Views please on £280k investment portfolio

aroominyork

I’d appreciate comments on this portfolio. It is for a £280k retirement fund which we will access in about 10 years. Alongside it I have a £100k workplace pension in a target date fund and £55k equity share in an investment property; we will soon have paid off our residential mortgage. At some stage, probably before retiring, I expect to receive a sizeable inheritance.

If we could make this £280k fund increase an average 8%-10% pa we would be very happy, though of course we would want to reduce risk as we approach retirement and given how high markets are now we are concerned about taking too much risk to get 10%-12% in the first few years.

We do not want over-exposure to the UK or US. We have just taken our funds away from an IFA and do not want to try to be too clever. Therefore our strategy is a) to have a default approach of investing in about three managed funds, b) adding equities in specific areas where we want to be heavier, and c) investing in short/strategic bonds to i) balance the extra equities, ii) keep our equity exposure below 65% as markets are high, and iii) have some low-risk funds to consider moving into non-UK equities if Sterling strengthens.

[FONT=&quot]1) [/FONT]The three managed funds are Royal London Sustainable World, Ballie Gifford Managed and Hawksmoor Vanburgh, with FEs of 83, 77 and 32 respectively. I think the first and third have historically provided the best returns relative to their FE, so I have allocated 20%, 10% and 21% respectively.

[FONT=&quot]2) [/FONT]We are drawn to Europe’s breadth of economies and choice. We are looking at Baring Europe Select (for SME), FP Crux European Special Situations and Man GLG Continental European Growth, allocated 4%, 4% and 7% respectively.

[FONT=&quot]3) [/FONT]We have put 4% next to First State Global Listed Infrastructure. I read this sector is a good defensive area but am willing to be convinced otherwise.

[FONT=&quot]4) [/FONT]Japan looks like it is going forward well so 7.5% on Baillie Gifford Japan Trust.

[FONT=&quot]5) [/FONT]We have a positive medium term view of India with a pro-business PM who looks set to be in power for a long time, so 7.5% on Jupiter India.

[FONT=&quot]6) [/FONT]15% on bonds, through it’s hard to pick in this sector. I have gone for 7% Jupiter Strategic Bond, 4% Morgan Stanley Sterling Corporate Bond, 4% Rathbone Ethical Bond.

The portfolio is about 63% in equities, though with Japan and India pushing 150 FE scores that may read closer to 70% in terms of risk. Geographically it is something like 29% UK, 27% Europe, 18% USA, 1% ANZ, 12% Japan, 9% India, 4% others.

Marine_life

There will be others who have more experience than I but I suspect 10-12% is way too optimistic!

bostonerimus

First of all I'd reduce your expectation for annual gain substantially. You should also be including your work place pension when you work out your overall asset allocation.

I don't have anything positive to say about your use of individual active funds and a slicing and dicing approach, but I'm sure others more familiar with active funds will give you an honest appraisal.

aroominyork

My workplace pension (which at £100k makes up 26% of the total £380k investments) is 61% equities, 6% bonds, 33% gilts. The 61% equities comprise 11% UK and 50% global (inc. 30% hedged). It is an ethical target date fund through The Pensions Trust which I think invests mostly through L&G. I will try to find ut which countries the global component is in (though of course I will get a call centre...)

Re my expectations, 8% would be about half of how these funds have performed over the last five years. My expectations are no higher (though of coure my hopes are) that that. My concern is about front-loading this too heavily to try to get better growth during the earlier years and lesser (say 6%) during the later years.

TheTracker

Ballsy.

(Bookmarked to revisit in a year)

Audaxer

aroominyork wrote: »

Re my expectations, 8% would be about half of how these funds have performed over the last five years. My expectations are no higher (though of coure my hopes are) that that. My concern is about front-loading this too heavily to try to get better growth during the earlier years and lesser (say 6%) during the later years.

Are you saying these funds of 61% equities have averaged 16% returns per annum over the past 5 years? I would very much doubt if that is the case, but even if they had there is no guarantee that even half that return rate would continue. It is more likely that there will be a large fall in equities - would you be able to cope with that?

sorcerer

I think it's very unlikely you will be able to achieve 8-10% a year with the portfolio you have suggested, you would need to take more risk to achieve that over the next 10 years.

I would also point out what makes you think the UK and US markets are high? What's to stop the FTSE100 going to 9000 or 10000? Then 7400 would not be considered high. Off course I have no idea if this would happen, but nobody else does either.

But good luck with your choices.

aroominyork

Audaxer wrote: »

Are you saying these funds of 61% equities have averaged 16% returns per annum over the past 5 years?

The way I calculated historic return was to:
- Look at the five year compound return and calculate the annual return which, if consistent over the five years, would have produced the compound return, eg Baillie Gifford Managed returned 85% over five years which equates to 13.1% pa
- Weight that by the proportion of the portfolio allocated to the fund, eg 13.1% x 0.1 = 1.31%
- Repeat that throughout the portfolio and sum the totals, which produced 15.6%.

I have just run a calculation of risk by multiplying each fund’s FE by its allocation (eg for Ballie Gifford FE 77 x 0.1 = 7.7); the total shows a weighted FE across the portfolio of 75.4. It also revealed that 38.7 of FE risk – ie over half the total risk – lay in three funds (Royal London, Japan, India) which between them hold 35% of the portfolio. That is too much risk in a small number of funds.

Obviously all these calculations have many caveats but I’d be interested to hear views on whether the FE methodology is a sound way of calculating risk across the portfolio? For example, the FE looks too high – I would want to bring it to about 70 – and has too much risk concentrated in a small number of funds.

chrisgg

Hi.

I think you're going to need to take more risk to achieve the stated goal of 10% annualised gain. Though equity markets are high what are the alternatives? Bond yields are low and property/infrastructure is weighed down by brexit considerations. With a long term investment horizon i personally wouldn't worry about putting more in equities but it all comes down to what you feel more comfortable with.

bostonerimus

aroominyork wrote: »

The way I calculated historic return was to:
- Look at the five year compound return and calculate the annual return which, if consistent over the five years, would have produced the compound return, eg Baillie Gifford Managed returned 85% over five years which equates to 13.1% pa
- Weight that by the proportion of the portfolio allocated to the fund, eg 13.1% x 0.1 = 1.31%
- Repeat that throughout the portfolio and sum the totals, which produced 15.6%.

I have just run a calculation of risk by multiplying each fund’s FE by its allocation (eg for Ballie Gifford FE 77 x 0.1 = 7.7); the total shows a weighted FE across the portfolio of 75.4. It also revealed that 38.7 of FE risk – ie over half the total risk – lay in three funds (Royal London, Japan, India) which between them hold 35% of the portfolio. That is too much risk in a small number of funds.

Obviously all these calculations have many caveats but I’d be interested to hear views on whether the FE methodology is a sound way of calculating risk across the portfolio? For example, the FE looks too high – I would want to bring it to about 70 – and has too much risk concentrated in a small number of funds.

5 years is a short time span. Over longer periods (30,40,50 years) a globally diversified 60/40 portfolio has probably returned closer to 8%, but I would probably take off a couple of percent for expenses and to be conservative. If you can make your plan work on 6% annual return you should have a very high probability of success.

Audaxer

aroominyork wrote: »

The way I calculated historic return was to:
- Look at the five year compound return and calculate the annual return which, if consistent over the five years, would have produced the compound return, eg Baillie Gifford Managed returned 85% over five years which equates to 13.1% pa
- Weight that by the proportion of the portfolio allocated to the fund, eg 13.1% x 0.1 = 1.31%
- Repeat that throughout the portfolio and sum the totals, which produced 15.6%.

I have just run a calculation of risk by multiplying each fund’s FE by its allocation (eg for Ballie Gifford FE 77 x 0.1 = 7.7); the total shows a weighted FE across the portfolio of 75.4. It also revealed that 38.7 of FE risk – ie over half the total risk – lay in three funds (Royal London, Japan, India) which between them hold 35% of the portfolio. That is too much risk in a small number of funds.

Obviously all these calculations have many caveats but I’d be interested to hear views on whether the FE methodology is a sound way of calculating risk across the portfolio? For example, the FE looks too high – I would want to bring it to about 70 – and has too much risk concentrated in a small number of funds.

I agree the Baillie Gifford Managed Fund on Trustnet looks very good although the 5 year figure I saw was a bit lower at 76.9%. However the last 5 years has been seen mainly rising markets and there is no guarantee that anything like these returns are going to continue. You seem to be implying that in a worst case scenario you will have to settle for 8% returns, whereas if there is a large equity fall within the next few years that rate of return will be extremely unlikely.