Advice on asset allocation and fund selection

danm

I posted here previously some time ago and took on some advice and have decided to move to a predominately index/passive approach.

In addition to my main property and employer related stock that I need to retain. My current asset allocation is as follows

Single Stocks 25%
Cash 40%
Funds 35%

I am going to gradually move towards 55% in funds with 10%-15% in single stocks. No more than 30% in cash (my main SS holdings are FB,GOOGL and AAPL)

Within my fund portfolio my allocation will be as follows

US 30% (Vanguard S&P 500)
Europe Ex –UK 10% (Vanguard developed Europe ex)
EM 10% (Fidelity index emerging markets)
Japan 5% (Blackrock Japan Equity)
Pac Rim -ex Jap 5% (Vanguard Pacific ex Japan)
Property 10% (Henderson UK Property OEIC)

An allocation of 30% to the UK will be met by some existing products I have – Investec FTSE 100 Index kickout structured product, Vanguard FTSE 100 ETF, Blackrock UK Equity Tracker….. if and when the kickout product mature I will reallocate some to an all shares product.

Before I press the button on this I would be interest in getting feedback on the overall asset allocation and the fund sector splits (and choices within then) – I have generally gone for established names with low charges. (exception is Henderson, but I have some experience in that sector)

thanks in advance
D

Linton

Geographic allocation looks fine. Perhaps you could have an extra nod towards small companies. With your index funds you are highly invested in large multinationals which will tend to be more correlated than small companies.

Agree with moving your FTS100 investments to All-Share though again suggest you look at UK Small Companies.

danm

Thanks for the feedback Linton. the Blackrock UK fund is All Share. Will consider a small cap in addition for UK and also US.


Would it make sense to be splitting the smaller allocations to All Share or small caps. Does anyone know if there is any analysis on the benefit versus (what I suspect would be) increased charges? Or it is more of a risk diversification tactic

bigadaj

danm wrote: »

Thanks for the feedback Linton. the Blackrock UK fund is All Share. Will consider a small cap in addition for UK and also US.


Would it make sense to be splitting the smaller allocations to All Share or small caps. Does anyone know if there is any analysis on the benefit versus (what I suspect would be) increased charges? Or it is more of a risk diversification tactic

Many would consider that smaller companies would generate higher growth than large caps as a trade off against the risk of investing in smaller companies, though with greater volatility and as you observe with generally higher charges. There is some benefit in diversification also as you observe.

Linton

danm wrote: »

Thanks for the feedback Linton. the Blackrock UK fund is All Share. Will consider a small cap in addition for UK and also US.


Would it make sense to be splitting the smaller allocations to All Share or small caps. Does anyone know if there is any analysis on the benefit versus (what I suspect would be) increased charges? Or it is more of a risk diversification tactic

It is both a shoot at increased performance and a risk diversification strategy. For the former look at the data on trustnet. Look at the various geographic sectors and see how typical large cap funds compare with small cap funds. I think you will find the differences consistently larger in favour of small companies in general over extended time periods than the odd fraction of a % in charges.

Correlation data to demonstrate risk diversification is hard to find. All I can present is the correlation between some specific funds as is provided by the portfolio Xray facility on YouInvest (my wife's funds are with YouInvest). Looking at funds in my wife's portfolio the correlation between a largecap US fund and large cap European fund is given as 0.81. That between a smallcap US fund and a Small Cap european fund is 0.62. The correlation between the smallcap funds and the corresponding largecap fund is around 0.8.

Investing in small caps means going for managed funds - it doesnt seem to me to make much sense going for an index tracker for small companies as it will invest predominantly in the largest small companies which sounds perverse. And depending on the fund large small companies can be surprisingly large.

danm

sound advice again. Thanks both.