DC Pension Funds Selection

mark55man

Hi - just a general appeal to the collective wisdom - looking for comment - my DC funds are broadly unchanged over the last 5 years, excepting the specific UK FTSE Investment made in last 3 months (which previously was more global equity). I usually top slice and rebalance every year - but went early this year as I thought UK undervalued.  Europe and smaller cos have done well.  Global, Resource and Bonds have been middling.  UK and Far East flat.

I've been investing in my DC pot since 2010 (previously DB).  I'm looking to use it to bridge the gap between retirement and being able to draw state and work DB pensions - so for 5 years in about 5 years time. I've managed 9.8% annual return (XIRR) since 2010.  I am limited in what I can invest into by the (reasonable but not extensive) range of funds available, and there are cheap options (Vanguard and iShares) which I use where possible.  Gold and resource funds are more expensive, but have (gold mainly) earned their keep this year.  No specific US allocation as I think Global covers that, but open to debate

My asset allocation is (no property, no mixed asset funds yet, but may use one next year for a specific mortgage matching purpose, but that's separate)

• Far East Equity - 5%  (Japan)
• Bonds - 20% (Blend of corporate, index, and government)
• Resource - 15% (50/50 Gold and Natural Resources)
• UK Equity - 15% (Vanguard FTSE Income)
• Smaller Companies (UK and Europe) - 20%
• Global Equity (ex UK) - 25%

Any thoughts?  and thanks in advance

shinytop

Only comment and not advice.  You don't have much in US equities, considering their relative market share.  If the big tech companies will keep doing well you'll miss out.  You have quite a lot in UK equities compared with their relative share.  But if UK does well post Brexit that's not a bad thing. You have quite a lot in Resources - not really a growth investment and could go either way - a bit of a gamble?  But maybe that's what you want.  I wonder how this portfolio would compare with one of the big multi-asset funds. 
  

Linton

Why Japan as a representative of the Far East?  Why not China/Korea/India etc which would represent the area better in my view? 
Are you retired or near retirement?  If you arent why FTSE Income?  If you are retired and want income I suggest you look for it more broadly than relying on FTSE Income.

mark55man

Thanks
- Japan was what was left after I moved out of India / China for COVID reasons - I will consider a broader Far East fund instead, as I agree China/Korea/India are more dynamic for a recovery year (I know this is debatable)
- I'm not retired - FTSE Income was the only Vanguard FTSE fund I could pick - I will check again the other options.  I want to be overweight UK this year, but haven't been historically.  The income aspect isn't important
- I note that USA is light - I can use a Vanguard fund AMLP that I will consider, but don't want to be overweight USA.  I will consider moving some of my resources allocation  there (although not a gold bug - BlackRock gold has done well for me, but the non 50% part of that has been flat this year) 

Useful guidance thanks

[Deleted User]

I agree with the issues raised by @Linton and @shinytop. A lot of obvious bets. Very easy to underperform for the next 20 years on end, although sometimes the bets work out.  

Also, be very careful putting money into property funds to “match your mortgage”.  The two are not connected in any way. Personally I dont see any reason to pick pure property funds, unless you are retired and picking REITS for income. 

mark55man

Thank you Mordko.  So by bets you mean taking a position and being overweight sectors, and not doing truly passive.  Guilty as charged, although I am rethinking now that there are more lower cost and multi-asset funds available in the selection, and my initial rationale was to create a blend of asset classes

Just for clarity, and sorry for confusion,  but I am not using a property fund to build up a "pot" match my mortgage.  I am merely mentally ring fencing additional contributions to my pension with a view to create a "cautious mortgage-neutral pot".  My rationale is by overpaying to my pension rather than the mortgage company I can get additional company contribution of about £10K over the next 3-4  years - plus if I get the timing right I can contribute and gain HRT relief and withdraw the payments substantially at BRT over the following 3-4.  

mark55man

OK have had a ponder, and rebalanced (discussed this in my post on the Predictions 2021 thread), in summary:

• Vanguard World ex UK 30%
• Vanguard UK FTSE All share 30% (overweight UK)
• Bonds - 20% (Global, Corporate, Index Linked) - Vanguard and iShares
• Blackrock Gold - 10%
• Smaller Companies (Euro and UK funds) 10% split 60/40 as have some coverage from all share

By doing this have reduced number of total funds from 15 to 10 and my total cost reduced from 0.9% to 0.6%, which is left unchanged will save at least £1K by the point I retire and start drawdown.

cloud_dog

You've mentioned before that you may have restrictions on access to funds but, by looking at your split I am still unsure why you are not just using the 'ole, simple, core and satellite approach.  VLS80 would give you a core holding similar to your requirements, and then it would be a straightforward case of applying additional weighting where you want it, i.e. UK, smaller cos, resources.

(Apologies if I've missed why a MA fund is not being considered)

NedS

Deleted_User said:

Also, be very careful putting money into property funds to “match your mortgage”.  The two are not connected in any way. Personally I dont see any reason to pick pure property funds, unless you are retired and picking REITS for income. 

Agreed. My REIT income fund has lost 30% this year whilst my house value has gone up ~6% according to the broader UK media.

mark55man

cloud_dog said:

You've mentioned before that you may have restrictions on access to funds but, by looking at your split I am still unsure why you are not just using the 'ole, simple, core and satellite approach.  VLS80 would give you a core holding similar to your requirements, and then it would be a straightforward case of applying additional weighting where you want it, i.e. UK, smaller cos, resources.

(Apologies if I've missed why a MA fund is not being considered)

Simply the VLS 80 isn't available on the platform - there are some multi asset funds, but all at a higher charge.  It is bizarre but that's the way it looks. 

Plus - when I started bonds, I wanted to separate so I had some exposure to Index linked (in case inflation happened), some exposure to longer term (in case  it didn't) and some global.  In my inexperience I couldn't see through the MA funds to know what type of bonds they were in.  On www.portfoliocharts.com there is an interesting article that suggests a lot of theoretical portfolio returns have been fudging the duration of the underlying bond components to give better results for their approach retrospectively. 

Also (possibly a touch active in thinking) I wanted separate funds so I could sell them separately depending on circumstances (similar to how equal VLS80 + VLS40 isn't quite the same as VLS60.  However when it came to it in March this year I didn't have the bottle to switch bonds into equities - and as I am still 5+ years away the whole bond part of the portfolio is feeling like a drag (10% in 3 years - rather than 10% CAGR since 2010 - including the bonds)).

Perhaps we should say I have taken a big leap towards a more core and satellite,   approach, but currently more akin to Pluto, whose moon Charon is half its size than to Jupiter!!  

Mistermeaner

Just my opinion but you're over thinking and over trading (e.g. Moving out of India and China because of covid)

My suggestion would be to pick will global fund and just stick with it ; hsbc FTSE all world index has done well for me