Starter investor fund critique

Albermarle

It would be better IMO to buy hedged funds if one was concerned about currency risk.  Might add to the management costs, but it seems less arbitrary than the VLS approach.

The last article I read said the exact opposite ie never buy hedged funds , if you are concerned about currency risk then have more in UK funds. As we know there is no black and white with investing , it comes down to opinion !

dunroving

Albermarle said:

It would be better IMO to buy hedged funds if one was concerned about currency risk.  Might add to the management costs, but it seems less arbitrary than the VLS approach.

The last article I read said the exact opposite ie never buy hedged funds , if you are concerned about currency risk then have more in UK funds. As we know there is no black and white with investing , it comes down to opinion !

The minute I see the words "hedge funds", I start to switch off. It's getting beyond my levels of understanding or willingness to learn. The older I get, the simpler I get.

csgohan4

With the way the UK economy is doing with Brexit round the corner, plus the lions share of companies are ex UK, it would be prudent to diversify out of the home bias mentality was my rationale. The monevator article did make a good point that UK people would more like be more UK bias which is understandable. But I want to reduce exposure to this risk and have more gains in the overal majority, which at this point is the USA and possibly emerging markets like China/ India

https://www.bbc.co.uk/news/world-asia-india-53391466

The 5% I have in All caps and global growth I could  siphon to more individual sectors which make sense like Healthcare especially which not only useful and stable for an ever ageing earth population, but hopefully rides out bear markets as you will always need to see a Healthcare profession or require the resultant R&D/ bench to bed techs e.t.c

Certainly more to think of in my starter portfolio. I will look to move away from Vanguyard, I chose them as they were the 'safe' reliable choice but there were other global funds I did consider like L+G and fidelity, so in ways spoilt for choice

Articles often mentioned about using ETF's first before using IT, I chose SMT due to their reliability and range of Tech, but it is heavy in Tesla which can be a bit volatile given how the current economy and their progress in producing a sustainable/affordable product

I have shyed away from ETFs at present due to the theoretical risk from securities lending, plus some are more expensive than Index funds.

However the Vanguard VWRL looks like a good punt, again spoilt for choice in someways and has a decent coverage for China as well

https://monevator.com/physical-etf-risks/

csgohan4

AnotherJoe said:

I would suggest the following tweaks:
Replace some of the global fund with a small companies global fund, a managed not an index. (Since indexed small cos don't seem to do that well)
Reconsider the move to reducing equities before retirement. If you will be investEd for say 30 years after retirement, that's too early. Maybe move 3-5 years worth of spending into cash or cash equivalents. 

Consider long term futures and what industry sectors will do well and invest a small amount in them instead of EM. Geographic diversification is overdone IMO, plus it's too random, better is sector diversification. The two I have are "alternative" energy (which will be mainstream in 10 years let alone 30), and healthcare. As people get richer and older they will spend more on healthcare. There may be others you might place your bets on. 

care to share the two index funds for your two coverages?

Also I put my equities in EM and SMT, due to the golden rule of not knowing more than seasoned professionals who do this for living, in a way I am hedging my bets by spreading the risk byt going passive, rather than go on specific country/ geographic locales, also it is financially more prohibitive to do so in focusing on funds for Japan or soley China, with OCF upwards of 0.8 e.t.c

Thrugelmir

With emerging markets and China in particular I'd always opt for active management.  A very different world when it's comes to corporate governance and quality of financial reporting. Let alone the attitude towards external shareholders. 

csgohan4

Thrugelmir said:

With emerging markets and China in particular I'd always opt for active management.  A very different world when it's comes to corporate governance and quality of financial reporting. Let alone the attitude towards external shareholders. 

Interesting, I see the turnover rates for Active funds can be higher and adds to costs hence why OCF can be higher
https://www.vanguardinvestor.co.uk/investments/vanguard-global-emerging-markets-gbp-accumulation-shares/portfolio-data?intcmpgn=equityemerging%20markets_globalemergingmarketsfund_fund_link

Looks interesting as an active EM with decent coverage.

Sorry quoting Vanguard, I find their summaries so much easier to read than morning stars, I have no shares or vested in them, at least not yet

dont_look_now

IMHO, having no home bias is a perfectly defensible position. However, your portfolio isn't neutral about the UK: it has an away bias instead. The UK stock market contains about 5% of the investible market capitalization of world stock markets, and you only have a fraction of 1% (of your 70% allocation to equities) in UK shares. That's going a bit far

Relatedly, 2 of your funds, Global All Cap and Developed World ex-UK, have a big overlap in what they hold. You probably only need 1 of them. The Global All Cap is the broader fund, covering all the same things the Developed World ex-UK fund does plus the UK and Emerging Markets (and a few more small cap shares, globally). Omitting emerging markets isn't a problem, since you have a separate fund covering them. But you don't for the UK.

One possible way to be more neutral about UK shares would be to drop the Developed World ex-UK fund, and put all 55% in the Global All Cap fund. Or to put the 55% in a Developed World (including UK) fund, since you are covering Emerging Markets separately.

Another way would be to keep the 50% you have in the Developed World ex-UK fund, but to replace the 5% in the Global All Cap fund wit 5% in a UK-only fund, such as a FTSE All Share Index tracker (if you want to stick with being invested mainly in the largest companies, as you're doing at the moment) or a FTSE 250 Index tracker (to use a mid-cap fund for the UK allocation, which some investors prefer).

One general comment is that all your equities are predominantly in large companies. That is a defensible approach, but some prefer to put part of their equities in mid- or small-cap shares. E.g. by using a FTSE 250 tracker for the UK, or putting a small allocation in a global small cap fund.

Although I'm questioning the details, I'm being picky . What you have is perfectly workable, and not too complex. I do think it's a good idea to bat around different ideas a bit before committing to it; mainly so that you will be more committed to, and understand better, whatever you decide to go with.

coyrls

dunroving said:

Albermarle said:

It would be better IMO to buy hedged funds if one was concerned about currency risk.  Might add to the management costs, but it seems less arbitrary than the VLS approach.

The last article I read said the exact opposite ie never buy hedged funds , if you are concerned about currency risk then have more in UK funds. As we know there is no black and white with investing , it comes down to opinion !

The minute I see the words "hedge funds", I start to switch off. It's getting beyond my levels of understanding or willingness to learn. The older I get, the simpler I get.

"Hedge Funds" and "hedged funds" are two different things.

NedS

Given your investment time frame, I would increase equities and reduce your bond holdings. With 35-40 years I'd be 100% equities, maybe 5-10% cash (or near cash) to buy the dips or take the edge off the volatility, but I wouldn't want to hold 30% bonds.

I'd also go 80% globally diversified index tracker and 20% global smaller companies and/or other satellite funds for higher returns (your SMT selection could sit within this allocation). I'd definitely pick an actively managed smaller companies fund - I personally like the ASI (Aberdeen Standard Life) global smaller companies fund and SLS Investment Trust for UK Smaller Cos - rather than a passive index tracker for this.

Assuming the volatility of the above strategy falls within your risk profile, your annual cash inflows will allow you to take advantage of any dips along the way.

csgohan4

dont_look_now said:

IMHO, having no home bias is a perfectly defensible position. However, your portfolio isn't neutral about the UK: it has an away bias instead. The UK stock market contains about 5% of the investible market capitalization of world stock markets, and you only have a fraction of 1% (of your 70% allocation to equities) in UK shares. That's going a bit far

Relatedly, 2 of your funds, Global All Cap and Developed World ex-UK, have a big overlap in what they hold. You probably only need 1 of them. The Global All Cap is the broader fund, covering all the same things the Developed World ex-UK fund does plus the UK and Emerging Markets (and a few more small cap shares, globally). Omitting emerging markets isn't a problem, since you have a separate fund covering them. But you don't for the UK.

One possible way to be more neutral about UK shares would be to drop the Developed World ex-UK fund, and put all 55% in the Global All Cap fund. Or to put the 55% in a Developed World (including UK) fund, since you are covering Emerging Markets separately.

Another way would be to keep the 50% you have in the Developed World ex-UK fund, but to replace the 5% in the Global All Cap fund wit 5% in a UK-only fund, such as a FTSE All Share Index tracker (if you want to stick with being invested mainly in the largest companies, as you're doing at the moment) or a FTSE 250 Index tracker (to use a mid-cap fund for the UK allocation, which some investors prefer).

One general comment is that all your equities are predominantly in large companies. That is a defensible approach, but some prefer to put part of their equities in mid- or small-cap shares. E.g. by using a FTSE 250 tracker for the UK, or putting a small allocation in a global small cap fund.

Although I'm questioning the details, I'm being picky . What you have is perfectly workable, and not too complex. I do think it's a good idea to bat around different ideas a bit before committing to it; mainly so that you will be more committed to, and understand better, whatever you decide to go with.

Thanks for the input, that's why I have put my first stab in Funds on here to be picked apart from those who have done this longer.  Even countless days spent reading I am still learning and just trying to apply to my own risk profile and preferences can be a challenge

I see the weakness in my picks do lack small caps and UK which I had hoped would have been picked up a little by the dark horse of SMT. I will probably drop SMT and All caps  to small caps and UK  Mid cap index (To cover both int Small caps and Domestic Medium caps and Uk at the same time) and change  my EM choice to a more active fund. 

Although not sure how I will fit specific EM funds to focus on specific sectors such as health, perhaps a 5% active fund and another 5% on a specific sector