180K Investment

MonroeM

Thank you to everybody who has taken the time so far to give their opinions.

I am keen to hear any other opinions for my future research and would especially like to hear back from the posters who asked me questions and to which I have responded?

Thank you all again your opinions are greatly appreciated.

AnotherJoe

Looking over the next 5 years or so, with Brexit in mind and all the uncertainty that has for UK equities, and the likely lowering of the Pound/Dollar rate, i think you have too much in the UK. UK is something like 7% of the world market, you look to have perhaps 40-50%.

You are also 100% (AFAICS) in active funds which again is (IMO) too much, you can argue which is better but having some in passive seems to me a good way to diversify risk.

So I'd suggest you move some money into passive global funds, thus de-emphasising the UK and active funds at the same time. Look at VLS80 & HMWO and Legal & General International Index Trust for example.

Which ones to sell? Tough choice, some people favour rebalancing by selling the most successful and buying the least, feel free to do that, but thats always grated with me, i generally ride my winners.

Linton

AnotherJoe wrote: »

Looking over the next 5 years or so, with Brexit in mind and all the uncertainty that has for UK equities, and the likely lowering of the Pound/Dollar rate, i think you have too much in the UK. UK is something like 7% of the world market, you look to have perhaps 40-50%.

You are also 100% (AFAICS) in active funds which again is (IMO) too much, you can argue which is better but having some in passive seems to me a good way to diversify risk.

So I'd suggest you move some money into passive global funds, thus de-emphasising the UK and active funds at the same time. Look at VLS80 & HMWO and Legal & General International Index Trust for example.

Which ones to sell? Tough choice, some people favour rebalancing by selling the most successful and buying the least, feel free to do that, but thats always grated with me, i generally ride my winners.

I agree with the first point - 40-50% UK is too high. Two reasons, a general point is that you need to reduce the effect of single points of failure. So in my view 40-50% in anything with a reasonable degree of focus is too much. And a particular point - the problem with the UK is that its industrial base isnt that well diversified. Some significant world sectors are missing completely and in other sectors (eg car manufacturing) all the major UK manufacturers are foreign owned and therefore not represented on the UK stock market.

On the active vs passive I would say that diversification isnt a major concern. What is most important for diversification is that there is a wide range of underlying assets. I see no good reason why passive and active funds should differ in their underlying assets merely by being passive or active. Of course if they invest in different areas that's another matter.

Finally on which one to sell. To me riding winners may make sense for individual shares where a company can rise from nothing to a world force. This is most unlikely to happen with broadly invested funds. More likely most sectors/geographies are going to bounce around much the same %s. In these circumstances occasional rebalancing helps because you are selling temporarily relatively high priced funds to buy temporarily low priced funds.

AnotherJoe

Linton wrote: »

On the active vs passive I would say that diversification isnt a major concern. What is most important for diversification is that there is a wide range of underlying assets. I see no good reason why passive and active funds should differ in their underlying assets merely by being passive or active. Of course if they invest in different areas that's another matter.

I see a fundamental reason why they should differ, the extra management fees ! If you are paying an extra % or two for a fund that held, for sake of argument the exact same makeup as VLS80, why would you do that? So they are bound to be different, both in constituents and in percentages, or there would be no active management going on.

And i did specifically mean diversified between an active and a passive approach. Its all diversification.

Linton wrote: »

Finally on which one to sell. To me riding winners may make sense for individual shares where a company can rise from nothing to a world force. This is most unlikely to happen with broadly invested funds. More likely most sectors/geographies are going to bounce around much the same %s. In these circumstances occasional rebalancing helps because you are selling temporarily relatively high priced funds to buy temporarily low priced funds.

fair comment but also depends on your definition of "broadly" invested. Fundsmith for example holds only about 50 companies shares i think (OK looked it up, its actually 29) so there's no broad spread there, and that of course is an active management decision thus if you sold that and moved to another fund that was "temporarily low" that might have 200 shares with a very different spread. If you buy the theory that some managers can make a difference and its not all luck, then you are moving your money from a company with good management to poor management.

Of course you might not buy the story that active management is worth it.

Or you might "diversify" and split between both. Of my collective investments I have about 10% in active, down from what used to be 100%, just two active funds left, and I'll be sticking with those two for the foreseeable.

MonroeM

AnotherJoe wrote: »

Looking over the next 5 years or so, with Brexit in mind and all the uncertainty that has for UK equities, and the likely lowering of the Pound/Dollar rate, i think you have too much in the UK. UK is something like 7% of the world market, you look to have perhaps 40-50%.

You are also 100% (AFAICS) in active funds which again is (IMO) too much, you can argue which is better but having some in passive seems to me a good way to diversify risk.

So I'd suggest you move some money into passive global funds, thus de-emphasising the UK and active funds at the same time. Look at VLS80 & HMWO and Legal & General International Index Trust for example.

Which ones to sell? Tough choice, some people favour rebalancing by selling the most successful and buying the least, feel free to do that, but thats always grated with me, i generally ride my winners.

Thank you AnotherJoe for your post and input so far it was very interesting and informative to me.

I totally agree that looking at my ISA portfolio I have far too much in the UK Equity Market and need to rebalance this as part of my future strategy (although in fairness to my ex when he invested into these funds for me he obviously didn't have any inkling about Brexit or the fall of the pound).

At the moment I still can't quite understand the post from nb0825 saying 'why woiuld you invest in UK Equity if you're already invested in Global Equities'? Iwould assume that most people would have some UK Equity allocation as well as Global Equity in their portfolio although maybe more balanced than mine?

Your point about diversification and a split between active and passive funds (I had to look all this up so it just goes o show what a novice I am at this!) is very interesting and enlightening and after much thought and reading it is most probably a very good thing to have a mix of both even though my risk profile is on the high side.

I did ook into some of these passive funds and the VLS80 (which in my original post I mentioned that one of my friends also recommended) seems to have to much UK exposure again if it is a world index? I think the HSBC(HMWO) index gives a better proportional spread. The L&G one does not have any UK exposure as far as I can see? Is the Royal London Sustainable World Trust that I have a similar fund to these?

MonroeM

Linton wrote: »

I agree with the first point - 40-50% UK is too high. Two reasons, a general point is that you need to reduce the effect of single points of failure. So in my view 40-50% in anything with a reasonable degree of focus is too much. And a particular point - the problem with the UK is that its industrial base isnt that well diversified. Some significant world sectors are missing completely and in other sectors (eg car manufacturing) all the major UK manufacturers are foreign owned and therefore not represented on the UK stock market.

On the active vs passive I would say that diversification isnt a major concern. What is most important for diversification is that there is a wide range of underlying assets. I see no good reason why passive and active funds should differ in their underlying assets merely by being passive or active. Of course if they invest in different areas that's another matter.

Finally on which one to sell. To me riding winners may make sense for individual shares where a company can rise from nothing to a world force. This is most unlikely to happen with broadly invested funds. More likely most sectors/geographies are going to bounce around much the same %s. In these circumstances occasional rebalancing helps because you are selling temporarily relatively high priced funds to buy temporarily low priced funds.

Thank you Linton for your post/input which I will take into account.

The active vs passive theme I suppose is purely down to individual strategies, requirements and risk etc. You mentioned the most important thing for diversification is to have a wide range of underlying assets. Please excuse my ignorance but does this mean I wide spread of different funds both geographically and asset class? For example hold Global, UK, European and some Emerging Market funds in Equities (80%) and then also have some funds in Bonds, Property etc?

My ISA and SIPP portfolio will be invested for the long term so I can have quite high risk exposure say 80/20.

Linton

MonroeM wrote: »

Thank you Linton for your post/input which I will take into account.

The active vs passive theme I suppose is purely down to individual strategies, requirements and risk etc. You mentioned the most important thing for diversification is to have a wide range of underlying assets. Please excuse my ignorance but does this mean I wide spread of different funds both geographically and asset class? For example hold Global, UK, European and some Emerging Market funds in Equities (80%) and then also have some funds in Bonds, Property etc?

My ISA and SIPP portfolio will be invested for the long term so I can have quite high risk exposure say 80/20.

A global fund will invest in shares world wide. So that will give you pretty good share diversification, though some Global Funds exclude the UK, others may exclude EM. So you will need to check. For a new investor I wouldnt worry about holding any other share based fund but with experience you may wish to use niche funds to deviate from the geographic allocation provided by the global fund. Niche funds could also give you more access to particular higher risk areas such as small companies, technology, biotech etc if you want a bit of spice.

In addition there are funds which invest in things other than shares - eg they own physical property (office blocks or shopping malls) or bonds (Government or company debt). If you look for "Multi-asset" funds you should find some which invest in all of these as well as shares. One Multi Asset fund could do the job of a whole portfolio.

However as others have said I suggest you start off working with an IFA who will be able to srtart you off with a portfolio that matches your needs and ability to handle the volatility of the share markets. After a year or two you could reasonably take over the management yourself.

planteria

the point being made was, i assume, that Global Equity will include UK Equity.. but i also understand the logic that a UK-based investor could/should have a significant portion of their investments in the UK. that a fund manager operating on a global basis might have some shares in, say Glaxo, and these might also be held in a UK Equity fund is not really a problem.
what might be considered pointless though would be to have several managers fishing in a consistently similar pool. this could be providing far less diversification than an investor assumes.

AnotherJoe

MonroeM wrote: »

Thank you AnotherJoe for your post and input so far it was very interesting and informative to me.

I totally agree that looking at my ISA portfolio I have far too much in the UK Equity Market and need to rebalance this as part of my future strategy (although in fairness to my ex when he invested into these funds for me he obviously didn't have any inkling about Brexit or the fall of the pound).

At the moment I still can't quite understand the post from nb0825 saying 'why woiuld you invest in UK Equity if you're already invested in Global Equities'? I would assume that most people would have some UK Equity allocation as well as Global Equity in their portfolio although maybe more balanced than mine?

Your point about diversification and a split between active and passive funds (I had to look all this up so it just goes o show what a novice I am at this!) is very interesting and enlightening and after much thought and reading it is most probably a very good thing to have a mix of both even though my risk profile is on the high side.

I did ook into some of these passive funds and the VLS80 (which in my original post I mentioned that one of my friends also recommended) seems to have to much UK exposure again if it is a world index? I think the HSBC(HMWO) index gives a better proportional spread. The L&G one does not have any UK exposure as far as I can see? Is the Royal London Sustainable World Trust that I have a similar fund to these?

The point is that a global fund will by its nature also include UK funds, unless it specifically states it doesn't, usually by the addition of 'ex-UK' on the name (eg excluding UK)

As you say, VLS80 IIRC includes UK, HMWO (which incidentally I'll be buying a fair chunk of end of this week as part of my move towards passive) does also. But in your case, every 'Global' purchase you make, whether it includes UK or not, will diminish your UK exposure, because you'll be selling a 100% UK fund and replacing it with something that is less than 100% (typically either 7% if global or 0% if 'ex-UK')

I hadn't heard of Royal London, at a 10 second glance of its constituents it looks similar to Fundsmith. Well known names, high tech, consumer. I know folks here often say there's no point having two overlapping funds (I think you have Fundsmith?), but it can depend, there have been occasions i couldn't decide between two different funds covering the same area so I've ended up splitting the investment 50/50. Only worth doing if you've got a decent amount to put in, eg dont do it with £500, but £5k upward i dont see it does any harm unless one has much higher management charges than the other in which case obviously you should just buy the one that has a significant lower charge.

MonroeM

Linton wrote: »

A global fund will invest in shares world wide. So that will give you pretty good share diversification, though some Global Funds exclude the UK, others may exclude EM. So you will need to check. For a new investor I wouldnt worry about holding any other share based fund but with experience you may wish to use niche funds to deviate from the geographic allocation provided by the global fund. Niche funds could also give you more access to particular higher risk areas such as small companies, technology, biotech etc if you want a bit of spice.

In addition there are funds which invest in things other than shares - eg they own physical property (office blocks or shopping malls) or bonds (Government or company debt). If you look for "Multi-asset" funds you should find some which invest in all of these as well as shares. One Multi Asset fund could do the job of a whole portfolio.

However as others have said I suggest you start off working with an IFA who will be able to srtart you off with a portfolio that matches your needs and ability to handle the volatility of the share markets. After a year or two you could reasonably take over the management yourself.

Point taken on the global funds which makes a lot of sense.

Regarding Muti-Asset funds, after looking at the breakdown/factsheets of the funds I currently hold in my ISA's I think The Royal London Sustainable World Trust is a Multi-Asset fund?

Thank you for your advice/opinion along with others regarding an IFA. Its not that I don't want to pay for an IFA but instead because I have recently retired and have a lot of spare time I feel the need for a good hobby especially as I've been running a business nearly all my working life. I know I will need to do a lot of research, reading etc but I firmly believe that nobody looks after your money better than yourself? I don't want to make unnecessary mistakes so I will take my time and listen to lots of opinions such as on this forum etc. I know I cannot take every opinion on here as gospel and need to make my own mind up on what's right for me but it is very interesting hearing other people's points of view.