Thoughts and feedback on the ETF portfolio

pizza_lord

Linton wrote: »

What is the primary objective of the bond portfolio part of your portfolio?

Partly diversification.

Partly so I can re-balance and sell bonds when they go up and stock down so I can buy the stocks when they are cheap.

pizza_lord

racing_blue wrote: »

What is your reason for straying from the most simple possible solution- which would seem to be a 2 fund portfolio?

Diversification primarily. Also am new to this so am happy to dip my toe in with a mixture of ETFs and fine and maybe simplify later on. It's a large chunk of money so the trading costs are not really all that significant especially as I am not really looking to re-balance more than once per year.

racing_blue

pizza_lord wrote: »

Diversification primarily.

OK, but SWDA has 1,610 holdings according to factsheet. Do you really gain diversification by adding those other ETFs, or do you in fact gain concentration in US and UK markets?

If diversification is your primary objective, VWRL holds 2,955 companies and claims this represents >90% of global investible market capitalisation.

pizza_lord

racing_blue wrote: »

OK, but SWDA has 1,610 holdings according to factsheet. Do you really gain diversification by adding those other ETFs, or do you in fact gain concentration in US and UK markets?

If diversification is your primary objective, VWRL holds 2,955 companies and claims this represents >90% of global investible market capitalisation.

I should have been more specific. I meant diversification across the UK and US markets because that's where I want exposure.

In terms of the defensive funds I was thinking of splitting it 50% 50% between cash and bonds.

Correct me if I am wrong but when you get bond ETFs you are essentially betting that interest rates stay the same or go down and there is not much room for them to go down.

Also if expected return on a bond is only about 1% per year, you can achieve that just by leaving some cash in the bank.

bowlhead99

pizza_lord wrote: »

I should have been more specific. I meant diversification across the UK and US markets because that's where I want exposure.

It just seems a bit strange to call that "diversification". To diversify means to spread your stuff about all over the place to receive returns from a broader set of investment opportunities.

For example, in the SWDA investment you have exposure to all developed markets with 59% coming from USA listed companies. What it is missing is the emerging markets which make up about 10% of equities market capitalisation. So, the thing to do to "diversify" your portfolio returns is to add an emerging markets fund, maybe somewhereon between a 1:8 to 1:10 ratio with the SWDA investment. Or to do as racing blue suggested and use VWRL or similar instead of SWDA because it already includes emerging markets not just developed stuff.

To instead decide that you'll "diversify" by adding yet more large cap / midcap US equity and now leave yourself with over 70% of your equities being listed on the US market... is pretty far from a traditional notion of "diversification".

If that's what you're aiming for, who are we to judge you, but you did invite comments.

In terms of the defensive funds I was thinking of splitting it 50% 50% between cash and bonds.

Correct me if I am wrong but when you get bond ETFs you are essentially betting that interest rates stay the same or go down and there is not much room for them to go down.

Also if expected return on a bond is only about 1% per year, you can achieve that just by leaving some cash in the bank.

As Linton mentioned above there are lots of different types of bonds available other than the treasuries and gilts which you picked, including corporate bonds of all grades, sovereign debt from lots more countries and currencies, index linkers, property, absolute return funds etc. All of those things are "not equities" which could have a place in a non-equities part of your portfolio alongside cash.

Yes you are right that the binds you selected - treasuries from US and UK - generally have a yield of 1-3% and possibility of capital loss on the longer-dated ones, so are not really a better choice than cash. That's one of the reasons we said "no way" when you said overall your portfolio would deliver 10% a year annualised, when most people are of the opinion that 10% is optimistic even for equities, and 40% of your portfolio was being put in investments destined to return not much more than cash.

pizza_lord

Thanks for the comments bowlhead99

So in terms of the defensive part of the portfolio, would a real estate ETF be regarded as a defensive play?

After all I would not be buying into bricks and mortar but into a financial instrument what has a bunch of property companies under it

Linton

pizza_lord wrote: »

Thanks for the comments bowlhead99

So in terms of the defensive part of the portfolio, would a real estate ETF be regarded as a defensive play?

After all I would not be buying into bricks and mortar but into a financial instrument what has a bunch of property companies under it

Morningstar regards property companies as cyclical. They mostly invest in commercial property such as office blocks the value of which will tend to magnify the long term ups and downs of the market. If you wanted something more defensive you need to look at physical property funds perhaps investing in premium shopping malls and doctors surgeries rather than 2nd grade office blocks. You wont find ETFs for these - this is an area where ITs are useful.

Your insistance on ETFs for everything is in my view seriously limiting your investment choices particularly in the ability to diversify, as is your heavy focus on US and UK. But each to their own.

pizza_lord

Linton wrote: »

Your insistence on ETFs for everything is in my view seriously limiting your investment choices particularly in the ability to diversify, as is your heavy focus on US and UK. But each to their own.

There is no insistence on my part. I have a saxo acc so I can buy into investment trusts.

Which would you recommend for those interested in property?

Linton

pizza_lord wrote: »

There is no insistence on my part. I have a saxo acc so I can buy into investment trusts.

Which would you recommend for those interested in property?

I wouldnt recommend any share to anyone, but I suggest you consider:

1) Target Healthcare, Medicx ITs. Lower volatility ITs in the Property Direct sectors (eg F&C, Standard Life). These have stable NAVs but are of course subject to the general volatility of the wider market.

2) Look at the Property sector on Trustnet OEICS/Unit Trusts. You will find directly held property in the low "Risk Score" funds.

Property unit trusts have the advantage of steadier pricing than ITs, but the disadvantage that they can become illiquid in the bad times as they cant easily realise their pimary assets.

For extra diversification foreign property can be interesting. I hold Schroder Global Property Income which has provided a 6% dividend over the past year. It invests in property companies rather than directly.

racing_blue

pizza_lord wrote: »

In terms of the defensive funds I was thinking of splitting it 50% 50% between cash and bonds.

Correct me if I am wrong but when you get bond ETFs you are essentially betting that interest rates stay the same or go down and there is not much room for them to go down.

Also if expected return on a bond is only about 1% per year, you can achieve that just by leaving some cash in the bank.

Totally agree with you here. But... why not 100% cash, if you think that (for the defensive 40% of your portfolio)?