Adding active funds

itwasntme001

Smells a bit like performance chasing to me. My advice would be to stick with the vanguard fund, it has the appropriate amount invested in small/mid caps & EM be definition of a passive fund. I would think a long time horizon like 20 years sticking to active funds would greatly increase the odds of these active funds under-performing the vanguard fund. Unless of course you decide to performance chase again to future "favorite" active funds at that time, in which case it would probably be more dangerous to your returns.

Thrugelmir

MaxiRobriguez wrote: »

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.

Underlying performance will be driven by a relatively few number of individual companies. The greater the number of individual holdings and the lower their weighting within ones portfolio. The less impact there'll be from a sizable price change of a single share.

bostonerimus

Agile01 wrote: »

Hello all,
I started my investment journey over year ago and invested 100% into Vanguard global all cap.

Now I’m looking to add some active funds using this year ISA allowance:

Target portfolio:
50%: Passive (Vanguard global all cap)
50%: Active (
35%: Fundsmith Global equity
35%: LIndsell train equity
20%: BG global discovery
5%: BG Japanese small
5%: Marlborough UK micro cap)

Any feedback/criticism appreciated Cheers

Adding a couple of currently hot large cap funds isn't going to change your allocation much towards small caps or EM; what it will do is bias your portfolio to the particular philosophy of the active fund manager such as value etc.

If you think that by overweighting mid-cap, small-cap or EM on a capitalization basis you are going to get more return without the associated risk then I urge you to read about French Fama and DFA funds and develop a portfolio rather than picking some "greatest hits". Such portfolios need to me actively managed by you to get the best out of them.

Agile01

Thank you all for valuable feedback.
Also pardon my English, as it is not my first language.

After going through all the comments, it seems sensible to stick to VG all cap index fund. At least for next few years until my investment knowledge grows and have a strategy in place before I decide to alter my portfolio.

For now, I’m just curious to know more on ‘fashion investing / performance chasing investing / popular funds’ because it is always mentioned when these popular funds are posted by novice investor.

If someone has core global index fund and would like to boost their portfolio by adding active small cap fund in region Japan and UK.
After sector and allocation are decided, it is time to search for funds to cover that sector in Morningstar.

Let’s take small cap in Japan, Morningstar returns 7 funds.
Decision to pick which fund:
Fund 1: BG JP small cap which has been performing well for last 5 years (154.7%) with highest FE 176
Fund 2: Aberdeen standard SICAVI which has performed better than BG in last 1 year with lowest FE 135
Fund 3: M&G which has performed worse than all other 6 funds in last 1 year (-10%)
Of course, there are other 4 funds as well, I picked above 3 for e.g.

Now if I
Pick fund 1: Am I fashion investor? because it is a greatest hit/popular fund in this sector
Pick fund 2: Am I performance chaser? because it has performed better in last 1 year than others
Pick fund 3: Am I risk taker/gambler? because I’m getting at 10% discount

I’m asking your general view, if you need to pick fund in this sector, which one you will pick OR why you won’t pick GB JP when it has performed better in last 5 years?

P.S. I'm not going to pick fund based on your feedback . I'm 100% VG for next few years.

Prism

Agile01 wrote: »

T
Let’s take small cap in Japan, Morningstar returns 7 funds.
Decision to pick which fund:
Fund 1: BG JP small cap which has been performing well for last 5 years (154.7%) with highest FE 176
Fund 2: Aberdeen standard SICAVI which has performed better than BG in last 1 year with lowest FE 135
Fund 3: M&G which has performed worse than all other 6 funds in last 1 year (-10%)
Of course, there are other 4 funds as well, I picked above 3 for e.g.

Now if I
Pick fund 1: Am I fashion investor? because it is a greatest hit/popular fund in this sector
Pick fund 2: Am I performance chaser? because it has performed better in last 1 year than others
Pick fund 3: Am I risk taker/gambler? because I’m getting at 10% discount

I’m asking your general view, if you need to pick fund in this sector, which one you will pick OR why you won’t pick GB JP when it has performed better in last 5 years?

P.S. I'm not going to pick fund based on your feedback . I'm 100% VG for next few years.

I start off by doing what you say here - sorting the funds from a particular sector. Then I begin to investigate the details of those funds. I look at sector breakdown (from Morningstar), I read several years of fund and managers reports, I try and understand a little of the business of the top companies that fund invests in, I Google the fund manager and read/watch what they have to say. I look at past performance of the fund during downturns (such as end 2018 or 2015). I check the fund costs and look at the amount of transactions. I then usually put the fund on a watchlist for at least 6 months before I decide.

If I can't be bothered doing that or the research isn't going anywhere useful then I don't invest. Maybe use a passive instead

AnotherJoe

Here's my take (and someone posted a link to a very interesting paper the other day on the demise of geographic allocation but i stupidly didn't benchmark it).
Edit m here we go https://www.msci.com/www/research-paper/the-new-classic-equity/015403216
Forget geographic allocations, because any decent size companies are global these days. So for example your Japanese fund will likely have Sony, Toshiba, Honda, Toyota etc in it. But they will be in Vanguard global anyway. Even your micro UK likely are companies that due to the internet are operating globally. And the Japanese as well.

So if you wish to diversify away from global funds into active, then choose specialist like small cap, or specific industry sectors say perhaps healthcare, sustainable energy or whatever floats your boat.
In your case I'd probably therefore tweak your allocation by replacing Japanese small
and Marlborough UK micro cap with industry specific funds instead.

mark13

In my portfolio I have a Japan fund. It has perforned welll and is one of the funds I regularly top up.

DairyQueen

FWIW I hold Artemis US Smaller Companies, TB Amati UK Smaller Companies and BG Shin Nippon in my portfolio. I am more interested in the 5+ year performance than the current year. Any sustained underperformance and I would consider switching any of these to another fund in the same sector (geography and smaller companies).

These actively-managed funds provide diversification from the large companies well-represented in my core passives.

All of my actively-managed satellite funds are chosen in order to either: a) cover areas of the market not represented (or under represented) in my core passives or b) ringfence specific percentages of the portfolio for particular purposes. For example, the investment in RIT Capital Partners is destined for drawdown in 5-10 years.

I would choose Fundsmith or LT (but not both) as they have similar philosophies. I do hold Fundsmith but tbh there isn't any justification for this as I hold the same companies in my passives. That I haven't sold indicates that I have yet to pass 'Investments 200'. I am risking losing-out when the markets no longer favour FS's strategy.

I didn't invest in (actively managed) satellites until my portfolio was well into six figures and they represent only 16% of my portfolio.

AnotherJoe

mark13 wrote: »

In my portfolio I have a Japan fund. It has performed well and is one of the funds I regularly top up.

.... and your point is ?

seacaitch

AnotherJoe wrote: »

Edit m here we go https://www.msci.com/www/research-paper/the-new-classic-equity/015403216

Readers may already be aware and/or it may already have been mentioned, but FWIW, T. Smith referenced this paper last year in the PR lead up to his smaller/mid-cap DM IT launch:

https://www.fundsmith.co.uk/news/article/2018/08/31/financial-times---busting-the-myths-of-investment

...and it's likely the rationale behind the 3 fund (DM large cap [open-ended], DM small cap [closed end], EM [closed end]) structure that he's established.