Portfolio review please

AnotherJoe

aroominyork wrote: »

To retain the UK allocation. If I later want to reduce the UK I can change it for a world index.

It's not really a UK allocation. It's an allocation in a handful of global industries mostly finance, pharmaceutical , oil and other extraction that happens to be HQ'd here.
Instead of geographical diversification look at smaller cos (which you are doing) and industries. I've put a fair chunk into what used to be called alternative energy then became sustainable and soon will be mainstream.

aroominyork

AnotherJoe wrote: »

It's not really a UK allocation. It's an allocation in a handful of global industries mostly finance, pharmaceutical , oil and other extraction that happens to be HQ'd here.

Indeed, which is why I am happy to be overweight UK. It is less the UK economy I am investing in through the large caps and more the global companies based here.

Instead of geographical diversification look at smaller cos (which you are doing) and industries. I've put a fair chunk into what used to be called alternative energy then became sustainable and soon will be mainstream.

Analysing industries takes me too far into the kind of active management I want to avoid. I am happy with c.30% of a region invested in small/mid caps and the ones I plan to continue holding have relatively low FE volatility scores.

AnotherJoe

aroominyork wrote: »

Analysing industries takes me too far into the kind of active management I want to avoid. I am happy with c.30% of a region invested in small/mid caps and the ones I plan to continue holding have relatively low FE volatility scores.

But you have done that by choosing oil pharma and finance as three industries to make up 25%.

bowlhead99

AnotherJoe wrote: »

But you have done that by choosing oil pharma and finance as three industries to make up 25%.

Oil, healthcare and finance make up 48% of the UK FTSE All Share. On a the global FTSE All-World index those sectors make up 36%. So that's only a 12% over-exposure. Some of it is UK-specific exposure, (i.e. general exposure to your home country's economy via e.g. Lloyds Bank shares); much of it is global (e.g. Shell or HSBC shares).

You are taking about "choosing oil pharma and finance as three industries to make up 25%" ... But it's only 48% of the 25%, and if he was using a global vehicle it would still be 36% of the 25%. So you are talking about 12% (less than an eighth) of the 25%. And we see that this VLS100 (of which the UK-listed 'overexposure' to three industries is 12% of 25%), is itself only 30% of the portfolio.

One way to look at it is that OP is using VLS100 as a cost effective filler for 30% of his portfolio. Within that 'a bit less than a third of the portfolio', a quarter is UK-stock market exposure and within that quarter of less-than-a-third, less than an eighth of the quarter of the less than a third is an 'overexposure' to those particular industries. And only if you believe that the global FTSE all world allocations are actually the 'correct' allocations.

If you multiply out the 12% of the 25% of the 30%, you get 0.9%.

So due to his choice of Vanguard product on a portion of the portfolio, OP accidentally created an overexposure - according to your subjective opinion of what the best allocation is - of less than a percent to that industry. Oh wait, it's not one industry, the 0.9% is the total of all three. So on average, for those industries that make up over a third of the global market cap between them, his choice to use VLS has given him less than a third of a percent too much.

"Analysing industries takes me too far into the kind of active management I want to avoid", he says

"But you have done that by using a cheap fund to cause three industries to each have an extra 0.3% more of your portfolio than I think you should have", you retort.

It seems like OP is maybe not the one overthinking the issue.

Thrugelmir

aroominyork wrote: »

Analysing industries takes me too far into the kind of active management I want to avoid.

If you are building your own portfolio. Then you are making actively making investment decisions. The companies you are investing in could be highly correlated for a variety of reasons. Industrial sector being just one.

aroominyork

I'm not sure what point you are making,Thrugelmir. I know which funds have a bias towards certain sectors and, without running see throughs or doing detailed analysis, I can be confident I will not have any material over- or under-exposures. Do you think I should be concerned about the kind of minor variation which Joe raised and bowlhead knocked down?

Thrugelmir

If the portfolio you have put together meets your personal objectives. Then run with it.

My personal take, With £450k at stake it's worth taking time to understand what's actually underlying the portfolio. Risks comes in numerous forms. When investments decisions go wrong the experience can be extremely painfull. (I've made plenty over the years and no doubt will make more yet).

bostonerimus

Way too many funds and far too active...but that's beating a very old drum for me.

The question I'd ask is how you intend to manage this portfolio? Are you going to set thresholds for rebalancing, let it all ride or slowly increase fixed income as you approach retirement etc. The answer will be dictated by your other assets and personal circumstances and philosophy. What you've got in your portfolio might not be as critical as what you do with it.

aroominyork

Thrugelmir wrote: »

My personal take, With £450k at stake it's worth taking time to understand what's actually underlying the portfolio. Risks comes in numerous forms. When investments decisions go wrong the experience can be extremely painfull.

I already own these funds and think I understand what's under the hood, so are there any serious misunderstandings or unseen traps? This is how I see them:
- Fundsmith. Large cap, ROCE. Overweight Healthcare, tech, consumer, but more B2B than B2C.
- Smithson. Similar to Fundsmith for the larger side of mid cap.
- Liontrust UK smaller cos. Small cap, no sectoral focus, relatively low volatility.
- Barings Europe. Mid cap, no sectoral focus, relatively low volatility. Bought when Darwell announced his departure from Jupiter European. I like Jupiter's new managers and depending on how they position the fund I may go back.
- LT Japanese. Multi cap, growth, not quite as brand-focused as other LT funds.
- Stewart Investors Asia Pacific Sus. Multi cap, focus on downside protection, broad sectorally, overweight India.
- Vanguard Global EM. Outsourced to external fund managers, blend of styles, adds risk and geographic diversity to complement Stewart Investors.
- BlueStar. Tech.

bostonerimus wrote: »

The question I'd ask is how you intend to manage this portfolio? Are you going to set thresholds for rebalancing, let it all ride or slowly increase fixed income as you approach retirement etc. The answer will be dictated by your other assets and personal circumstances and philosophy. What you've got in your portfolio might not be as critical as what you do with it.

Good question. Two answers. 1) I currently plan a three pot approach (equities, fixed interest, cash) on retirement so will invest lump sums, depending when I receive them, with that in mind. Annual rebalancing within a couple of % either way. Though who knows - interest rates might rise and we all race for annuities! 2) When the next lump sum comes in I will make a fee-based appointment with an IFA to discuss short-, medium- and long-term planning.

Linton

JohnWinder wrote: »

Can you provide the (or any) basis for your view ‘…active funds in areas where they usually outperform the index: Emerging markets; Japan; European and UK smaller companies.’ please?
As I read the recent SPIVA reports comparing active and passive funds, and assuming your investing is in GBP or EU denominated funds:


‘Despite their (emerging markets funds) notable performance over the one-year period, 87% of GBP- and 95% of EUR-denominated emerging market equity funds underperformed their benchmark over the 10-year period ending June 30, 2019.
o Additionally, on an asset-weighted basis, the EUR-denominated emerging market equity fund category underperformed its benchmark by over 2% annually over the same 10-year period.’

After 5 and 10 years, most UK small cap equity funds have underperformed their benchmarks.

Happy to oblige, but looking at real index funds rather than an unknown and untracked Index...

The only UK Small Cap Tracker I can find is iShares UK Small Cap (CUKS). You can check the performance on Trustnet: 3years: 24.5%, 5years: 51.9%. That would put it 42nd out of 48 for 3 years and 37th out of 48 for 5 years in the list of UK Small Company OEICs/UTs if it had been in that list

iShares Japan Equity
5 years:71.9%, 27th out of 59
3 years 22.4%, 28th out of 66

iShares MSCI Japan Small Cap (only index fund available)
5 years: 94.1%, 6th out of 8
3 years 24.1%, 6th out of 8

iShares MSCI EM
5 years: 41.4%, 42nd out of 83
3 years 25.5%, 44th out of 91

UBS MSCI EMU (Eurozone) Small Cap
5 years, 78.5%, 8th out of 21
3 years, 36.1%, 9th out of 25

UK Small Companies is a clear win for actives. Japan Large slight win for the tracker. Japan Small clear win for actives. EM looks pretty evenly matched. European Small Companies win for tracker - though there may be a difference between Eurozone and pan-Europe.

I have not looked at 10 years because many of the index funds were not available then.