Could my pension be working harder?

dunstonh

Deleted_User said:

Tinkering with narrow, sector-specific ETFs is likely to be a major distraction over the long term. Good advisors recommend simply using total-market vehicles and avoiding trying to guess the next hot sector.

No they do not.   Where are you getting your information from?   The sector allocated portfolio method is one of the most common methods of portfolio build.  That goes for advisers or experienced investors.
The whole point of using single sector funds is to allow you build your portfolio with the chosen weightings and utilise different fund houses in different areas where you feel it is appropriate.   And to switch between managed and passive in certain areas if you desire.  A fettered fund of funds does not do that.

VLS100 effectively does what you are saying investors should not be doing.  So, why is it that VLS100 is suitable but advisers building portfolios in much the same way using whole of market options is bad?

Prism

Deleted_User said:

“Who has said you should include certain sectors at the expense of others?  Why do you think portfolios made up of single sector funds would do that?”

If you are using sector funds and then keep rebalancing to ensure sectors are cap weighted to their overall contribution to economy, then you are adding costs and complexity for no benefit whatsoever. 

Hang on, isn't that exactly what VLS 100 is doing. Its a portfolio of single sector funds picked by a management team at Vanguard. I assume sector = region here.

Linton

Deleted_User said:

“Who has said you should include certain sectors at the expense of others?  Why do you think portfolios made up of single sector funds would do that?”

If you are using sector funds and then keep rebalancing to ensure sectors are cap weighted to their overall contribution to economy, then you are adding costs and complexity for no benefit whatsoever. 

Cap weighting doesnt balance sectors according to their contribution to the economy but rather to the desire of investors to put their money in them, which can be very different.

However, yes cap weighting the allocation to single sectors and rebalancing to maintain that relationship over time is pointless.  That is why people who use single sector funds generally allocate on the basis of some other criteria.  After all, isnt that what Vanguard do with VLS100?

Rich1976

One of the things I get confused about when looking at single sector funds is whether to go with the easy option of index funds, knowing I'll get the market return if nothing else or take a punt on a good performing Active fund. Looking at the performance tables on Trustnet over the weekend for all categories and certainly even long term there are trackers which have underperformed their peer group between 5 and 10 years where as the conventional argument I keep reading about is go with index funds because they will perform best over the long term.
How true is that and should an average investor look at funds which say Trustnet have ranked and starred according to their consistent outperformance not just recently but long term also and go with those instead of a tracker?
Of course it could be outperformance is due to greater risk or being heavily invested in Technology say but other than that are these fund rankings any good?

[Deleted User]

Prism said:

Deleted_User said:

“Who has said you should include certain sectors at the expense of others?  Why do you think portfolios made up of single sector funds would do that?”

If you are using sector funds and then keep rebalancing to ensure sectors are cap weighted to their overall contribution to economy, then you are adding costs and complexity for no benefit whatsoever. 

Hang on, isn't that exactly what VLS 100 is doing. Its a portfolio of single sector funds picked by a management team at Vanguard. I assume sector = region here.

Sector = technology, financial, industrial, energy, materials etc. Here is the definition: https://www.investopedia.com/terms/s/sector-breakdown.asp

VLS does invest by regions and ensures contributions are cap weighted, except for the home market. 

Thats very different from tinkering by sector. 

Prism

Deleted_User said:

Prism said:

Deleted_User said:

“Who has said you should include certain sectors at the expense of others?  Why do you think portfolios made up of single sector funds would do that?”

If you are using sector funds and then keep rebalancing to ensure sectors are cap weighted to their overall contribution to economy, then you are adding costs and complexity for no benefit whatsoever. 

Hang on, isn't that exactly what VLS 100 is doing. Its a portfolio of single sector funds picked by a management team at Vanguard. I assume sector = region here.

Sector = technology, financial, industrial, energy, materials etc. Here is the definition: https://www.investopedia.com/terms/s/sector-breakdown.asp

VLS does invest by regions and ensures contributions are cap weighted, except for the home market. 

Thats very different from tinkering by sector. 

That is the terminology that I use however Trustnet and the IA use sectors as a generic term to mean sector/region - usually region. Maybe this is a UK thing.

I don't see them as that different when it comes to tinkering with the allocations. 

dunstonh

Deleted_User said:

Prism said:

Deleted_User said:

“Who has said you should include certain sectors at the expense of others?  Why do you think portfolios made up of single sector funds would do that?”

If you are using sector funds and then keep rebalancing to ensure sectors are cap weighted to their overall contribution to economy, then you are adding costs and complexity for no benefit whatsoever. 

Hang on, isn't that exactly what VLS 100 is doing. Its a portfolio of single sector funds picked by a management team at Vanguard. I assume sector = region here.

Sector = technology, financial, industrial, energy, materials etc. Here is the definition: https://www.investopedia.com/terms/s/sector-breakdown.asp

VLS does invest by regions and ensures contributions are cap weighted, except for the home market. 

Thats very different from tinkering by sector. 

We have a terminology breakdown You are referring to sector in the industry sense.  We are referring to sector in the investment fund sense. i..e UK equity, US equity, European Equity etc. 

dunstonh

One of the things I get confused about when looking at single sector funds is whether to go with the easy option of index funds, knowing I'll get the market return if nothing else or take a punt on a good performing Active fund. Looking at the performance tables on Trustnet over the weekend for all categories and certainly even long term there are trackers which have underperformed their peer group between 5 and 10 years where as the conventional argument I keep reading about is go with index funds because they will perform best over the long term.

If you are going with a general market fund to cover a sector and dont intend to review it often then you are usually better off with a tracker.   If you are going with a satellite fund to focus on a certain part of a sector (e.g. UK smaller companies) then this is where managed funds often come into play.     

The key is not to be biased to either managed or passive and to use the best option at the right time.      The basic managed vs passive debate has some that say managed is bad and therefore you should ignore all managed for that reason.   However, that is far too simplistic and ignores the fact that filtering out the dross (computer managed funds, closet trackers etc) is actually quite easy and leaves you with a much smaller set of managed funds that could be viable.     

If you were unabised to either managed or passive, you would probably end up with a portfolio that has both in it.

The other thing to remember is that certain managed fund styles will be better in certain phases of the economic cycle and not the whole cycle.  UK equity income wont be good for the whole cycle.  Recovery/Spec Sits funds do better in certain phases.   So, if you start to include a portfolio of those, you need to be prepared to either chop and change or accept that you may have periods of underperformance. Not because of a bad manager but because that is not the place to be at that particular time.

How true is that and should an average investor look at funds which say Trustnet have ranked and starred according to their consistent outperformance not just recently but long term also and go with those instead of a tracker?

You do have to be wary of star ratings.  They are not always what they seem.  

Of course it could be outperformance is due to greater risk or being heavily invested in Technology say but other than that are these fund rankings any good?

And lower returns could be due to an investment fund in that sector deciding to be more defensive.      If you took all the funds in one sector and risk rated them, you would find they are not all the same.     Outperformance/underperformance due to risk is often the reason for volatility on either side of the average.

[Deleted User]

I started with nothing and invested through the tech stock crash, the early 2000s crashes, 2008. I did it in several countries and am now well into 7 figures. So, I am not exactly an “inexperienced DIY investor”. 

In fact, there is good consensus among experienced DIY investors and better advisors that tinkering with sectors is a mug’s game. Here is an example:
https://www.bogleheads.org/forum/viewtopic.php?t=288300

Prism

Deleted_User said:

I started with nothing and invested through the tech stock crash, the early 2000s crashes, 2008. I did it in several countries and am now well into 7 figures. So, I am not exactly an “inexperienced DIY investor”. 

In fact, there is good consensus among experienced DIY investors and better advisors that tinkering with sectors is a mug’s game. Here is an example:
https://www.bogleheads.org/forum/viewtopic.php?t=288300

I think quite the opposite. Regional allocations don't especially interest me but avoiding some industry sectors and selecting others is the way I typically select my funds.