Portfolio Critique Help

Alexland

flopsy1973 said:

from what i see actives perform better than passives I may be wrong here as i have never used them before but from the performance data I have looked at so far

There will always be a small pool of active funds that have done well recently (so you are considering them) and will look favourable on the 3, 5 or 10 year graphs but the problem is that doesn't give you the certainty that outperformance will continue. If anything some have done well because they are holding assets that have become overvalued relative to their fundamentals where they have concentrated into a sector, investment style, etc has been in favour and are therefore could now be more vulnerable to a poor performance going forward. The active managers you are considering now are generally not the same active managers you would have considered a decade ago and many people's investment horizons are longer than that.

Now that's not to say you should go entirely global cap weighted passive as active choices can be good at reducing risk (multi asset, wealth preservation, US exposure, etc), increasing risk (small companies) or smoothing income (investment trusts) but going active purely for performance is over the long term is likely to be a flawed strategy unless you get very lucky and pick the manager that defies the odds, charges, etc.

aroominyork

Alex's advice is sound, flopsy. You mentioned active funds for smaller companies and emerging markets and those are pretty much the only areas where I go active (not quite though...). I started off fully active four years ago and gradually moved towards core index + a couple of active satellities, which I see as re-risking and let me sleep more soundly as I am not wondering what to tinker with next. I was lucky to de-risk while the markets were going up so I didn't make any mistakes that were too expensive; others have learned in a more painful way. Keep it simple.

flopsy1973

I was only using the VLS range as example my preference was the hsbc GS then the L and G orion came up. This is part of the problem too many sweets to choose ! Much talk is made about the US being overpriced what is the general consensus with you how you would position it within a PF like mine? 

tebbins

Most agree the US is highly valued relative to historical and rest-of-world valuations - this is factual. The challenge is what do you do with that information. Do you believe the difference is justified because of how much better US companies with their much greater domestic revenues will weather the next decade or so?

The US has numerous advantages, the main one being it is close to self-sufficient in respect of food, water, energy, they don't need to hire high-skilled workers from abroad, they have plenty of space to expand, they are the most insulated country from climate change, they have ocean moats on both sides and allies/desert/tundra to the North and South. It is a huge, developed, diverse economy and as the world's predominant superpower they can dictate trade terms. They are one of few countries in the developed world that don't have terminal demographics, they have always been and will long be a net-immigration country. You may be sceptical of the S&P 500s very high tech weightings, however you may believe this shields US companies from technological redundancy over the coming decades. You may be sceptical of their current debt situation, but note that Europe and other developed emerging markets also have debt problems.
You may believe the US is shielded from international commodity/supply-push inflation that looks set to affect Europe, and so prefer to invest where companies earnings will keep up with your local inflation rate and in areas such as the FTSE 100 with a higher weighting to these cyclical commodity stocks.
You may believe the $ is too high and will depreciate, and so prefer a more domestic or US underweight portfolio.
You may be sceptical of the S&P500s lack of investment of retained earnings, as, in spite of a lower dividend payout ratio (57% as at the start of this year but over the past 40 years 30-50% has been the average) than the UK and Europe, share buybacks exceed dividend payouts. On the other hand, a high payout ratio demonstrates management's confidence in the business as a going concern.

There are many ways to look at this information and no-one can tell you which way is objectively right.

Linton

flopsy1973 said:

I was only using the VLS range as example my preference was the hsbc GS then the L and G orion came up. This is part of the problem too many sweets to choose ! Much talk is made about the US being overpriced what is the general consensus with you how you would position it within a PF like mine? 

I would not make any decision based on whether I thought the pricing of a market was "incorrect" (can you define incorrect?).  Pricing can stay "incorrect" for very long periods.  Rather I would consider how much risk I would want to take that it was incorrect and would unwind in my lifetime.  To me 60% US represents too much risk since my investment horizons are more medium term than long.

Since it is very much easier to add a sector to a portfolio than decrease it I would not start with a global tracker in the first place but rather hold different funds for each geography.

If your investment timescale is 20 years + then whether the US is overpriced now or not is relatively immaterial and a global tracker is probably as good as anything else with a bit of added spice for interest.

masonic

flopsy1973 said:

I was only using the VLS range as example my preference was the hsbc GS then the L and G orion came up. This is part of the problem too many sweets to choose ! Much talk is made about the US being overpriced what is the general consensus with you how you would position it within a PF like mine? 

There are substantial differences between those three multi-asset funds. As the 'core' of a core and satellite approach it is worth settling on this first before deciding the rest, as which you choose will impact what else to hold. On the US weighting, I think a strong case can be made for dialling it back, and if you agree then that should help you narrow down your options. Otherwise, forget the L&G funds as they are underweight US stocks.

flopsy1973

Hi
yes the last comment made sense to decide on my core 
Yes I have a lot of funds with HL which were posted on here while back and everyone said get rid and start again. This is something I have been meaning to get around to for over a year and does finally need sorting out now!!!
Thanks to all the posters for their input so far but I am curious, as when i posted my HL funds on here while back I had lot of the regular posters comment but no comment from them this time any reason why ??

I DO want a core holding whether that be one of the multi asset mentioned or go with a index tracker ??
I think i want some satellites to complement that also in areas and maybe add some kick I have mentioned some of the funds I already have in earlier posts and was seeking views on keeping these or potential new??

Linton

flopsy1973 said:

Hi
yes the last comment made sense to decide on my core 
Yes I have a lot of funds with HL which were posted on here while back and everyone said get rid and start again. This is something I have been meaning to get around to for over a year and does finally need sorting out now!!!
Thanks to all the posters for their input so far but I am curious, as when i posted my HL funds on here while back I had lot of the regular posters comment but no comment from them this time any reason why ??

I DO want a core holding whether that be one of the multi asset mentioned or go with a index tracker ??
I think i want some satellites to complement that also in areas and maybe add some kick I have mentioned some of the funds I already have in earlier posts and was seeking views on keeping these or potential new??

Given that you have decided on one or the other, the decision on whether to go with a multi-asset global fund or a global tracker is pretty simple, Do you want to hold non-equity assets?  If so in what % and how do you want them managed:

If you dont want to hold non-equity assets go for a global tracker
Otherwise:
 - Do you want to manage the allocation yourself - if you do go for separate equity and non-equity funds
 - Othewise:
 -- Do you want the %allocation to non-equity to be varied by the manager to manage the risk level - go for a risk allocated multi-asset fund set your chosen risk level
 -- Otherwise go for fixed allocation multi-asset fund

masonic

flopsy1973 said:

Thanks to all the posters for their input so far but I am curious, as when i posted my HL funds on here while back I had lot of the regular posters comment but no comment from them this time any reason why ??

I can only speak for myself, but I tend to withdraw from a thread at the first sign the poster is trying to get me to make investment decisions for them. Discussing the pros and cons of various options is fine, but 'what should I do?' type questions stray into regulated activities.

flopsy1973

Sorry poor choice of wording, of course I realise this forum is to gain information and ask questions. Ultimately the final decision will be mine