SIPP investment - Japan...and China?

AnotherJoe

swleventhal said:

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!

Looks like a lot of overlap there.
instead of diversifying globally, why not into sectors? Eg healthcare, financial, energy etc etc. No suggestions there just giving examples of sectors. I think it's a fools game trying to diversify globally because big enough companies will by definition be global, eg say Sony or Toshiba. If you really want to invest in the country you'll have to go mid or even better small caps. 

older_and_no_wiser

Thanks so much for all the replies and useful information. It has certainly made me re-consider. I still wish to hold specific funds in Japan (and China) as the global funds don't give the weights in those markets that I (rightly or wrongly) wish to have.

I'm now thinking of splitting as follows:

HSBC Global Strategy Dynamic (75-80%)
Baillie Gifford Japanese (10-13%)
Fidelity China Special Situations PLC (10-13%)

As you can see, I've elected to go with fully managed funds for Japan and China as these are risky markets and the two funds have strong track records there which hopefully stands in good stead for the future. They should also go into some of the niche smaller companies which have good futures.

I've gone very low percentage into Japan and China initially which lowers my risk and hopefully doesn't skew the diversity too much from HSBC's ratio. Also, I still have my work SIPP with HL as I mentioned earlier. That plan represents 60% of my total pot, but this pot does have a decent total as I've been paying into it for almost 30 years - so I don't want to undo too much of the previous good work up to this point.

aroominyork

dunstonh said:

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!)

When you build a portfolio, you can either hit and hope by putting random percentages in different countries/regions or you have a structure and process in place.   Random hit and hopes rarely result in the best returns over the long term as it usually means the person doesn't know enough about what they are doing.

The multi-asset funds, like HSBC GS, use actuarial data, analysis, research and a dose of opinion to decide their weightings.   

So, what you are doing that makes you think you can do a better job than HSBC?

But you are speaking as an IFA who is going to play safe, not doing anything that would look unconventional for your mostly conventional clientele. So you would, I assume, not significantly overweight smaller companies or emerging markets or China, as it would just look ‘wrong’ to your clients. The upside of them overperforming is nowhere near as great as the downside of them underperforming.

Some of us want to overweight smaller companies, or emerging markers generally, or China specifically (to better reflect its role in the global economy rather than its proportion of a global market cap index). Just because it would not look right in an IFA’s portfolio does not mean it is bad investing.

Thrugelmir

aroominyork said:

dunstonh said:

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!)

When you build a portfolio, you can either hit and hope by putting random percentages in different countries/regions or you have a structure and process in place.   Random hit and hopes rarely result in the best returns over the long term as it usually means the person doesn't know enough about what they are doing.

The multi-asset funds, like HSBC GS, use actuarial data, analysis, research and a dose of opinion to decide their weightings.   

So, what you are doing that makes you think you can do a better job than HSBC?

But you are speaking as an IFA who is going to play safe, not doing anything that would look unconventional for your mostly conventional clientele. So you would, I assume, not significantly overweight smaller companies or emerging markets or China, as it would just look ‘wrong’ to your clients. The upside of them overperforming is nowhere near as great as the downside of them underperforming.

Some of us want to overweight smaller companies, or emerging markers generally, or China specifically (to better reflect its role in the global economy rather than its proportion of a global market cap index). Just because it would not look right in an IFA’s portfolio does not mean it is bad investing.

Some people appear to have a wish to put their capital at risk.  The basics as set out by Warren a long time ago will always stand the test of time. 

Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.

Master that and your returns by default will increase considerably of your investing lifetime.. 

dunstonh

But you are speaking as an IFA who is going to play safe, not doing anything that would look unconventional for your mostly conventional clientele. So you would, I assume, not significantly overweight smaller companies or emerging markets or China, as it would just look ‘wrong’ to your clients. The upside of them overperforming is nowhere near as great as the downside of them underperforming.

Not really as that is what risk scales are for.  As you move up the risk scale, a greater content of smal/mid cap etc gets added.  However, that is based on justification and structured.

If a DIY investor is doing the same then that is fair enough.   But if its a new investor that doesn't understand how to structure a portfolio, then its best to leave it alone.

Thrugelmir

Deleted_User said:

Thrugelmir said:

Some people appear to have a wish to put their capital at risk.  The basics as set out by Warren a long time ago will always stand the test of time. 

Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.

Master that and your returns by default will increase considerably of your investing lifetime.. 

Sure. But then everybody loses money sometimes. Including the holy Warren. So this rule may sound good, but what does it even mean?

If you set out to protect your capital. Then by default your losses will be reduced. Even a chimp can select a portfolio by throwing darts at a list of names. Requires no thought at all. The danger is then that the portfolio becomes unstable and highly correlated which takes the risk exposure off the scale. 

bostonerimus

I'm not a fan of the individual investor trying to build a portfolio on the research they can do online or reading the newspapers and "sticking a finger in the air" as there tends to be a lot of overlap and sectors like fixed income and bonds are often ignored. Either buy a few non overlapping broad equity and bond indexes and keep some cash in the bank or just go with a multi-asset fund as at least that will have been constructed with a sensible asset allocation. But what the vast majority of people fail to develop is an management strategy to go with their portfolio. What will you do if certain markets fall by 50% or indeed grow by 50%? At least with the muti-asset fund rebalancing is automatic, but you still need to consider what you will do if the value of that fund falls by a large amount, will you get scared and sell thus crystalizing your losses? That's all too common.

So rather than thinking about what goes into your portfolio, think about how you'll manage it first.

tichtich

As a new investor who accepts the wisdom of not actively managing, I'm inclined to keep my money in a global tracker. But I believe I'm right in saying that most (all?) global trackers are cap-weighted, which means 50+% in the US. That doesn't seem to be an optimally diversified solution. Wouldn't it make more sense to do something like putting 20% each in US, UK, Europe, Japan and China trackers? Or some other pseudo-random but well-diversified arrangement. By diversified I mean avoiding all sorts of correlations as much as possible,  not just regional ones. Does cap-weighting have any benefit apart from being passive?

older_and_no_wiser

tichtich said:

But I believe I'm right in saying that most (all?) global trackers are cap-weighted, which means 50+% in the US. That doesn't seem to be an optimally diversified solution. 

Although these global funds are passive, they do get readjusted at regular intervals to take account of the markets....I think? So if the US has a downturn and another sector improves, that could mean a shift in weightings for different trackers within the fund. However, as the US is such a dominant global economic force, I'm not sure how much this power shift would need to be and for how long.

I'm fairly new to all this, so may be wrong!

tichtich

P.S. Along the same lines... As a passive investor,  are there any criteria that I can/should apply to my portfolio other than passiveness and diversification? I suppose there's also risk-tolerance, which I would address by choosing a stock/bond split. Anything else?