Asset Allocation

chiang_mai

I have two questions that I will appreciate hearing members views on:

1) If holding a Global Index Tracker, such as Fidelity Index World (1,472 holdings), how reasonable is it to also hold regional specific index trackers, eg FTSE 350, iShares EM and iShares Japan? The logic here being greater concentration in specific regions and the ability to increase/decrease regional investment, without having to sacrifice other regions also.

2) If holding a mix of Managed global equity funds and global equity trackers in a 70/30, is there such a thing as a sensible ratio?

TIA for constructive comments.

InvesterJones

chiang_mai said:

I have two questions that I will appreciate hearing members views on:

1) If holding a Global Index Tracker, such as Fidelity Index World (1,472 holdings), how reasonable is it to also hold regional specific index trackers, eg FTSE 350, iShares EM and iShares Japan? The logic here being greater concentration in specific regions and the ability to increase/decrease regional investment, without having to sacrifice other regions also.

2) If holding a mix of Managed global equity funds and global equity trackers in a 70/30, is there such a thing as a sensible ratio?

TIA for constructive comments.

Holding specific index trackers that overlap with your global market-cap weighted index tracker will have the effect of decreasing diversity and biasing your portfolio away from what the market consensus is for return/risk, and towards your own. So if you think you can outperform the rest of the market, or you have another reasons (aside from performance) for those biases then go for it, you are being your own active manager.

When looking at a developed world index there are some other funds you could add to increase diversity instead, such as emerging markets, small-caps, and other, non-equity, asset types.

There is no sensible ratio between active and passive funds - for global equities sensible is 100% passive.

Linton

There are some areas not covered by FTSE All world, in particular, small companies. Adding those will increase diversity.  

chiang_mai

Linton said:

There are some areas not covered by FTSE All world, in particular, small companies. Adding those will increase diversity.  

Thanks, yes, I hold a VG Small Caps fund.

El_Torro

As mentioned it doesn't make much sense to have a global fund which is managed, better to go with a tracker. 

I personally hold a managed global smaller companies fund: abrdn Global Smaller Companies. I bought it years ago as the perceived wisdom was that managed smaller companies funds outperform trackers. Looking at the performance of your fund and mine the Vanguard one has outperformed my abrdn one significantly in the last 5 years. Time for me to switch maybe...

Probably a better way to hold smaller companies is with managed funds that focus on specific markets: UK, Europe, US, Japan, etc... I'm unlikely to go down that route though, seems like a lot of faff. 

chiang_mai

El_Torro said:

As mentioned it doesn't make much sense to have a global fund which is managed, better to go with a tracker. 

I personally hold a managed global smaller companies fund: abrdn Global Smaller Companies. I bought it years ago as the perceived wisdom was that managed smaller companies funds outperform trackers. Looking at the performance of your fund and mine the Vanguard one has outperformed my abrdn one significantly in the last 5 years. Time for me to switch maybe...

Probably a better way to hold smaller companies is with managed funds that focus on specific markets: UK, Europe, US, Japan, etc... I'm unlikely to go down that route though, seems like a lot of faff. 

I don't see that anyone suggested that a managed global fund doesn't make sense, I think they make tremendous sense. In fact, some of the best funds I have held have been just that, currently RL Global Select is one such fund.