Which Global 'Small Cap'?

DairyQueen

AnotherJoe wrote: »

There are discounts on regular investments. If you are waiting 18 months then there's significant sum not invested (compared to the overall amount) which long term would make difference .
I doubt rebalancing funds when saving £50 a month, makes any difference at all.

Not sure what you mean by the overhead of saving outside, if you had a regular saver you could probably get 3-5% and then when the annual period on that expires (as they tend to) pay it into the chosen investment and restart a new regular saver.

Yep, the cash on account builds to around £700/900 until invested. However, I am not seeking to optimise the returns. It's a balance between time required to manage it versus reasonable return. This is bunce money for my nephews so if I miss the full benefit of pound/cost averaging then so be it. It's intended as a gift and is not required to secure their futures (that's their parents' job).

Reviewing/rebalancing has made a difference as I opened this ISA as a very inexperienced investor several years ago. I was lucky with the timing of the mish-mash of investments I have picked over the years. It's a learning experience and as I gained more knowledge/confidence I have periodically rebalanced the portfolio to a) diversify and b) remove much of the very high volatility/risk. The annual requirement to invest new cash has been the catalyst for review.

Reviewing/rebalancing has been necessary in order to correct my many, potentially disastrous, mistakes.

Spouse, parents and I are all maxed-out on regular savers (we exploit these for our own cash). I used to hold the funds in a Children's Regular Saver in each nephew's name (me as trustee). The hassle required to act as trustee on a child's a/c (unless you are the parent) has to be experienced to be believed.

Halifax eventually required me to produce the children's birth certificates, my own birth certificate (plus evidence of name change), plus proof of address and passport, in person, to access matured funds or open new accounts. That was the final straw. I had been operating Halifax child saver accounts for three years at the time. Dealing with Money Laundering law became far too onerous to contemplate keeping any savings in their names.

Other than regular savers, the max interest available on cash has been in the region of 1-2%. That equates to around £3-£6 in interest on £50 saved monthly over 12 months. I'm not losing any sleep over foregoing that.

Now I only spend a a day or two each year managing this portfolio and each time I apply knowledge and experience acquired over the previous year.

The children have benefited from all of the research required to DIY our SIPPs. I'm no expert but I now feel comfortable with investment basics. No surprises that the children's portfolio will consist of only two investments this year.

DairyQueen

Linton wrote: »

I would not buy a global small cap, especially a tracker:
1) I believe Small Cap benefits from local knowledg and so cannot see the advantage of a global small cap fund
2) Human intervention is needed to weed out the rubbish.
3) The small cap indexes include some very large companies
4) A small cap global tracker would be highly weighted towards the US where there appears to be minimal advantage of investing in small cap.
5) The UK Small Cap sector has been one of the best performing sectors across the whole market for the past 10 years. UK is a relatively small % of the world market.

So better in my view to buy separate UK, Europe, and Japan managed SC funds.

Thanks for the summary. I had considered the US's position in this kind of fund but was not aware of the outperformance of the UK over the entire decade.

AnotherJoe wrote: »

Agree with most of your points, except the first. With a global small fund, with active management as opposed to tracker global means they can pick anywhere, eg maybe small company X in the USA or Europe is better than Small Cap Y in the UK, but if you've bought a UK small cap the fund doesnt have the choice to buy X.

This is one of the issues I have been considering. UK small caps may not perform so well over the next 10 years and I would prefer a fund that has a wider regional scope.

Linton wrote: »

Yes but I have my doubts whether one fund can really keep its eye on a large number of small companies spread across the world. That is why I am advocating separate specialised funds for each of the main markets except the US where I have not found any great advantage of small cap funds over the total market, perhaps because some of the largest companies in the US have achieved the sort of high growth one only usually finds in small companies.

A first look at some of the options suggest that most funds don't attempt to cover the whole globe. There is a general bias toward the US, UK and Japan, plus each appears to focus on a limited number of (usually developed) markets in addition to those.

I take your point on funds that focus on specific markets but, given that this is a small portfolio, I may trade the potential for higher performance against simplicity. It's probably no coincidence that the actively managed, global small caps heading the performance tables over the last 1/3/5 years are all heavily exposed to the US. Am I right in thinking that the size (relatively large) of US companies held by these funds, plus the general outperformance of the US market, are responsible ?

Back to the drawing board. I think I need to examine the regional allocation and specific holdings of any contenders.

DairyQueen

A_T wrote: »

Baillie Gifford Global Discovery is performing well but not really small cap.

Ha! Coincidently, I spotted this one (and a few others) on citywire this a.m. It's off the scale in risk/volatility and also has almost 60% allocated to the US. Plus 65% allocated to Technology and Healthcare. I haven't yet checked the holdings but it's outperformance suggests that the manager has been riding on a US 'large cap' crest and popularity of specific sectors. Just speculating at the moment though.

AnotherJoe

Linton wrote: »

Yes but I have my doubts whether one fund can really keep its eye on a large number of small companies spread across the world. That is why I am advocating separate specialised funds for each of the main markets except the US where I have not found any great advantage of small cap funds over the total market, perhaps because some of the largest companies in the US have achieved the sort of high growth one only usually finds in small companies.

Good point.

darkidoe

Linton wrote: »

I would not buy a global small cap, especially a tracker:
1) I believe Small Cap benefits from local knowledg and so cannot see the advantage of a global small cap fund
2) Human intervention is needed to weed out the rubbish.
3) The small cap indexes include some very large companies
4) A small cap global tracker would be highly weighted towards the US where there appears to be minimal advantage of investing in small cap.
5) The UK Small Cap sector has been one of the best performing sectors across the whole market for the past 10 years. UK is a relatively small % of the world market.


So better in my view to buy separate UK, Europe, and Japan managed SC funds.

Just wondering what percentage of your portfolio do you tend to allocate your for small cap funds?

Morphoton

Just wondering what percentage of your portfolio do you tend to allocate your for small cap funds?

There was a discussion on this very point earlier in the year:
Smaller companies within a wider portfolio:
https://forums.moneysavingexpert.com/discussion/5769409/smaller-companies-within-a-wider-portfolio

TBC15

Is there anything ethically/legally wrong with third party's using an ISA allowance?

DairyQueen

TBC15 wrote: »

Is there anything ethically/legally wrong with third party's using an ISA allowance?

Children's JISA and personal allowances aren't used so using dad's (otherwise unused) ISA allowance has a net zero impact on tax. If I was filling the children's JISAs and then using dad's to hold the surplus then, yep, unethical, but I only use dad's name on the label to keep the proceeds from being frittered by 18-year-olds.

Don't know about you but I had about as much financial sense as a caterpillar at age 18 and my nephews show no sign of breaking with family tradition.

DairyQueen

Having looked into the sector a little more I'm coming round to Linton's way of thinking.

Trackers are definitely out of the picture but I am leery about the high US allocation in most managed offerings. Few funds in the sector have a 10+ year track record so assessing performance over more than 5 years isn't possible.

Baillie Gifford is high risk and volatile, and its outperformance in the sector coincides with the rise in the US markets. It is 60% invested in the US and the holdings are large cap by most market standards.

Two have longer track records. McInroy & Wood and F&C.

I smiled when I saw the inception date for the latter - 1889. Given that it has returned an average 15%p.a. since inception, that's a pretty impressive record. It also has a divi of close on 1% and proudly proclaims that the divi has been increased for the last 48 years. The OCF is high at 1.07% and, interestingly, 7 of the top 10 holdings are Asian collectives. They outsource stock-picking in the Asian markets. They also use an odd benchmark combination - 30% Numis UK Small Companies and 70% MSCI All Country ex UK Small Cap. However, their current UK allocation is 24% so I'm not sure how performance can be accurately compared to their benchmark or even if its worth comparing. Also there is stamp duty and trading costs to pay.

The best of the bunch so far seems to be McInroy and Wood. An 18-year, reasonable track record and much less US orientated than the others. Problem is that it doesn't appear to be available to retail investors.

I think I will follow Linton's advice and pick three regional funds, plus add another £500 to VLS. The allocation will then be:

80% VLS80
10% UK Small Cap
5% European Small Cap
5% Asia Small Cap

More research and management but it's all part of the learning experience.