Starter investor fund critique

bowlhead99

csgohan4 said:

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

You mention the 'golden rule' of letting the seasoned professionals allocate the investments because they do it for a living, but at a high level you are constructing your own choice of portfolio (e.g. 50% global ex UK, 5% global inc UK, 10% EM, 5% SMT) rather than letting professionals decide it. For EM you mention hedging your bets by going passive, but of course SMT is the opposite of going passive (highly selective, with 80% of their money in the top 30 holdings).

It's not obvious that emerging financial markets will be super-efficient and cause the emerging markets index to be unbeatable through research; if you believe that adding SMT can tilt your portfolio towards an 'edge' better than adding extra weighting to indexes of your favourite sectors or regions, why would it not also be possible for active managers in emerging markets to follow through on their track record of doing that too?

Also, though active management for emerging markets or smaller companies is more expensive than passive indexes, it's not necessarily 'prohibitive' to do that. For example, you're willing to pay ongoing charges of close to 0.4% for SMT rather than close to 0.2% for a more passive global investment, because the long term track record shows that in the good years they can outperform the index significantly (bearing in mind that the historic SMT fees which have been taken off in reporting its historic performance, were higher than the current levels, while it still outperformed comparable indexes by some margin). So fees are not automatically bad.

csgohan4 said:

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

Turnover for an active fund will nearly always be higher than an index because it measures departure from an index through the buying and selling of assets during a year. A largecap index will not really have any turnover other than new admissions or exits where companies are admitted or kicked out once a quarter, so the fund manager is only really managing liquidity to match investors' subscriptions and redemptions when investors join or leave the fund. The requirement to buy and sell can add to a fund's transaction costs which reduce overall performance, though transaction costs are not a part of OCF (OCF being ongoing operating expenses including fixed management fees but excluding borrowing costs and performance fees where applicable). 

The OCF will be higher for active funds largely because the fund managers will expect to be paid for the work they do in evaluating current and potential holdings for the fund, while if all the investors are paying them for is matching an index it will largely be controlled by computer, and investors would not accept high management fee rates when they are not paying for any active management.


As an aside, thinking about sector or industry allocation you'll always get overlap when you mix managers and themes and regions and indexes.  For example, the two biggest stocks in the iShares emerging markets index were Alibaba and Tencent, together representing some 14% of the index as of last week. Most EM funds will hold them even if they are not following an index approach, because they are the two biggest companies in those markets by investible free float.  SMT also likes them, and in their last factsheet (May) had over 11% of its investments in just those two companies. 

AnotherJoe

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.

Just to confuse you more, there are Hedge Funds, and hedged Funds.

The two are very different. Unless you had a hedged Hedge Fund

AnotherJoe

Albermarle said:

Vanguards Target retirement funds looks enticing but I am not comfortable with the 15% of the UK exposure when it only makes up a tiny pro proportion of the word economy and therefore more risk

Not everyone would agree with that view . Some would even say the UK portion should be higher, assuming you would want to take the retirement income in Sterling.

My own simplistic view is that Vanguard understand these things better than me, and if they think a certain medium level of UK exposure is good, then it would seem to be  a good guideline at least .

Vanguard haven't understood anything other than "25% UK exposure" sounds good to people who think they are getting (and think its useful to have) UK exposure, rather than a random selection of the top of the FTSE100, all of which are global organisations which happen to domiciled here and thus arent really UK exposure anyway.. They also dont think "a certain medium level of UK exposure is good" other than in terms of marketing their fund.

The mere fact its 25% tells you what you need to know (25% not 15% as above poster said unless its changed very recently). had they done deep analysis it wouldnt be 25%. It would 19.4% or 34.6% or some other more precise number.

25% is just an easy round number for marketing.

bowlhead99

AnotherJoe said:

The mere fact its 25% tells you what you need to know (25% not 15% as above poster said unless its changed very recently). had they done deep analysis it wouldnt be 25%. It would 19.4% or 34.6% or some other more precise number.

25% is just an easy round number for marketing.

The 15% referred to by the above poster would relate to a mixed asset fund where 15% of the fund is in UK listed equities but not as much as 100% of the fund is invested in equities (e.g. Target Retirement Date funds he mentioned, or LifeStrategy x% Equity series); giving a UK allocation that's greater than 15% of the equities held.

When they launched their LifeStrategy series in 2011 the proportion of total equity allocated to UK indices was 40%, this was reduced to 25% later. If they were doing 'deep analysis' to come up with 25% or something hyper-specific such as 19.4% or 34.6%, it would be something that would change from time to time, just as the ratios in mixed asset funds offered by their rivals using non-static allocations change from time to time - i.e.  in line with ongoing data and the measures they use for assessing volatility and correlation of assets.  For LifeStrategy, Vanguard deliberately built a simple product where the ratio would be considered 'acceptable' by the customer buying it, and the UK/exUK and debt/equity ratios could stay constant, to help people who wanted static allocations (whether as a point of principle or using it as the core of a portfolio with something else overlaid around it) and to make performance comparisons straightforward.

dunroving

coyrls said:

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.

I had a feeling somebody would tell me that! 

Need to take a look at what this means then - although I have been finding some "hedged" funds in my other research today, so I think I'm getting a handle on it. Thanks for the heads-up. 

csgohan4

my own research has led me to two active funds for emerging markets and within my price range
Baillie Gifford Emerging Mkts Gr B Acc
https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/b/baillie-gifford-emerging-markets-growth-b-accumulation
 Baillie Gifford Pacific B Ac www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/b/baillie-gifford-pacific-class-b-accumulation

With the former a more even spread across the emerging markets, obvious hence the name. I like it has a decent amount South Korea too. 

Both had a reasonable track record, although who knows for the future. 

Although this fund:
Baillie Gifford China Fund B Accumulation
https://www.morningstar.co.uk/uk/funds/snapshot/snapshot.aspx?id=F000002NAB
Would make it too uneasy for me to punt it all on China but looks good if wanting that sort of risk

In terms of small caps will be updating on here. 

But I wanted to check what everyone else is view on domestic equity say Ftse All share for the UK over say Emerging markets or global caps

NedS

csgohan4 said:

But I wanted to check what everyone else is view on domestic equity say Ftse All share for the UK over say Emerging markets?

Both have been a drag on returns in recent years. Who knows how they will perform going forwards. I would just pick a globally diversified index tracker that has a little of both in the mix.

csgohan4

just having a quick look on energies:
https://www.morningstar.co.uk/uk/screener/fund.aspx#?filtersSelectedValue=%7B%22categoryId%22:%7B%22id%22:%22EUCA000535%22%7D,%22ongoingCharge%22:%7B%22id%22:%22:BTW:0.5:1%22%7D%7D&page=1&sortField=gbrReturnM60&sortOrder=asc

Seems their taking a nosedive, not sure why or was it already brewing before covid.


But might a good time to buy at reduced prices

In terms of healthcare:
AXA Framlington Health Z GBP Acc
Polar Capital Hlthcare Blue Chip S Ac...

Both I have seen seem reasonable with a decent track record, although the tracking error is not quite as tight as I would like, but then not many are in some ways

For biotech:
AXA Framlington Biotech GBP Z Acc
looks like a good punt with Gilead amongst the mix who are involved with vaccine development for Covid as well

AnotherJoe

csgohan4 said:

just having a quick look on energies:
https://www.morningstar.co.uk/uk/screener/fund.aspx#?filtersSelectedValue=%7B%22categoryId%22:%7B%22id%22:%22EUCA000535%22%7D,%22ongoingCharge%22:%7B%22id%22:%22:BTW:0.5:1%22%7D%7D&page=1&sortField=gbrReturnM60&sortOrder=asc

Seems their taking a nosedive, not sure why or was it already brewing before covid.

Wrong energy. That seems to be the entire energy sector, so will contain a massive amount of oil and coal which are dead as far as I'm concerned. 

. I'm looking at what is called generally renewables - solar, hydro, wind. The investments I'm in are INRG and TRIG. Very different sides of the same coin, one pretty much guaranteed 5% (but the shares can go up or down) the other subject to general vagaries if shares and low dividends , oh and just remembered I also bought Oersted which has done really well. 

In terms of healthcare:
AXA Framlington Health Z GBP Acc
Polar Capital Hlthcare Blue Chip S Ac...

Both I have seen seem reasonable with a decent track record, although the tracking error is not quite as tight as I would like, but then not many are in some ways

For biotech:
AXA Framlington Biotech GBP Z Acc
looks like a good punt with Gilead amongst the mix who are involved with vaccine development for Covid as well

My biotech exploration didn't seem to go well, just about broke even, so I moved into general healthcare which includes some biotech. . I've got WWH for that can't recall if I checked out Polar and Axa when I was choosing I'll havea look and compare. 

kinger101

I've held Schroder Global Healthcare in the past and it wasn't too shabby, but L&G do a healthcare/pharma tracker if you want something passive.