SIPP sense check

noclaf

I have a SIPP that was setup to consolidate old DC pensions and due to a favourable platform charging structure for ETF's currently invested into VEVE/VFEM to cover Dev world/EM markets. Value is circa £129k and I don't actively trade or add cash, this is a fire and forget setup with divis set to auto invest. All self managed.

As I recently transferred my S&SISA to same platform I am questioning the need to use distributing ETF's in the SIPP as I now maintain a balance on the cash account to cover fees. I also researched other Equity ETFs; JGRE, SWLD and SWDA have at different times outperformed VEVE. JGRE seems to outperform them all over the last 3/5 years even though slightly higher fees and I am invested into both JGRE/SWLD in my S&SISA for the Equity portion.

Now for the question if you are still reading: would there be any value in spreading the £129k across 3/4 ETFS to spread my risk across a couple of established names and also take advantage of potential out-performance of one or two over the others? I  ack that I can't predict anything and accept there will be additional trading fees and a possible 'clash' of indices (FTSE Vs MSCI),  rebalancing considerations but is my proposed approach really that bad or am I wasting time and money.....thoughts welcome. Thanks.

*I have at least 15 years to retirement and a separate work DC pension (OEIC funds), no DB provision sadly so need to grow the DC's.

tacpot12

noclaf said:

... would there be any value in spreading the £129k across 3/4 ETFS to spread my risk across a couple of established names and also take advantage of potential out-performance of one or two over the others?...

To my mind there is value in this, and it is something I do in my retirement portfolio. For my core investments, I hold probably 70% of the same underlying shares in four or five investment trusts and ETFs, but do this for the other 30% of the shares that are held by each Trust/Fund, and the potential for this to produce some outperformance. 

noclaf

tacpot12 said:

noclaf said:

... would there be any value in spreading the £129k across 3/4 ETFS to spread my risk across a couple of established names and also take advantage of potential out-performance of one or two over the others?...

To my mind there is value in this, and it is something I do in my retirement portfolio. For my core investments, I hold probably 70% of the same underlying shares in four or five investment trusts and ETFs, but do this for the other 30% of the shares that are held by each Trust/Fund, and the potential for this to produce some outperformance. 

Thanks Tacpot12, good to hear you use a similar approach. I've followed the same logic for my LISA and work pension, some fairly standard passive trackers alongside a few racier options.
The other aspect to 'spreading' investments across a few different names; on the assumption that equity investments will grow over time I don't really want to be too concentrated in a single fund....it's likely overkill given how big some of these names are and their overall AUM but hopefully will help me sleep better!

Notepad_Phil

noclaf said:

tacpot12 said:

noclaf said:

... would there be any value in spreading the £129k across 3/4 ETFS to spread my risk across a couple of established names and also take advantage of potential out-performance of one or two over the others?...

To my mind there is value in this, and it is something I do in my retirement portfolio. For my core investments, I hold probably 70% of the same underlying shares in four or five investment trusts and ETFs, but do this for the other 30% of the shares that are held by each Trust/Fund, and the potential for this to produce some outperformance. 

Thanks Tacpot12, good to hear you use a similar approach. I've followed the same logic for my LISA and work pension, some fairly standard passive trackers alongside a few racier options.
The other aspect to 'spreading' investments across a few different names; on the assumption that equity investments will grow over time I don't really want to be too concentrated in a single fund....it's likely overkill given how big some of these names are and their overall AUM but hopefully will help me sleep better!

Having a portfolio that doesn't cause me to have sleepless nights has always been a key aim of mine. And yes, although the chances of anything happening to one of the big globally diversified ETFs is definitely a remote possibility, to my mind there's definitely nothing wrong with spreading out your investments to a few other big funds that meet your needs.

JohnWinder

‘would there be any value in spreading the £129k across 3/4 ETFS to spread my risk across a couple of established names and also take advantage of potential out-performance of one or two over the others? ‘

I don’t think what you’re suggesting is silly nor do you much harm compared with the horrible choices some of us ask about, but here’s a couple of points to consider…

It seems like you’re envisaging spreading the risk that Vanguard (VEVE) has a crisis which doesn’t affect Blackrock (your fund covering the same asset), so you’re not totally wiped out even if not permanently. If I’ve interpreted you right, good idea. But remember that your risk is not just Vanguard going under, it’s also the broker you use to trade Vanguard products you need to worry about, as well as the trustee or custodian of your Vanguard assets which Vanguard won’t hold but the trustee will. Were Vanguard and Blackrock to use the same trustee, and you to use the same platform or broker or whatever else can go bad, then you haven’t reduced your Vanguard risk enough.
As you’re using trackers it makes sense to have well diversified ones, as you have. I doubt it’s worth worrying about whether a FTSE developed world index is better or worse than a MSCI developed world index; might be wrong, but I don’t know how you’d decide with confidence, and I doubt the difference would be much.
But with trackers what you can get right/wrong is how well they track their index; if the FTSE (or MSCI) tracker tracked its index significantly closer than the other fund, that would do it for me. Welcome some education to the contrary.
So, JGRE is the best performer over the last 3/5 years. You’re investing for another 35 years perhaps, so forget 5 years of outperformance because it may not continue for another 30 years, indeed it could reverse for 30 years. They warn you past performance doesn’t etc, so why put on it the weight you have?
Secondly, JGRE is the only fund you mention that is actively managed I think, although with 750 stocks it’s pretty well diversified and ought to act a bit like a tracker. But the evidence is clear that no one can pick the small proportion of active equity funds that will outperform trackers over long periods. It must be a riskier choice than an index fund, but not much, and some folk are ok with that I suppose.
Thirdly, JGRE is the best performer you say, but I imagine you’re talking about returns. It is misleading to compare returns unless you compare risk. It’s only when two options have the same risk that you can say one was better because its returns were better. If risk didn’t matter to us, of course we’d applaud the one with better returns.
Whatever you choose, make good notes about why, so that you have a basis to hold your nerve in the future if things pan out unexpectedly putting you at risk of a bad response.

noclaf

Thanks John for the detailed post, very good points esp the risk aspect...I do try to use the various chart resources e.g HL to look at the negative years and in layman terms identify which funds tend to be 'falling the most' though that's probably an simplification at best.

My simple way of comparing Equity ETFS for example is look at how big it is in £££ terms, the spread/liquidity, is the firm a big established provider and physical replication or sampling only though I do wonder if there are still for example derivatives being used behind the scenes that the average basic investor such as myself wouldn't be aware of....anyway that's my broad approach. 

For JGRE, I looked at all of the above and importantly at 0.25% the ETF fee (OCF/TER) is not too hefty considering it's an actively managed ETF. The others range from 0.12-0.20%.

JohnWinder

Agree with your ETF comparison criteria for those covering the same/similar market, and reiterate tracking error although this could be small (good) because a big error is being compensated for by lots of short term lending (bad if the borrower defaults).

JohnWinder

I do try to use the various chart resources e.g HL to look at the negative years and in layman terms identify which funds tend to be 'falling the most' though that's probably an simplification at best.’

Seems I’ve misread you. I thought you were worried Bogle’s ghost might run off all of Vanguard investors' money, thus spread the risk by owning similar ishares funds. But now it seems, as you look at annual chart movements, your concern is with how well the fund is performing compared to others. That’s an interesting exercise for throwing up new hypotheses and better understanding the investment world, but I’d suggest it’s useless for drawing conclusions if you’re comparing index funds.
It’s useless if you’re comparing funds with different indexes because the one with developed and emerging markets could be better than the one without EM this year but worse next year. It’s not comparing red delicious apples with red delicious apples. We could imagine the same were we comparing funds using the FTSE with the MSCI indexes. Indeed, you don’t have to look for it, as if there was decent evidence the FTSE was significantly better/worse than the MSCI then the big players would be using the same (better) index. Are they?
It also seems useless for comparing active funds with each other or with index funds. Any active fund can have a period of out/under performance compared to peers, to be followed not five years later by the reverse. I’d like to know how price or return charts can help me know which fund might do better after the next 20 years if I’m comparing similar asset classes.

noclaf

Just to clarify, spreading across funds is primarily to hedge for the risk Bogle's ghost does a runner but I am also aware that if any of the big players have issues there could be contagion and the other potential inter-dependencies you highlighted in your initial post. There will be never be 100% certainty but spreading across a few ETFs will give 'some' comfort.
Regarding looking at return comparisons, more of a cursory look/comparison and hope that the funds will continue to provide reasonable returns but I have no idea...too many variables across asset classes then add in political issues etc......at some point I draw the line and just invest...and see what happens over the next 10/15/20 years. 

noclaf

I was comparing performance/returns on Morningstar for various Global Equity etf's and noticed that in 2022 all show big drops around 17-18% however JGRE and VWRP show much lower drops (Compared to SWDA,SWLD, VWRL, VEVE, HMWO)

Could anyone explain why this is the case, is there a currency-related reason or is the volatility being managed better for these ETF's? Or some other reason specific to those ETFs.

JohnWinder

I checked your figures and found VWRP (your better performer) fell about 9% in price during 2022, and that SWLD (your worse performer) fell about 8% during 2022. The reverse of your finding on ‘performance’. I can’t explain that.
https://www.hl.co.uk/shares/shares-search-results/s/ssga-spdr-msci-world-ucits-etf/share-charts
https://www.hl.co.uk/shares/shares-search-results/v/vanguard-ftse-all-world-ucits-etf-usd-acc/share-charts

Let’s assume your findings were correct, one of your better performers is an actively managed fund; the reason it did better, or would have done worse, could be because it held a selection rather than all the stocks in the comparable index fund. The fund manager included a better mix of the better and poorer performing stocks that year. I don’t know how that helps you choose a fund for the future, but it’s interesting.
The other funds differ in holding EM stocks or not, being ESG constrained or not, being priced in $ or £. I think we can say the volatility is not being managed in the index funds; they will be as volatile as the index is if the tracking error is small. Did the information you read indicate whether the active fund’s managers try to limit volatility, that would be the best way to find out.