Adding active funds

coyrls

Agile01 wrote: »

I'm looking to invest for another 20 years, trying to get more exposure to small cap through active funds.

But neither Fundsmith nor Lindsell Train (70% of your active exposure) are small cap. Decide what additional % you want allocated to active small cap and look for an active fund that will give you the exposure you require.

MaxiRobriguez

Thrugelmir wrote: »

Impact (positive upside) on portfolio is minimal.

That's due to the size of the allocation than the allocation itself. The same amount would also result in minimal gains if you added the size onto a pre-existing allocation. It's not an argument not to do it, considering there's no downside risk if the selection is used to enhance diversification.

The only argument is in transaction charges, but a handful of GBPs on sums of £10k for example isn't a profit killer.

I'm not arguing it's a good thing to do, I'm arguing it's not a bad thing to do. It's a bit of a meh thing, rather than a "you shouldn't do that."

coyrls

MaxiRobriguez wrote: »

The only argument is in transaction charges, but a handful of GBPs on sums of £10k for example isn't a profit killer.

You make my point for me, if £10K is 2.5% of your portfolio, your total portfolio would be £400k.

Agile01

coyrls wrote: »

But neither Fundsmith nor Lindsell Train (70% of your active exposure) are small cap. Decide what additional % you want allocated to active small cap and look for an active fund that will give you the exposure you require.

Apologies,
Increase in small cap along with global large cap so allocation is still the same.

Alexland

Agile01 wrote: »

I'm looking to invest for another 20 years

And what do you plan to do during those 20 years? Keep switching to the latest favourite active fund? Research suggests the longer you stay with the same active fund the greater the probability it will underperform.

Alex

MaxiRobriguez

coyrls wrote: »

You make my point for me, if £10K is 2.5% of your portfolio, your total portfolio would be £400k.

Probably should have thought about my example figure a bit more eh.

Let's make it £2k, and let's assume our made-up investor is using iWeb so the fee is a fiver.

If the growth rate is the same in both funds, the difference is like £15 after 25 years. So I ask the make the point again - there's no *harm* doing it if the small allocation is chosen purposefully, for clear reasons - perhaps a speculative fund in a specific sector, which you wouldn't want to allocate more than 2.5% to but do want some exposure.

It's not always a "don't do it".

bowlhead99

Agile01 wrote: »

If someone willing to accept risk and have 50% active portfolio then these 4 funds doesn't diversify enough globally except EM.

Do you mean they don't diversify enough globally, except EM where they do have enough diversification?

Seems to me that the Emerging Markets component within the actives would only really be through the BG Global Discovery fund, which is only about 5% EM, and BGGDF is only 20% of the actives, so overall about 1% of the actives is EM, and mostly in one country (China), which doesn't seem very broad diversification across EM.

Or perhaps you mean it's not a diversified "global ex- EM" portfolio? One question would be - what don't you like about EM? Why no EM fund?

But as for it not being very diversified: there is no point buying two high-conviction global funds like Fundsmith and LT, following the company types that they like, and then wrecking their allocation by stacking together lots of other funds which buy the 'missing' companies that FS and LT don't buy, to give you broad coverage of industries and regions. Either you like their approach or you don't.

I'm not sure what you are getting at when you say "If someone willing to accept risk and have 50% active portfolio then these 4 funds doesn't diversify enough globally". If they don't diversify enough globally to cover the areas that you want to cover through active management, why would you select them and post that they are your target?

coyrls

MaxiRobriguez wrote: »

Probably should have thought about my example figure a bit more eh.

Let's make it £2k, and let's assume our made-up investor is using iWeb so the fee is a fiver.

If the growth rate is the same in both funds, the difference is like £15 after 25 years. So I ask the make the point again - there's no *harm* doing it if the small allocation is chosen purposefully, for clear reasons - perhaps a speculative fund in a specific sector, which you wouldn't want to allocate more than 2.5% to but do want some exposure.

It's not always a "don't do it".

I don’t follow your example. Are you suggesting a portfolio with 97.5% in one fund and 2.5% in another? That would be very unusual, typically when people get down to the 2.5% level in a fund, they are looking at a portfolio with more than two funds in it. Even with a two fund portfolio you would be looking at around two transactions a year to rebalance, so I’m not sure where you get your £15 after 25 years figure. Note that you would also need to factor in the growth that would have been achieved with the savings in fees over 25 years.

[FONT=&quot]It’s not a “don’t do it” it’s a “when does it make sense to do it?” I agree that the answer to that question can be different in different circumstances. Personally I would be looking at around your original £10k figure (for an individual investment).[/FONT]

Agile01

AlanP wrote: »

Why do you want to alter your chosen asset allocation / strategy? What are you aiming to achieve?

Alexland wrote: »

And what do you plan to do during those 20 years? Keep switching to the latest favourite active fund? Research suggests the longer you stay with the same active fund the greater the probability it will underperform.

Alex

In terms of active fund allocation, Agree they are favourite funds in that sector.
If I decide to switch, I will only switch to another fund in the same sector to keep that allocation.

Prism

Why not just select a global smaller companies fund or a few smaller cap regional funds. I don't see the need for the Fundsmith and LT funds if you are happy with the Vanguard one.