Diversification across equities

Thrugelmir

virenque said:

REIT's and China  :-)

MSCI underweight China in their indexes for good reason. 

strawb_shortcake

Thrugelmir said:

annabanana82 said:

Thrugelmir said:

Dh6 said:

I understand I’ve made an active decision to be 100% equities. The more I research I do the more I’m inclined to stick with my All World index fund on its own.

Do you like rollercoaster rides?  As you are staking a lot on the fortunes of just a few companies. Whose valuations have become detached from revenue growth over the past 3 years. 

@Thrugelmir what would be your suggestions for diversifying from a global all cap?
I've made a small investment in this but weighing up options on where I go from here 

Constructing a diverse portfolio is no easy task. Unless you've a reasonable amount of capital to deploy.  Time to add satellite funds and investments is when the solid foundations are laid. If I was starting today from ground zero with the options that now exist . As a cornerstone for my portfolio I'd be looking for a low cost passive multi market / asset diverse option. From one of the reputable investment managers such as Vanguard, Blackrock for example. Alternatively potentially Goldman Sachs, who are soon entering the fray,  with an offering of ready made risk classified portfolios of ETF's for investors. 

Thank you, that was helpful. 
I've gone with Vanguard, within a LISA so my capital is limited as to what I can invest but helpfully matches what I can afford to lock away. 
I thought I'd be more risk adverse but knowing it's locked away for more than 20 years helps my attitude. 
Now I've got to help my Husband pick a SIPP this evening but swayed towards Vanguard for that too...

ChilliBob

Thrugelmir said:

annabanana82 said:

Thrugelmir said:

Dh6 said:

I understand I’ve made an active decision to be 100% equities. The more I research I do the more I’m inclined to stick with my All World index fund on its own.

Do you like rollercoaster rides?  As you are staking a lot on the fortunes of just a few companies. Whose valuations have become detached from revenue growth over the past 3 years. 

@Thrugelmir what would be your suggestions for diversifying from a global all cap?
I've made a small investment in this but weighing up options on where I go from here 

Constructing a diverse portfolio is no easy task. Unless you've a reasonable amount of capital to deploy.  Time to add satellite funds and investments is when the solid foundations are laid. If I was starting today from ground zero with the options that now exist . As a cornerstone for my portfolio I'd be looking for a low cost passive multi market / asset diverse option. From one of the reputable investment managers such as Vanguard, Blackrock for example. Alternatively potentially Goldman Sachs, who are soon entering the fray,  with an offering of ready made risk classified portfolios of ETF's for investors. 

So you'd be looking to something like a VLS/MyMap type thing (or equivalent) as the core of a portfolio, and then build around it with the likes of global equities trackers and selected managed funds, or you'd be skipping the global trackers entirely thinking the multi asset gives you this eith more to boot?

Interesting about the GS offering incoming, do you have any further info on it or is it more behind the scenes you know about it? 

Linton

I aim for my Growth 100% equity portfolio to be as widely diversified as possible.  I do not adopt a core/satellite approach, instead using a set of specific geographical based funds, both large and small companies.  The problem with a core index is that you start off in the wrong place with say US at 60%, the top 10 companies all in the same very few sectors with 14% of the entire portfolio.  The satellites then have an impossible job to smooth out this concentration of assets.

Thrugelmir

ChilliBob said:

Thrugelmir said:

annabanana82 said:

Thrugelmir said:

Dh6 said:

I understand I’ve made an active decision to be 100% equities. The more I research I do the more I’m inclined to stick with my All World index fund on its own.

Do you like rollercoaster rides?  As you are staking a lot on the fortunes of just a few companies. Whose valuations have become detached from revenue growth over the past 3 years. 

@Thrugelmir what would be your suggestions for diversifying from a global all cap?
I've made a small investment in this but weighing up options on where I go from here 

Constructing a diverse portfolio is no easy task. Unless you've a reasonable amount of capital to deploy.  Time to add satellite funds and investments is when the solid foundations are laid. If I was starting today from ground zero with the options that now exist . As a cornerstone for my portfolio I'd be looking for a low cost passive multi market / asset diverse option. From one of the reputable investment managers such as Vanguard, Blackrock for example. Alternatively potentially Goldman Sachs, who are soon entering the fray,  with an offering of ready made risk classified portfolios of ETF's for investors. 

So you'd be looking to something like a VLS/MyMap type thing (or equivalent) as the core of a portfolio, and then build around it with the likes of global equities trackers and selected managed funds, or you'd be skipping the global trackers entirely thinking the multi asset gives you this eith more to boot?

Interesting about the GS offering incoming, do you have any further info on it or is it more behind the scenes you know about it? 

The only reason I'd suggest a route as it's a quick and easy way of starting along the road. Adding funds on a frequent basis maintains a balanced portfolio. No thought required. Rather than ending up with an unbalanced portfolio of one fund. Then wondering what course of action to take next. Or indeed finding that far better returns are found elsewhere. 

I'd be adding active coverage such as property, private equity, micro and small caps (US, UK , Europe),  investment company shares or specialised ETF's. You are never going to improve diversification and mitigate concentration/contagion risks by adding a correlated holding. Though if you are taking an informed decision then that's every investors prerogative. Many investors will feel entirely comfortable with being contrarian. 

Just something I've read in passing. GS are certainly looking to expand the Marcus brand . 

underground99

Linton said:

I aim for my Growth 100% equity portfolio to be as widely diversified as possible.  I do not adopt a core/satellite approach, instead using a set of specific geographical based funds, both large and small companies.  The problem with a core index is that you start off in the wrong place with say US at 60%, the top 10 companies all in the same very few sectors with 14% of the entire portfolio.  The satellites then have an impossible job to smooth out this concentration of assets.

This is a good point. There is merit in using something 'cheap and cheerful' for the core of a portfolio, but the more specialist 'satellite' fund holdings would only allow you to add a skew or tilt to a particular region or industry or style for each given area. If ultimately you don't really want to end up with the tracker returns as the heart of your returns, don't start from there.

ChilliBob said:
So you'd be looking to something like a VLS/MyMap type thing (or equivalent) as the core of a portfolio, and then build around it with the likes of global equities trackers and selected managed funds, or you'd be skipping the global trackers entirely thinking the multi asset gives you this eith more to boot? 

To me, it doesn't make a lot of sense to have a mixed asset fund at the centre, giving you global coverage and a particular level of performance or volatility, and then "build around it with global equities trackers". The core would surely cover global equities, that's what you are paying them for. Specialist funds to add something different (smallcaps, actively managed niches) perhaps. But stacking a global tracker on top of a properly constructed multi asset portfolio doesn't make any sense.

To me there are three ways to use a mixed asset portfolio fund like a mymap or vls or whatever, and none of them involve adding a global tracker:

1) the mixed asset fund is your portfolio;

2) the mixed asset fund is the core of your portfolio and you add some specialist funds to change the strategy for certain areas by adding different asset types or investing styles;

3) you already have a portfolio built out of specialist funds and find yourself with some spare money to deploy broadly across all the areas. Perhaps in a separate account which can't be as easily 'rebalanced' with your main one, or just a new slug of money for this year's subscription - that you don't want to have to split into 10+ pieces to replicate the existing holdings. In that case just taking a mixed asset fund of e.g. 'level 6 risk profile' as filler to absorb the spare money, is not going to upset your overall balance. It can be an easy plug for a year or two until the other components need adjusting, which you can come back to deal with later down the road. 

Albermarle

the mixed asset fund is your portfolio;

In this case I would have more than one , as all the main ones ( Vanguard, HSBC, Blackrock, Fidelity etc ) all construct their low cost multi asset funds in different ways , with mildly varying results . So makes sense to have two or three , as usually there is little extra cost involved , if any.

ChilliBob

Linton said:

I aim for my Growth 100% equity portfolio to be as widely diversified as possible.  I do not adopt a core/satellite approach, instead using a set of specific geographical based funds, both large and small companies.  The problem with a core index is that you start off in the wrong place with say US at 60%, the top 10 companies all in the same very few sectors with 14% of the entire portfolio.  The satellites then have an impossible job to smooth out this concentration of assets. 

That makes sense, I guess no matter the size of your pot if you have 80% in a global equities tracker then no amount of very specific allocation will tip that balance by much. What's interesting about all of this is what you, @Linton @Thrugelmir and @underground99 are saying about the concentration risk. On the one hand this makes perfect sense when you consider the make up of the index and how much you'd end up holding in FAANGs alone vs everything else. There's plenty of research to support this from various sources On the other hand you have the likes of Lars K and others stating that doing anything besides investing in the widest possible index is you declaring you have an edge and know more than the market! - It's a view point quite a few people have and again comes from various sources. As a new investor this does represent a question as to which camp you feel makes the most sense, I began this investing malarky quite firmly in the second camp, with Lars, Monevator etc being my main points of reference. Over time though, and especially over the last few months I feel I'm coming round more towards the other viewpoint.

ChilliBob

Thrugelmir said:

ChilliBob said:

Thrugelmir said:

annabanana82 said:

Thrugelmir said:

Dh6 said:

I understand I’ve made an active decision to be 100% equities. The more I research I do the more I’m inclined to stick with my All World index fund on its own.

Do you like rollercoaster rides?  As you are staking a lot on the fortunes of just a few companies. Whose valuations have become detached from revenue growth over the past 3 years. 

@Thrugelmir what would be your suggestions for diversifying from a global all cap?
I've made a small investment in this but weighing up options on where I go from here 

Constructing a diverse portfolio is no easy task. Unless you've a reasonable amount of capital to deploy.  Time to add satellite funds and investments is when the solid foundations are laid. If I was starting today from ground zero with the options that now exist . As a cornerstone for my portfolio I'd be looking for a low cost passive multi market / asset diverse option. From one of the reputable investment managers such as Vanguard, Blackrock for example. Alternatively potentially Goldman Sachs, who are soon entering the fray,  with an offering of ready made risk classified portfolios of ETF's for investors. 

So you'd be looking to something like a VLS/MyMap type thing (or equivalent) as the core of a portfolio, and then build around it with the likes of global equities trackers and selected managed funds, or you'd be skipping the global trackers entirely thinking the multi asset gives you this eith more to boot?

Interesting about the GS offering incoming, do you have any further info on it or is it more behind the scenes you know about it? 

The only reason I'd suggest a route as it's a quick and easy way of starting along the road. Adding funds on a frequent basis maintains a balanced portfolio. No thought required. Rather than ending up with an unbalanced portfolio of one fund. Then wondering what course of action to take next. Or indeed finding that far better returns are found elsewhere. 

I'd be adding active coverage such as property, private equity, micro and small caps (US, UK , Europe),  investment company shares or specialised ETF's. You are never going to improve diversification and mitigate concentration/contagion risks by adding a correlated holding. Though if you are taking an informed decision then that's every investors prerogative. Many investors will feel entirely comfortable with being contrarian. 

Just something I've read in passing. GS are certainly looking to expand the Marcus brand . 

I'm still researching and deciding how to allocate my main pot at the moment, meanwhile I'm investing within mine and my partners ISAS (represents approx 10% of overall portfolio but is still enough to be considered real when losses or gains appear). This all makes sense, for me personally I'm looking on these multi asset funds in a bit of a negative light at the moment from the bonds perspective, I'm all for alternatives away from Equities (e.g. property, infra) but bonds (gov) don't seem overly attractive right now, compared to cash, but that's a whole other conversation I'm fully aware! (I know cash has its own risks!)

ChilliBob

underground99 said:

Linton said:

I aim for my Growth 100% equity portfolio to be as widely diversified as possible.  I do not adopt a core/satellite approach, instead using a set of specific geographical based funds, both large and small companies.  The problem with a core index is that you start off in the wrong place with say US at 60%, the top 10 companies all in the same very few sectors with 14% of the entire portfolio.  The satellites then have an impossible job to smooth out this concentration of assets.

This is a good point. There is merit in using something 'cheap and cheerful' for the core of a portfolio, but the more specialist 'satellite' fund holdings would only allow you to add a skew or tilt to a particular region or industry or style for each given area. If ultimately you don't really want to end up with the tracker returns as the heart of your returns, don't start from there.

ChilliBob said:
So you'd be looking to something like a VLS/MyMap type thing (or equivalent) as the core of a portfolio, and then build around it with the likes of global equities trackers and selected managed funds, or you'd be skipping the global trackers entirely thinking the multi asset gives you this eith more to boot? 

To me, it doesn't make a lot of sense to have a mixed asset fund at the centre, giving you global coverage and a particular level of performance or volatility, and then "build around it with global equities trackers". The core would surely cover global equities, that's what you are paying them for. Specialist funds to add something different (smallcaps, actively managed niches) perhaps. But stacking a global tracker on top of a properly constructed multi asset portfolio doesn't make any sense.

To me there are three ways to use a mixed asset portfolio fund like a mymap or vls or whatever, and none of them involve adding a global tracker:

1) the mixed asset fund is your portfolio;

2) the mixed asset fund is the core of your portfolio and you add some specialist funds to change the strategy for certain areas by adding different asset types or investing styles;

3) you already have a portfolio built out of specialist funds and find yourself with some spare money to deploy broadly across all the areas. Perhaps in a separate account which can't be as easily 'rebalanced' with your main one, or just a new slug of money for this year's subscription - that you don't want to have to split into 10+ pieces to replicate the existing holdings. In that case just taking a mixed asset fund of e.g. 'level 6 risk profile' as filler to absorb the spare money, is not going to upset your overall balance. It can be an easy plug for a year or two until the other components need adjusting, which you can come back to deal with later down the road. 

Again all good points, thanks for your reply. I had suspected lumping Global Eq tracker on top of a Multi Asset fund (passive) was mostly duplication with little benefit I have a SS ISA for my partner which was just started this year so it's pretty small - this is perhaps the sort of place where a decent multi asset fund (or two) might work well I feel - leaving more time to focus on my ISA (about 6x bigger) and my GIAs (bigger again).