Lifestrategy or.....

JustAnotherSaver

With those HSBC funds, are you referring to:
Balanced: http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/h/hsbc-global-strategy-balanced-portfolio-c-accumulation/fund-analysis
Cautious: http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/h/hsbc-global-strategy-cautious-portfolio-c-accumulation/fund-analysis
Dynamic: http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/h/hsbc-global-strategy-dynamic-portfolio-c-accumulation/fund-analysis

?

I was having a look after reading here (as i'd already previously looked at the LG) and i'm thinking that's pretty much what is being referred to?

If so then is the difference really just a more limited version of say VLS? With VLS offering 20/40/60/80/100 (so 5 options), LG's equivalent has (is it 5 options also) their Multi index 3/4/5/6/7.

So are my links the HSBC equivalent and they're just keeping it a bit more simple with only 3 options?

Do these auto-rebalance also? Just asking to see if it'd be an option for me or not.

Linton

BLB53 wrote: »

I have been a diy investor for many years. Basically asset allocation is about matching the mix of bonds & equities to get the best match to your temperament with a view to staying in the game for the long term. When I was younger I was up to 90% equities but now in my 60s its down to 55% and will probably get down to 40% over the next decade.
....

There is a lot more to asset allocation than equities vs bonds. Large companies behave differently to small ones, particularly in the UK, Europe and Japan. Different industries behave differently, and so do different geographies. On the non-equity side there are a wide range of bonds as well as directly held property, infrastructure funds, private equity etc etc.

Managing a portfolio at this level takes time and effort. The benefits compared with simply buying a broadly based fund are not great in % terms, perhaps 1 or 2% a year, but easy to justify if one has a large portfolio.

I can well understand why an IFA would not want to do this separately for each individual in a large client base. It must make sense to have a number of standard portfolios, or perhaps standard high level components of a portfolio.

bostonerimus

dunstonh wrote: »

The allocations we use are fluid and bought in. They are also based on timescale (short, medium and long). The closest match to VLS60 (and assuming long term) is currently 25.0% fixed interest, 43% global equity, 10% property and 23% UK equity (contains 10 funds of which 5 are passive and 5 are active). This time last year it was 27.5% fixed interest, 46% global equity, 9.5% property and 17% uk equity (4 passive and 6 active). There were two fund changes over that 12 months and all weightings in each fund are different.

I can find 5 years of data for the VLS funds....Using 70% VLS80 and 30% VLS60 to give a fixed interest allocation of 26% would produce a 5 year cumulative gain of 70% or an annual average of 11.2%. If you pay a financial advisor to managed a similar asset allocation I'd expect them to beat that return after all fees are taken off....that includes the 0.5% or 1% advisor fee, don't let them tell you the returns after just the fund and platform fees are taken off. If they don't beat VLS then why are you paying them? If they are beating it you have either chosen wisely or been lucky. Keep checking up on them every year. My US based DIY 70/30 portfolio has returned 63% over the last 5 years. Some of the lagging of VLS will be currency related.

bostonerimus

firestone wrote: »

looks like you could hold a worse fund for sentimental reasons!

Yes, the Wellesley fund it's the dirty little secret of many index fund advocates in the US. It's been around with Wellington and then Vanguard since the late 1920s and is often a part of a retirement income portfolio.

Alexland

JustAnotherSaver wrote: »

So are my links the HSBC equivalent and they're just keeping it a bit more simple with only 3 options? Do these auto-rebalance also? Just asking to see if it'd be an option for me or not.

Yes those are the ones we were referring to and they work similar to the L&G MI taking a risk based approach but without the UK equity bias. However as a result this has a higher percentage of US than VLS or L&G MI. I don't expect the equity/bond ratios to move significantly in the L&G or HSBC fund but I guess it could happen if the world turns upside down. There are actually 5 but they are not listed on all platforms:

These multi index funds are essentially robo-investing in a traditional fund wrapper.

http://www.assetmanagement.hsbc.com/uk/advisers/fund-range/global_strategy_funds.html

"HSBC Global Strategy Cautious Portfolio
HSBC Global Strategy Conservative Portfolio
HSBC Global Strategy Balanced Portfolio
HSBC Global Strategy Dynamic Portfolio
HSBC Global Strategy Adventurous Portfolio

All five portfolios offer the benefits of diversification and an actively managed asset allocation, while delivering what we believe to be significantly good value.

Each portfolio holds a mix of HSBC's own index tracking funds and Exchange Traded Funds (ETFs) so we can keep costs low and maintain strong governance. We also include several direct investments including UK government bonds. All of the portfolios invest across both developed and emerging markets.

The portfolios are monitored and rebalanced daily, while the allocation of assets between the different asset classes is formally reviewed on a monthly basis. The monthly review ensures each of the five portfolios are managed in line with their agreed risk budgets and provides the potential to take advantage of any short term market opportunities that arise."

As I value a bit of home bias this would be number 3 on the podium for me.

Alex

redpete

BLB53 wrote: »

I have increasingly moved to VLS 60 over the past 3 or 4 years and have been v happy with returns compared to some of my other holdings.

I wouldn't use return over that short period as a reason for recommendingm it. Is the equity/bond balance in line with your considered strategy? Does the geographical spread match your stsategy? Àre yob happy with passive vs active?

I use vls80 with other funds to adjust geographical spread, add more property.

Audaxer

Linton wrote: »

There is a lot more to asset allocation than equities vs bonds. Large companies behave differently to small ones, particularly in the UK, Europe and Japan. Different industries behave differently, and so do different geographies. On the non-equity side there are a wide range of bonds as well as directly held property, infrastructure funds, private equity etc etc.

Managing a portfolio at this level takes time and effort. The benefits compared with simply buying a broadly based fund are not great in % terms, perhaps 1 or 2% a year, but easy to justify if one has a large portfolio.

I can well understand why an IFA would not want to do this separately for each individual in a large client base. It must make sense to have a number of standard portfolios, or perhaps standard high level components of a portfolio.

Linton, I agree that if you can earn an extra 1% or 2% a year on a large portfolio that is definitely worth the extra effort. Genuinely interested in knowing how can you be so confident that you have picked the right funds and balance of funds between large, mid and small cap equities, bonds, property, infrastructure, private equity etc. to ensure you get that extra 1 or 2%?

Is there not a chance that at least one of the active fund managers might make the wrong decisions and their fund doesn't recover as you would hope? I thought most of your funds were long term buy and hold, so how much ongoing research do you need to do? Does your income and wealth preservation portfolios need less ongoing research and monitoring compared to your growth portfolio?

Linton

bostonerimus wrote: »

.......If you pay a financial advisor to managed a similar asset allocation I'd expect them to beat that return after all fees are taken off....that includes the 0.5% or 1% advisor fee, don't let them tell you the returns after just the fund and platform fees are taken off. If they don't beat VLS then why are you paying them? If they are beating it you have either chosen wisely or been lucky.....

I agree - if you:
- know why you want to invest
- can set up a realistic financial plan
- understand risk and your degree of acceptance and the likely impact on returns
- understand the importance of diversification
- understand the tax implications
- understand how to set up a portfolio to match your needs
to the level of detail appropriate for the size of your pot there is no point in going to an IFA to choose your funds as your overall returns may at best only be marginally improved from a sensible DIY index based portfolio.

Otherwise, perhaps otherwise.

Linton

Audaxer wrote: »

Linton, I agree that if you can earn an extra 1% or 2% a year on a large portfolio that is definitely worth the extra effort. Genuinely interested in knowing how can you be so confident that you have picked the right funds and balance of funds between large, mid and small cap equities, bonds, property, infrastructure, private equity etc. to ensure you get that extra 1 or 2%?

The approach is top down. The basic strategy for the growth fund is:
1) Risk to be managed by high level balancing between separate Growth, Income, and Wealth Preservation portfolios.
2) Growth fund 100% equity.
3) Diversification - aim to invest in everything. Avoid too high a % in any one geography, company size, industrial sector, growth vs value, cyclical vs defensive despite market cap considerations.
4) Dont attempt to guess short/medium term future market movements, though some view can be taken of long term economic trends.
5) Aim to buy and hold with rebalancing as required to meet (3).
6) Each fund should have a unique clearly identifiable role.

It doesnt matter much, at least within say 5% of the total portfolio, what the initial % asset allocation was provided nothing is so high that it adds significant risk from an unbalanced portfolio. The important thing is to keep them roughly constant.

The next problem is choosing the funds. The criteria are:
1) Overall asset allocation. This is not straightforward as for example a possible choice for SE Asia may have a high % tech which needs to be balanced by a choice of lower tech funds to cover Europe.
2) Consistent good performance. Based on individual annual returns in Trustnet (rather than 1/3/5 years) and where possible data covering the Great Crash. Dont look for the very best fund but rather one that should be good enough.

Is there not a chance that at least one of the active fund managers might make the wrong decisions and their fund doesn't recover as you would hope? I thought most of your funds were long term buy and hold, so how much ongoing research do you need to do? Does your income and wealth preservation portfolios need less ongoing research and monitoring compared to your growth portfolio?

Mainsteam funds of a non trivial size dont tend to make catastrophically wrong decisions. Because the Growth portfolio focusses on asset allocation there is virtually no reason to choose a celebrity manager or a conviction fund. After all they could decide to change their allocations at any time. Also the range of assets in which they choose invest tends to be too limited to justify a significant holding. Were the asset allocation of a chosen fund to change then I may well sell the fund - for example I have switched out of Stewart Investors Asia Pac Leaders fund since it broadened its remit possibly because it became too large.

Problems with individual funds are minimised by keeping all funds within a limited range of %s, currently 5%-18% so in the unlikely event of any one suffering a major fall the overall consequences would not be catastrophic.

The effort with running the Growth fund is to keep all the factors balanced. At the moment this is made more difficult by a decision to switch out of some partial duplications.

The Wealth Preservation fund needs minimal research/monitoring as there is not a great choice of satisfactory funds and changes only happen slowly (hopefully!).

The Income fund is a major concern. It started off a as portfolio of some 15-20 UK FTSE350 shares chosen from detailed weekly reading of Investors Chronicle and analysing some fundamental company data. The portfolio was extended to reduce the UK holdings to around 50%. Foreign income being provided by funds.

Currently there are two zombies - Juridica and Carillion and a few with insufficient yield. However since any one non-IT UK share would be at most 3% of the total portfolio it is difficult to justify putting major effort into choosing more shares. So I may have to switch most of my UK holdings into funds.

bostonerimus

Linton wrote: »

I agree - if you:
- know why you want to invest
- can set up a realistic financial plan
- understand risk and your degree of acceptance and the likely impact on returns
- understand the importance of diversification
- understand the tax implications
- understand how to set up a portfolio to match your needs
to the level of detail appropriate for the size of your pot there is no point in going to an IFA to choose your funds as your overall returns may at best only be marginally improved from a sensible DIY index based portfolio.

Otherwise, perhaps otherwise.

Yes to DIY you need to understand the basics of investing. But they are pretty basic. There are many vested interests that want investing to appear difficult and to be expensive when in fact anyone with a little common sense and an understanding of percentages and compound interest can be successful. As a portfolio grows the tax implications can become complex and if you want to get into offshore structures then advice is probably necessary, but most people simply don't need those and so can DIY.