Investement sector allocation

peterg1965

This is the sector allocation for my portfolio (c£165k), I am medium to high risk with the aim of portfolio growth and will review in 5-6 years time with a view to switching allocation and funds to take an income. This is spread over c15 funds and I am adding £2500/month to the portfolio (SIPP and ISA).

Brexit seems to have had a positive effect thus far, I assume this is because much of the portfolio is outside of the UK and valued in $ and has benefitted from the devalued Sterling.

Clearly you can't see the underlying funds, but they are all in the HL Wealth 150+ range.

My question is how does the sector spread look, is it sufficiently diversified?


Global Growth 19.2%

UK Equity Income 16.9%

Flexible Investment 13.3%

Europe Excluding UK 9.3%

UK All Companies 8.7%

UK Smaller Companies 7.6%

North America 7.3%

Japan 6.7%

Strategic Bond 6.2%

Asia Pacific Excluding Japan 4.9%



EDIT: Apologies for the incorrect spelling of INVESTMENT in the title - I can't change it now

Linton

Analysing funds by the sector into which they are allocated can be very misleading. They may be general funds invested across the relevent geography or they may be highly specialist niche products. I suggest you use one of the various portfolio allocation analysis tools available, trustnet or morningstar for example, to find out your true allocation.

Assuming the funds are average members of their sector...

The amount in US looks much too small. Though "Global Growth" and "Flexible investment" could be anything and needs to analysed further to properly understand the allocation. The UK allocation looks too high. Any fund in the UK Equity sector will hold all the shares held by a UK Equity Income fund but in different proportions and so there is little point in holding both. If you want income go for the income fund, if you want general coverage go for the all companies fund.

dunstonh

I am medium to high risk with the aim of portfolio growth and will review in 5-6 years time with a view to switching allocation and funds to take an income.

one assumes you will be reviewing before than as you ought to be aiming for annual re-balancing.

Clearly you can't see the underlying funds, but they are all in the HL Wealth 150+ range.

The HL marketing range you mean....

My question is how does the sector spread look, is it sufficiently diversified?

Why flexible investment in a sector allocated portfolio?
Why global growth when you have individual global sectors?
Where is emerging markets?
Property and global bond? (although these would be light in a higher risk spread like yours)
You say medium to high but the spread is more high than medium to high if you take generic wordings to indicate a ballpark position. What is the volatility level for the spread?

peterg1965

Thanks.

To give a bit of context my top 10 fund holding are:

1 Lindsell Train Global Equity 10.0% Global
2 Fundsmith Equity 9.2% Global
3 Lindsell Train UK Equity 8.7% UK All Companies
4 Threadneedle UK Equity Income 8.5% UK Equity Income
5 Woodford CF Woodford Equity Income 8.4% UK Equity Income
6 Marlborough UK Micro-Cap Growth 7.6% UK Smaller Companies
7 Legal & General US Index 7.3% North America
8 Odey CF Opus 6.7% Flexible Investment
9 Man GLG Japan CoreAlpha 6.7% Japan
10 Artemis Strategic Assets 6.6% Flexible Investment

I ran some analysis on the portfolio and it comes out as an FE Risk Score of 71. Most of the funds are grouped together in terms of risk around between 65-95. The highest risk is the Japan fund.

Some of the points made, I don't have property in here, I do hold some Property in my employer GPP. The two Global equity funds have been the best performers by far over the last 6 months.

I will look at slowly rebalancing, in fact i will probably take some one off advice to achieve this in a couple of years. I do have a final salary pension which underpins all of this and is the foundation to my retirement plans. Therefore, I can take a slightly higher risk on this I believe. When it comes to crystallising I need to decide whether I wish to remain invested in this manner or whether to switch to higher yield funds and take a natural yield approach to income.

I like the HL Wealth range but am not exclusively invested there (Fundsmith Equity is not in it). I appreciate that it is marketing, but there is also some rigour behind the marketing.

I am quite light in US funds, i have researched and it seems that many commentators and analysts consider the US to be over bought, so am a little cautious there, although many of the other funds have exposure to the US.

bigadaj

The lack of exposure to us is striking, people have been saying its performed too well for too long and was due a fall, but it keeps on going.

I'm underweight in the us, and the recent falls in the pound mean it's more expensive to buy now, but it's still the engine of growth for the world. If it does catch a cold then the rest if the world will follow no doubt, so no hiding place in equities at least.

In terms of taking income then there's no reason why you can't take capital as well as natural income; indeed in unwrapped funds it can be more efficient if using the capital gains tax allowance in combination with the new dividend allowance.

dunstonh

FE risk score is not a great measure as it risk scores current holdings and not potential holdings. Plus, the way it benchmarks is not consistent as the thing it benchmarks to is volatile in itself.

I like the HL Wealth range but am not exclusively invested there (Fundsmith Equity is not in it). I appreciate that it is marketing, but there is also some rigour behind the marketing.

If that makes you feel better then fair enough.....

I am quite light in US funds, i have researched and it seems that many commentators and analysts consider the US to be over bought, so am a little cautious there, although many of the other funds have exposure to the US.

Our latest allocations have US quite low for highest medium risk. Slightly above Europe and Japan but way behind Asia and Em Mkts. However, our allocations are live adjusted (i.e. they are reviewed quarterly and can change with economic data and values. In other words, they are not static). So, i am not so concerned about the US side of your holdings given where you say you are on the risk scale.

The two Global equity funds have been the best performers by far over the last 6 months.

Then make a choice. Global funds for the global allocation or single sector funds in the different regions covering the global allocation. Mix and match will break the allocations. Some global funds will have weightings which may see short term periods of out performance as well as short term periods of under performance relative to the desired allocations

jamesd

bigadaj wrote: »

The lack of exposure to us is striking, people have been saying its performed too well for too long and was due a fall, but it keeps on going.

Yes, but these things don't happen at any fixed time and it could keep going for years before a major drop back to below the average 10 year cyclically adjuster price/earnings ratio.

bigadaj wrote: »

If it does catch a cold then the rest if the world will follow no doubt, so no hiding place in equities at least.

There are other equity markets that may drop less because they are at lower values.

ex-pat_scot

A couple of observations.


1. I would sort out my geographic allocation broadly across the world indices. I'd need to check the actual numbers, but I'd go UK 6% / US 15% / Europe 15% Jpn 15% Asia Pac 15% - Emerging mkts 20% and try and fudge the numbers up to 100%


2. you need to decide what your equities/ bonds / property / commodities (gold) / PE / property split looks like.


3. you note you have exposure in your GPP to property. You need to set your investment strategy and tactical allocation on a whole-of-portfolio basis; if you have for example property in the GPP then this needs to be part of your overall asset mix


4. no mention of timescales. You note you want to review in 5-6 years and take an income. I'd suggest an annual review and rebalance (ie once you have set your investment strategy above, then look at what your %ages look like and rebalance if they are out of kilter - either by diverting future cash flows or by asset sale and purchase).


5. what's your investment horizon? I presume you are not looking to crystallise your whole pot in 5-6 years to buy an annuity? (if so, then you are very heavy in equities -I'd expect a glide path much more weighted to FI and lower-risk equity than you have at the moment)

bigadaj

jamesd wrote: »

Yes, but these things don't happen at any fixed time and it could keep going for years before a major drop back to below the average 10 year cyclically adjuster price/earnings ratio.

There are other equity markets that may drop less because they are at lower values.

Possibly but who knows?

It's all very well quoting historic returns and conventions and indeed actual returns based on Barclays equity gilt and saying that's an impressive 120 odd years of information. However we're in interest rate territory not encountered for the last 300 years or more, and some say millennia.