Scottish Mortgage Trust

dont_look_now

Username999 said:

dont_look_now said:

This is one reason why I hold a "Total Market" tracker for the US, not an S&P500 tracker. So my US tracker already holds Tesla, at its market weight, and its S&P500 inclusion will be a complete non-event for me.

(Note: "total" doesn't really mean "total", but it does mean including any company of significant size, plus some of insignificant size.)

This one?
https://investor.vanguard.com/mutual-funds/profile/overview/VTSMX/portfolio-holdings

Not quite. It's https://www.vanguardinvestor.co.uk/investments/vanguard-us-equity-index-fund-gbp-inc/portfolio-data (similar, but more accessible for UK investors)

bowlhead99

Audaxer said:

sg1000 said:

Audaxer said:

sg1000 said:

I have read all these comments with much interest...all enlightening.  The drop of just under 7% today means SMT is no longer 25% of the portfolio, so I can rest easy, whilst trying to build up a core fund (HSBC Global Strategy).

That's good, but are you regretting not rebalancing by selling some SMT when it was 25% of your portfolio?

Not really, Audaxer. Haven't sold anything in the ten years I have been "investing", albeit I started at a small monthly drip feed.  I'm not looking to crystalise anything for at least another eight years....so it has time to recover.

If SMT recovers and shoots up again and becomes say, 30% or more of your portfolio, it would most likely be beneficial to you to rebalance by selling some of SMT and buying more of other funds/ITs in your portfolio to get back to your preferred asset allocation.

This presumes the OP actually has a 'preferred asset allocation', rather than a somewhat haphazard mish-mash of funds at all sorts of random weightings with nothing ever sold.

OP: 'I have a lot in SMT which has gone up a lot and dominates my portfolio, should I consider rebalancing?'

Forum: 'you should have a sensible portfolio allocation and yes you should rebalance from time to time, if you actually have a sensible allocation to rebalance towards - but if you don't there is no point, so it could be fine'.

OP: 'ah well it has dropped in value without me selling, so that's solved the problem'.

Forum: 'don't you wish you had reduced your allocation when you had a really high allocation to it at high prices, you would have banked a good return to invest in other things and could then rebalance back towards it if/when it falls more than the other stuff?'.

OP: 'nah, I never sell, it's fine as I don't really have a strategy or an allocation plan because I don't need the money for a while'.

No offence intended with the paraphrasing, but we do often see people on the forum to ask questions, get a range of views and then just go ahead with what they were going to do anyway because it's easier not to make changes - because to make changes towards a strategy you need to have some sort of plan or strategy in the first place.

If the plan is just, 'I'll just buy a bunch of funds that I like the sound of, with essentially random weights, hold them and some will go up and down more than others and if they go down they'll hopefully go up again if I leave them long enough', then it's difficult to comment on what should be done, and arguably nothing ever needs to be done.

Because there would never be a particularly good time to buy, sell, add more or reduce from any particular area of focus; and there can never be an over- or under-exposure to a particular industry sector, region or investing style, because within the haphazard nature of it all is simply accepted that some bits will go up and down more than others and you don't mind how much of what, you end up with.

badger09

@bowlhead99

You know (me) us so well

sg1000

No offence taken, bowlhead.  Some people know more than others across all fields of expertise.  I will continue to listen and, hopefully, learn something in relation to this one.

Moe_The_Bartender

Aminatidi said:

I was considering a small 5% or so position in this so the 7% drop today certainly has me thinking.

It's at a high premium at present compared to its average. Not the right time to buy for me. One for the watchlist.

Thrugelmir

sg1000 said:

bowlhead99 said:

Audaxer said:

sg1000 said:

Audaxer said:

sg1000 said:

I have read all these comments with much interest...all enlightening.  The drop of just under 7% today means SMT is no longer 25% of the portfolio, so I can rest easy, whilst trying to build up a core fund (HSBC Global Strategy).

That's good, but are you regretting not rebalancing by selling some SMT when it was 25% of your portfolio?

Not really, Audaxer. Haven't sold anything in the ten years I have been "investing", albeit I started at a small monthly drip feed.  I'm not looking to crystalise anything for at least another eight years....so it has time to recover.

If SMT recovers and shoots up again and becomes say, 30% or more of your portfolio, it would most likely be beneficial to you to rebalance by selling some of SMT and buying more of other funds/ITs in your portfolio to get back to your preferred asset allocation.

This presumes the OP actually has a 'preferred asset allocation', rather than a somewhat haphazard mish-mash of funds at all sorts of random weightings with nothing ever sold.

The original question was: Scottish Mortgage Trust has performed so well since the downturn that it is now 25% of my portfolio.  Should I be considering rebalancing?

Would you buy the underlying stocks held by SMT at current prices? 

bowlhead99

sg1000 said:

OP: 'I have a lot in SMT which has gone up a lot and dominates my portfolio, should I consider rebalancing?'

Actually, not quite correct.  It was hitting 25%, not quite dominating. "Dominating in my mind would be over 50%

You'd described the portfolio as one in which SMT was 25%, the next 3 funds in aggregate were 31%, and the remaining funds were 2% to 4% each (so there are 11 to 21 of them).  

If the portfolio is one in which you have a quarter in SMT - which is at least twice as big as anything else - and the rest is made up of perhaps 15 to 20+ other things, then the overall return of 'what happens to the portfolio' would be dominated by 'what happens to SMT', being 10x the size of the smallest holdings.  But yes, how we describe it is just semantics

OP: 'ah well it has dropped in value without me selling, so that's solved the problem'.
Your point?

Presumably you were originally asking about whether you should rebalance the position in SMT because its rapid growth had caused it to take a position where it had a really big influence on your overall portfolio of 15-20 other holdings.

In that scenario a useful thing to do could be to sell a bit, and buy more of the other things so that you have the same overall amount of money but spread around your assets so that SMT no longer has such a huge influence on your overall return. 

My tongue-in-cheek comment was that having SMT lose a chunk of value overnight so that you lose a couple of percent of your portfolio (almost the same overall effect as losing the entirety of your smallest holding) is something that helps to 'solve' the problem of SMT having a dominant influence on your portfolio... but it has done it in the least nice way possible because its strong downwards revaluation caused you to lose real overall value.

The risk and magnitude of that potential outcome was presumably what you were hoping to avoid by the idea of rebalancing and reducing its influence - so while the portfolio's significant skew to SMT has been reduced (which was an outcome you were considering) it has been done at a cost to overall wealth (which was the outcome you were hoping to avoid), so it's the worst way of having the problem solved for you.

The question was simple.  Whether I am doing the right thing or not in relation to the whole portfolio wasn't asked , or an opinion requested on.

As you mentioned, your initial query was "Scottish Mortgage Trust has performed so well since the downturn that it is now 25% of my portfolio.  Should I be considering rebalancing?"

The two sentences give a backstory - which is about an asset rising in value in relation to the rest of the whole portfolio - and a 'should I...' question about whether you ought to consider rebalancing so that the asset will return to being a smaller piece in relation to the whole portfolio.

So that's literally a question about whether the proposed course of action to change the weighting of one asset in relation to the whole portfolio is the right thing to do in the context of that portfolio.  To expect an answer which doesn't consider whether a change in holding is a good thing 'in relation to the whole portfolio' because you don't want any opinions on that, is going to seriously hamstring the range of responses - because the question is about the amount of holding of one asset in the context of a portfolio of assets.

The thing about this forum is that everyone will pitch in with a mixture of ideas and wry commentary and sarcasm so the person posting the backstory and question can sit back and bathe in fresh perspectives to help them come up with a course of action. If you ask about rebalancing and then later caveat it with 'oh by the way, I didn't want to know if rebalancing was the right thing in relation to my whole portfolio or any opinions on that', you're perhaps missing a trick - or misunderstanding how people would normally interpret a question about the composition of a portfolio.

My approach if someone asks about whether 25% in one high-conviction investment fund is too much, would be to ask how it fits into their portfolio and what they are looking to achieve and how they're going about it, so that I can use that context to give an opinion about whether that 25% is too high, too low or about right, and whether rebalancing back to some specified target is necessary (which depends on how far away the current 25% is from the target - if the target is 23% then 25% is no big deal, but if it was 10% then you should take some urgent action to avoid unwanted outcomes from the 'concentration risk').

If there isn't a target because the other holdings are just a mixture of other things you've heard recommended from time to time and accumulated, and there's no clear plan about how much of them you intend to be holding, and your strategy doesn't have an obvious method for controlling risk or volatility or generating uncorrelated returns because the balances of each fund are somewhat haphazard as you make top-ups or additions here and there... then it's going to be difficult for us as the people being asked the question, to make judgements about whether SMT needs 'rebalancing' to some sort of target.

All we know is that SMT has gone up by 55% YTD while other things are down or flattish, and has become a bigger allocation than it once was;  SMT has become twice as large as the next biggest thing and 10x the smallest thing you hold, so we can infer that whatever original proportion or 'target' allocation you intended for SMT, it's been exceeded. If there was a logic for the original level you held, then unless something has fundamentally changed in your outlook, it seems like a move back to that original intended level would be sensible - so yes, go ahead with the rebalancing.  

The sort of reason *not* to go back to an original allocation would be if you'd deliberately set an initial allocation of say 10-15% when making contributions to the portfolio with the intention and expectation that over time its high growth potential over time would naturally allow it to eventually grow to become 25-30% of your portfolio which is where you want it for the long term. If you've reached that point early, no problem, because 25-30% is the long term target and there's no desire or intention to keep it at the somewhat arbitrary start point of 15%.  In that case, no rebalance needed.
 
Or if you had originally set a 10-15% and you have reassessed your strategy and risk appetite and decided 25% is fine as you want it to be a major core of your portfolio, then there wouldn't need to be any rebalancing.  The % allocations in your portfolio do not have to stay constant throughout your investing career, and many professionally run portfolios would take account of relative valuations and volatility measures to come up with target weights for asset classes which change from time to time across the economic cycle.

But the bottom line is that if there's no plan for the allocation targets or evolution of the portfolio over time, there's nothing to say that an allocation is 'wrong' against the plan - so nobody can tell you you should or shouldn't rebalance, they can only offer opinion and commentary -sometimes wanted, sometimes unwanted - on the your original backstory and the further information about your thought processes which drip into the conversation as we go.

csgohan4

OP if you want to gamble and hope SMT keeps rising, then go for it, but if your strategy is long term investment, do you not have a plan/goals for each fund? Or are you winging it?

but if SMT tanks your 25% fund will look pretty painful, which is why you diversify to mitigate those losses. 

OP are you going to stick to you plan, assuming you have one, or are you going to hope for the best??

I thought about buying SMT yesterday, but decided against it, too high a premium and the hallmarks of a bubble, I don't want to gamble too much on my money, I am in it for the long game

AnotherJoe

bowlhead99 said:

Audaxer said:

sg1000 said:

Audaxer said:

sg1000 said:

I have read all these comments with much interest...all enlightening.  The drop of just under 7% today means SMT is no longer 25% of the portfolio, so I can rest easy, whilst trying to build up a core fund (HSBC Global Strategy).

That's good, but are you regretting not rebalancing by selling some SMT when it was 25% of your portfolio?

Not really, Audaxer. Haven't sold anything in the ten years I have been "investing", albeit I started at a small monthly drip feed.  I'm not looking to crystalise anything for at least another eight years....so it has time to recover.

If SMT recovers and shoots up again and becomes say, 30% or more of your portfolio, it would most likely be beneficial to you to rebalance by selling some of SMT and buying more of other funds/ITs in your portfolio to get back to your preferred asset allocation.

This presumes the OP actually has a 'preferred asset allocation', rather than a somewhat haphazard mish-mash of funds at all sorts of random weightings with nothing ever sold.

Have you been hacking into my investment accounts?

AnotherJoe

I bought Apple maybe ten years ago. I never rebalanced. And thank goodness for that. Apart from the CGT "problem" I have,  and that could maybe have been fixed if I was more on the ball, I'm quite happy how its grown. CGT is at root a good problem to have.

I think rebalancing works fine if you want a specific allocation of equities and bonds, or types of equities, or misguidedly (IMNSHO) think that geographic diversification gives you diversification, but if you buy Tesla or SMT or Apple or Amazon or SUPP because you think its going to be a 10-bagger, then rebalancing fights against that and the only argument that perhaps works there is after its doubled, you take your initial "stake" out so that you are gambling with free money and can psychologically tolerate bigger swings easier.

BH, you didn't buy more SUPP to rebalance did you it was a gamble with whatever you w̶a̶s̶t̶e̶d̶ spent on it to see where it went.