My Portfolio

aroominyork

It is often said the US is the most highly analysed region and it is very difficult for active managers to get an edge. That seems historically true, even before recent years when any tilt away from the Mag7 would likely reduce returns. So an index fund is a sensible approach, and a couple of gentle masonic-style tilts also seem fine. It's just trying to be too clever that risks landing in hot water.

chiang_mai

So the key take away for me is that I am probably light on US holdings. It was always in my mind that I could use the cash or short term bonds to increase that, but just not right now.

I have also taken onboard the extent to which the UK fund is higher risk as a result of its over reliance on Financial Services. It may be sensible at some point to swap that out for a FTSE All Share managed tracker such as HSBC. 

 Many thanks for everyone's comments, it's always helpful to understand other people's perspectives.

Hoenir

aroominyork said:

It is often said the US is the most highly analysed region and it is very difficult for active managers to get an edge.

Across the globe smaller companies receive scant in depth analysis. The investment universe is huge. Specialism bring huge rewards. Though does require patience.  As everything is benchmarked these days against short term performance. Hence why the momentum of money drives a select group of companies over any given period of time. 

aroominyork

Hoenir said:

aroominyork said:

It is often said the US is the most highly analysed region and it is very difficult for active managers to get an edge.

Across the globe smaller companies receive scant in depth analysis. The investment universe is huge. Specialism bring huge rewards. Though does require patience.  As everything is benchmarked these days against short term performance. Hence why the momentum of money drives a select group of companies over any given period of time. 

Yes, lots of patience. Monevator and Ramin/Pensioncraft were both excited by the launch of AVSG as the first global small companies value fund, a sector which evidence says has outperformed. But it has not done so over the last 20 or so years, so buckling in for the hope it might be about to do so again is not for me, especially when entering deaccumulation. 

Linton

aroominyork said:

Hoenir said:

aroominyork said:

It is often said the US is the most highly analysed region and it is very difficult for active managers to get an edge.

Across the globe smaller companies receive scant in depth analysis. The investment universe is huge. Specialism bring huge rewards. Though does require patience.  As everything is benchmarked these days against short term performance. Hence why the momentum of money drives a select group of companies over any given period of time. 

Yes, lots of patience. Monevator and Ramin/Pensioncraft were both excited by the launch of AVSG as the first global small companies value fund, a sector which evidence says has outperformed. But it has not done so over the last 20 or so years, so buckling in for the hope it might be about to do so again is not for me, especially when entering deaccumulation. 

The fact that small companies have underperformed larger companies ( if it is a fact, I don’t know and don’t care) says nothing about what will happen in the next 20 years. So if you are hoping for an easy journey in retirement surely it makes sense to hedge your bets and invest in both.

aroominyork

I've moved more and more into index funds, FTSE350 for the UK and cap weighted for other regions. I guess I could buy a little Vanguard global small-cap index; maybe I'll put it on the radar.

Hoenir

aroominyork said:

Hoenir said:

aroominyork said:

It is often said the US is the most highly analysed region and it is very difficult for active managers to get an edge.

Across the globe smaller companies receive scant in depth analysis. The investment universe is huge. Specialism bring huge rewards. Though does require patience.  As everything is benchmarked these days against short term performance. Hence why the momentum of money drives a select group of companies over any given period of time. 

Yes, lots of patience. Monevator and Ramin/Pensioncraft were both excited by the launch of AVSG as the first global small companies value fund, a sector which evidence says has outperformed. But it has not done so over the last 20 or so years, so buckling in for the hope it might be about to do so again is not for me, especially when entering deaccumulation. 

If investing merely required hindsight then would be effortless. Charts don't help you understand why either. Investing like life is cylical.  The greater the level of personal experience the more knowledgable you'll become. Every trade has it's day. 

masonic

chiang_mai said:

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. 

Indeed it is very large, and it is large for a reason, companies flock to it from all over the world. This means there are many options available to dilute the things that are making you shy away from it. The S&P400 includes companies with a market cap between $2-30bn, many of which would qualify for inclusion in the FTSE 100 if listed on the London Stock Exchange. You have practically no exposure to those, and relatively more exposure to the Mag7 as a result. There are also minimum volatility or value factor funds available that could be paired with a cap-weighted tracker to increase your exposure without increasing your concentration in the parts of the market you consider undesirable. An equal weight fund is also an option, albeit not one I'd consider.

aroominyork said:

Hoenir said:

aroominyork said:

It is often said the US is the most highly analysed region and it is very difficult for active managers to get an edge.

Across the globe smaller companies receive scant in depth analysis. The investment universe is huge. Specialism bring huge rewards. Though does require patience.  As everything is benchmarked these days against short term performance. Hence why the momentum of money drives a select group of companies over any given period of time. 

Yes, lots of patience. Monevator and Ramin/Pensioncraft were both excited by the launch of AVSG as the first global small companies value fund, a sector which evidence says has outperformed. But it has not done so over the last 20 or so years, so buckling in for the hope it might be about to do so again is not for me, especially when entering deaccumulation. 

Underperformance is to be expected with SCV during bull markets, and we've been in a bull market, except for some brief spells, for most of the last 20 years. It has tended to generate more consistent returns under varying market conditions, but will not compete with growth/momentum during the good times. But it is still a high risk proposition with a fair loss potential, so more a diversifier within equities than a defensive holding. It's one of the holdings in the Weird Portfolio, which advocates 20% of each of its 5 constituents (40% small caps overall) - a little too rich for me.

thunderroad88

chiang_mai said:

So the key take away for me is that I am probably light on US holdings. It was always in my mind that I could use the cash or short term bonds to increase that, but just not right now.

I have also taken onboard the extent to which the UK fund is higher risk as a result of its over reliance on Financial Services. It may be sensible at some point to swap that out for a FTSE All Share managed tracker such as HSBC. 

 Many thanks for everyone's comments, it's always helpful to understand other people's perspectives.

I have done that…combined Artemis SG with HSBC Ftse tracker for both UK and Europe. I think the marginally increased risk scores of the Smartgarp funds over the index is justified for now by the significant extra return they generate. I also agree with you that managed funds delivering consistently more than low cost index funds do justify that extra 1% in fees…for as long as they deliver. I am still 50% in US though..

chiang_mai

thunderroad88 said:

I have done that…combined Artemis SG with HSBC Ftse tracker for both UK and Europe. I think the marginally increased risk scores of the Smartgarp funds over the index is justified for now by the significant extra return they generate. I also agree with you that managed funds delivering consistently more than low cost index funds do justify that extra 1% in fees…for as long as they deliver. I am still 50% in US though..

I may well do something similar, moving 50% of SG UK to an HSBC UK Index would reduce risk. I remain unconvinced, however, regarding the US. Buffet has been selling down his US bank holdings, a move that many regard as the canary in the coal mine and which supports my view. Once again, these are all good and useful products, the real issue is the degree to which an investor deploys them. A 7% allocation to SG UK is certainly worthwhile, 14% might be too  risky. 15% to a US index is fine, 50% isn't (for me). Fortunately, I find these challenges stimulating and fun, if they weren't I'd consider them work and would need to find a new job.