Portfolio Allocation: Critique Welcome

DairyQueen

I have around 70% of my portfolio invested and I am currently looking to invest the other 30%. I would welcome a critique from all the keen investors here.

Nobody in my circle is the slightest interested in the detail of pensions/investments so I rely on this community to provide the information/feedback that prevents me from going seriously off-course. Your help is much appreciated.

I have a tendency to over-complicate things so please feel free to make constructive criticisms with that in mind.

Background
The portfolio is the self-invested chunk of our retirement fund. Me age 58/OH 60. OH has a DB scheme that he will begin drawing at 65. We will both receive the full nSP at age 66. The total of these will cover our day-to-day expenses. OH is not seeking to retire before age 65 but I live in hope. OH also has a couple of DCs that sum to approx 50% of the non-guaranteed part of our retirement pot. These are actively managed in global funds. We also hold 3 years income in cash.

The remaining (self-invested) 50% of the non-guaranteed fund is my part of our retirement portfolio. I have invested 70% of this in passive trackers with different equity percentages depending on the expected length of each investment throughout retirement (age 65+). These trackers are weighted toward UK, US, European large caps.

The remaining 30% is intended to fill any gaps that may appear in our income/planning between now and when OH reaches 65. It is also intended to fill gaps in sectors/regions that are not covered by global index trackers and are more likely to be best-served by active management. Also, there is an element of this chunk of the portfolio dedicated to wealth preservation - especially if OH decides to retire anytime before age 65. Plus some income to cover discretionary spending if required before OH reaches 65 (or reinvested, if not).

The defensive part of this portfolio would be the first port of call to supplement our cash reserve if OH stops working before age 65 for any reason.

As you can see, this chunk is trying to fulfil many possible outcomes. However, it is intended to do so only for the next (max) 7 years.

Below are the assets I have chosen, the percentage of the self-invested chunk of the portfolio and the percentage of the non-guaranteed part of our pot:

1) Equity Defensive - 4% of non-guaranteed, 8% of self-invested:
Fundsmith (12%)
RIT Capital Partners (12%)

2) Corporate Bond - 4.33% of non-guaranteed, 8.67% of self-invested
Royal London Short Duration Global High Yield Bond (10%)
Muzinich Short Duration High Yield Fund hedged GBP (8%)
GAM Star Credit Opportunities (8%)

3) UK Smaller Companies - 1.67% of non-guaranteed, 3.33% of self-invested
TB Amati UK Smaller Companies (5%)
Marlborough Special Situations (5%)

4) US Smaller Companies - 1.34% of non-guaranteed, 2.67% of self-invested
Artemis US Smaller Companies (8%)

5) Europe ex UK Opportunities - 1.67% of non-guaranteed, 3.33% of self-invested
FP Crux Europe Special Situations (10%)

6) Japan Opportunities - 0.83% of non-guaranteed, 1.67% of self-invested
Baillie Gifford Shin Nippon Plc (5%)

7) Pacific/Asia Opportunities - 1.67% of non-guaranteed, 3.33% of self-invested
Fidelity Asian Values (5%)
Hermes Asia ex Japan Equity (5%)

All comments welcome. Please bear in mind that I am aware that a little knowledge can be dangerous and that I am in the 'little knowledge' category, but I am learning more every day.

BLB53

You could simplify and just select an all-in-one multi-asset option. My preference would be the Vanguard Lifestrategy 40 (or 60). Would be cheaper on charges as well at 0.22%.

ColdIron

The stand out omission would appear to be not much in the way of US large caps. As an aside I'm not sure I'd put Fundsmith and RCP in the same category

username12345678

I worked my investment plan from the other direction...

I found an asset mix I was comfortable with in terms of risk after looking at historical returns vs drawdowns accepting of course that QE had helped create billion year lows in interest rates which puts fixed income risk/returns in a slightly different place.

I then allocated the percentages geographically for equities, generally proportionate to markets but slightly over weighting the UK and under weighting the US.

Then trawled Morningstar and Trustnet to find OEIC's/IT's and ETF's that showed a balance of standard deivation, return and cost that I was happy with. Where active struggled to outperform then passive was chosen but I didn't make saving 10 or 20 basis points the primary criteria for selection.

Fixed income allocation has been a headache and I still haven't got to a place where i'm happy. I'm seduced by the arguments that bonds (especially longer durations) have become 'return free risk' but that leaves money market funds/cash holdings as ballast.

The rest of my portfolio is taken up with property, absolute return and infrastructure.

Flirted with a 5% gold holding but ultimately the only real practical reason I could see for it being there was so I could tell people I hold the stuff.

Finally - i'm probably division 4 (in old money) in terms of knowledge so the advice of the regulars will be the place to go!

DairyQueen

BLB53 wrote: »

You could simplify and just select an all-in-one multi-asset option. My preference would be the Vanguard Lifestrategy 40 (or 60). Would be cheaper on charges as well at 0.22%.

Thank you for your reply. The other 70% is invested in VG Life Strategy 60 thru 100% equity. The issue I have is that my VG funds are passives investing in large caps and gilts. That's fine for a longer term punt but this chunk of the portfolio is aimed at the possibility of shorter-term access, and also at niche markets.

The VG is overweight in UK/US Large caps - thus my interest in other markets/sectors.

DairyQueen

ColdIron wrote: »

The stand out omission would appear to be not much in the way of US large caps. As an aside I'm not sure I'd put Fundsmith and RCP in the same category

Thanks for your reply. See my posts re the (other) 70% - invested in UK/US Large Caps. I'm interested to know why you wouldn't categorise Fundsmith and RCP within the same (global defensive) category.

Voyager2002

I can see some big gaps:

Germany, including small business, is a sector that I regard as offering quality and stability. Not something that I would approach via a 'Special Situations' fund, since the bulk of the German economy is unlikely to offer many such situations;

India (I don't think that the Asia funds you include offer much exposure to India, and in any case the economy there is so opaque that I would want a specialist manager who concentrates on India rather than someone who works on Asia as a whole);

Russia: a large economy that offers exceptional value (in terms of P/E ratios, no matter how you dice them). Political risk there is beyond the comfort zone, hence the low prices, but a clued-up local manager should offer some degree of protection.

And I would be interested in hearing more about your idea of "defensive equities". Personally I pile into healthcare for protection against the next downturn, but I am sure there is a better way.

DairyQueen

username12345678 wrote: »

I worked my investment plan from the other direction...

I found an asset mix I was comfortable with in terms of risk after looking at historical returns vs drawdowns accepting of course that QE had helped create billion year lows in interest rates which puts fixed income risk/returns in a slightly different place.

I then allocated the percentages geographically for equities, generally proportionate to markets but slightly over weighting the UK and under weighting the US.

Then trawled Morningstar and Trustnet to find OEIC's/IT's and ETF's that showed a balance of standard deivation, return and cost that I was happy with. Where active struggled to outperform then passive was chosen but I didn't make saving 10 or 20 basis points the primary criteria for selection.

Fixed income allocation has been a headache and I still haven't got to a place where i'm happy. I'm seduced by the arguments that bonds (especially longer durations) have become 'return free risk' but that leaves money market funds/cash holdings as ballast.

The rest of my portfolio is taken up with property, absolute return and infrastructure.

Flirted with a 5% gold holding but ultimately the only real practical reason I could see for it being there was so I could tell people I hold the stuff.

Finally - i'm probably division 4 (in old money) in terms of knowledge so the advice of the regulars will be the place to go!

I have also had a devil of a job deciding what to do on the fixed income. Have decided to invest in short-term, corporate bonds as everything I've read suggests that longer term bonds/gilts are a one-way street to capital loss. But, hey ho, what would I know?

bostonerimus

I feel that you are massively over complicating things. You've got pensions and SP to cover expenses and 3 years in cash, so just invest what's left in a fairly aggressive portfolio that's heavy on equites. I'd use some cap weighted global equity and bond trackers or more VLS or equivalent. Let the funds slice and dice for you rather than putting little bits of money into numerous funds as you are proposing. If you want to overweight some small cap or other niche sectors then the volatility of your portfolio will increase. When you're retired there's a lot to be said for boring dividend paying large cap, utility etc companies that can also give some capital growth.

I'm in a similar situation to you with income needs covered by pensions. I have on year of spending in the bank, two in a high interest (thats's just 2% today) immediate access account and almost everything else in just 3 funds....a US equity tracker, an international equity tracker and a US bond tracker (I live in the USA). It makes management and drawdown easy.

ianthy

bostonerimus wrote: »

I'm in a similar situation to you with income needs covered by pensions. I have on year of spending in the bank, two in a high interest (thats's just 2% today) immediate access account and almost everything else in just 3 funds....a US equity tracker, an international equity tracker and a US bond tracker (I live in the USA). It makes management and drawdown easy.

I really like the idea/simplicity of 3 funds - easy to manage and just get on with life. I am not experienced enough to comment really but do many investors in the UK have just 3 funds?

Alexland

DairyQueen wrote: »

Nobody in my circle is the slightest interested in the detail of pensions/investments so I rely on this community to provide the information/feedback that prevents me from going seriously off-course.

So true. This is such a nice bunch of genuinely helpful and knowledge people all supporting each other in their learning and personal finance objectives with so many different perspectives available. It's a real gem.

Alex.