Views on the following 2 fund choices I've made please

isayhello

masonic said:

They seem like very odd choices for a fairly new investor. What is your rationale for biasing towards IT and consumer discretionary sectors?

I can only speculate as to why they have been doing badly, but I'd think consumer discretionary in particular would be expected to underperform when people are worried about cost of living increases. The IT fund has over 40% invested in Apple and Microsoft, trading on a P/E of ~30 and ~35 respectively (this has doubled over several years), so plenty of potential for further losses.

Thanks @masonic they were recommended in some financial articles recently, I think the consumer fund was touted as being a stable fund for consumer essential items. I'm happy to hold than crystallise losses but just wanted to check if there were any obvious dangers I'd missed to avoid staying in them. It seems the tech firms are overvalued if I'm understanding you.

eskbanker

isayhello said:

dunstonh said:

The tech fund has 90% loss potential.   Both are going to be highly volatile.  Not the sort of funds used by inexperienced investors.

What does 90% loss potential mean?

Could lose 90% of its value, i.e. knock the last zero off the value of the holding, e.g. £100K down to £10K.

isayhello said:
I'd seen them recommended in some financial articles.

Which articles, and in what context?  They may well be sound choices for certain investment strategies and profiles but can't be recommended meaningfully in a vacuum, so what sort of gap were they being proposed to fill?

Thrugelmir

Audaxer said:

Thrugelmir said:

isayhello said:

 I thought they would continue to do so 

Then if the rationale behind your decision to purchase originally no longer holds. Cut your losses. Hanging onto poorly performing investments in the hope of recovery is an all too common trait of inexperienced investors. 

But I think these particular ETFs are volatile rather than poor performers. Maybe the OP, if inexperienced, shouldn't have gone for them in the first place, but I'm not sure it's a good idea to panic and crystallise his losses.

A quick browse reveals that the top three holdings in ICDU are now Amazon (29%) Tesla (18%) and Home Depot (7%).  The top two in IITU are Apple (21%)  and Microsoft (20%).  This results in a highly concentrated portfolio. I'm not immune myself to building sizable stakes in individual companies. Though I constantly monitor the RNS and quality press.  As share prices can move extremely rapidly. Hence my earlier comment about the researched rationale. Far too easy to buy at the peak then wonder why performance is subsequently poor. Tesla is over 25% down since the peak last November. 

masonic

isayhello said:

masonic said:

They seem like very odd choices for a fairly new investor. What is your rationale for biasing towards IT and consumer discretionary sectors?

I can only speculate as to why they have been doing badly, but I'd think consumer discretionary in particular would be expected to underperform when people are worried about cost of living increases. The IT fund has over 40% invested in Apple and Microsoft, trading on a P/E of ~30 and ~35 respectively (this has doubled over several years), so plenty of potential for further losses.

Thanks @masonic they were recommended in some financial articles recently, I think the consumer fund was touted as being a stable fund for consumer essential items. I'm happy to hold than crystallise losses but just wanted to check if there were any obvious dangers I'd missed to avoid staying in them. It seems the tech firms are overvalued if I'm understanding you.

"Consumer discretionary" is the opposite of essentials. They are non-essential goods and services, the sort of things people will not buy if they don't have the spare cash. Not investing in the funds promoted within financial publications without fully understanding what you are investing in is a good lesson to learn.

To answer another question, "90% loss potential" means that in the worst case, £100 invested at the peak could become £10 at the bottom of a severe crash (as happened in the IT sector in the dotcom crash).

wmb194

isayhello said:

Audaxer said:

I just looked them up as I hadn't heard of these ETFs. One is almost all US Tech, and that sector has seen some quite big falls this year, and the other one seems concentrated in US Consumer Cyclical, so is also likely to be volatile. Were you not aware that such ETFs may be volatile? A lot of funds and ITs with really good performance records have struggled in the past few weeks. 

I thought the tech one could be not the consumer fund, isn't that more around essential consumer items which should be stable?

You can go to iShares' website and look at the holdings of all of its funds. The fund prospectuses will tell give you the details of their objectives and how they're constructed. It's always a good idea to have a look for yourself and be careful of making assumptions. 

You also need to be sceptical of anything you read e.g., years ago I used to regularly see IUKD recommended as a UK focused equity income ETF but the way it was constructed was abysmal as it ended up holding high yielding companies that were under stress and were very likely to have their dividends cut. IIRC its indexing rules have been tweaked but it's still iffy.

isayhello

masonic said:

To answer another question, "90% loss potential" means that in the worst case, £100 invested at the peak could become £10 at the bottom of a severe crash (as happened in the IT sector in the dotcom crash).

I guess I didn't understand that figure, isn't that possible with most shares/funds if things go very bad?

isayhello

wmb194 said:

You can go to iShares' website and look at the holdings of all of its funds. The fund prospectuses will tell give you the details of their objectives and how they're constructed. It's always a good idea to have a look for yourself and be careful of making assumptions. 

You also need to be sceptical of anything you read e.g., years ago I used to regularly see IUKD recommended as a UK focused equity income ETF but the way it was constructed was abysmal as it ended up holding high yielding companies that were under stress and were very likely to have their dividends cut. IIRC its indexing rules have been tweaked but it's still iffy.

Thanks, you're right, I probably didn't research in as much depth and now I'm wondering whether to crystallize a loss and move on or hold out. It's a tricky choice but a good experience to learn from for the first time.

Thrugelmir

isayhello said:

masonic said:

To answer another question, "90% loss potential" means that in the worst case, £100 invested at the peak could become £10 at the bottom of a severe crash (as happened in the IT sector in the dotcom crash).

I guess I didn't understand that figure, isn't that possible with most shares/funds if things go very bad?

Dot Com boom a coupe of decades back. Amazon ( a different beast to the one that exists today) fell from over a $100 to $6..............

masonic

isayhello said:

masonic said:

To answer another question, "90% loss potential" means that in the worst case, £100 invested at the peak could become £10 at the bottom of a severe crash (as happened in the IT sector in the dotcom crash).

I guess I didn't understand that figure, isn't that possible with most shares/funds if things go very bad?

By comparison, the global index would have "only" fallen about 40% during the time the dotcom crash. Adding the concentration of a single sector fund (especially one concentrated in just a couple of large companies) will increase overall risk.

isayhello

Thanks for the advice, I'll do some more research and decide whether to bail out with a bit of a loss now or stay in and risk a bigger drop.