Funds in SIPP

HarryIb

I have seven funds in my SIPP, and a small investment in FTSE 100 shares. One of the funds is Fundsmith, and in the eight years I've been running the SIPP its performance has been excellent, more than doubling in value in that time. However, the fund accounts for just under one third of my total investments. Is this too much? Any ideas gratefully received. Thanks.

Bostonerimus1

Well you have to look at your finances holistically so you need to consider your asset allocation in Fundsmith relative to all your other assets and your current circumstances. Personally I would not hold Fundsmith because it's an actively managed "flavour of the month" type of fund. Recently it as done what such funds often do and slid down the performance tables.

Albermarle

As above is the SIPP the only asset you have?
Do you have any cash savings, other investments etc

DRS1

I have heard professional investment managers talking about "top slicing" the investments that have done well and reinvesting the proceeds in the ones that have done badly.

At the time I wondered what fool had come up with that one.  But it probably does make sense.

AlanP_2

I work on the principle that if any 1 active fund we hold went "bust" then would be seriously impacted and limit my individual exposures that way.

 

HarryIb

Thanks for the replies. In addition to the (fully crystallised) SIPP, which I draw down every month, I also have a couple of DB pensions and the state pension. We also have S&S ISAs and a few other assets. The SIPP is my main source of income. I tend to run down a particular fund to exhaustion for the drawdown, then look to amend the investments as appropriate. After eight years of drawdown the SIPP is pretty much at the value it was when I commenced. My issue is this one fund - Fundsmith - which at the moment constitutes just under one third of the SIPP value. Recently I saw an article about another of Terry Smith's funds, Smithson, which is not doing well (I have a small position in it in the ISA). It got me wondering about the Fundsmith fund. It has performed very well in the time I've been invested in it, but have I got too many eggs in one basket?

DRS1

HarryIb said:

Thanks for the replies. In addition to the (fully crystallised) SIPP, which I draw down every month, I also have a couple of DB pensions and the state pension. We also have S&S ISAs and a few other assets. The SIPP is my main source of income. I tend to run down a particular fund to exhaustion for the drawdown, then look to amend the investments as appropriate. After eight years of drawdown the SIPP is pretty much at the value it was when I commenced. My issue is this one fund - Fundsmith - which at the moment constitutes just under one third of the SIPP value. Recently I saw an article about another of Terry Smith's funds, Smithson, which is not doing well (I have a small position in it in the ISA). It got me wondering about the Fundsmith fund. It has performed very well in the time I've been invested in it, but have I got too many eggs in one basket?

If it worries you enough that you are posting on here about it then the answer is YES.  Not because of Fundsmith and its future returns (who can know what they will be - no-one on here) but because of your peace of mind.

wmb194

HarryIb said:

Thanks for the replies. In addition to the (fully crystallised) SIPP, which I draw down every month, I also have a couple of DB pensions and the state pension.

We also have S&S ISAs and a few other assets.

The SIPP is my main source of income. I tend to run down a particular fund to exhaustion for the drawdown, then look to amend the investments as appropriate.

After eight years of drawdown the SIPP is pretty much at the value it was when I commenced. My issue is this one fund - Fundsmith - which at the moment constitutes just under one third of the SIPP value.

Recently I saw an article about another of Terry Smith's funds, Smithson, which is not doing well (I have a small position in it in the ISA).

It got me wondering about the Fundsmith fund. It has performed very well in the time I've been invested in it, but have I got too many eggs in one basket?

"I tend to run down a particular fund to exhaustion for the drawdown, then look to amend the investments as appropriate." Won't this strategy naturally lead to the outcome that the remaining funds will form a larger proportion of the portfolio? If you're worried then sell and rebalance.

Is there a correlation between the Fundsmith OEIC and Smithson IT? IIRC Smithson is focused on small and mid-caps whilst Fundsmith is large cap so I don't see why there has to be.

aroominyork

Yes, it has more than doubled over the last eight years, but that was due to its performance in the first half of that period. During the last four years it has underperformed against a developed world index fund, as it has over the full eight years. I bought it in mid-2017 when I started DIYing and at one stage it was >25% of my holdings (and on top of that I held Smithson for a while). I slowly reduced it over the years and sold the last bit this summer, so overall I may have captured more upside than downside. The investment process and marketing, such as the annual shareholders' AGM, are very impressive and kinda make you think "surely this just is a blip", but who knows - at the end of the day it is just another actively managed equity fund. It is often compared to Lindsell Train as a 'quality' fund (although LT is overwhelmingly B2C while Smith also holds B2B) and for a few years practically everything LT holds has been turning to dust. 

poseidon1

This thread is an interesting contrast and counterpoint to the thread below

https://forums.moneysavingexpert.com/discussion/6630133/income-funds#latest

In sticking exclusively  with non income producing funds and running down smaller positions to fund drawdown payments, the OP is seeing his portfolio increasingly unbalanced.  

In raising the question, the OP seems to have answered it himself, but is there a more general case here to review the entire strategy of wholly relying on sale of funds to generate drawdown income rather than consider an approach which includes income generating investments?

If OP does decide it would be wise to trim back  the Fundsmith holding, how and where he reinvests the proceeds could warrant further deliberation.