My Portfolio

chiang_mai

Hoenir said:

It's your judgement call.  Understanding the downside risks is where the majority of investors spend too little time. Identifying the potential negatives of any particular strategy or investment. Overly focussed on the upside particularly in buoyant market conditions.  Metrics are a usefull guide to the future. Any basic understanding of financial history confirms that . As ultimately markets boil down to basic maths. Every rollercoaster eventually has a sizable dip.

I focus almost entirely on downside risk, to an almost unhealthy degree, I only rarely ever consider upside potential, other than to determine that it does exist. 

aroominyork

chiang_mai said:

aroominyork said:

I don't understand "a person should invest more in areas where they have knowledge." That could make sense if you were stock picking, but you are not. If I lived in Australia and knew more about Aussie companies, that would not in itself justify a large overweight to an Australian index fund.

I just charted your Artemis SmartGARP funds against their equivalent index funds. They have done very well over the last five years, although the previous five were nothing to write home about. 

Many people have home country bias and it shows up in the extent to which they favour funds in their home country, this varies based on nationality and the source of the advice. I recall reading that it's not unusual for British people to invest 20% of their portfolio in the UK. If we're going to determine investment size based on market size or capitalisation, that represents a high risk bet. Ditto many Americans in the US consider that global investing is an unnecessary higher risk and don't invest beyond their shores at all. The point is that investing in another country or region, doesn't mandate that a person invest using pre-ordained ratios. I believe a person should invest in areas where they have knowledge insight or confidence rather than just because they can. In my case, I have knowledge and confidence in Asia and EM, hence my investment here is higher. 

If your local knowledge gives you confidence in those regions, that's fine. Though I think part of home bias is confidence in one's region based on (irrational) feelings of control and tangeability. btw, I think many Brits invest way more than 20% in the UK; maybe someone with accurate data will tell us. 

Labtebricolist

Above average returns and below average risk is pretty much impossible in the long run.  You might have a period of luck, but that’s almost certainly all it is.  Also, the impact of fees on actively managed funds, plus the fact that in the long term they’re unlikely to beat the market average, means that it would be dangerous to all but rule out trackers.  

If relying on fund managers to anticipate market changing events and trade round them helps you sleep at night I guess that’s comforting.  The data, however, suggests this is a false comfort.  In the volatile environment we’re likely to be in for the foreseeable future I’d rather buy the market and hold on for dear life.

chiang_mai

Labtebricolist said:

Above average returns and below average risk is pretty much impossible in the long run.  You might have a period of luck, but that’s almost certainly all it is.  Also, the impact of fees on actively managed funds, plus the fact that in the long term they’re unlikely to beat the market average, means that it would be dangerous to all but rule out trackers.  

If relying on fund managers to anticipate market changing events and trade round them helps you sleep at night I guess that’s comforting.  The data, however, suggests this is a false comfort.  In the volatile environment we’re likely to be in for the foreseeable future I’d rather buy the market and hold on for dear life.

Not to side track too far, but this argument about fees and managed funds strikes me as very odd. If somebody is happy with the net return they receive, it doesn't matter what else goes on behind the scenes and who else makes money in the process/ As long as I make the return I want, I'm very happy that others do also. 

I didn't suggest that all FM's anticipate all market changes et al. What I do suggest is that if there is an FM, there is the potential to react to change. If however the fund is passive, as in the case of most trackers, there never will be.

But hey, each to their own.

chiang_mai

aroominyork said:

If your local knowledge gives you confidence in those regions, that's fine. Though I think part of home bias is confidence in one's region based on (irrational) feelings of control and tangeability. btw, I think many Brits invest way more than 20% in the UK; maybe someone with accurate data will tell us. 

I'm not the sharpest knife in the drawer so perhaps I'm missing something here, but I fail to see why a person should invest, relative to the size of the market segment. If for example, the US share of the global investment market is say 50% and the EU share is say 11%, is it really significantly higher risk to invest on the basis of them having equal shares? Perhaps mathematically it can be proven to be so but in practical terms it seems highly improbable. US fund A comprises 75 US companies whilst fund B also comprises 75 European companies. I see little or no point in investing 50 Pounds in company A and restricting my investment in company B to 11 Pounds, just because of the markets in which they reside. Anyone?

masonic

chiang_mai said:

Labtebricolist said:

Above average returns and below average risk is pretty much impossible in the long run.  You might have a period of luck, but that’s almost certainly all it is.  Also, the impact of fees on actively managed funds, plus the fact that in the long term they’re unlikely to beat the market average, means that it would be dangerous to all but rule out trackers.  

If relying on fund managers to anticipate market changing events and trade round them helps you sleep at night I guess that’s comforting.  The data, however, suggests this is a false comfort.  In the volatile environment we’re likely to be in for the foreseeable future I’d rather buy the market and hold on for dear life.

Not to side track too far, but this argument about fees and managed funds strikes me as very odd. If somebody is happy with the net return they receive, it doesn't matter what else goes on behind the scenes and who else makes money in the process/ As long as I make the return I want, I'm very happy that others do also.

Fees do matter, because to make a certain level of return after fees, the level of risk taken must be higher if fees are higher. You should not only consider explicit fees, but also hidden fees, like those associated with portfolio turnover. This is a major part of why so few active managers are successful in delivering for those buying their funds, and why active funds have a tendency to fall further during downturns.

However, sometimes it is desirable to take more risk for higher long term returns, and an active strategy may not have a suitable low cost alternative.

InvesterJones

chiang_mai said:

Labtebricolist said:

Above average returns and below average risk is pretty much impossible in the long run.  You might have a period of luck, but that’s almost certainly all it is.  Also, the impact of fees on actively managed funds, plus the fact that in the long term they’re unlikely to beat the market average, means that it would be dangerous to all but rule out trackers.  

If relying on fund managers to anticipate market changing events and trade round them helps you sleep at night I guess that’s comforting.  The data, however, suggests this is a false comfort.  In the volatile environment we’re likely to be in for the foreseeable future I’d rather buy the market and hold on for dear life.

Not to side track too far, but this argument about fees and managed funds strikes me as very odd. If somebody is happy with the net return they receive, it doesn't matter what else goes on behind the scenes and who else makes money in the process/ As long as I make the return I want, I'm very happy that others do also. 

I didn't suggest that all FM's anticipate all market changes et al. What I do suggest is that if there is an FM, there is the potential to react to change. If however the fund is passive, as in the case of most trackers, there never will be.

But hey, each to their own.

It's a misunderstanding to say trackers don't react to change. They react to change just as quickly as active funds do (quicker, in fact if market cap is the determinant), the difference is they react according to the consensus view, rather than an individual's view.

But yes, if you're happy with the return for the given risk/fees then you've made the right decision for yourself - just don't be surprised if you post your strategy for comments and you subsequently get such comments

Hoenir

chiang_mai said:

If for example, the US share of the global investment market is say 50% and the EU share is say 11%, is it really significantly higher risk to invest on the basis of them having equal shares? 

There are unlisted private companies as well. The US represents 26% of global GDP for example. Eurozone 15%, China 20%.  

One interesting statistic is that the US population represents about 5% of global. Yet accounts for some 29% of global consumer spending. They are sure are having one helluva a party with that money they are borrowing at an ever increasing rate.

chiang_mai

InvesterJones said:

It's a misunderstanding to say trackers don't react to change. They react to change just as quickly as active funds do (quicker, in fact if market cap is the determinant), the difference is they react according to the consensus view, rather than an individual's view.

But yes, if you're happy with the return for the given risk/fees then you've made the right decision for yourself - just don't be surprised if you post your strategy for comments and you subsequently get such comments

I try to avoid single country funds but sometimes there is no sensible alternative. The reason for this is because single country funds leave the FM no good alternative if a particular market collapses. Invesco Pac UK is a good example of this. The fund invests in China, Japan, Developed Asia and some EM countries. I consider those to broadly be in the Asian geography and all can be volatile and higher risk. Combining two or more volatile high risk countries in the same fund, gives the FM latitude to react whereas passive trackers can only stay onboard for the ride, wherever that may go! Just another reason why I prefer managed funds.

And for the record, I'm very comfortable with opposing or different views, that's why I posted in the first place, to give me points to consider. 

Linton

masonic said:

chiang_mai said:

Labtebricolist said:

Above average returns and below average risk is pretty much impossible in the long run.  You might have a period of luck, but that’s almost certainly all it is.  Also, the impact of fees on actively managed funds, plus the fact that in the long term they’re unlikely to beat the market average, means that it would be dangerous to all but rule out trackers.  

If relying on fund managers to anticipate market changing events and trade round them helps you sleep at night I guess that’s comforting.  The data, however, suggests this is a false comfort.  In the volatile environment we’re likely to be in for the foreseeable future I’d rather buy the market and hold on for dear life.

Not to side track too far, but this argument about fees and managed funds strikes me as very odd. If somebody is happy with the net return they receive, it doesn't matter what else goes on behind the scenes and who else makes money in the process/ As long as I make the return I want, I'm very happy that others do also.

Fees do matter, because to make a certain level of return after fees, the level of risk taken must be higher if fees are higher. You should not only consider explicit fees, but also hidden fees, like those associated with portfolio turnover. This is a major part of why so few active managers are successful in delivering for those buying their funds, and why active funds have a tendency to fall further during downturns.

However, sometimes it is desirable to take more risk for higher long term returns, and an active strategy may not have a suitable low cost alternative.

It rather depends on your objective. If you are working with say 20+ years to retirement then I would agree that minimum fee tracker investing makes sense. The occasional crash can be ignored in the knowledge that you should win out in the long term

If, like the OP or myself, you are retired a more appropriate objective is likely to be to generate sufficient reliable inflation matched income during your lifetime. For that objective fees could well be irrelevant. More important is diversification and appropriate equity asset allocation. You can get this more easily using active funds because they are not constrained by the strait jacket of market capitalisation weighting and can apply some level of judgement.
  
 In choosing an active fund one is not looking to outperform the market but rather to have a consistent strategy that matches your objectives and includes investment areas that would otherwise be absent from your portfolio.