Adding active funds

Linton

AnotherJoe wrote: »

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.

In principle I would agree, however things are more complex than you indicate...
- geography can be a proxy for sector allocations, for better or worse. In the UK its for the worse but for the Far East it could be for the better.
- the correlation data I get from Morningstar for my small company funds shows that they are much less correlated with global equity than large company funds. There could be two reasons for this: large companies with sites across the world are very different to small companies based in one country whose exposure to those markets is limited to sales, which are likely to have a much higher local %. Also large company shares are far more likely to be traded globally than small ones.
- If you are investing in funds like LTGE or Fundsmith you do need to take into account their sector allocations rather than leaping in and buying more tech or whatever. You will find that they are very different to index based global allocations.