My Portfolio

Linton

Hoenir said:

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.

Using the purchasing power (PPP) measure of GDP China is ahead of the US, as is its share of world exports. Such statistics must surely call into question a 60%-70%  investment allocation to the US.

masonic

Linton said:

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.

All good points, but the OP's choice of active funds don't appear to be focused on capital preservation. Recent peak to trough falls, recovery times, and top 10 holdings reinforce that. The asset allocation tilts from US to UK and EM, while the stock selection is primarily smart beta driven, so constrained to a less successful and smaller strait jacket, as applying such a filter reduces diversification. Also, the market that is arguably the worst in terms of concentration and overvaluation has been left market cap weighted.

Linton

masonic said:

Linton said:

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.

All good points, but the OP's choice of active funds don't appear to be focused on capital preservation. Recent peak to trough falls, recovery times, and top 10 holdings reinforce that. The asset allocation tilts from US to UK and EM, while the stock selection is primarily smart beta driven, so constrained to a less successful and smaller strait jacket, as applying such a filter reduces diversification. Also, the market that is arguably the worst in terms of concentration and overvaluation has been left market cap weighted.

I have not analysed the overall allocations to geography, sector and style but the OP should. Unfortunately this is more difficult with the demise of Morningstar X-ray, but possible with the aid of a spreadsheet.  It may be that theOP is focussing on geography rather than the complete picture.

masonic

I haven't looked at all of the holdings, but first impressions are that both the UK and EU SmartGARP funds are heavily overweight on financial services (~40%) and devoid of tech (<1% across the pair). Other tilts are less extreme. Consumer defensives and healthcare are also underweighted. The EM SmartGARP is more neutral, overweight consumer cyclicals and still underweight tech, but not to the same degree. With the US tracker being a fifth of the equities portfolio and ~30% tech, it seems to result in a tech overweight being swapped for a financials overweight, and also a reduction in traditional defensive sectors. But that's using the not quite so good analysis tools available outside of Morningstar. I make it 13% tech (from Japan, EM, US), 22% financials (mostly EU/UK).

Each of the funds I looked at seemed to have a recent record if stellar performance, but prior to that was lacklustre, indicating a style in short term favour at the moment. Perhaps that will continue, or perhaps a return to mediocrity, or even a mean reversion.

I do wonder whether this has any benefit over picking regional trackers with 22% US, 22% EU, 22% UK, 22% EM and 12% Japan. I suppose it does if GARP continues to outperform.

chiang_mai

Gmasonic said:

I haven't looked at all of the holdings, but first impressions are that both the UK and EU SmartGARP funds are heavily overweight on financial services (~40%) and devoid of tech (<1% across the pair). Other tilts are less extreme. Consumer defensives and healthcare are also underweighted. The EM SmartGARP is more neutral, overweight consumer cyclicals and still underweight tech, but not to the same degree. With the US tracker being a fifth of the equities portfolio and ~30% tech, it seems to result in a tech overweight being swapped for a financials overweight, and also a reduction in traditional defensive sectors. But that's using the not quite so good analysis tools available outside of Morningstar. I make it 13% tech (from Japan, EM, US), 22% financials (mostly EU/UK).

Each of the funds I looked at seemed to have a recent record if stellar performance, but prior to that was lacklustre, indicating a style in short term favour at the moment. Perhaps that will continue, or perhaps a return to mediocrity, or even a mean reversion.

I do wonder whether this has any benefit over picking regional trackers with 22% US, 22% EU, 22% UK, 22% EM and 12% Japan. I suppose it does if GARP continues to outperform.

The sector averages are as follows:

 

Basic Materials	4%
Consumer Cyclical	12%
Financial Services	27%
Real Estate	2%
Communications	7%
Energy	3%
Industrials	14%
Technology	14%
Consumer Defensive	7%
Healthcare	7%
Utilities	3%

You are correct of course regarding the overweight Financial Services, an aspect that caused me to hesitate initially. But then European banking stocks were the biggest gainers of any sectors in 2024 and are forecast to exceed that gain this year. Overall capitalisation looks thusly:

Giant - 31%
Large - 33%
Medium - 24%
Small - 12%

Drawdowns on the EU and UK funds are 3.1% and 2.8% respectively.

Of the 870 companies that comprise my investing portfolio, only two are duplicated or overlapped by funds.

"I do wonder whether this has any benefit over picking regional trackers with 22% US, 22% EU, 22% UK, 22% EM and 12% Japan".

My personal view is that it's better to have 75 strong funds that you have above average confidence in than it is to have several hundred that comprise strong funds, deadwood and everything in-between. What attracted me to Smartgarp initially was a discussion about their front end filtering software and the way that they set criteria to eliminate potential candidate companies that had little or no potential from an investment fund potential. If you can quickly whittle six hundred funds down to 150, you can do a more thorough hands on analysis and take that down to the final 75.

chiang_mai

Linton said:

I have not analysed the overall allocations to geography, sector and style but the OP should. Unfortunately this is more difficult with the demise of Morningstar X-ray, but possible with the aid of a spreadsheet.  It may be that theOP is focussing on geography rather than the complete picture.

Geography is important to me but it's not the be all end all. I use geography as a starting point for my asset allocation, to determine which markets I want to invest in and to what extent. India and Hong Kong were both candidate markets in April but I chose to disregard both as primary markets, ignoring Hong Kong was a mistake, India was not. Thereafter, I try to establish which sectors I want to be and those that I don't care about..... capitalisation follows, as does style etc etc. (I purposely split Japan between two funds, one growth, the other value). The analysis is all spreadsheet based but I also use HL and Trustnet tools. 

Cus

chiang_mai said:

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?

Because you are assessing it based on what you think is fair value. 

chiang_mai

Cus said:

chiang_mai said:

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?

Because you are assessing it based on what you think is fair value. 

Not really! When market A is overpriced and forward P/E is sky high, valuations are sky high and new records get broken every week, it makes little sense to me to invest 50% of my funds in that market when other markets have more attractive and lower risk characteristics. https://worldperatio.com/

masonic

chiang_mai said:

Cus said:

chiang_mai said:

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?

Because you are assessing it based on what you think is fair value. 

Not really! When market A is overpriced and forward P/E is sky high, valuations are sky high and new records get broken every week, it makes little sense to me to invest 50% of my funds in that market when other markets have more attractive and lower risk characteristics. https://worldperatio.com/

That market it overvalued due to a small number of constituents being insanely overvalued, while beyond those companies, there is better value within the market. Therefore it seems an odd choice to select an index tracker for that market alone, in any proportion with ROW.

However, I think it is a mistake to equate valuation with risk. Stocks and hence markets are valued the way they are for a reason. You may disagree with the market valuation, as many of us do, and you may even be proven correct in the end (those of us who considered the US market to be overvalued since 2014 have been waiting more than a decade so far). But the loss potential of those stocks is no less should the US market start to tumble. You need to be very brave to make large bets that the market valuation is wrong. I have a small tilt away from the US, taking it down from 60% to 45%, and a further tilt within the US away from the overvalued mega-caps into value and mid-caps, but much more than that would be a challenge to me sleeping at night. And to me, entrusting over 50% of my portfolio to factor-based investing seems very brave, especially given the risk score of those funds is higher than their respective markets.

chiang_mai

masonic said:

That market it overvalued due to a small number of constituents being insanely overvalued, while beyond those companies, there is better value within the market. Therefore it seems an odd choice to select an index tracker for that market alone, in any proportion with ROW.

However, I think it is a mistake to equate valuation with risk. Stocks and hence markets are valued the way they are for a reason. You may disagree with the market valuation, as many of us do, and you may even be proven correct in the end (those of us who considered the US market to be overvalued since 2014 have been waiting more than a decade so far). But the loss potential of those stocks is no less should the US market start to tumble. You need to be very brave to make large bets that the market valuation is wrong. I have a small tilt away from the US, taking it down from 60% to 45%, and a further tilt within the US away from the overvalued mega-caps into value and mid-caps, but much more than that would be a challenge to me sleeping at night. And to me, entrusting over 50% of my portfolio to factor-based investing seems very brave, especially given the risk score of those funds is higher than their respective markets.

I think the US market is so big, plus there is not the same availability of analysis of it, that exists in the UK, that I have difficulty navigating what is good and what is not. An index fund is the easy way out of that dilema for me personally but of course not everyone will see things the same way.