SIPP Asset Allocation looks skewed

Oldhand_2

I was having a look at my wife's 'Discretionary Intermediation Service' SIPP, as one does, and under Asset Allocation it has the following percentages:

North American Equity			25.3
UK Equity			17.2
Asia Pax ex Japan Equity			13.7
Fixed Income			11.6
Europe ex UK Equity			7.7
Cash			5.9
Japan Equity			5.8
Direct UK Property			5.4
Specialist Equity			5.4
Emerging Markets Equity			1.3
Other			0.5

These percentages don't seem to reflect the state of the world's markets. We have never requested any particular allocation, or been asked to provide any. The risk rating is 4 (out of ?) which should, if I remember correctly, relate to a 5 out of 7. The SIPP has been in drawdown for some years (we're both quite ancient). Do these allocations seem reasonable?

EthicsGradient

If "Asia Pax ex Japan Equity" means "developed Asia Pax ex Japan Equity" (since there's also a general "Emerging Markets Equity"), then, yes, it seems very skewed towards that region, and short on the USA. Perhaps worth checking how that Asia Pac is allocated - how much Australia, Korea, or elsewhere, or individual stocks in it (Samsun dominates the Korean market, and Taiwan Semiconductor its).

Hoenir

Oldhand_2 said:

 Do these allocations seem reasonable?

To gain a fuller understanding you'd need to drill into the underlying holdings.  

These percentages don't seem to reflect the state of the world's markets. 

BP and Shell operate in exactly the same international markets as their US counterparts. Likewise Total is listed in France. Where a company displays it's brass plate shouldn't be the reason for selecting one above the other.  

Linton

Oldhand_2 said:

I was having a look at my wife's 'Discretionary Intermediation Service' SIPP, as one does, and under Asset Allocation it has the following percentages:

North American Equity			25.3
UK Equity			17.2
Asia Pax ex Japan Equity			13.7
Fixed Income			11.6
Europe ex UK Equity			7.7
Cash			5.9
Japan Equity			5.8
Direct UK Property			5.4
Specialist Equity			5.4
Emerging Markets Equity			1.3
Other			0.5

These percentages don't seem to reflect the state of the world's markets. We have never requested any particular allocation, or been asked to provide any. The risk rating is 4 (out of ?) which should, if I remember correctly, relate to a 5 out of 7. The SIPP has been in drawdown for some years (we're both quite ancient). Do these allocations seem reasonable?

If your wife wanted her portfolio to match the world’s markets why go to a DFM? Just buy a  tracker.

There is no rule which says it must and there can be reasons for doing something different. As long as the portfolio is well diversified, which it is, I dont see any great issues.

Personally I don’t like some aspects of the allocation, but I don’t know the reasons for which it was chosen.

dunstonh

These percentages don't seem to reflect the state of the world's markets. 

What do you mean by "state"?

 We have never requested any particular allocation, or been asked to provide any. 

If you are that knowledgeable to be able to work that out for yourself then why are you using a DFM?
DFMs do not take instruction from you.  The "discretionary" part means they make the decisions and run the portfolio.

The risk rating is 4 (out of ?) which should, if I remember correctly, relate to a 5 out of 7. 

You need to find out what it is out of as there is no standard.  5,7 and 10 are commonplace as a scale.

 Do these allocations seem reasonable?

Nothing obviously wrong but there is missing context.  For example is Asia developed only or inclusive of emerging markets.    I know that was mentioned above but without knowing the data supplier and what benchmarking they are using, it could be that emerging markets is non-asia and the Asia allocation includes Asia emerging markets (for example MSCI classify them differently to FTSE Russell)

Different data suppliers will classify different regions/countries/assets in a different way.   For example, specialist could show as something completely different with another data supplier.   Direct property is unusual nowadays due to its liquidity issues but its only a small allocation.  There is a UK bias but that is not uncommon with certain investment styles.  Especially if they are going for a yield focus.

Bostonerimus1

Oldhand_2 said:

I was having a look at my wife's 'Discretionary Intermediation Service' SIPP, as one does, and under Asset Allocation it has the following percentages:

North American Equity			25.3
UK Equity			17.2
Asia Pax ex Japan Equity			13.7
Fixed Income			11.6
Europe ex UK Equity			7.7
Cash			5.9
Japan Equity			5.8
Direct UK Property			5.4
Specialist Equity			5.4
Emerging Markets Equity			1.3
Other			0.5

These percentages don't seem to reflect the state of the world's markets. We have never requested any particular allocation, or been asked to provide any. The risk rating is 4 (out of ?) which should, if I remember correctly, relate to a 5 out of 7. The SIPP has been in drawdown for some years (we're both quite ancient). Do these allocations seem reasonable?

You are paying for a service to come up with this portfolio, but don't seem to agree with their rationale...so do you think it's a waste of money? For what it's worth I think the US equity percentage is too low and the UK too high. I'd go with cap weighting and you can get that with a low cost global equity index fund.

Oldhand_2

Thanks for all the replies. As for why are we with a DFM, the answer goes back years. We started with a IFA, the returns from the fund were  reasonable, and we knew next to nothing about investing. Then the IFA retired to his villa in Spain and we were transferred to a Wealth Manager. Now we are a little more familiar with investments so if we started now we would probably go with a global index tracker.

As for the allocation, I would have expected it to reflect the spread of the world's markets, 70% USA and 4% UK for instance.

masonic

Oldhand_2 said:

Thanks for all the replies. As for why are we with a DFM, the answer goes back years. We started with a IFA, the returns from the fund were  reasonable, and we knew next to nothing about investing. Then the IFA retired to his villa in Spain and we were transferred to a Wealth Manager. Now we are a little more familiar with investments so if we started now we would probably go with a global index tracker.

As for the allocation, I would have expected it to reflect the spread of the world's markets, 70% USA and 4% UK for instance.

If you want to capture the return of the world's markets, then the DFM becomes surplus to requirements. I'd expect to see a skewed allocation as they attempt to add value in exchange for their fee.

Albermarle

80% equity is possibly quite high for a drawdown pot ( opinions will vary though) , but OK if you have quite a high risk tolerance ( as it could drop alarmingly in a global stock market crash) 

Linton

Oldhand_2 said:

Thanks for all the replies. As for why are we with a DFM, the answer goes back years. We started with a IFA, the returns from the fund were  reasonable, and we knew next to nothing about investing. Then the IFA retired to his villa in Spain and we were transferred to a Wealth Manager. Now we are a little more familiar with investments so if we started now we would probably go with a global index tracker.

As for the allocation, I would have expected it to reflect the spread of the world's markets, 70% USA and 4% UK for instance.

That is one option out of many.  It does have the benefit that it involves minimum thought and is easy to implement.  Whether it is the best in all circumstances, in particular your's, is up to you to decide.

Hoenir

Oldhand_2 said:

As for the allocation, I would have expected it to reflect the spread of the world's markets, 70% USA and 4% UK for instance.

The US economy only accounts for around 25% of global GDP. Then there's the currency exposure to consider in arrving a middle ground risk level. 

Now we are a little more familiar with investments so if we started now we would probably go with a global index tracker.

Every so often the momentum changes. Well performing sectors don't do so forever.