Portfolio review please

aroominyork

Thrugelmir wrote: »

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.

Yes, understood. So given the known unknowns and unknown unknowns, how do analyse an active portfolio to ensure any warnings bells sound? I assume the easiest way, Trustnet's portfolio tool providing an overall FE score, is of little use since it is geared to the recent past and wouldn't pick up correlations which are sitting and waiting for their moment to strike.

bostonerimus

AlanP wrote: »

And, I think that only applies to US funds / investors from memory so those of us in the UK that have bought Vanguard funds are not shareholders.

True, Vanguard is owned by the US domiciled funds and ETFs.

Thrugelmir

aroominyork wrote: »

Yes, understood. So given the known unknowns and unknown unknowns, how do analyse an active portfolio to ensure any warnings bells sound?

Warning bells against what precisely?

aroominyork

Thrugelmir wrote: »

Warning bells against what precisely?

An overly correlated portfolio, sufficiently diversified in geography, market caps etc. but not in less obvious areas.

Linton

aroominyork wrote: »

Yes, understood. So given the known unknowns and unknown unknowns, how do analyse an active portfolio to ensure any warnings bells sound? I assume the easiest way, Trustnet's portfolio tool providing an overall FE score, is of little use since it is geared to the recent past and wouldn't pick up correlations which are sitting and waiting for their moment to strike.

Correlations surely are for the long term and pretty obvious. For example global oil companies all selling into the global oil market. I would have thought any correlation suddenly turning up would have to be pretty niche and limited in effect. Significant correlation will arise simply by your underlying investments being equities - not a lot you can do about that except look for non-equity investments.



The only answer to dealing with an unknown future is to diversify widely and ensure that no single factor has an unduly dominant position in your portfolio. This applies both for the high level asset classes and within each class.


The trustnet FE score is one indicator. Another source of data is available from Morningstar portfolio which will produce monthly reports similar to on-request Xray. However the monthly reports also include the correlation factors between each of (up to 10 IIRC) funds in a portfolio

bostonerimus

aroominyork wrote: »

An overly correlated portfolio, sufficiently diversified in geography, market caps etc. but not in less obvious areas.

There's a lot of numerology that goes on in an attempt to reassure the investor. The stock market is a chaotic system and we hope that the long term trend is upwards. It's important to give into that reality and realize that whatever we do with the tiller we are also going to be at the mercy of the currents to a large extent and getting on the right boat going in roughly the right direction at the start is important.

You can go batty juggling a portfolio of numerous funds looking for overlap and correlations which is why I advise owning just a few index funds and doing some simple rebalancing at predetermined thresholds and don't sweat the slice and dice fine detail or let someone else deal with it and own a multi-asset fund.

Thrugelmir

aroominyork wrote: »

An overly correlated portfolio, sufficiently diversified in geography, market caps etc. but not in less obvious areas.

Investment of any kind comes with risk. Risk has far more facets than people assume. Derisk your portfolio to a level that you are comfortable with and meets your personal objectives. The aim needs to be not to lose capital. Rather than how much you can potentially gain.

aroominyork

OK, thanks guys. So I’m happily back to where I was a couple of hours ago – I know the general positioning of the funds and am content not to start analysing whether I am a fraction overweight in carburettor manufacturers. I took a two week trial of Morningstar’s x-ray a while back and from what I remember it didn’t tell me anything I didn’t expect to see. Boston, I take your point about going batty and your approach is one way (and it’s possibly the best); the other is to figure you are in the right general area of the uninformed

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over-analytical spectrum and are positioned well enough.

segovia

aroominyork wrote: »

I’d appreciate a review of the equity part of my portfolio before my planned move from all invested in active funds*, to a passive core with satellite active funds. This is a combination of my and my wife’s SIPPs and ISAs totalling around £450k intended for retirement in about 10 years. We may retire before then but I will have a lump sum (currently invested in property and low risk assets) coming in beforehand so I consider these SIPPs/ISAs a medium-term investment. I have stripped out the bonds as it is only the equity allocation I am interested in at the moment.

I started DIYing in summer 2017 intending to give it a couple of years to see how I did against the index. I’ve outperformed by a few percent but this year I’ve been gradually de-risking and this move is another step in that process, the reasons being:
- It is currently too growth oriented. I have added a couple of value oriented funds but feel I have been trying to balance two ends of a see-saw and it would be better to sit closer to the middle.
- I have around 40% in Fundsmith/Lindsell Train funds/ITs (it was about 55% until recently). I remain a fan of their approach but, in case the tide turns against them, I do not want to feel over-exposed.
- With active funds there is too much temptation to meddle, especially in a bear market. I want a portfolio that discourages this.
- And overall, I want a portfolio where I am not trying to be too clever. If the markets crash and I come out worse than average, I want to feel I was sensibly positioned and it was more bad luck than bad judgement. Sounder sleep.

I plan for active funds in areas where they usually outperform the index: Emerging markets; Japan; European and UK smaller companies. I will reduce but not ditch my Fundsmith/LT holdings. Below are my current and my planned portfolios, keeping similar geographic allocations of UK 16%, Developed Europe 14%, US 39%, Japan 10%, Emerging markets 13%, Developed Asia Pacific 8%.

Current portfolio:
- Fundsmith 17%
- Artemis Global Growth 10%
- Smithson IT 10%
- S&P 500 ETF, hedged (XDPG) 18%
- Lindsell Train UK 5%
- Liontrust UK Smaller Companies 5%
- Barings Europe Select 6%
- Lindsell Train Japanese 9%
- Stewart Investors Asia Pacific Sustainability 8%
- Vanguard Global Emerging Markets 8%
- BlueStar Israel Technology ETF 4%

Proposed portfolio:
- Vanguard LifeStrategy 100 30%
- Fundsmith 12%
- Smithson IT 7%
- S&P 500 ETF, hedged (XDPG) 13%
- Liontrust UK Smaller Companies 5% (a bit more than I want but given its 3% bid-offer spread I will hold on and let it reduce when I add new money to other funds next year)
- Barings Europe Select 6%
- Lindsell Train Japanese 7%
- Stewart Investors Asia Pacific Sustainability 8%
- Vanguard Global Emerging Markets 8%
- BlueStar Israel Technology ETF 4% (geographically included in Developed Asia Pacific, and bought in Dec 2017 just before MiFID II put it out of reach – currently nicely up 35%)

Thanks in advance.

* A very late edit. It's not currently all active. XDPG is an index fund.

Seems overly complex to me, stick with 1 or 2 funds, 3 max.

talexuser

segovia wrote: »

Seems overly complex to me, stick with 1 or 2 funds, 3 max.

Depends on the amounts. You may not want a million spread between only 2 or 3 funds. Personally I have a max of 50 to 70k in any one fund. For smaller amounts probably fair enough but not as an absolute.