how to incorporate small cap into portfolio

eastmidsaver

hi,  my pension is mainly mixed investment funds  (split between VG LS, HSBC GS, Ballie Gifford Managed). i've done this so i get the diversity without needing to make too many decisions. I'm guessing as things stand it is about 73% equity.
the problem with the mixed investment sector is they don't have much small cap exposure, and i would like a bit just to give a bit more growth potential.
i appreciate how i choose to go about this is ultimately my decision, but i am just wondering what suggestions you have to incorporate this to the portfolio.
for example,  should it be on a % allocation.   should i maybe invest a small lump sum to get started, then set up a small regular monthly (£25 if via HL).  or forget a lump sum and just set up a regular saving only.   whichever option i choose,  i guess it is going to just be a satellite holding.
is this one of those sectors where it might be better to go active rather than passive? VG Global Small Cap has over 4000 holdings which to me appears too much, but be interested to hear your thoughts. but then i know going active poses higher charges, and it's own manager risks.
thanks.

Linton

If you were going for individual country based small cap funds then I would suggest you buy active funds on the basis that the Fund Manager should have a good local knowledge and carry out due diligence on the shares he buys.  For a global fund I cant see that really being practical so I would suggest an index tracker.  It doesnt matter how many companies a tracker holds as long as it tracks its index.  The 4400 holdings is the size of the MSCI Global Small Cap index used by the VG fund. I dont know how many of those the fund actually holds, probably not all, there would be no point.

It would make sense to allocate a % of your overall portfolio and adjust your contributions to keep the balance.  Rather than buy %s of all your funds every month it could be better to put the whole of each monthly contribution into whichever fund is under-weight.

One thing to note with global small company funds is that the definition of "small" can be very broad.  The largest company in the MSCI Global Small Cap Index  is the same size as the 40th largest member of the FTSE100.

csgohan4

Linton said:

If you were going for individual country based small cap funds then I would suggest you buy active funds on the basis that the Fund Manager should have a good local knowledge and carry out due diligence on the shares he buys.  For a global fund I cant see that really being practical so I would suggest an index tracker.  It doesnt matter how many companies a tracker holds as long as it tracks its index.  The 4400 holdings is the size of the MSCI Global Small Cap index used by the VG fund. I dont know how many of those the fund actually holds, probably not all, there would be no point.

It would make sense to allocate a % of your overall portfolio and adjust your contributions to keep the balance.  Rather than buy %s of all your funds every month it could be better to put the whole of each monthly contribution into whichever fund is under-weight.

One thing to note with global small company funds is that the definition of "small" can be very broad.  The largest company in the MSCI Global Small Cap Index  is the same size as the 40th largest member of the FTSE100.

Agree with your last paragraph especially

BG Global discovery has Tesla of all companies

Bobziz

csgohan4 

BG Global discovery has Tesla of all companies

Which I think I'm right in saying could reasonably have been considered small when BG first invested. Point being good to understand what a funds rules are on what it buys and when it sells.

Linton

csgohan4 said:

Linton said:

If you were going for individual country based small cap funds then I would suggest you buy active funds on the basis that the Fund Manager should have a good local knowledge and carry out due diligence on the shares he buys.  For a global fund I cant see that really being practical so I would suggest an index tracker.  It doesnt matter how many companies a tracker holds as long as it tracks its index.  The 4400 holdings is the size of the MSCI Global Small Cap index used by the VG fund. I dont know how many of those the fund actually holds, probably not all, there would be no point.

It would make sense to allocate a % of your overall portfolio and adjust your contributions to keep the balance.  Rather than buy %s of all your funds every month it could be better to put the whole of each monthly contribution into whichever fund is under-weight.

One thing to note with global small company funds is that the definition of "small" can be very broad.  The largest company in the MSCI Global Small Cap Index  is the same size as the 40th largest member of the FTSE100.

Agree with your last paragraph especially

BG Global discovery has Tesla of all companies

Tesla was small when BG bought it!  They ended up owning 7.7% (not all in Global Discovery) 18 months ago and were the largest external shareholder but have been selling snce then.  

tebbins

I mainly hold VHYL and VG FTSE global all cap for my global exposure.VHYL has a smaller average cap than the global average and just over 10% of the FTSE global all cap's weight is in stocks considered to be small cap. At a global level, there's an argument that you could use Vanguard Global Small Cap index fund, at a local level as I am more of indexer and sceptical of the inconsistent returns of the FTSE small cap and AIM, I prefer UK mid cap and use VMID, Vanguard's FTSE 250 tracker.

I've covered the 250 in a bit more technical detail here: https://forums.moneysavingexpert.com/discussion/comment/78567735/#Comment_78567735

https://www.ftserussell.com/index/spotlight/global-equity-indexes

Thrugelmir

Linton said:

csgohan4 said:

Linton said:

If you were going for individual country based small cap funds then I would suggest you buy active funds on the basis that the Fund Manager should have a good local knowledge and carry out due diligence on the shares he buys.  For a global fund I cant see that really being practical so I would suggest an index tracker.  It doesnt matter how many companies a tracker holds as long as it tracks its index.  The 4400 holdings is the size of the MSCI Global Small Cap index used by the VG fund. I dont know how many of those the fund actually holds, probably not all, there would be no point.

It would make sense to allocate a % of your overall portfolio and adjust your contributions to keep the balance.  Rather than buy %s of all your funds every month it could be better to put the whole of each monthly contribution into whichever fund is under-weight.

One thing to note with global small company funds is that the definition of "small" can be very broad.  The largest company in the MSCI Global Small Cap Index  is the same size as the 40th largest member of the FTSE100.

Agree with your last paragraph especially

BG Global discovery has Tesla of all companies

Tesla was small when BG bought it!  

Tesla was unlisted when they first bought it. 

Prism

I use global funds for large and mid cap as I figure that size of company doesn't really benefit from local knowledge. They are typically global companies anyway.

I use other funds for smaller caps, less than around £1bn in size and micro caps around the £250m mark. I stick to UK funds for both of those as there are not many funds around that work at that scale for other countries, that are available in the UK. 

aroominyork

Most people choose active funds for smaller companies. I can only see one decent global active fund (ASI) so I suggest you think about whether you want a regional bias. In my view, the UK is very good for smaller companies when compared to large caps, Europe is reasonable, North America so-so, Japan too volatile for my liking, Asia Pacific too small a region to worry about, and for emerging markets I stick to large caps.

eastmidsaver

hi.  thanks for your comments.  it's given me something to think about.

Audaxer

eastmidsaver said:

VG Global Small Cap has over 4000 holdings which to me appears too much, but be interested to hear your thoughts. but then i know going active poses higher charges, and it's own manager risks.
thanks.

I'm retired and have also been thinking of adding the Vanguard Global Small Cap Index Fund to my portfolio as I've not got much in small-cap either. As it tracks the global small-cap index I don't see a problem that it has over 4,000 holdings. I know there is a good argument for holding active small-cap funds for different countries, but for simplicity I think the Vanguard fund seems a good option.