chiangmai
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Post by chiangmai on Feb 24, 2019 7:37:27 GMT 7
I didn't want to contaminate the "top three funds" thread so I'll plonk this here and see what happens, the attachment and any ensuing comments may benefit others:
I'm a novice investor who holds a small UK SIPP (80% equities) that I've done my damnedest to destroy yet it keeps on breathing, it's a perfect example of why the FCA should never allow people like me to have control of anything more complex than a savings account passbook:).
The SIPP has undergone much change in the past 18 months and remarkably was in excellent shape until Trump started his trade war. The portfolio has borrowed heavily from comments on this forum and especially from recommendations made by AyG and Fletch, not that I'm blaming them in any way for the current sad state of affairs you understand (barstards). 
In particular my holdings closely mirror, in part, Fletch's mum's portfolio and since we're both distinguished retirees that's not a bad thing - portfolio risk score is 91 . I don't intend to take an income from the portfolio but instead will leave it as a tax free inheritance for my Thai wife. I haven't yet made the change (the changes are reflected in the attached x-ray in anticipation) but I plan to swap out Smith and Williamson Far East fund for First State Asia which is a much larger fund and has handled the trade war more robustly, the FM's also seem more qualified. I'm also planning to add LT UK which seems a low risk way to increase my UK holdings (I'm now splitting my time between there and here, as a result I'm in the process of changing platforms from Transact where I'm being raped for 1.19% per year in fees, in favour of a more agreeable circa 0.40% from HL).
I'm sufficently recovered from my last thrashing (you know who you are) so if anyone wants to comment, throw bomblets, constructively critique or recommend, have at it. Attachment Deleted
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AyG
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Post by AyG on Feb 24, 2019 8:50:25 GMT 7
Just a few thoughts:
(1) That's really too many holdings for a small portfolio. (I think you said previously that it was 50 or 60K.) There's also some obvious overlap, for example, Baillie Gifford International/Lindsell Train Global Equity/Witan and First State Asia Focus/Stewart Investors Asia Pacific Leaders. I think this is a common problem for new investors who are worried about making the "wrong" decision and later regretting it, so they invest in different funds in the same investment space. I think you could achieve your objectives with perhaps just 5 or 6 funds.
(2) I don't see the logic in having separate exposure to Europe.
(3) That your fund has undergone "much change" bothers me. As I've said before, don't be in a hurry to change investments. What you end up doing is buying what did well in the recent past. That's no guarantee of good future performance. In fact, quite the opposite. Unless there's a change of fund manager, stick with with a fund for at least a couple of years. Your comment about handling the trade war also suggests you're prone to short-termism.
(4) For Asia, do have a look at Aberdeen Standard Asia Focus (investment trust), and BGF Asian Growth Leaders. (The latter is an offshore fund - it may not be available on your platform.)
(5) Given that your objective is long term growth, do you really need the fixed income component? (Not including the index linked gilts in this, which I approve of.)
(6) I presume your wife is Thai. I would have thought it appropriate to include a decent chunk of Thai equities. You could use Aberdeen New Thai (investment trust) for this, though last time I checked it wasn't keeping up with the index, so you might consider iShares MSCI Thailand ETF. (Unfortunately, it's US-listed, you have FX costs and withholding tax to worry about.)
(7) It would be interesting to hear which of your investments have disappointed you recently.
(8) Just an observation, but with c. 40% of your holdings apparently unanalysed, the pretty pie charts are worthless.
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chiangmai
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Post by chiangmai on Feb 24, 2019 9:11:42 GMT 7
Number of Funds: I've agonized over this for some time but have concluded that there is very little downside to spreading the risk amongst high-quality FM's who have a good track record.
Europe: Europe holdings exist in a couple of funds but all to a lesser degree, the Jupiter fund is one that I wanted to hold from the outset because of the quality of its FM and its constant mention amongst fund watchers.
Change: What can be said, some people are bright and get things right the first time and learn new complex processes easily, I'm in a different camp!
Asia: will do, thanks.
Fixed Income: I want some change to pay my platform fees and anyway, FI is a good balance against EQ.
Thai: We hold Thai equities separately from this pension.
Disappoints: Smith and Williamson Far East, it was a poor choice on my part.
Trustnet X-ray: it's the only tool available to me for free at this time so beggars can't be choosers! I did use a paid for subscription to Morningstar, just for their x-ray but it didn't work out as well as hoped. I have a spreadsheet that shows an x-ray of the portfolio as it appears today but it hasn't been updated in some time and is too unwieldy to post here.
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chiangmai
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Post by chiangmai on Feb 24, 2019 10:11:44 GMT 7
On the subject of too many funds: "According to Warren Buffett, "Wide diversification is only required when investors do not understand what they are doing." In other words, if you diversify too much, you might not lose much, but you won't gain much either". www.investopedia.com/investing/dangers-over-diversifying-your-portfolio/Trying to decide the optimum number of funds or desired average value per fund is not easy (for me). I could lose Witan and Stewart but the question is, should I. I could also lose Schroeder since that's a foray into small caps which is a risky area. |
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AyG
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Post by AyG on Feb 24, 2019 10:40:40 GMT 7
if you diversify too much, you might not lose much, but you won't gain much either". If you overdiversify, you might as well buy a broad ETF. You'll get market average performance, before fees are taken into account. Trying to decide the optimum number of funds or desired average value per fund is not easy (for me). It should be straightforward. Ask yourself "what asset classes should I hold?" whilst remembering that just because an asset class exists, you don't have to own it. I would suggest that the asset classes relevant to your situation, based upon what I know and your proposed portfolio, are: - UK equities - Global equities - Asian equity (probably excluding Japan and Australia) - Index-linked bonds - Conventional bonds All you really need is 5 funds. If you want to tilt your portfolio, you might invest two thirds of the first two asset classes in a "regular" fund, and one third in a small cap fund. This does increase risk, but also increases potential returns, and is a strategy I myself use. Doing this would give you 7 funds. (I wouldn't do this with Asian equity since this would be rather too risky for my taste.) I could lose Witan and Stewart but the question is, should I. I could also lose Schroeder since that's a foray into small caps which is a risky area. Having had a look at Schroder, it's not something I would buy. It's underperformed its benchmark in 4 of the last 5 years. The ongoing charge at 1.73% is on the greedy side (though in mitigation, this is a rather small fund). www.morningstar.co.uk/uk/funds/snapshot/snapshot.aspx?id=F00000NRF0 |
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chiangmai
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Post by chiangmai on Feb 24, 2019 15:07:11 GMT 7
I've taken on board some of what has been said (thank you by the way) and have consolidated into a smaller number of funds, the logic is: LT Global, a proven best of the best (for me) covering UK, EU and Japan, a fund I've held for nine years. Fundsmith, ditto the above but predominantly US. LT UK, it seems right that since my home is now the UK that I am UK heavy and LT is one of the leaders in UK equities Jupiter Europe, Europe is a huge market and this fund is highly regarded, there's plenty of wiggle room for the FM to get out of any tight corners. First State Asia, a good spread across Asia, developed and not. Baillie Gifford Int, I've also held this fund for nine years and it's never disappointed, it's a good backup to LT. Royal London, will pay the platform fees and provide some offset against a predominantly equity-based portfolio. I/L Gilts. All highly regarded FM's, average volatility remains at 90, exceeds the 1A Global benchmark by an even greater margin, consumer staples, health care and financials dominate.
EDIT TO ADD: I missed the comment earlier and I forgot to add, I have a further £12k which is part of this portfolio but is kept separate, it's in Vanguard 80/20 and I'm not going to move it, that''s why the totals don't add up.
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AyG
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Post by AyG on Feb 24, 2019 18:45:38 GMT 7
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chiangmai
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Post by chiangmai on Feb 24, 2019 20:01:22 GMT 7
The number of funds issue is too complex to hope that an asnwer might be found in social media comments or similar, I suspect there is however a mathematical answer to be had. The large number of variables include geographic preference and spread, asset type, investment style preference, risk appetite amd doubtless many others. I''ll be very surpsied if the industry doesn't have a guidline on this, based on the math, number of funds per X Pounds/Dollars invested, as a percentage of total investments.....or similar.
Which is statistically more probable, provided the values are proportional, three out of five or seven out of ten?
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AyG
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Post by AyG on Feb 24, 2019 20:26:09 GMT 7
The number of funds issue is too complex to hope that an asnwer might be found in social media comments or similar, I suspect there is however a mathematical answer to be had. The large number of variables include geographic preference and spread, asset type, investment style preference, risk appetite amd doubtless many others. I''ll be very surpsied if the industry doesn't have a guidline on this, based on the math, number of funds per X Pounds/Dollars invested, as a percentage of total investments.....or similar.
Which is statistically more probable, provided the values are proportional, three out of five or seven out of ten?
There's no straightforward answer. However, it's far easier to monitor a small number of funds than a large number of funds. If one is prepared to put in the due diligence, then one should be able to identify the funds in which one has the highest levels of conviction, rather than hedging one's bets and investing in multiple funds in the same sector. Going back to my previous suggestion, one should first identify the sectors in which one wishes to invest. After that decide which fund (or funds) is, in one's opinion, the best expression of that sector. (And I'll reiterate, I see no point in your having a separate allocation to Europe.) One won't always get it right, but one can learn from one's mistakes. And always, no regrets. |
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fk
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Post by fk on Feb 25, 2019 0:33:18 GMT 7
if you diversify too much, you might not lose much, but you won't gain much either". If you overdiversify, you might as well buy a broad ETF. You'll get market average performance, before fees are taken into account. Trying to decide the optimum number of funds or desired average value per fund is not easy (for me). It should be straightforward. Ask yourself "what asset classes should I hold?" whilst remembering that just because an asset class exists, you don't have to own it. I would suggest that the asset classes relevant to your situation, based upon what I know and your proposed portfolio, are: - UK equities - Global equities - Asian equity (probably excluding Japan and Australia) - Index-linked bonds - Conventional bonds All you really need is 5 funds. If you want to tilt your portfolio, you might invest two thirds of the first two asset classes in a "regular" fund, and one third in a small cap fund. This does increase risk, but also increases potential returns, and is a strategy I myself use. Doing this would give you 7 funds. (I wouldn't do this with Asian equity since this would be rather too risky for my taste.) Nice clear well laid out asset allocation breakdown.
About the Asian equity (ex JP/AU) -
• Is this related to the fact that this person is living in Asia • If so, are you choosing this over TH equities to reduce concentration risk of the Thai market?
• Would you make this emerging Asia instead of all Asia (ie excluding developed Asia like HK/SG/Korea)
• Would you overweight this relative to global cap markets due to this person living in Thailand?
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chiangmai
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Post by chiangmai on Feb 25, 2019 1:15:27 GMT 7
Using my most recent funds structure I did a manual geographic x-ray, it looks like this: Equities UK - 20% US - 20% Europe - 20% Dev. Asia - 12% EM - 10% Bonds/gilts - 20% That's pretty close to the original target model and your recommendation when I first started this exercise, way back when. And despite there being overlap in some areas I see that overlap as complementary rather than duplication or redundancy.
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AyG
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Post by AyG on Feb 25, 2019 7:45:26 GMT 7
About the Asian equity (ex JP/AU) -
• Is this related to the fact that this person is living in Asia • If so, are you choosing this over TH equities to reduce concentration risk of the Thai market?
• Would you make this emerging Asia instead of all Asia (ie excluding developed Asia like HK/SG/Korea)
• Would you overweight this relative to global cap markets due to this person living in Thailand?
My approach is to tilt my investments towards my home economy which for me is Thailand, and the surrounding geographic area, so I have a target of 7% Thailand and 18% Asia Pacific. The SET is such a small (and corrupt) market that I wouldn't feel comfortable going higher than that. If my home market were in the developed world I would probably go has high as 20% for home market. The OP's situation is that he is investing for his wife, who is Thai and is probably going to live in Thailand following the OP's demise, so the home economy for this investment should be Thailand. However, the OP says he's got Thai investments elsewhere, so they're not in the asset allocation. In any case, I think Thai equity funds are better bought in Thailand, despite the egregiously high charges. One common investor mistake is to have far too high an allocation to their home market. With all the different markets out there it's irrational to assume that one's home market will perform best in the world in any given time period. Best to spread things around broadly, whilst avoiding markets which one feels uncomfortable about. (In my case I largely avoid South America, Africa, and only have limited exposure to Japan and China.) Moving on to "Emerging Asia" v. "All Asia", technically South Korea (and Taiwan) are part of Emerging Asia (at least according to MSCI). Anyway, I don't think including countries such as Hong Kong, Singapore, Japan is a bad idea idea given the level of trade between Thailand and these countries. So I'd go "All Asia", or (with similar logic to before) to include Australia in the mix, "Asia Pacific". |
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chiangmai
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Post by chiangmai on Feb 25, 2019 8:22:34 GMT 7
I'm increasingly comfortable with this, the final geographic spread looks like this: EQUITIES 80% (% of total equities rather than of total invested) UK - 26% US - 27% EU - 19% Japan - 6% EM - 3% Dev. Asia - 2% China - 3% (EM) India - 3% (EM) HK - 2% (Dev Asia) TW - 2% (Dev Asia) Kor - 2% (EM) Aus - 1% Sing - 1% (Dev Asia) PI - 1% (EM) You might not agree with my classifications of whether a particular region is Developed Asia or an Emerging Market but I don't think that's too important right now, it's how I've bucketed them for the purpose of this post. Bonds/Gilts - 20% - the income yield will pay the platform fee. Cash - 2% I shall be interested to see what the Sage of Preston has to say.  |
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fk
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Post by fk on Feb 25, 2019 8:48:07 GMT 7
My approach is to tilt my investments towards my home economy which for me is Thailand, and the surrounding geographic area, so I have a target of 7% Thailand and 18% Asia Pacific. The SET is such a small (and corrupt) market that I wouldn't feel comfortable going higher than that. If my home market were in the developed world I would probably go has high as 20% for home market. The OP's situation is that he is investing for his wife, who is Thai and is probably going to live in Thailand following the OP's demise, so the home economy for this investment should be Thailand. However, the OP says he's got Thai investments elsewhere, so they're not in the asset allocation. In any case, I think Thai equity funds are better bought in Thailand, despite the egregiously high charges. One common investor mistake is to have far too high an allocation to their home market. With all the different markets out there it's irrational to assume that one's home market will perform best in the world in any given time period. Best to spread things around broadly, whilst avoiding markets which one feels uncomfortable about. (In my case I largely avoid South America, Africa, and only have limited exposure to Japan and China.) Moving on to "Emerging Asia" v. "All Asia", technically South Korea (and Taiwan) are part of Emerging Asia (at least according to MSCI). Anyway, I don't think including countries such as Hong Kong, Singapore, Japan is a bad idea idea given the level of trade between Thailand and these countries. So I'd go "All Asia", or (with similar logic to before) to include Australia in the mix, "Asia Pacific".
Hi AVG, thanks for your response.
For quite a while now I've wondered about home country bias for those in Thailand, but have not found any information on it anywhere.
I agree that up to about 25% for a home country that is a small but developed market seems reasonable but have wondered how much is reasonable for an emerging (and massively corrupt) country such as Thailand. I have thought that about 10% as a maximum, but then also decided it was too small of an amount to make a difference on it's own, but for someone with Thai fixed income (bonds/CDs) it would help. For example a 60/40 allocation with 50% in global equities and 10% in Thai equities would end up with a 50% THB based portfolio which is a reasonable compromise between currency upside and downside risk and also concentration risk (provided 40% in fixed income was suitable for their risk tolerance).
I've also wondered about tilting towards the sounding markets to lower the concentration risk.
There is an ETF in my home country that is Asia ex-Jp (ex pacific), so it is 70% emerging Asian countries which also make up 70% of EM by capitalisation, and the other is 30% developed asian countries (HK/SG/Korea).
I haven't been able to find any information as to whether the surrounding markets are correlated with Thai currency though unfortunately.
18% seems like a lot for such a large amount of emerging markets, especially in addition to 7% Thai, but I suppose if you live there, then the increased risk of higher volatility markets is countered by the fact that you purchasing power is somewhat tied to it.
Of course the obvious and ideal solution would be a global index that is THB hedged. It would remove upside THB currency risk without adding in any concentration risk, but I won't hold my breath for that to arrive any time soon. It only arrived in my developed home country a couple of years ago.
I do like the idea of a compromise between Thai and Asia though, rather than my earlier thoughts only of one or the other. I think if I pulled the trigger and did this, I wouldn't go as much as yourself with 25% total, but 20% might be ok (7/13 Thai/Asia).
Also one thing that often gets lost is that a 25% equity allocation to Asia, does not mean 25% of your wealth. If you have a 60/40 portfolio, then 25% of the equities portion means you only hae 15% of your total wealth in it.
The last piece of the puzzle would be THB fixed income. For a person living here permanently, I suspect you would want most of your fixed income in THB.
But then again, in such a volatile currency, and with much of your goods being imported, maybe it would be an idea to divide it between THB and USD bonds. The THB for purchasing power of things made in Thailand and the USD for purchasing power of imported goods.
Thanks for your thoughts. It's nice to (finally) find others have had the same ideas.
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chiangmai
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Post by chiangmai on Feb 25, 2019 9:02:12 GMT 7
I'm not sure I would describe THB as a volatile currency, for many years now it's been a one way bet.
FWIW I hold THB investments in the SET via an LTF, it has a tax advantage which I don't use but it's a decent way of staying invested in Thai equities, using onshore currency - CG-LTF from UOB is one. I also hold a large amount of legacy THB (purchased at 60+ to the Pound)in cash via fixed deposits, which whilst it cannot truly be described as an investment as such, it does allow me to escape the vagaries of the FOREX markets - I mention this solely to help posters understand why Thailand doesn't feature more heavily in my investments.
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