SIPP investment - Japan...and China?

older_and_no_wiser

I'm currently in the process of transferring my personal SIPP across to Interactive Investor. As part of this, I am doing a lot of research into where I should be investing the pot. I've made a decision on the bulk of it and making sure I diversify as much as possible. This will be a combination of 4 funds including HSBC Global Strategy, iShares Pacific (ex Japan), emerging markets and a global index tracker. 

I'm also considering a small proportion going into the Fidelity China Special. I realise that index trackers in general are preferred for long term growth but I'm willing to risk a small ratio in well regarded active managed funds. 

Following on from the above, I'm wondering if Japan is worth a small input. I don't have much exposure there with my proposed portfolio. I realise that now isn't a great time for Japan as they are behind with the Covid vaccination and will take a blow with not having spectators at the upcoming Olympics. However I have almost 10 years till retirement and will be retaining my portfolio for drawdown after that (albeit with a lower risk list of funds by then!).

Any input is welcome.

Thanks!

Voyager2002

Japan is a major economy (like the EU and North America) so it makes sense to have some exposure there. The fact that there are particular economic difficulties there at present could mean that Japanese equities are currently at bargain prices and so are likely to give you strong growth in the medium term. (The same argument could mean that for now you should avoid the USA, particularly 'big tech'.) You might be more concerned that there was a long period of deflation, with minimal growth, and with to satisfy yourself that those days are gone for good.

Thrugelmir

There's potential opportunities in every market. Drilling down to find something of interest is the challenge. I currently hold Japanese mid caps as an active fund. Though not intending to add further exposure at the moment. 

older_and_no_wiser

Thrugelmir said:

There's potential opportunities in every market. Drilling down to find something of interest is the challenge. I currently hold Japanese mid caps as an active fund. Though not intending to add further exposure at the moment. 

Thanks for that - appreciate the input. Can I be cheeky and ask which fund you are invested in? I'm keen to research the different options as this isn't an area I have done any research into and am keen to learn what I should be looking for. Of course, I won't take this as specific investment advice but I am in awe of the experience and knowledge a lot of you on this forum have as I've been reviewing the posts in the last few weeks. 

Thrugelmir

The investment trust I hold is   ATLANTIS JAPAN GROWTH FUND (AJG)

Linton

Looking at things the other way, why would you want to exclude Japan?  It's a major market. Japan Small Companies are worth looking at as they have performed well and have a relatively low correlation with other equity investments.

MaxiRobriguez

Ignore Japan's current covid concerns. Equity investment should be 5 year minimum, preferably 10 year investment. Covid in Japan may be better or worse than other countries, it may be completely managed by then. Point is you don't know so it shouldn't impact your investment decision anymore than Covid implications do for UK/US investments.

I was quite bullish on Japan a year ago and overweighted it with a bland/cheap Nikkei tracker. Now neutral, but would still say can play an important part of your portfolio and shouldn't be ignored totally. 

aroominyork

Or take a look at Lindsell Train Japanese. It has performed dreadfully in the last year because it avoids sectors that have recently driven the Japanese market, so if you like the type of consumer-oriented quality growth companies which Lindsell Train favours, now could be a time to buy the fund at a cheap price. It has much more of a mix of market caps than LT's UK and Global funds: about 40% of the holdings are under £5bn.

Steve182

I've a modest position (just under 2% portfolio) in Legg Mason Japan Equity.

It's a volatile fund, but has historically been very profitable over the medium to long term (5+ years).

underground99

swleventhal said:

making sure I diversify as much as possible. This will be a combination of 4 funds including HSBC Global Strategy, iShares Pacific (ex Japan), emerging markets and a global index tracker. 


Following on from the above, I'm wondering if Japan is worth a small input. I don't have much exposure there with my proposed portfolio.

I have almost 10 years till retirement and will be retaining my portfolio for drawdown after that (albeit with a lower risk list of funds by then!).

I would think of it this way:

You want to diversify as much as possible so you are making a good start with HSBC Global strategy which is a mixed asset basket of holdings, allocating your money across global developed and emerging equity markets, government and corporate bonds and some property.  

OK, job done.

But then for some reason you are going to get another 'global index tracker', which takes some more of your money and allocates it across global developed and emerging equity markets, increasing the volatility of your portfolio that the HSBC Global Strategy team had already created for your needs, by putting another slice of your money into equities only rather than bonds and property.

And then you are going to get another fund on top, and with this slice you are going to put the money into emerging markets equities, again changing the mix of the portfolio which HSBC Global Strategy team had tried to build for you and which you had edited by adding extra global equity index. You edit your portfolio mix again by adding more emerging markets than the combination of HSBC's mixed asset fund and your global tracker wanted to give you.

And then, despite already being diversified with fingers in a lot of pies by this point, you want to take another slice of your cash and put it into more equities: 60% in Australia and 37% Hong Kong/Singapore and 3% misc other - so you buy a pacific-exJapan tracker, further distorting the allocation that HSBC Global Strategy team had given you in the mixed asset product and which you had edited by adding a global equities-only tracker and edited again by adding an emerging markets equities-only tracker and are now editing again by adding an Australia/HK/SG fund.

And then you think, hold on, why have I added this Australia / HK equities fund and ignored Japan whose stockmarket capitalisation is twice the size of the one tracked by the iShares pacific-ex-Japan tracker. So you ponder adding more equities there too. You also ponder adding a dedicated China fund because although you already have money allocated to China in the HSBC mixed asset fund and the global equity tracker and it's likely to be the biggest component of the emerging markets fund, you wonder if a dedicated fund manager on the ground could find better stocks than just buying the biggest ones in the Chinese indexes.

At some point once you have done all that and skewed your asset mix away from what HSBC global strategy tried to give you (increasing the proportion of your portfolio that's in equities, shifting the regional asset allocation from their volatility-managed product towards unhedged global equities and then towards emerging markets and then to Australia and HK and then to Japan and China...) you might think to yourself - why have I gone so far away from what HSBC tried to give me, should I not add back some UK allocation (which is where I live) or some Europe allocation (which is our nearest international trading partner) or some more bonds or non-equity assets (because all the three to five funds I added on top of the HSBC mixed asset fund were in the equities space and I've ended up with something quite a bit more volatile than the mixed asset fund I was originally looking at).

Presumably you know in your own mind why you want to start with a core HSBC mixed asset fund that gives you a decent diversified portfolio and then wreck those allocations by 'undiversifying' it into particular tilts towards more equities and specific regions that you like the sound of.  However, without that knowledge of what is going on in your own mind and why you feel you are better at constructing a portfolio than HSBC's global strategy team, it is difficult to give you pointers about how you might like to do something different.

As you mentioned, you 'don't have much exposure to Japan with your proposed portfolio' because you started off with something global and then tried to 'diversify' it by adding other parts of asia and emerging markets and are thinking about adding some extra China but had ignored Japan. It's a large economy and doesn't make sense to ignore it; but then likewise it doesn't make sense to ignore UK and Europe either, but you haven't chosen to add in those areas.  Perhaps you have other investments elsewhere (e.g. ISAs or workplace pension) where you have a more balanced approach or could at least manage this SIPP in conjunction with a broader portfolio of other assets making up your overall retirement fund. Without knowing that, again it's quite difficult to comment.

FWIW, I have a number of holdings with some sort of Japan exposure but across my main SIPP and ISA the ones with the greatest exposure to Japan as Baillie Gifford Japan, Atlantis Japan Growth, Matthews Asia Dividend (about 30% Japan) and iShares World Size Factor ETF (about 20% Japan). I don't have any individual Japanese stocks (having sold Softbank after a 'good run' last year).

Albermarle

Presumably you know in your own mind why you want to start with a core HSBC mixed asset fund that gives you a decent diversified portfolio and then wreck those allocations by 'undiversifying' it into particular tilts towards more equities and specific regions that you like the sound of. 

It is a fair and well explained point but to be fair to the OP , he will not be the first to do something very similar.

Probably the thought process is , I like the global strategy multi asset fund but it seems a bit too hands off to have all my money in it .

Also I have spent some time researching funds etc and I want to apply some of this new found knowledge by picking and choosing allocations/new funds .

I know - been there and got the T shirt