money into real estate which is looking a bit light.

Then you are left with only two positions that differ from your target. International developed equities are 51% instead of 50. Bonds are 7% instead of 8. If you can be bothered, you can rebalance them too. But really your initial decision to have half your money in international equities was only a bit of a guess. 50%, 51%, who cares. And whether your bonds are 7% or 8% or 9% will not make a major difference to your ability to withstand an equity market crash. So you might just choose to leave the rest of the portfolio another year and see what happens. You don't have to constantly be tweaking, if most of it looks in line with your overall life plan.

So in summary it is not all a big load of guesswork of what to switch. Like we said in other threads, you are not trading in and out every day. You will make money over time if you follow a sensible target allocation of what sort of risks you can afford to take and how much money you aim to make in the long term. That initial allocation is key and there are plenty of websites and books dedicated to it.

100% biotech one year and 100% bonds another year is crazy, you will never get the timing right. 100% biotech every year is also crazy, biotech may crash horribly and take years to recover and once your portfolio has fallen from £1000 to £100 it is going to be difficult to turn £100 back into £1000.

While 80% generalist equities and 2% specialist equities and 18% bonds might suit you for the next 20 years. That doesn't mean buy and hold and never sell anything for 20 years. You will get a better return if you check in on it from time to time and if something is way off your target, fix it by selling something high and buying something low.