Tackling Wonky Drawdown Portfolio

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I'm just about ready to start trying to put my drawdown portfolio right after it went pretty disastrously off the rails for reasons which I won't go into. It was set up 5 years ago by my trusted IFA. I was happy with the original risk level and make up of the portfolio, which was allocated across the sectors as follows:-
UK Equity Income - 20%
UK All Companies - 20%
Mixed Investment 20-60% Shares (91 Global Cautious Managed) - 10%
Targeted Absolute Return - 10%
UK Direct Property - 10%
Sterling Corporate Bond - 10%
Sterling Strategic Bond - 10%
Cash - 10%
There has been no significant change in my attitude to risk since then and since I paid good money for the advice, my instinct is to restore the portfolio along the same lines as it was originally, basically substituting like for like where necessary. Is this a sensible approach? For example, re the 'Targeted Absolute Return' query that I raised the other day (re my ASI Global ARS holding), there were suggestions that perhaps most funds in that category have been disappointing, and that I might be better looking to the 'Wealth Preservation' sector. Obviously new sectors spring up while others fall out of favour. Also, there may be things that are done differently now in the wake of the Covid crisis. I'd appreciate any pointers or observations. Thanks.

NottinghamKnight

That is massively overweight in UK, look for some global diversification. 

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NottinghamKnight said:

That is massively overweight in UK, look for some global diversification. 

I had a feeling that would be the case. Rejigging the Equity section is my first and probably most important task. 

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I'm finding this very confusing, but need to find a way forward, step by step. I don't think I have the expertise or confidence to pick funds, I just go round in circles trying to make sure I don't do the wrong thing. I can't afford another 'Woodford' type debacle, I've lost too much already. Regarding the equity funds in my portfolio, I'm coming round to thinking that index trackers might be my best bet. Is there any reason why one shouldn't mix active and passive in one portfolio?

NottinghamKnight

Perfectly acceptable to mix active and passive. The most basic option is one or two world funds, though you can have as many as you want. Many would say trackers will be relatively better in larger and  more liquid markets whereas smaller markets or 'themes' may well give an active manager an opportunity to outperform. 

mark13

Look very similar to a pension portfolio I had a few years ago until I took it over in a SIPP and re-jigged it, I dropped  bonds ,property and absolute return as I had no interest in them ,  in addition I would drop the mixed one as well , I don't know what that is.  I would then split 20% US ( Baille Gifford American), 20% INRG (clean energy ETF), 20% SMT (scottish mortgage trust) . I don't know your situation and goals , so as with anything this may not  be suitable. 
Also I would advise to check the returns on your UK funds to ensure you are getting a suitable return. 

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mark13 said:

Look very similar to a pension portfolio I had a few years ago until I took it over in a SIPP and re-jigged it, I dropped  bonds ,property and absolute return as I had no interest in them ,  in addition I would drop the mixed one as well , I don't know what that is.  I would then split 20% US ( Baille Gifford American), 20% INRG (clean energy ETF), 20% SMT (scottish mortgage trust) . I don't know your situation and goals , so as with anything this may not  be suitable. 
Also I would advise to check the returns on your UK funds to ensure you are getting a suitable return. 

The mixed investment is Ninety One Cautious Managed.

JohnWinder

If I read your note correctly you're asking about substituting like for like with some/all of the funds you listed?

You suggest the reason for this is because it has gone off the rails; not sure what that means. But you're inclined to stay with this (?type) of portfolio because you're risk appetite is unchanged and you paid for the original advice.

I can't see how substituting like for like achieves anything other than 'scratching' the itch to do something.

A lot of sensible people wouldn't have chosen that portfolio, but it doesn't seem like a hanging crime to have done so, to me.

A danger of making the sort of changes you're contemplating, if it's because 'going off the rails' means poor returns, is that you sell out of funds which have underperformed but might be due to overperform, and buy into overperformers which can't sustain the overperformance as few can. That's a classic mistake. The ice hockey players call it 'skating where the puck was' only to see it slid away when you get there.

Have a look at your portfolio, or any 'conventional' woman in the street's portfolio; it's almost all stocks and bonds, with a bit of property and some cash for your living expenses. You could get all that stock and bond coverage you have, with exactly the risk level you're comfortable with, with two funds: a diversified stock fund and a similar bond fund. They would likely be cheaper than some (?all) of the your current funds, would never need changing, would never leave you regretting they'd underperformed, and could be simply rebalanced if your risk tolerance changed. Folk could argue how much 'home bias' you should have amongst the stocks, and the bonds, but modest differences wouldn't matter a great deal (or if they did no one could predict it until it's all too late), and if you were fussed about it you could read up and choose for yourself.

If you have as many as 20 years of investing ahead you might want to consider the annual management costs of the funds you choose. Compounding the 'losses' from high management fees can add up surprisingly.

Could you mix active with passive? Of course, and it might suit some. But why would you? You seem to have become unhappy with an actively chosen mix of mostly active funds. Don't go there again if you can't stick with them through the bad times if their good times are ahead.

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JohnWinder said:

If I read your note correctly you're asking about substituting like for like with some/all of the funds you listed?

You suggest the reason for this is because it has gone off the rails; not sure what that means. But you're inclined to stay with this (?type) of portfolio because you're risk appetite is unchanged and you paid for the original advice.

I can't see how substituting like for like achieves anything other than 'scratching' the itch to do something.

A lot of sensible people wouldn't have chosen that portfolio, but it doesn't seem like a hanging crime to have done so, to me.

A danger of making the sort of changes you're contemplating, if it's because 'going off the rails' means poor returns, is that you sell out of funds which have underperformed but might be due to overperform, and buy into overperformers which can't sustain the overperformance as few can. That's a classic mistake. The ice hockey players call it 'skating where the puck was' only to see it slid away when you get there.

Have a look at your portfolio, or any 'conventional' woman in the street's portfolio; it's almost all stocks and bonds, with a bit of property and some cash for your living expenses. You could get all that stock and bond coverage you have, with exactly the risk level you're comfortable with, with two funds: a diversified stock fund and a similar bond fund. They would likely be cheaper than some (?all) of the your current funds, would never need changing, would never leave you regretting they'd underperformed, and could be simply rebalanced if your risk tolerance changed. Folk could argue how much 'home bias' you should have amongst the stocks, and the bonds, but modest differences wouldn't matter a great deal (or if they did no one could predict it until it's all too late), and if you were fussed about it you could read up and choose for yourself.

If you have as many as 20 years of investing ahead you might want to consider the annual management costs of the funds you choose. Compounding the 'losses' from high management fees can add up surprisingly.

Could you mix active with passive? Of course, and it might suit some. But why would you? You seem to have become unhappy with an actively chosen mix of mostly active funds. Don't go there again if you can't stick with them through the bad times if their good times are ahead.

Hi John, I think you've misunderstood slightly, probably because I've tried not to re-cover old ground that has been discussed before. My portfolio went wrong because it was not managed properly. My most pressing concern is to reinvest the capital that has been returned re Woodford and hopefully get the equity income rolling in again. Longer term, one or two of the other funds have been quite disappointing so those are the ones I intend to replace with something better that does a similar job. As time goes on I presume I will become much more savvy and hopefully will become confident enough to make more fundamental changes, such as making the move to passive funds.

Thrugelmir

Why not just switch to a single multi asset passive fund? Start afresh. Tinkering here and there is unlikely to result in a balanced portfolio. 

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Thrugelmir said:

Why not just switch to a single multi asset passive fund? Start afresh. Tinkering here and there is unlikely to result in a balanced portfolio. 

Talked about this recently in another thread - with the size of the portfolio, I wouldn't be happy with an 'all eggs in one basket' scenario.