Blackrock Consensus

Albermarle

https://www.trustnet.com/factsheets/o/g1hh/hsbc-global-strategy-dynamic-portfolio-c-acc

Currently it is about 77% equities .

The Adventurous is higher . about 85% .

https://www.trustnet.com/factsheets/o/o2qd/hsbc-global-strategy-adventurous-portfolio

JohnWinder

granta said:

2. This gets to the nub of what I'm confused about when I read the posts comparing these options. I understand what the fixed allocations are (e.g. 50% US 10% UK etc etc), but I don't understand how floating allocations work and the reasoning. Does the fund manager changes these according to market forecasts? And as a beginner, how should I choose between the two? Genuinely, as a beginner, I wouldn't know how to choose, or to determine how much home bias I want. It's only recently that I even realised that an old pension pot had UK holdings of 75% and I've now rectified that!
Finally, biggest naive question coming up: Is HSBC GS fixed or floating allocation? 

My two cents worth, building on the useful information preceding:

Firstly, you'll probably do best, long term, by sticking to your guns (asset choices, investing strategy eg regular top ups) and not being blown off course by the likely wild swings in the market, or someone coming up with a new type of fund that promises a lot, or seeing something that should have been seen beforehand.

The reasons are that investors' behaviour (selling after markets crash, or buying the current 'hot' asset) has been shown to cost investors a lot of their returns. You need to stick with your strategy, unless your personal circumstances change. As a consequence, you owe it to yourself to get it pretty right from the beginning, or before you have too much money in the market. You develop a well founded core of investing beliefs, and you follow them through thick and thin; only that way can they realise their potential.

Secondly, there's perhaps less difference between those funds you're agonising over than you imagine, in terms of the soundness of their quality. More of less bonds? Fixed or varying asset allocation? A bit of real estate or none? Home bias or not? They not really fundamentals, BUT they are relevant and you have heard about them and so you should get your head around the issues. But it's not something to get paralysis by analysis over. The search for a good enough portfolio can be harmed by dreaming of the perfect one.

Thirdly, you can control costs but returns depend on the market; so control them, or the benefit of compounding returns will be compromised by the damage from compounding costs. Two refinements: plenty of costs are disclosed, but if there are significant ones that aren't, you're still paying for them. For example, with a broad index fund the managers don't buy or sell shares very much - perhaps 5% of the fund turns over each year; an active fund might turn over 100% of the value of its shares each year. Every time, there's a buy/sell spread which is costing someone - probably you. And then there's trading costs - yes, you can trade free now, so the managers probably can too, but someone somewhere is paying for the computer key strokes, record keeping etc, and it's probably you.  Tim Hale also lists price effects in his book Smarter Investing.

Second refinement, a few basis points in cost difference isn't the end of the world; work out what it'll cost you after 40 years - it might not be much.

Fourthly, your HSBC fund says they use SAA (strategic asset allocation), which is exactly what you do when you decide how much equities and how much bonds you want to hold. HSBC tweaks this when it gets out of balance; you might do that too. They also use TAA (tactical asset allocation) meaning when they think equities will do better, they hold more, if bonds look promising they'll up their bonds. Be very wary. Anticipating market movements or picking stocks is the active managers' game, and all the evidence suggest that most fail to beat the market over periods beyond about 3 years. With a fund like HSBC's, they're unlikely to go too far out on a limb less it snaps off and investors head off to Vanguard, but that's what you get with your HSBC fund (and possibly some Vanguard funds) and it's not something that seems like it's worth paying for (to most likely lose compared to an index fund, after paying more for it!).

Fifthly, the fund holds some listed real estate. That asset comes into and goes out of favour as it out- or underperforms equities more broadly. Some say it's a different asset class than equities, but it's traded like an equity. Tweedle dum or tweedle dee; you don't need it but it's not a crime. Complexity can have appeal, not always well founded.

Sixthly, you might in future wish to review how well your investments are doing; you probably should. Check: have the funds changed the index they're following (Blackrock did this recently for ESG reasons); is the fund tracking its index closely; are their fees coming down or going up; can costs be reduced? With index funds you don't need to look at their performance: you hear every day what the market is doing in the news, and good or bad in the short term that's what you signed up for.

But with your HSBC fund doing some tactical asset allocation and market timing, you might wonder how well you're doing. Here's a challenge: try evaluating that fund's performance against a comparable bare bones index fund, even a multi-asset index fund (because they're your low cost alternatives) and like me, you might find it very hard. 14% of that fund's assets are in 'managed funds', in addition to equity, bond, real estate and cash holdings listed. No idea what that means. Opacity, not transparency comes to mind.

You can read up how much home bias you want here: https://www.bogleheads.org/blog/2020/03/02/50-years-of-investing-in-the-world-part-3/

and elsewhere search for Vanguard's 2019 research paper on Global equity investing: the benefits of diversification.

granta

JohnWinder said:

granta said:

2. This gets to the nub of what I'm confused about when I read the posts comparing these options. I understand what the fixed allocations are (e.g. 50% US 10% UK etc etc), but I don't understand how floating allocations work and the reasoning. Does the fund manager changes these according to market forecasts? And as a beginner, how should I choose between the two? Genuinely, as a beginner, I wouldn't know how to choose, or to determine how much home bias I want. It's only recently that I even realised that an old pension pot had UK holdings of 75% and I've now rectified that!
Finally, biggest naive question coming up: Is HSBC GS fixed or floating allocation? 

My two cents worth, building on the useful information preceding:

Firstly, you'll probably do best, long term, by sticking to your guns (asset choices, investing strategy eg regular top ups) and not being blown off course by the likely wild swings in the market, or someone coming up with a new type of fund that promises a lot, or seeing something that should have been seen beforehand.

The reasons are that investors' behaviour (selling after markets crash, or buying the current 'hot' asset) has been shown to cost investors a lot of their returns. You need to stick with your strategy, unless your personal circumstances change. As a consequence, you owe it to yourself to get it pretty right from the beginning, or before you have too much money in the market. You develop a well founded core of investing beliefs, and you follow them through thick and thin; only that way can they realise their potential.

Secondly, there's perhaps less difference between those funds you're agonising over than you imagine, in terms of the soundness of their quality. More of less bonds? Fixed or varying asset allocation? A bit of real estate or none? Home bias or not? They not really fundamentals, BUT they are relevant and you have heard about them and so you should get your head around the issues. But it's not something to get paralysis by analysis over. The search for a good enough portfolio can be harmed by dreaming of the perfect one.

Thirdly, you can control costs but returns depend on the market; so control them, or the benefit of compounding returns will be compromised by the damage from compounding costs. Two refinements: plenty of costs are disclosed, but if there are significant ones that aren't, you're still paying for them. For example, with a broad index fund the managers don't buy or sell shares very much - perhaps 5% of the fund turns over each year; an active fund might turn over 100% of the value of its shares each year. Every time, there's a buy/sell spread which is costing someone - probably you. And then there's trading costs - yes, you can trade free now, so the managers probably can too, but someone somewhere is paying for the computer key strokes, record keeping etc, and it's probably you.  Tim Hale also lists price effects in his book Smarter Investing.

Second refinement, a few basis points in cost difference isn't the end of the world; work out what it'll cost you after 40 years - it might not be much.

Fourthly, your HSBC fund says they use SAA (strategic asset allocation), which is exactly what you do when you decide how much equities and how much bonds you want to hold. HSBC tweaks this when it gets out of balance; you might do that too. They also use TAA (tactical asset allocation) meaning when they think equities will do better, they hold more, if bonds look promising they'll up their bonds. Be very wary. Anticipating market movements or picking stocks is the active managers' game, and all the evidence suggest that most fail to beat the market over periods beyond about 3 years. With a fund like HSBC's, they're unlikely to go too far out on a limb less it snaps off and investors head off to Vanguard, but that's what you get with your HSBC fund (and possibly some Vanguard funds) and it's not something that seems like it's worth paying for (to most likely lose compared to an index fund, after paying more for it!).

Fifthly, the fund holds some listed real estate. That asset comes into and goes out of favour as it out- or underperforms equities more broadly. Some say it's a different asset class than equities, but it's traded like an equity. Tweedle dum or tweedle dee; you don't need it but it's not a crime. Complexity can have appeal, not always well founded.

Sixthly, you might in future wish to review how well your investments are doing; you probably should. Check: have the funds changed the index they're following (Blackrock did this recently for ESG reasons); is the fund tracking its index closely; are their fees coming down or going up; can costs be reduced? With index funds you don't need to look at their performance: you hear every day what the market is doing in the news, and good or bad in the short term that's what you signed up for.

But with your HSBC fund doing some tactical asset allocation and market timing, you might wonder how well you're doing. Here's a challenge: try evaluating that fund's performance against a comparable bare bones index fund, even a multi-asset index fund (because they're your low cost alternatives) and like me, you might find it very hard. 14% of that fund's assets are in 'managed funds', in addition to equity, bond, real estate and cash holdings listed. No idea what that means. Opacity, not transparency comes to mind.

You can read up how much home bias you want here: https://www.bogleheads.org/blog/2020/03/02/50-years-of-investing-in-the-world-part-3/

and elsewhere search for Vanguard's 2019 research paper on Global equity investing: the benefits of diversification.

Thanks, this is really helpful and lots of food for thought. I wish I had discovered this Forum earlier. I have certainly done things backwards, investing in single stocks, then in funds picked on no solid grounds, before wising up to passive investing, simplicity, and diversification!

Albermarle

I have certainly done things backwards, investing in single stocks, then in funds picked on no solid grounds, before wising up to passive investing, simplicity, and diversification!

You and most other people have learnt along the way !

JB50MSE

Umm, silly question. You say "My first foray is £20k in a S&S ISA with Vanguard, all of it invested in their VS100 product.
I have another £20k to invest this year and intend to put it all into a S&S ISA." I didn't see any mention of which financial year, or whether either of these £20Ks were already in an old ISA. It sounds like you are planning to invest £40K total this financial year from a standard i.e. non-ISA bank account. But I'm sure you know that you can only invest £20K per financial year into ISAs, as well as transfer previous years' ISAs (cash or IF or S&S ISAs)? Apologies if you meant that your Vanguard ISA was '20/21, and you're thinking of how to invest your '21/22 ISA.

Thrugelmir

granta said:

JohnWinder said:

granta said:

2. This gets to the nub of what I'm confused about when I read the posts comparing these options. I understand what the fixed allocations are (e.g. 50% US 10% UK etc etc), but I don't understand how floating allocations work and the reasoning. Does the fund manager changes these according to market forecasts? And as a beginner, how should I choose between the two? Genuinely, as a beginner, I wouldn't know how to choose, or to determine how much home bias I want. It's only recently that I even realised that an old pension pot had UK holdings of 75% and I've now rectified that!
Finally, biggest naive question coming up: Is HSBC GS fixed or floating allocation? 

My two cents worth, building on the useful information preceding:

Firstly, you'll probably do best, long term, by sticking to your guns (asset choices, investing strategy eg regular top ups) and not being blown off course by the likely wild swings in the market, or someone coming up with a new type of fund that promises a lot, or seeing something that should have been seen beforehand.

The reasons are that investors' behaviour (selling after markets crash, or buying the current 'hot' asset) has been shown to cost investors a lot of their returns. You need to stick with your strategy, unless your personal circumstances change. As a consequence, you owe it to yourself to get it pretty right from the beginning, or before you have too much money in the market. You develop a well founded core of investing beliefs, and you follow them through thick and thin; only that way can they realise their potential.

Secondly, there's perhaps less difference between those funds you're agonising over than you imagine, in terms of the soundness of their quality. More of less bonds? Fixed or varying asset allocation? A bit of real estate or none? Home bias or not? They not really fundamentals, BUT they are relevant and you have heard about them and so you should get your head around the issues. But it's not something to get paralysis by analysis over. The search for a good enough portfolio can be harmed by dreaming of the perfect one.

Thirdly, you can control costs but returns depend on the market; so control them, or the benefit of compounding returns will be compromised by the damage from compounding costs. Two refinements: plenty of costs are disclosed, but if there are significant ones that aren't, you're still paying for them. For example, with a broad index fund the managers don't buy or sell shares very much - perhaps 5% of the fund turns over each year; an active fund might turn over 100% of the value of its shares each year. Every time, there's a buy/sell spread which is costing someone - probably you. And then there's trading costs - yes, you can trade free now, so the managers probably can too, but someone somewhere is paying for the computer key strokes, record keeping etc, and it's probably you.  Tim Hale also lists price effects in his book Smarter Investing.

Second refinement, a few basis points in cost difference isn't the end of the world; work out what it'll cost you after 40 years - it might not be much.

Fourthly, your HSBC fund says they use SAA (strategic asset allocation), which is exactly what you do when you decide how much equities and how much bonds you want to hold. HSBC tweaks this when it gets out of balance; you might do that too. They also use TAA (tactical asset allocation) meaning when they think equities will do better, they hold more, if bonds look promising they'll up their bonds. Be very wary. Anticipating market movements or picking stocks is the active managers' game, and all the evidence suggest that most fail to beat the market over periods beyond about 3 years. With a fund like HSBC's, they're unlikely to go too far out on a limb less it snaps off and investors head off to Vanguard, but that's what you get with your HSBC fund (and possibly some Vanguard funds) and it's not something that seems like it's worth paying for (to most likely lose compared to an index fund, after paying more for it!).

Fifthly, the fund holds some listed real estate. That asset comes into and goes out of favour as it out- or underperforms equities more broadly. Some say it's a different asset class than equities, but it's traded like an equity. Tweedle dum or tweedle dee; you don't need it but it's not a crime. Complexity can have appeal, not always well founded.

Sixthly, you might in future wish to review how well your investments are doing; you probably should. Check: have the funds changed the index they're following (Blackrock did this recently for ESG reasons); is the fund tracking its index closely; are their fees coming down or going up; can costs be reduced? With index funds you don't need to look at their performance: you hear every day what the market is doing in the news, and good or bad in the short term that's what you signed up for.

But with your HSBC fund doing some tactical asset allocation and market timing, you might wonder how well you're doing. Here's a challenge: try evaluating that fund's performance against a comparable bare bones index fund, even a multi-asset index fund (because they're your low cost alternatives) and like me, you might find it very hard. 14% of that fund's assets are in 'managed funds', in addition to equity, bond, real estate and cash holdings listed. No idea what that means. Opacity, not transparency comes to mind.

You can read up how much home bias you want here: https://www.bogleheads.org/blog/2020/03/02/50-years-of-investing-in-the-world-part-3/

and elsewhere search for Vanguard's 2019 research paper on Global equity investing: the benefits of diversification.

Thanks, this is really helpful and lots of food for thought. I wish I had discovered this Forum earlier. I have certainly done things backwards, investing in single stocks, then in funds picked on no solid grounds, before wising up to passive investing, simplicity, and diversification!

Passive investing in itself doesn't provide a diversified uncorrelated portfolio that requires no decision making. 

dunstonh

Deleted_User said:

Thrugelmir said:

Passive investing in itself doesn't provide a diversified uncorrelated portfolio that requires no decision making. 

Ready-made curtains don't hang themselves.

Self-raising flour doesn't bake bread itself.

What's your point?

Put the ingredients in at the wrong levels and it would be a mess and lead to a bad outcome.
And it requires active decision making.  Such as using self raising flour for bread instead of strong flour.

quirkydeptless

Can this forum come to an agreement on Blackrock Consensus, or at least an accord.

underground99

quirkydeptless said:

Can this forum come to an agreement on Blackrock Consensus, or at least an accord.

When they were building a product with a simple allocation model that followed the general observed mix of how some other groups invested their money, at least they found some unanimity among their marketing team on what to call it. 

Thrugelmir

Deleted_User said:

Thrugelmir said:

Passive investing in itself doesn't provide a diversified uncorrelated portfolio that requires no decision making. 

Ready-made curtains don't hang themselves.

Self-raising flour doesn't bake bread itself.

What's your point?

Passive investing in itself doesn't provide a diversified uncorrelated portfolio that requires no decision making.