Nearly time to look at my S&S ISA - rebalancing tips for current climate

Prudence1

Generally, I try to check / rebalance my S&S ISA (index trackers) only one or twice a year. That means next week.

Any tips in light of the current financial climate? I've a horrid idea I'm going to panic when I take a look.

AnotherJoe

Well that would depend what indexes you are tracking wouldn't it?

Hang Seng?
FTSE 100?
S&P500?
Bovespa?

Keep_pedalling

Why next week? We do ours at the beginning of the financial year. This allows us to combine a reballace with shifting non ISA assets into our ISAs and in good years mopping up our CG allowance on those non ISA equities.

Prudence1

Good points.

It hasn't been rebalanced in nearly a year (I didn't do it in July as everything was up in the air). So I think I ought to look at it now, and possibly again in April.

Funds as follows:

75% Vanguard LifeStrategy 80% Equity Inc
7% Vanguard Global Small-Cap Index Inc
10% Fidelity Index Emerging Markets Fund P-Inc
8% BlackRock Global Property Sec Eq Tracker Class D Inc

Linton

Why do you need to do something special "in the current climate"? The idea behind rebalancing is that having chosen your % allocation up front all you need do is make occasional regular adjustments to restore it. To avoid excess trading I suggest you dont rebalance any more frequently than once a year.

Prudence1

Linton wrote: »

Why do you need to do something special "in the current climate"? The idea behind rebalancing is that having chosen your % allocation up front all you need do is make occasional regular adjustments to restore it. To avoid excess trading I suggest you dont rebalance any more frequently than once a year.

I wasn't sure if I did, but 2016 has been rather 'interesting' so I thought I'd ask the question, in case.

I braved having a look, and it isn't all bad at all (Annualised return: 13.35% - I expected it to be less). So, I shall just rebalance as necessary.

Many thanks

enthusiasticsaver

I don't rebalance at all. Just decided on Vanguard LS60 and everything is in that. I can understand why you have added property holdings (we have two properties so already over exposed) but why the extra in small caps and emerging markets?

Prudence1

It seemed like a good idea at the time, lol. (I'm really far from expert at this). But, so far, the global small caps is out performing everything else. Emerging markets not good - only 5.25% return (since inception). The property was just a gamble really, it isn't quite matching the lifestrategy, but isn't that far behind either. I think I'll stick with it, for now. Not really any solid whys there are there :eek: I guess I just like to spread my funds around a bit.

Linton

I would support the inclusion of property, and extra EM and Small Companies in your portfolio....

One problem with a global index based funds is that they are heavily invested in the largest companies, and these large companies tend to be pretty highly correlated as they tend to operate in the same global markets - a large French or US oil company wont normally perform very differently to a large UK one just because its HQ is in a different country. Small companies tend to be far more dependent on local conditions, and additionally have generally out performed larger companies over many years.

EM covers a wide range of very different countries. Usefully it gives you access to the SE Asia electronics manufacturing industry which is less well represented elsewhere. Also there is Emerging Europe where one may expect the more recent eastern european members of the EU to perform particularly well over the next few decades. EM is represented in the VLS funds but one could argue that its % is rather low, especially considering the size of the Chinese market.

Property has performed less well than broader equity over the past year. It is meant to do so during periods of high equity growth, whereas it should fall less during the bad times as it benefits from long term steady rental income. So it is providing extra diversification similarly to a bond allocation. However this is compromised in a tracker which of necessity invests in property shares rather than directly in property. Property shares tend to be strongly influenced by the sentiment of the wider market. The other option is to invest in funds which directly own property - eg office blocks, shopping malls etc. Such funds are much less volatile than those holding property company shares. However they are also of necessity managed rather than index funds.

Also note that commercial property is a different market to residential property.

bigadaj

Rebalancing should put your portfolio back to that you originally determined to be correct, of course if the reasoning behind that allocation has changed then there's nor reason why the allocation shouldn't change but that really should be a conscious and thought out decision.

AnotherJoe

Linton wrote: »

Why do you need to do something special "in the current climate"? The idea behind rebalancing is that having chosen your % allocation up front all you need do is make occasional regular adjustments to restore it. To avoid excess trading I suggest you dont rebalance any more frequently than once a year.

I dont buy that theory, seems to me it doesn't stand up even to casual scrutiny.

Whose to say that ;
1) you chose it right in the first place, or
2) your circumstances have changed so you need different, or
3) economic circumstances have changed so you'd like to tweak it, or
4) more than one of the above apply ?

In your position OP, not that i can advise you of course, but just stating what i've done as a result of Brexit and my thinking that the Pound hasn't reached rock-bottom yet* I'd de-emphasise the UK for the next several years.

Which would mean changing your allocation of 75% VLS80 (and VLS80 is, IIRC 25% UK) to something like 25% VLS80 and 50% some other low cost fund(s), one or two, which are either ex-UK, or mirror the world economy size of the UK which is about 7% IIRC. Maybe one of each. Lets say 25% VLS80, 25% global ex-UK, and 25% global inc UK. There's a lot to choose from.

* over the next couple of years minimum there will be all sorts of shenanigans and shock-horror headlines some of which will inevitably cause stock market and Sterling disruption. Just recall what some !!!!ante region of Belgium could do with the Canada trade deal. Now take the stoked up aggravation of 27 European leaders plus Euro bureaucrats all looking to punish the UK, and however it works out long term, which personally i believe will be good for the UK, I think we have a bumpy 3 years minimum ahead of us.