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Comments on my current Portfolio?

iglad
iglad Posts: 222 Forumite
Part of the Furniture 100 Posts Photogenic
edited 13 July 2019 at 5:48PM in Savings & investments
HI

Earlier in the year I rebalanced my portfolio and take a much more active interest in it, than looking at the 6 monthly statement. I adopted a best of the best strategy, which took into account past performance, Morningstar ratings, Fund charges and beating the sector benchmark. I have been in theses funds since March and all have done very well so far.

I did sell recently Aviva (long term hold good dividend reinvest but it was time to let it go), Fidelity China (took the loss much too volatile) and TM Cavendish very short term hold, small profit, nothing happening and the future looks like slow growth). The money from these sales all went into some of the funds below.

The region spread suits me fine as it seems to cover all the important investing areas.

Any thoughts, comments would be appreciated, portfolio details are below.


Funds held with overall portfolio % holdings

Scottish Mortgage 13%

Lindsell Train Global 25%

Fundsmith 25%

Axa Fram Tech 14%

Fidelity Asia Dividend (excludes Japan) 15%

Baillie Gifford America 8%


The Portfolio World Regions covered

USA - 50%

UK 15%

Japan 6%

Asia Developed 9%

Asia Emerging 10%

Europe Developed 10%
«13

Comments

  • bowlhead99
    bowlhead99 Posts: 12,295 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Post of the Month
    edited 13 July 2019 at 2:03PM
    I would generally be cautious about picking funds based on some kind of 'best of the best' strategy, because from one day to the next there will always be something else which becomes 'best', and you only see it with hindsight, after your previous favourites have crashed and burned.

    In the good times of 'bull markets' for equities in which we haven't had a good crash for over a decade - supported by nice central bank policy (low interest rates, quantitative easing etc) - and especially in a five year period where sterling has devalued against a basket of foreign currencies, any global equities portfolio with 85% of its assets on foreign stockmarkets will have done well.

    In such times, it not hard to find funds with quite concentrated portfolios which rise to the top through luck or judgement - and it can be hard to tell one from the other. Buying the thing that went up the most in the last three to five years without massive volatility (getting itself a good morningstar rating in the process) is not always a sound approach because you are essentially just following the fashions of the day and may come unstuck when the tide turns.

    You mention you got rid of the China fund as it was too volatile; it's not surprising that a fund which limits itself to a single emerging market is going to be bouncing all over the place. Sticking to one region or industry sector can produce long term good results if it is the right call, but in the short and medium term the results can be disastrous and you would wish you had been invested elsewhere or more diversified.

    On that theme, when you were doing your research what did you think about Axa Framlington Global Technology's performance when the dot-com bubble burst from the market highs in 1999/2000? Between March 2000 and September 2001, it lost between 85-90% of its value. (you can change the timescale on the graph here: https://www2.trustnet.com/Tools/Charting.aspx?typeCode=F03TL)
    I expect you like it for your 'best of the best' portfolio because it has gone up 100% in last three years or 200% in five. But bear in mind that when it next loses 85% of its value, it will need to go up over 550% to recover.

    Just on the allocations across geographies, people will have their own ideas, but I don't see that your 10% emerging markets exposure should all be Asia, as there are other emerging markets (Europe, Africa, Russia, South America etc) which a global emerging markets fund could cover - each of these places will be a good or bad place to be from time to time.

    If you are looking to 'shoot the lights out' with high long term performance, then an equities-heavy portfolio - accepting significant volatility for the portfolio as a whole - is the ultimate aggressive way to go. Your 'best of the best' contains only equities. There will obviously be some time periods in which global equities are not the best place to be, and things like different types of bonds, commercial property, infrastructure etc could be of value to a balanced portfolio. You are presumably comfortable with perhaps losing 50-60% on paper in a global equities crash, but it would be well above the risk tolerance of most UK consumers.
  • DrSyn
    DrSyn Posts: 899 Forumite
    Part of the Furniture 500 Posts
    So why was it time to let go Aviva go?

    As has been observed, a fund which limits itself to one area is expected to be more volatile than a well diversified fund. So why did you buy China to begin with?

    Your post leaves me with the impression that you are happy to jump into/out of investments often. If that is the case I would expect that the costs of doing so will eat into any profits substantially over the long term.

    If these are the only assets you hold, I hope you have strong nerves for when the bull markets end.

    As none of us can foretell the future, your guess of the correct portfolio breakdown is as good as mine.
  • iglad
    iglad Posts: 222 Forumite
    Part of the Furniture 100 Posts Photogenic
    edited 13 July 2019 at 9:21PM
    I forgot to add that I was invested in a UK equities Funds for over 20 years, which did well and I saw quite a few crashes but held tight. That fund has now lost it's way and I can't see it ever getting back to former glories.

    I did cash out in October 2018 and came back into the market in March 2019 with half my investment with the other half in a cash account. I missed out on some growth from Jan - March as I was out of the market but it's no big deal. The new tech funds have learnt a lot from the dot com bubble but I can't see Amazon, Google or FB going away anytime soon, so I'm in.

    I monitor regularly my funds and despite only being in since march I have and average returns of about 10%.

    I'm not quite sure what you base your research on but mine might seem very basic but it has produced the results. Tracker funds just don't do it for me and despite the low fees its the fact that they are unable to beat the benchmark I find disconcerting. I'd rather have 15% growth at 0.9% fees than 5% at 0.5%.

    If a fund starts to lose me 8% then I'm out, plain and simple, so far that's only happened with the China fund.
  • iglad
    iglad Posts: 222 Forumite
    Part of the Furniture 100 Posts Photogenic
    edited 13 July 2019 at 10:14PM
    DrSyn wrote: »
    So why was it time to let go Aviva go?

    As has been observed, a fund which limits itself to one area is expected to be more volatile than a well diversified fund. So why did you buy China to begin with?

    Your post leaves me with the impression that you are happy to jump into/out of investments often. If that is the case I would expect that the costs of doing so will eat into any profits substantially over the long term.

    If these are the only assets you hold, I hope you have strong nerves for when the bull markets end.

    As none of us can foretell the future, your guess of the correct portfolio breakdown is as good as mine.

    It paid a good dividend but the last dividend payment I put into Fundsmith instead of my usual share reinvestment, so I thought why not just sell as the share price was going nowhere and I get a far better return with Fundsmith and Lindsell train Global. I guess only time will tell on that one.
  • Linton
    Linton Posts: 18,343 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Hung up my suit!
    Looking at the morningstar analysis of your portfolio, the things that would worry me are:
    - the 30% tech allocation and the high SE Asia allocation compared with that to Europe and Japan.
    - There is a notably high overlap between Fundsmith and LT Global, both of which have a rather low total number of holdings but together represent 50% of your total portfolio. This must present an unnecessary level of risk.
    - The balance between value and growth companies is heavily skewed towards growth. This may have worked well in recent years but circumstances can easily change and so is again an unnecessary risk. In past difficult times value has suffered significantly less than growth.

    Another factor to consider is that it seems a bit strange for a high risk/high return portfolio to have no more than a market average Small Companies allocation.
  • Prism
    Prism Posts: 3,852 Forumite
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    Linton wrote: »
    - There is a notably high overlap between Fundsmith and LT Global, both of which have a rather low total number of holdings but together represent 50% of your total portfolio. This must present an unnecessary level of risk.

    There have been studies done that once we go beyond 12-18 stocks then we have removed most of the risk of a concentrated portfolio, e.g https://news.morningstar.com/classroom2/course.asp?docId=145385&page=4

    If we accept that idea then in fact selecting just one concentrated fund for your entire porfolio might be enough to remove the real risks of individual company failure significantly effecting performance. Of course then there is the risk that the fund we select fails or underperforms, so we select a few. Its just the the more funds we select the more we move towards an average performance.

    I say this as someone who has 40% of their equities in 1 fund (Fundsmith) and another 20% in Lindsell Train GE.
  • bowlhead99
    bowlhead99 Posts: 12,295 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Post of the Month
    Prism wrote: »
    There have been studies done that once we go beyond 12-18 stocks then we have removed most of the risk of a concentrated portfolio, e.g https://news.morningstar.com/classroom2/course.asp?docId=145385&page=4

    If we accept that idea then in fact selecting just one concentrated fund for your entire porfolio might be enough to remove the real risks of individual company failure significantly effecting performance.
    It is true that if you are doing studies of randomly selected stocks (selected from a large pool of stocks and the test repeated on all the different permutations to give an 'averagely random' result from the 8-stock portfolio and the 18-stock portfolio and the 50-stock portfolio) then the more the merrier up to a point and then you get diminishing improvements from the diversification efforts.

    However, in the 'real world' situation with a portfolio of professional funds it is not about worrying that one company will take down your entire portfolio when it crashes. It will be less than a few percent of the total, and you will live to fight another day. However, companies share industry sectors and micro characteristics which will be positively or adversely affected due to regulations, political issues, tastes and preferences of businesses or consumers, levels of employment, availability of debt finance, corporate or consumer tax rates in a jurisdiction, you name it.

    When building your portfolio of 100+ stocks from various specialist funds with their own strategies (Fundsmith approach, tech-only approach, china-only approach etc), your holdings are not 'averagely random' at all, because although you are spreading your money about, you are only putting it in certain parts of the market.

    If Lindsell and Train have a strategy to invest in companies beginning with the letters L and T, while Terry 'Fund' Smith decides to invest in companies beginning with the letters T and F and S, and Baillie Gifford's Scottish Mortgage Trust decides to invest in companies beginning with the letters B,G,S,M,T while Axa Framlington's Global Technology invests in A, F, G, T, you have a portfolio covering hundreds of companies, and the fund managers between them tell you they covered 14 different letters (which is comfortably in your range of 12-18 that Morningstar's article talked superficially about), you might think you are as diversified as it's worth being.

    However, actually you have only covered 7 different letters and if it turns out that we have a really bad year for companies beginning with the letter T, you get a painful result, while if we have a really bad year for companies beginning with A you get a lucky escape.

    iglad wrote: »
    It paid a good dividend but the last dividend payment I put into Fundsmith instead of my usual share reinvestment, so I thought why not just sell as the share price was going nowhere and I get a far better return with Fundsmith and Lindsell train Global. I guess only time will tell on that one.
    I know you mentioned you invested in one fund for 20 years so are not a short term investor.

    However, it is clear that a China fund (as with most other fund types) has a good chance to grow over the long term, though funds will each take a variety of paths to get to the end goal (real terms total return).

    To look at a company or a fund and think "the share price is going nowhere, I get a better return from this other one" seems like classic short termism. Especially because: when you say "I get", you really mean "I got". You don't know what you will get, because the period over which you will get it, is only just about to start.

    Yes, you did 'get' a greater performance from Fundsmith than from China over a particular time period. But to move the China money to Fundsmith on the basis that Fundsmith 'gets' better returns, is ignoring the fact that funds with differing approaches take different results to get to the end.

    I'm not saying it makes sense for you to have a single-country emerging market fund within your portfolio, but if you hadn't mentioned holding an investment for 20 years, people might have said the attitude of "it was going nowhere I get better elsewhere" was 'symptomatic of the impatience of the kids of today, damn millennials wanting everything immediately' :)
  • iglad
    iglad Posts: 222 Forumite
    Part of the Furniture 100 Posts Photogenic
    The Avia share I had for 22 years and the bulk of what I sold was the dividend reinvested. I guess I do come across as a bit shortermism however I've got a 5 year and 10 year investment windows as I am not getting any younger.

    China was doing quite well until trump hit it with tariffs and some say it'll take a decade to sort out and I just don't have that time. Anyway I've found out that SMT has some China investments in its portfolio so I do have some exposure. The Fidelity China trust I was invested in had 151 companies in it's portfolio, which for me is far too many and apart from the loss was another reason for selling.

    Some very interesting viewpoints giving me food for thought so please keep them coming.
  • EdSwippet
    EdSwippet Posts: 1,671 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    iglad wrote: »
    Tracker funds just don't do it for me ... I'd rather have 15% growth at 0.9% fees than 5% at 0.5%.
    So would everybody. However, this presents a false dichotomy. More realistically, you have a 50% chance of growth above market (5% or whatever) at 0.75%, a 50% chance of growth below market at 0.75% fees, or a 100% chance of growth at market at 0.25% fees.
  • Prism
    Prism Posts: 3,852 Forumite
    Seventh Anniversary 1,000 Posts Name Dropper
    bowlhead99 wrote: »
    If Lindsell and Train have a strategy to invest in companies beginning with the letters L and T, while Terry 'Fund' Smith decides to invest in companies beginning with the letters T and F and S, and Baillie Gifford's Scottish Mortgage Trust decides to invest in companies beginning with the letters B,G,S,M,T while Axa Framlington's Global Technology invests in A, F, G, T, you have a portfolio covering hundreds of companies, and the fund managers between them tell you they covered 14 different letters (which is comfortably in your range of 12-18 that Morningstar's article talked superficially about), you might think you are as diversified as it's worth being.

    However, actually you have only covered 7 different letters and if it turns out that we have a really bad year for companies beginning with the letter T, you get a painful result, while if we have a really bad year for companies beginning with A you get a lucky escape.

    I think its fair to say that the managers of these high conviction funds which exclude full sectors of the market expect to underperform for certain periods. None of them hold traditional banks so if those companies had a good period then if would expect a lower performance. However, that is the key point of these strategies - to avoid those sectors and companies that don't help their performance. Trying to diversify futher with other styles of funds to me doesn't make much sense unless trying to reduce short term volatility. Too much dilution of the core idea though and you may as well go passive.
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