Thoughts on my first 'fund basket'

SamDude

Hello all,

It has taken a few months since I started my Mortgage overpayment or invest for better return thread for me to get more serious about investing.

I'm a first timer and have taken the plunge and signed up with Charles Stanley Direct. This was primarily to transfer my 5 year old Son's CTF from another provider into a JISA.

The 'go to' fund for passive JISA seems to be the Vanguard LifeStrategy 100pc Equity, so I'm intending to put the full £4080 JISA allowance in there shortly. It will be there for at least 13 years, so I'm (we're) in it for the long term.

For my own ISA investment, I have been reading about the (many) funds that have been performing well. I am planning on starting with £5000 and then drip-feeding £1000 each month.

I have the following funds in my CSD basket (nothing has been executed yet):

• Vanguard LifeStrategy 100% Equity Fund Acc
• Old Mutual UK Smaller Cos U1 Fund Acc
• Rathbone Global Opportunities I Fund Acc
• Legal & General International Index I Trust Acc
• Fidelity UK Smaller Companies W Fund Acc
• Fidelity Special Situations W Fund Acc

The first four were added for their growth history (listed in a couple of J/ISA news articles).
The Fidelity funds were added due to the reputation of the fund manager (consistently outperforming the market over 7 years).


I understand that I'm not allowed to ask or receive advice(!), but I thought I'd ask for thoughts on:

1. If this is a good mix - are there any overlaps or overexposure? (e.g. the two Fidelity funds? Should I reduce/increase/swap to other funds?)
2. What proportion of the funds would be suitable over a 10/15 year period? (e.g. 40% Vanguard, 20% Old Mutual....)

Linton

Overall at a high level seems OK but looking at the details.....

You havent told us the proportions you are considering. If it's equally balanced I would say you have too much UK. If you want to modify the geographical allocation given by the global funds I would go for more Far East rather than UK.

I dont see the point in holding both the Vanguard fund and the L&G global index funds. Either will give you a broad global equity coverage.

In choosing Small Company funds you could look at the individual funds asset allocations (trustnet has the data). "Small companies" covers a wide range of companies from minute tiddlers to pretty large £250M or more enterprises. If you have two SC funds check that they arent too similar.

Fidelity Special Situations used to be a must-have fund but that was many years ago. Nowadays it doesnt appear to outperform sufficiently consistently to justify inclusion in a 6 fund portfolio.

13 years isnt that long a timescale, perhaps more medium than long. Perhaps you should be looking at a % of non-equity investments.

SamDude

Thank you Linton.

Linton wrote: »

You havent told us the proportions you are considering. If it's equally balanced I would say you have too much UK. If you want to modify the geographical allocation given by the global funds I would go for more Far East rather than UK.

The proportions have not been set - my second question above asks for thoughts on this, so I have nominated the percentage of each holding as a starting point below.

I dont see the point in holding both the Vanguard fund and the L&G global index funds. Either will give you a broad global equity coverage.

In choosing Small Company funds you could look at the individual funds asset allocations (trustnet has the data). "Small companies" covers a wide range of companies from minute tiddlers to pretty large £250M or more enterprises. If you have two SC funds check that they arent too similar.

I will drop the L&G International as it overlaps with the Vanguard fund.

The Old Mutual UK Smaller Companies and Fidelity UK Smaller Companies do not overlap - so they can both be kept and comprise a smaller percentage of the holding.

Fidelity Special Situations used to be a must-have fund but that was many years ago. Nowadays it doesnt appear to outperform sufficiently consistently to justify inclusion in a 6 fund portfolio.

This Trustnet piece about Fidelity Special Situations shows that it hasn't performed well last year, but is on the up this year (so far).
Should I keep both Fidelity funds, or remove one (which one)?

13 years isnt that long a timescale, perhaps more medium than long. Perhaps you should be looking at a % of non-equity investments.

The reason I stated 13 years (minimum) for the JISA, was that will be when SamDude Jnr turns 18. I'm not intending on cashing out at that point - more likely/hopefully, I will be in a much better and knowledgeable position to keep growing the portfolio.

If I update my basket it (could) look like this:

• Vanguard LifeStrategy 100% Equity Fund Acc 40%
• Old Mutual UK Smaller Cos U1 Fund Acc 20%
• Rathbone Global Opportunities I Fund Acc 20%
• Fidelity UK Smaller Companies W Fund Acc 10%
• Fidelity Special Situations W Fund Acc 10%

Does that look a bit more refined than before?

Thanks again for your input.

arbster

SamDude wrote: »

I'm not intending on cashing out at that point - more likely/hopefully, I will be in a much better and knowledgeable position to keep growing the portfolio.

Hi Sam - you remind me a bit of myself, about 2 months ago, where I started with funds and tried to make it all balance. Thanks to this forum, and reading a couple of illuminating blogs, I've realised the error of my ways. I believe I should have started with the Asset Allocation, then tried to find the lowest cost ways to achieve that allocation. I've ended up with a collection of high cost, actively-managed funds that are difficult for me to re-balance.

I'm about a quarter of the way through "Smarter Investing: Simpler Decisions for Better Results" by Tim Hale, but I already know that I am convinced that index-investing is the way I need to go. It removes the emotion from investing, and is based on sounds statistics and indisputable mathematics. If you have the time, please find a copy and read it. You will spend less time in the long run, and will avoid the expensive mistake I made, rushing into buying fashionable funds that are highly likely to under-perform the market over the period we're talking about. If you don't have time to read a book, at least take a look at the blog Retirement Investing Today (http://www.retirementinvestingtoday.com).

Linton

Its still about 50% UK which seems far too much. In my long term growth portfolio UK is 16%. Some could argue that even this is high. According to the FTSE All World Index the UK is about 7% of the global market. Also we have the risks of the EU referendum which will have long term consequences. However you may well have a good reason to focus on the UK.

On your choice of funds on the basis of the manager, it is an approach some people recommend. My preference is what the fund invests in. You takes your choice. A consistent general approach seems better than a choice based on what seems good at the time.

dunstonh

Summary is a high risk allocation with too high UK allocation (given the acceptance of a speculative risk profile). Diversification is likely to be out and that could lead to lower returns than going just with VLS100 by itself.

It will be there for at least 13 years, so I'm (we're) in it for the long term.

That is short term for a regular contribution. Couple that with the high risk, you are increasing the risk further due to timescale. If you are going to reduce risk from about year 3 onwards, then fair enough but you should not consider this short term.

collingbone614

The VLS was designed to be a one-stop-shop / fire-and-forget solution. It doesn't cover small co equities, but it's a way to get everything done in a single bullet.

SamDude

Wow, thanks all.

I haven't put a timeline on this, but feel the need to emphasis that 13 years is the bare minimum for the JISA. I'm in my late 30s and my own investments will continue for many many moons...

As mentioned, the funds that I've listed are not set in stone and the comments above from Linton and dunstonh indicate that the UK holding is too high.

What would be the recommended holding to reduce/increase, chop and change if I wanted to reduce my UK allocation and increase the Far-East/rest of world funds?

Ideally, I'm looking for a well-balanced and above average growth set of funds (aren't we all).

AlanP_2

I started a few months ago and developed some ideas of what geographic allocation I was aiming for and then modelled various funds against my ideal.

That MAY help you to fine tune which ones to reduce / increase as the fund factsheets, morningstar, trustnet etc. will give you a reasonably accurate indicator of where and what they invest in (although you will no doubt end up with a small %'age allocated to "OTHER").