Alternative to Smithson

Prism

I haven't got the inclination to start looking for value based smaller company funds to be honest so I will be sticking with Smithson unless the strategy changes. If I was to select a similar global smaller companies fund it would probably be one of the Montanaro ones - although they are also growth based and likely affected by interest rate rises to the same degree.

aroominyork

Prism said:

I haven't got the inclination to start looking for value based smaller company funds to be honest so I will be sticking with Smithson unless the strategy changes.

If Terry Smith is reading this he's saying "hell will freeze over before that happens".

Notepad_Phil

RomfordNavy said:

Any suggestions for an alternative to Smithson (SSON)?  Need to move some out of that to crystalise some CGT, are there any other similarly performing alternatives that anyone knows of.

Given recent volatility I'd be looking if possible to make use of any ISAs or SIPPs that you have so that you don't lose out on any sudden improvement in sentiment. E.g. could you sell out of a fund in an ISA and use that to purchase SSON whilst buying the sold fund in your GIA?

Shocking_Blue

TBC15 said:

Prism said:

TBC15 said:

At the rate SSON is heading south at the moment give it a week and any thoughts of CGT will be wishful thinking. Sitting on cash for 30 days sounds good.

Should be looking at a decent bounce tomorrow to calm things down a bit.

I hope so it’s down over 20% in the space of a month, nearly 10% of that yesterday alone.

I also have some SSON (and Fundsmith), and have seen those drops. There are a lot of informed people on this forum, and I know investing is far from an exact science, but I just wondered what might be driving this change, how far down the correction might go, how long for, how long to recover etc.

(And will INRG ever get back to it's previous levels; or perhaps that another thread).

Thrugelmir

Shocking_Blue said:

TBC15 said:

Prism said:

TBC15 said:

At the rate SSON is heading south at the moment give it a week and any thoughts of CGT will be wishful thinking. Sitting on cash for 30 days sounds good.

Should be looking at a decent bounce tomorrow to calm things down a bit.

I hope so it’s down over 20% in the space of a month, nearly 10% of that yesterday alone.

I also have some SSON (and Fundsmith), and have seen those drops. There are a lot of informed people on this forum, and I know investing is far from an exact science, but I just wondered what might be driving this change, how far down the correction might go, how long for, how long to recover etc.

(And will INRG ever get back to it's previous levels; or perhaps that another thread).

@Shocking_Blue  Brief synopsis. As a result of the GFC (2007-2009) Central Banks were forced to step in and provide liquidity to the financial markets (primarily QE but also a range of other measures). Base rates fell as well.  BOE base was 5.75% in July 2007, 0.5% by March 2009.  At the G10 summit in May 2010. It was agreed that banks would need to deleverage their balance sheets (Basle III).  As an example Barclays was lending £72 for every £1 of capital held. Basle III objectives have yet to be met I should add.  Governments would reduce their balance sheets once this was achieved. All with the aim of maintaining financial stability. 

The world is chugging along. Everyone expects Central Banks to shortly stop/reverse their policies and reduce fiscal support. Along comes Covid. Governments print money. Money flows into assets and inflates prices. Shortage of goods and a world awash with cash induces inflation (i.e. second hand car prices). Central banks need to control inflation, as is there mandate, and start to unwind their billion/trillion £/$ balance sheets. Interest rat rises get pencilled in. As inflation is no longer viewed as transitory but baked in. Governments are still borrowing to fund the cost of the pandemic. Central Banks may no longer buy up debt. Cost of debt servicing will therefore increase, i.e. higher yields on new Government bond issuance. As investors demand this at auction. Higher bond yields reduces the equity risk premium. Making equities less attractive at current price levels. 

Companies themselves face increased costs. Higher wages, higher employment taxes, higher levels of corporation tax , higher energy costs, higher input and raw material costs and finally increased cost of servicing debt. Not forgetting that many have had a torrid past two years. Borrowed large sums to see themselves through the pandemic. 

In summary amounts to a considerable headwind. With consumers being squeezed as well. Challenging times for many people and organisations. 

INRG is easy to comment on. Stick 30 shares in an ETF. Let social media hype it up. Money floods in and buys stock in the companies. Momentum drives the stock prices higher and higher. Other passive funds are also required to increase their weighting to reflect the market capitalisations. A virtuous circle is created. Pumped up and up. Until it bursts. One reason being that the wind didn't blow enough and some of the companies reported disappointing financial figures. Investors start bailing out. The ETF has to sell the stock and the downward spiral becomes self fulfilling. 

Hence you'll often see me ask whether people understand what they've invested in. Looked under the bonnet. Far too easy to get caught up in the latest fads. I hate seeing people make avoidable elementary mistakes. Some people will be lucky and tell you how good they are at investing. Majority won't be however. Losing money on the stock markets is effortless. Often the best investments are the most boring but require patience to see fruitful results. . 

Shocking_Blue

Thrugelmir said:

Shocking_Blue said:

TBC15 said:

Prism said:

TBC15 said:

At the rate SSON is heading south at the moment give it a week and any thoughts of CGT will be wishful thinking. Sitting on cash for 30 days sounds good.

Should be looking at a decent bounce tomorrow to calm things down a bit.

I hope so it’s down over 20% in the space of a month, nearly 10% of that yesterday alone.

I also have some SSON (and Fundsmith), and have seen those drops. There are a lot of informed people on this forum, and I know investing is far from an exact science, but I just wondered what might be driving this change, how far down the correction might go, how long for, how long to recover etc.

(And will INRG ever get back to it's previous levels; or perhaps that another thread).

@Shocking_Blue  Brief synopsis. As a result of the GFC (2007-2009) Central Banks were forced to step in and provide liquidity to the financial markets (primarily QE but also a range of other measures). Base rates fell as well.  BOE base was 5.75% in July 2007, 0.5% by March 2009.  At the G10 summit in May 2010. It was agreed that banks would need to deleverage their balance sheets (Basle III).  As an example Barclays was lending £72 for every £1 of capital held. Basle III objectives have yet to be met I should add.  Governments would reduce their balance sheets once this was achieved. All with the aim of maintaining financial stability. 

The world is chugging along. Everyone expects Central Banks to shortly stop/reverse their policies and reduce fiscal support. Along comes Covid. Governments print money. Money flows into assets and inflates prices. Shortage of goods and a world awash with cash induces inflation (i.e. second hand car prices). Central banks need to control inflation, as is there mandate, and start to unwind their billion/trillion £/$ balance sheets. Interest rat rises get pencilled in. As inflation is no longer viewed as transitory but baked in. Governments are still borrowing to fund the cost of the pandemic. Central Banks may no longer buy up debt. Cost of debt servicing will therefore increase, i.e. higher yields on new Government bond issuance. As investors demand this at auction. Higher bond yields reduces the equity risk premium. Making equities less attractive at current price levels. 

Companies themselves face increased costs. Higher wages, higher employment taxes, higher levels of corporation tax , higher energy costs, higher input and raw material costs and finally increased cost of servicing debt. Not forgetting that many have had a torrid past two years. Borrowed large sums to see themselves through the pandemic. 

In summary amounts to a considerable headwind. With consumers being squeezed as well. Challenging times for many people and organisations. 

INRG is easy to comment on. Stick 30 shares in an ETF. Let social media hype it up. Money floods in and buys stock in the companies. Momentum drives the stock prices higher and higher. Other passive funds are also required to increase their weighting to reflect the market capitalisations. A virtuous circle is created. Pumped up and up. Until it bursts. One reason being that the wind didn't blow enough and some of the companies reported disappointing financial figures. Investors start bailing out. The ETF has to sell the stock and the downward spiral becomes self fulfilling. 

Hence you'll often see me ask whether people understand what they've invested in. Looked under the bonnet. Far too easy to get caught up in the latest fads. I hate seeing people make avoidable elementary mistakes. Some people will be lucky and tell you how good they are at investing. Majority won't be however. Losing money on the stock markets is effortless. Often the best investments are the most boring but require patience to see fruitful results. . 

Thrugelmir,

Wow, this is brilliant. In a nutshell; just close enough to my level of understanding to get it; with a hint of empathy and optimism built in.

I guess my interest was fuelled by the fact that I had 20%+ of my portfolio deliberately stashed as cash, following selling off some of my risker satellites mostly at profit, pending the dip. Then, thought it's doing no good sat there and there might not be a dip, and put it into (safe-ish multi-asset) funds just before the latest dip (bah).

The bulk of my portfolio is in the usual suspect (boring) multi-assets. I know SSON/Fundsmith are far more volatile so only have lowish % in them.

On the INRG thing, I think many people have been reeled into the green/clean/ethical thing. I don't know what to do with that. It's only about 2-3% of portfolio but about 38% down. I'm assuming there will be some future interest in windfarms and the like (?). If part of INRGs decline is driven by a self-fulfilling spiral, presumably that will at some point make them undervalued, so a good buy in (?) (sorry, lay-logic). 

(Slightly ironic) Maybe crypto-currency is worth a look (although I've seen the length of the thread about that one so have no intention of starting that debate up here).

SB

Thrugelmir

INRG was subsequently expanded to around a 100 stocks to broaden the exposure. Nothing fundamentally wrong with the companies the ETF holds. Though a return to former peaks anytime soon is unlikely. I wouldn't concern yourself with the money you've lost. Chalk it up to experience and move on. Being able to admit failures is a good trait as an investor. We all have them. The art is to identify more good performers than losers. Personally I'd either sell or top up a collective investment when it's that low a % of the overall portfolio. As it's not going to make a huge difference however it performs. While it's fallen 38%. To recover your money fully you need the ETF to rise around 62%. Which puts a very different complexion on matters. 

Prism

Shocking_Blue said:

The bulk of my portfolio is in the usual suspect (boring) multi-assets. I know SSON/Fundsmith are far more volatile so only have lowish % in them.

More volatile than a multi-asset fund yes, but as equity funds go Smithson and Fundsmith are typically less volatile than the indexes they track and most other funds in their sector.

As for why its dropped. Mostly down to valuations and holding relatively expensive companies. Those companies have no issue with debt and are all profit making but they are highly valued and the share price usually drops more when interest rates rise.

Alexland

Thrugelmir said:

Other passive funds are also required to increase their weighting to reflect the market capitalisations.

If a passive fund already owns a company then it will benefit from the rising price without needing to buy additional assets to reflect market cap changes. Even if the passive fund needs to buy more assets to reflect fund inflows that's the new investors paying the higher asset price not the existing ones and many have dilution adjustments to cover the trade costs.

Ignoring the complexities of optimal sampling or rights issues in a simplified case the passive fund only needs to trade existing investor money at the lower end when stocks are joining or leaving the index which is usually a small proportion of the fund value. Or in the case of accumulation when dividends need reinvesting.

I've been quite pleased at seeing our global trackers now reflecting the revised market cap with modest valuation impact in recent weeks. Some stuff has gone down, some stuff has gone up, overall a bit down but that's ok plenty of time ahead. They have generally worked as expected and given a smoother ride than having a few individual shares or a style bias.

Thrugelmir

Alexland said:

Thrugelmir said:

Other passive funds are also required to increase their weighting to reflect the market capitalisations.

If a passive fund already owns a company then it will benefit from the rising price without needing to buy additional assets to reflect market cap changes. Even if the passive fund needs to buy more assets to reflect fund inflows that's the new investors paying the higher asset price not the existing ones and many have dilution adjustments to cover the trade costs.

That in summary was my point. Passive funds aren't static closed vehicles there's a constant money flow in and out. Also the constituents of the indexes change. Tesla caused a major upheavel last December. Passive funds were forced to buy $80 billion of stock just to achieve the desired index weighting. 

Around 40% of the SP500 is held by tracking vehicles now. Passive vehicles will become the market ultimately. The polar opposite of efficient market pricing.