Single global fund or diversify?

billm

My pension is currently invested in Fidelity HSBC Islamic Pension Fund - Class 4 and has been for the last couple of years. Previously had a number of different funds, and was chopping and changing, but was advised that as pot was very small should stick to a single global fund until pot reached 100K.

Pot is now reaching 100K, and was looking for some advice. Should I stick with the Islamic Pension fund, its been doing great over the past few years, averaging 20% increases per year (appreciate it has been a bit up and down over the past few years) or should I be looking to diversify?

The fund is 70+% US stocks, and very highly concentrated in new tech. Is now the time to diversify, or should I stick with the one fund?

Seen a number of comments advising the US is over priced and is due a serious fall, whilst I understand this is part of investing and I have a few falls to come before I will be looking to access the pot, just looking for opinions on whether to stick with this fund, or maybe look to move to another more diversified global fund, or split into a few/several other funds with a more global coverage.

I am in the fortunate position that my wife and I will be able to retire with State Pension and also LGPS that will cover all our needs, so the DC pot is mainly the icing on the cake, so am happy to take a bit of a risk with it.

Will also be contributing for a further 10 - 12 years minimum at 12 - 15K per annum, so still some time to increase the pot over the coming years. 

So question is, do I stick with what I have as it is working well, and I am extremely pleased with the returns, or should I now start to look at other options?

Thanks all for any comments

Bill M

JohnWinder

billm said:

So question is, do I stick with what I have as it is working well, and I am extremely pleased with the returns, or should I now start to look at other options?

Some would be worried by that statement because it implies the corollary that if it starts to not work well and the returns displease you then you’ll sell it.  The problem with that approach is you can sell something high quality at a bad price simply because it has bad days and good days like just about every other investment.
If you’re going to get out of it for something that has performed less well, then this is the perfect time while it’s outperforming.

Is your pension fund a 100 largest global companies fund, with exclusions for religious/ethical reasons?
If so, the first issue is whether an all-equity fund is or isn’t too risky for you.
The second is how well is it diversified? You could add another few thousand stocks to be really diversified, but it wouldn't surprise me if the correlation of returns with the latter wasn’t pretty high (promised myself I wouldn’t use ‘pretty’, but there you are). There may be little benefit with more diversification. I don’t know how to check that, but someone else will.
Thirdly, it doesn’t look to be low cost. The industry keeps costs opaque (can’t imagine why) so someone else will have to advise what its cost is compared to a 3000 fund global equity index fund. Cheaper is better if the product is what you want.
Was the fund size really only £16M a decade after it was started? That’s scarily small for just four years ago. Small funds can fold easily if 0.67%/year in fees isn’t enough to run it.
You can both diversify more, and stick with one fund. That’s not an either/or choice which is how you expressed it.
Probably not a good strategy to have your investing approach guided by commentary that you hear. However wise that commentary is, you’re completely ignoring the commentary you don’t hear. Would that be a balanced view?  And even the experts don’t know what the future will bring. Here’s every one of scores of economists wrongly predicting how interest rates would move. https://www.marketwatch.com/story/yes-100-of-economists-were-dead-wrong-about-yields-2014-10-21

pip895

You could add some “satellite” funds :- UK Small Company, Europe, Emerging Markets for instance, which would reduce your US exposure.  I have been underweight US for years and it hasn’t done me any favours 😊 luckily I have always held tech so haven’t missed out too much.  

billm

Thanks for the comments, much appreciated.
As I have over 10 years until I will look to access the fund I am happy to remain high equity, and am comfortable with the higher risk. The eventual pot will be used for extra travel when retired and if really lucky and it continues to perform well, may allow me to retire a couple of years early at 58/59 rather than 61/62 as is the current plan.
I did have a more diversified plan originally, with exposure to emerging markets and Europe/UK, but was only really seeing the benefits from the US tech, which is more of the reason for switching rather than any ethical considerations.
I'm happy to continue with the fund as is, and think maybe new contributions should go to another fund, maybe this is how I achieve my diversification over time. Just need to consider which fund(s)

Albermarle

A simple option would be to switch 100% into a tracker following the FTSE All World Index . This would reduce the US exposure to 57% and give 10% Emerging markets and 4% UK . ( still 100% equity) Examples would be Vanguard ETF ( VWRP) at 0.22% charge , or HSBC FTSE All world fund at 0.13%.

Alexland

As you say Islamic funds have tended to do well in recent years as the filtering results in a high bias towards US tech which seems to tick most boxes for Islamic, ESG, etc investing selection criteria and has done well recently. So you have taken more risk and in the period it has paid off in particular with the pandemic accelerating trends and some share prices above normal levels.

However high valuations doesn't necessarily mean the market is about to crash as there is the opportunity for those companies to improve their earnings to get back to more reasonable long term fundamental valuations. In particular the high US inflation will be supportive to asset prices especially as US tech companies don't tend to be the low margin box shifters who could get squeezed hard by increases in the cost of raw goods, transportation, etc.

However tech could get hit bad if/when market sentiment changes and for that reason I would advocate a more diversified exposure even if it means sacrificing the enhanced returns that might continue for longer as it's not desirable to have a portfolio that could be held hostage to any particular economic scenario.

Linton

The HSBC Islamic fund is very high in tech(33%) compared with a standard global index fund which would be around 20%.  It is also 26% in Apple, Microsoft, Facebook, Google and Tesla.  A standard global index found would be around 15%.

This seems to me far too conentrated in higher risk areas.  Unless you have a religious reason to go for an Islamic fund I suggest you go for a standard global index fund. With a pot of £100K+ you could reasonably add some excitement with small companies

AlanP_2

If you are in the LGPS have you looked at the AVC options on offer as a way of boosting your tax free lump sum?

Would be compatible with the DC / SIPP as can be taken at different times. 

billm

Deferred LGPS unfortunately, otherwise exactly what I would be looking at. My partner however is still in the LGPS, but as only part time we are limited to the amount we can add. We are however maximising what we can.

I'm going to look at a more standard global tracker I think. Need to look a little more closely at what Fidelity offers as my options are fairly limited, however am sure there are plenty of good options available once I read through them all.