S&S Investment Balance

arbster

I'm looking to ensure my S&S investments are properly balanced, having re-discovered an old S&S ISA and hurriedly deposited £15k into an AXA Self-Investor S&S ISA at the end of the 2014/15 tax year. I think I've ended up with S&S ISAs that are very heavy in equities. I also have a significant amount of cash sitting around, not working very hard, so I plan to make further payments into my active S&S ISA. Brief summary:

Cash: c. £135,000
P2P: £4k
S&S: £35k

The reason for the cash situation is that I have an offset mortgage (1.19% tracker) and have recently had to sell down shares in my previous company. Outstanding balance on mortgage is c. £215k with 12 years left.

My S&S ISAs are invested in the following funds:

AXA Framlington Biotech Z Acc (3%)
CF Woodford Eq Inc C Acc (3%)
Henderson Europn Selctd Opps I Acc (6%)
F&C MM Lifestyle Cautious B Acc (6%)
Threadneedle UK Eq Inc Z Acc GBP (6%)
Threadneedle Eurpn Slct Z Acc GBP (6%)
Threadneedle UK Property Inst Acc (9%)
Liontrust Spl Sits A Inc (6%)
Fidelity Emerging Markets W Acc (6%)
L&G High Income I Acc (9%)
L&G UK Index I Acc (29%)
L&G Global Technology Index I Acc (11%)

The active S&S ISA includes the first 9 funds above.

My questions are:
1) Should I be adding new funds to my S&S ISA that are less heavy in equities, or perhaps tracker funds? I'm concerned about having too many funds as it might increase the cost of moving platforms in the future.
2) When making regular contributions to my S&S ISA, should I split them equally across the existing funds or focus on specific ones?
3) When my current mortgage deal runs out in 2028 I would plan to pay off the remaining balance, unless interest rates remain as ridiculously low as they are today. Therefore, am I right in thinking that my investment timeline should be focused on that date, and therefore I should look to be moving to less volatile investments in 7-8 years?
4) What other questions should I be asking?!

Thanks for reading this far, and for any responses provided.

jimjames

With £135k cash and £35k shares I wouldn't save you were heavy on equities.

Tracker funds are invested in shares the same as managed funds so it really depends if you want to decide on managed vs tracker.

You do appear to be very heavy on UK funds and little worldwide exposure so rather than investing more in existing funds you may want to decide on your asset allocation and then buy funds to meet that allocation.

dunstonh

I echo james in his response.

I would also add that your portfolio seems massive overkill for a balance of just £35k. 12 funds on 35k, most of which overlap is largely pointless. Plus, you are missing sectors which means you lack balance.

arbster

Thanks both. I can certainly look at consolidating my fund holdings. The L&G funds are a legacy from the 2003/04 tax year, whilst the others were acquired recently, but clearly without enough research. The intention is to increase the size of my holdings over time - is there a rule of thumb for the right number of funds?

As for missing sectors, I suppose the only way to cover all sectors in a balanced way without a further expansion of my portfolio is move to something like Vanguard Lifestrategy funds, although these don't seem to be available on the AXA Self Investor platform.

dunstonh

is there a rule of thumb for the right number of funds?

No. However, its a bit of common sense. There are about 10 major sectors. In smaller portfolios, there is little point breaking those sectors down further. Othwise you end up with £300 in one fund. However, as portfolios get bigger (couple of hundred thousand) then opening up beyond that can make sense but even then it may not be worth it depending on your investment strategy, research you are carrying out and frequency etc).

As for missing sectors, I suppose the only way to cover all sectors in a balanced way without a further expansion of my portfolio is move to something like Vanguard Lifestrategy funds, although these don't seem to be available on the AXA Self Investor platform.

A multi-asset fund is easier but the other way is to have a fund in each of the sectors to fit the desired allocation.

InvestInPoker

Don't arb, just bet one side - you will raise your long term return.

bowlhead99

arbster wrote: »

My questions are:
1) Should I be adding new funds to my S&S ISA that are less heavy in equities, or perhaps tracker funds? I'm concerned about having too many funds as it might increase the cost of moving platforms in the future.

a) Your funds portfolio is equities heavy, with the only non-equity bits being the property fund, the L&G high income fund (which is a global high yield bond fund) and the 40% of the F&C fund which is in bonds or property. But as jimjames says, you do have a high (£139k vs £35k) cash and p2p allocation which is not currently invested in funds at all (and is, therefore, also non-equities). The right mix of equities vs not-equities is personal, but as 80% of your portfolio is not in funds of any kind, I don't think you can say there's too much equities.

b) tracker funds are a strategic choice in how to invest into the market that the tracker tries to track. "trackers" generically are not high risk or low risk or equities or not equities. You can track whatever you like with a tracker. A UK equity index one like the L&G one held, is a specialist fund giving exposure mostly to large companies which happen to be listed in the UK, allocating proportionally more investment to the very biggest companies. It is not in itself a low risk choice or a non-equities choice.

c) You do seem to have most of your equities focussed in the UK and a bit of Europe; developed Asia and the US are conspicuous by their absence. Apart from the Global Tech and Biotech specialist funds which will have a high US component but only in those specific industries, which seems like a "bit of a punt" on those sectors compared to others.

d) if you are building a portfolio out of individual specialist or regional funds as you are doing, rather than funds which hold a range of different types of assets themselves, you will need to hold a whole bunch of funds. If you are concerned by the large numbers of funds in terms of number of holdings to manage or later transfer out, then don't buy lots of funds. But having an approach that uses specialist funds you are probably going to end up with 10 or more funds.

Rather than just adding more and more new ones, you can considering changing out some of the ones you hold. Also, you mention transferring out but this shouldn't be a major concern - simply move to the platform which looks like it will work for the long term and *then* buy the new funds rather than doing it in the other order.

2) When making regular contributions to my S&S ISA, should I split them equally across the existing funds or focus on specific ones?

If you are happy with all your allocations across sectors, make your contributions in those proportions.

If not, because (e.g.) you have more than you want in your UK equities funds and not enough in your bond funds or your developed Asia funds, then focus your new contributions on the sectors that are "light" compared to your target. At the moment, you haven't said what your target overall percentage is for each area, so it will be hard for you to do that. Once you have worked it out, it's probably unlikely that it would be exactly equal between each sector (i.e. 10 funds with target of exactly 10% each)

Some people would put regular amounts into funds each month and then rebalance once a year. Others would put a varying amount into each fund each month depending on how light they are each looking. Over the next 13 years it won't make a massive amount of difference as long as you do some initial work to start off your holdings on roughly the right path.

3) When my current mortgage deal runs out in 2028 I would plan to pay off the remaining balance, unless interest rates remain as ridiculously low as they are today. Therefore, am I right in thinking that my investment timeline should be focused on that date, and therefore I should look to be moving to less volatile investments in 7-8 years?

Yes, if you specifically need a known amount of cash of a known date, makes sense to be in a low volatility form of investment as you get closer to the date. However if you have say £300k cash and investments and £200k mortgage, you can mentally split in your head as a short term low volatility bucket and £100k of long term investments that you'll keep after the mortgage is settled.

arbster

dunstonh wrote: »

There are about 10 major sectors.

By which do you mean sectors such as: Cash and equivalents, Gilts, UK Bonds, High Yield Bonds, Property, UK Equity, European Equity, US Equity, Japanese Equity, Emerging Market Equity?

arbster

bowlhead99 wrote: »

a) Your funds portfolio is equities heavy, with the only non-equity bits being the property fund, the L&G high income fund (which is a global high yield bond fund) and the 40% of the F&C fund which is in bonds or property.

Yes, that's what I was getting at really. As I move more of my cash into S&S investments I want to make sure I address the imbalance.

bowlhead99 wrote: »

c) You do seem to have most of your equities focussed in the UK and a bit of Europe; developed Asia and the US are conspicuous by their absence. Apart from the Global Tech and Biotech specialist funds which will have a high US component but only in those specific industries, which seems like a "bit of a punt" on those sectors compared to others.

Yes, it's a bit of a punt on two industries that I have a personal interest in - I'll be careful not to let that influence my investment decisions unduly.

bowlhead99 wrote: »

Rather than just adding more and more new ones, you can considering changing out some of the ones you hold. Also, you mention transferring out but this shouldn't be a major concern - simply move to the platform which looks like it will work for the long term and *then* buy the new funds rather than doing it in the other order.

AXA is fee-free til May 2016 so that's my time horizon for switching platforms, but don't want to find myself stuck here due to prohibitive "entry" costs for moving.

bowlhead99 wrote: »

If you are happy with all your allocations across sectors, make your contributions in those proportions.

If not, because (e.g.) you have more than you want in your UK equities funds and not enough in your bond funds or your developed Asia funds, then focus your new contributions on the sectors that are "light" compared to your target. At the moment, you haven't said what your target overall percentage is for each area, so it will be hard for you to do that.

Yes, I will do some more research and come up with a properly structured target asset allocation.

bowlhead99 wrote: »

Some people would put regular amounts into funds each month and then rebalance once a year. Others would put a varying amount into each fund each month depending on how light they are each looking. Over the next 13 years it won't make a massive amount of difference as long as you do some initial work to start off your holdings on roughly the right path.

Thanks for this, too. I quite like the idea of managing the investments relatively actively, so will probably make monthly investment decisions based on the balance of the portfolio.

Overall, thank you very much for your feedback, and for looking at my specific funds - really very much appreciated.

arbster

dunstonh wrote: »

I would also add that your portfolio seems massive overkill for a balance of just £35k. 12 funds on 35k, most of which overlap is largely pointless. Plus, you are missing sectors which means you lack balance.

I've done some analysis of my current asset allocation - should I also be considering the asset classes that my two defined contribution pension schemes are invested in, and including those when considering adjustments to the balance of my portfolio?

I'm aiming to leave c. £30k as cash to cover eventualities, mostly in Santander and other "high" interest accounts. I will probably transfer my current Cash ISA funds into S&S over the course of the next few months, given that the returns are so appalling.

I am looking at a 13-18 year investment horizon, so can afford to take some risks. Therefore, my suggested target allocation of the remaining portfolio is:

Gilts: 15%
UK Bonds: 5%
High Yield Bonds: 5%
Property: 12%
UK Equity: 18%
European Equity: 7%
US Equity: 25%
Japan Equity: 5%
Emerging Markets Equity: 8%

My research suggests that's a medium risk asset allocation. Would others agree?

Currently, including my S&S ISAs and the one DC scheme I have investment details for I currently have 40% in UK Equities and 32% in US Equities, so significantly over invested in those areas. I can address this relatively easily with changes to my DC scheme investments, but wondered if there are pros and cons to making the adjustments there, or in my S&S ISAs?

arbster

My key questions may have been slightly buried in the wall of text above. Is it correct that I consider the balance of my overall S&S portfolio across DC pensions and ISAs, or is there a nuance I'm missing that means they ought to be considered separately?

If it's correct, the lowest cost and least hassle way of addressing the imbalance would be to adjust the asset allocation within my largest DC pension pot (c. £150k), which is currently heavily skewed to UK/US equities. Is there a reason I shouldn't do this? Thanks in advance.