Smithson asset allocation

Linton

Just occured to me. The difference between the fund index and the share index is a very good reason for why managed small company funds  broadly perform well against the relevent  passive share Index tracker.

aroominyork

Linton said:

aroominyork said:

I don't think you can talk about "higher risk growth shares". You can say "higher risk" and you can say "growth shares" but the two are not synonymous. Liontrust has an FE of 75; only one fund out of 51 on Trustnet has a lower FE (Downing micro-cap, which has lost money over the last five years while Liontrust has risen 126%).

I would still like to understand the difference between 'UK small cap equity' and 'FTSE small cap ex-IT' on the style map.

The FE score is a measure of 3 year volatility.  That may or may not correspond to what people could perceive as risk, such as how far did the fund crash in 2008.

Yes, and it is skewed towards the most recent periods.

Re 'perceived as risk', it uses past volatility as a proxy for future risk. Not ideal but it's all we have.

Linton said:

aroominyork said:

I don't think you can talk about "higher risk growth shares". You can say "higher risk" and you can say "growth shares" but the two are not synonymous. Liontrust has an FE of 75; only one fund out of 51 on Trustnet has a lower FE (Downing micro-cap, which has lost money over the last five years while Liontrust has risen 126%).

I would still like to understand the difference between 'UK small cap equity' and 'FTSE small cap ex-IT' on the style map.

"UK Small Cap Equity" refers to the average fund in the sector, it is an index of funds.  FTSE SmallCap ex-IT refers to the  average share in the FTSE SmallCap Ex-IT index of shares.

So the former is the fund index - and people who buy funds seem to prefer growth stocks - and the latter is the share index of everything including unfashionable value. Is that right?

Linton

aroominyork said:

Linton said:

aroominyork said:

I don't think you can talk about "higher risk growth shares". You can say "higher risk" and you can say "growth shares" but the two are not synonymous. Liontrust has an FE of 75; only one fund out of 51 on Trustnet has a lower FE (Downing micro-cap, which has lost money over the last five years while Liontrust has risen 126%).

I would still like to understand the difference between 'UK small cap equity' and 'FTSE small cap ex-IT' on the style map.

The FE score is a measure of 3 year volatility.  That may or may not correspond to what people could perceive as risk, such as how far did the fund crash in 2008.

Yes, and it is skewed towards the most recent periods.

Re 'perceived as risk', it uses past volatility as a proxy for future risk. Not ideal but it's all we have.

Linton said:

aroominyork said:

I don't think you can talk about "higher risk growth shares". You can say "higher risk" and you can say "growth shares" but the two are not synonymous. Liontrust has an FE of 75; only one fund out of 51 on Trustnet has a lower FE (Downing micro-cap, which has lost money over the last five years while Liontrust has risen 126%).

I would still like to understand the difference between 'UK small cap equity' and 'FTSE small cap ex-IT' on the style map.

"UK Small Cap Equity" refers to the average fund in the sector, it is an index of funds.  FTSE SmallCap ex-IT refers to the  average share in the FTSE SmallCap Ex-IT index of shares.

So the former is the funds - and people who buy funds seem to prefer growth stocks - and the latter is everything including unfashionable value. Is that right?

Yes, that is my interpretation.  Also size will play a part.  The index obviously goes for larger small companies and the larger small companies are more likely to include well established companies like WH Smiths which are never going to be the next Tesla.  Active small company funds have no reason to base their decision to invest purely on size.

Prism

I am very much still in the growth camp, especially for smaller companies - I really can't bring myself to look at value based strategies. If Smithson didn't exist it would be likely I would still be splitting my small caps across several regional funds, very likely similar ones to Linton's selection as a few of those were ones I used to use. The only regional small cap fund I use is for microcaps because at that level foreign funds are not really available.

aroominyork

I also can't see much of a case for value in smaller companies - you buy them because you think they will grow. And growth potential (measured by high P/E) is not necessarily the same as risk (measured by volatility) as my example of Liontrust shows. But there are growth-focused small/mid caps which, instead of showing slow but steady returns, are shooting the lights out with relatively low volatility and make me think that, as attractive as they look, there could be danger around the corner, eg Miton European Opps (FE 83).