How much to invest in conviction funds

aroominyork

I’m interested in people’s views on what proportion of their portfolio they would invest in conviction funds with small numbers of holdings. Say you want to invest the majority of your funds in Western large caps growth funds in proportions close to Fundsmith’s allocation between US, Developed Europe and UK (60/20/20, close to) and you are a fan of Terry. How much would you invest in Fundsmith’s 28 holdings and how much in other funds, whether index funds for those regions or other active funds? I feel I would be pulling a figure out of the air (eg 60% conviction, 40% other) to provide a little regional diversification and risk management?

Dird

All a matter of preference. I have 75% spread between Fidelity Index World Fund & Vanguard Global Small-Cap Index with the other 25% tilts. If you could actually buy a consumer index fund in the UK I'd sell the tilts and buy that instead

Prism

I love conviction funds. It gives me a better understanding of what I am invested in at the company level. I like to know that my Fundsmith holding means I have a good investment in Microsoft and Novo Nordisk, and that my Old Mutual Mid cap fund gives me a high percentage in Boohoo and Fevertree. I would say that about 80% of my total is in conviction funds (less than about 50 holdings).

What it means that for my total portfolio I have relatively high percentages in single companies at the top end. For example, 2% of my total allocation is in Amazon and 1.9% is Microsoft.

Of course none of this means I get a guarantee of better performance. It does mean I have a better understanding of where my money is invested

Linton

If Fundsmith gives you the allocation you want then buy it. Why buy something else which will move your portfolio away from these allocations or go to the effort of buying something else which will give the same allocations?


Personally I am more concerned with overall diversified allocations and so dont see any place for conviction funds in my portfolio.

greatkingrat

Prism wrote: »

I love conviction funds. It gives me a better understanding of what I am invested in at the company level. I like to know that my Fundsmith holding means I have a good investment in Microsoft and Novo Nordisk, and that my Old Mutual Mid cap fund gives me a high percentage in Boohoo and Fevertree. I would say that about 80% of my total is in conviction funds (less than about 50 holdings).

What it means that for my total portfolio I have relatively high percentages in single companies at the top end. For example, 2% of my total allocation is in Amazon and 1.9% is Microsoft.

That isn't particularly high. Any random world tracker will have similar percentages in Amazon and Microsoft because they are such large companies.

Prism

greatkingrat wrote: »

That isn't particularly high. Any random world tracker will have similar percentages in Amazon and Microsoft because they are such large companies.

Well yes, good point (bad examples), but I want to have those two allocations without having a 2.5% allocation to Apple and a 1% allocation to Exxon (just to pick on two). It also means I can have a relatively large allocation to a smallish number of mid and small caps without them being tiny percentages

Thrugelmir

Fortune favours the brave. I wouldn't buy a fund after it's become flavour of the month. Time to buy and accumulate a sizable holding is when it isn't. As for the amount to risk. That's a personal decision not entirely dependent on the value of investments alone. Also one's objectives.

Alexland

The majority of my equity allocation is global passive however I have some active in quality, growth and value funds. I don't see my factor funds ever exceeding 20%. Quality has had a good run recently but my sense of the market cycle would be that now is a good time to move into value.

Prism

Thrugelmir wrote: »

Fortune favours the brave. I wouldn't buy a fund after it's become flavour of the month. Time to buy and accumulate a sizable holding is when it isn't.

Thats pretty hard to judge though. Good funds can keep going for years at the same pace. Some funds just keep going up in value through their investment approach. If you take Fundsmith for example you could probably make an argument that its cheaper now than it was last year in relative terms. Even though it is up about 7% YTD, the earnings of its holdings are up even more.

Other conviction funds have a different style and seem to be consistenty able to sell at the right time and get into new holdings to take over. Is Scottish Mortgage currently cheap or expensive? Is at the end of its huge growth or just beginning? I guess that will be down to Amazon, Tesla, Alibaba and Tencent. Personally I have no idea - I leave that to the manager.

I say, if you like a fund for its investment style and holdings then buy in regardless of price and assume the managers will do what they do to continue that growth.

aroominyork

Prism wrote: »

I say, if you like a fund for its investment style and holdings then buy in regardless of price and assume the managers will do what they do to continue that growth.

My only concern with 'do nothing' funds like Fundsmith and LT is that they give themselves less flexibility to adapt to changing market conditions and may have to ride out potentially bigger dips than funds which can turn over their holdings more. Of course I know their answers: i) quality will out; ii) they are, for the most part, defensively positioned.

Thrugelmir

Prism wrote: »

If you take Fundsmith for example you could probably make an argument that its cheaper now than it was last year in relative terms.

Launched in 2010. Some would say fortunate timing. QE etc has clouded the view.