Newbie question: high level folio balance

2nd Feb '21 by stuartrlittle

24 comments 870 reads

Hi All,

I'm new to investing. Please can I invite some comments on my general approach and allocations.

My general strategy is long term growth through passive investing via ETF's (80-85% of funds). I will also retain a fund investing in individual stocks I like (15-20%).

I'm most interested in understanding if my ETF portfolio looks well balanced. Are there any glaring ommissions? Should I ditch several index trackers in favour a single "all-world" tracker or similar? Should I be including commodoties and/or bonds?

ETF Portfolio:

Vanguard S&P 500 UCITS ETF (VUSA) - 25%
FTSE Developed Europe ex UK UCITS ETF (VERX) - 15%
ishares FTSE250 (MIDD) - 15%
Vanguard FTSE Emerging Markets (VFEM) - 15%
iShares Global clean energy (INRG) - 10%
L&G - cyber security (ISPY) - 10%
ishareds healthare innovation (HEAL) - 10%

Any comments would be greatly appreciated.

Thanks,

Stuart

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stuartrlittle

2nd Feb '21

Thanks Doug. Please can you clarify what you mean by 'IT' at the end of your post?

Thanks clarea - will take a look at that trust.

TheGob

But that's the $64 million dollar question: are you under allocated to the US or are you avoiding a wildly over valued market? Only the individual can decide the answer to that question. The shiller yield gap approach is one means of starting to think about it.

Everyone will have a different view but it's about understanding whether your portfolio reflects your view. If not, then you need to adjust.

mojomogoz

Passive investing is sensible.

Personally I would bias allocation counter trend looking at things from a capital cycle perspective. So towards markets or areas where I think there may be growth but its not very valued or 'received wisdom' says they are finished areas and away from places where everyone is sure there is growth. I think only your EM and Europe allocation fit that so IMO you are probably overweight expensive/momentum.

This asset manager sometimes has interesting things to say re passive and its impact on the market -> https://www.logicafunds.com/bl...

doug2500

it's about understanding whether your portfolio reflects your view. If not, then you need to adjust.

Very true but then you're getting less and less passive, and the OP stated his general strategy was passive. Obviously you can be active in your selection of passives, it depends if this is the idea or if he wants to be really passive.

Personally I'm an active type and that's probably why I prefer an Investment Trust (IT) to a passive fund. There's just too much of the market which I wouldn't want to own.

I nearly bought a passive fund VWRL but when I looked at JGGI (JP Morgan global growth & Income) it did a pretty good job of tracking VWRL's price while paying out twice as much as a dividend. I accept it will be slightly more volatile but over the long term I hope it will outperform while also being a bit more 'tangible' with a board, investment manager etc. I accept this is one of the main reasons people prefer passive!!

For the record, for a simple portfolio I actually quite like Stuart's listed above. He asked if he was missing anything, well if you add everything missing you've got an all world tracker! But just because I like it doesn't mean it suits anyone else's idea of risk etc.

samanddee

Looks good Stuart. I’d also consider SMT as a possible IT play that’s relatively low cost (albeit more pricey than passive) sometimes worth the spend. BIOG also worth a view IMO.

Phuntt

You haven’t done a bad job at creating a equity fund at about 7-8 on the risk scale (out of 10) but without any counter hedges like gold/ bonds/ real estate/ etc. exposure typical in a pension fund. So if we hit a major momentum equity correction (not unforeseeable right now) you have almost no protection and are likely to suffer at least the full correction. On the other hand if equities continue their current growth, you won’t get the full benefit because of your passive/ general rather than specific exposure to momentum stocks.
So my advice is decide what you want to be. If it is truly passive, then you have to at least partially hedge and set expectations for returns at around 5% ish. If you actually want to be a little more active but with funds/ ETFs, you need to at least add a little inflation protection (like the commodity fund mentioned below) and accept that you are going to have to monitor things a little more closely.
I don’t see your exposure to the US as a big problem. I had a similar worry when I put my SIPP together but really the US dominates the world indexes in size and is hard to avoid if you want to include thematic choices as you have.

3rd Feb '21

Thank you! Just been looking at SMT - that appears to be 55-60% american equities. Would you use SMT for example instead of american indexa tracker e.g.an S&P500 tracker for example?

You could use SMT instead of a US tracker (you can do anything you like) but it is not the same thing or even similar. An IT like SMT is very active and you're putting big bets on individual stocks e.g I think it's about 8% in Tesla. Of course by doing this it has performed exceptionally well and miles better than any tracker, but can it continue?

This is the sort of question you face when you start departing from a purely passive all world tracker.

Rusty2

I always look at what the largest holdings are in each fund/IT/ETF, Scottish Mortgage Investment Trust (LON:SMT) has a large holding in Tesla (10.75%) which put me off, it could continue outperforming but I think there is some risk there. Also there is speculation that Biden may do something about large tech companies in the US, Will Biden bash big tech?

I would still favour an well managed active fund, over a tracker, but I would not have a large exposure just in one. You could do both of course.

Phil Mc

I assume he means Investment Trust but I might be wrong.

AJC0504

4th Feb '21

Excuse my ignorance, but what is the Schiller Yield gap, and where is the best place to research it

Thank you

William K

Hi Stuart. I really like your selection and I wish I'd constructed my first portfolio along those lines. And I think cyber security and clean energy are particularly good sectors to choose. If you want a little more risk/reward, you could go all out for technology via £EQQQ in exchange, or partial exchange, for £VUSA. Emerging markets are probably going to be strong over the next 5-10 years (they include China and India), so I might shift a bit from Europe to £VFEM. But I don't think you'll go far wrong by leaving things as they are.

The other comments make a few useful points. And if you've got a bit of spare cash, Scottish Mortgage Investment Trust (LON:SMT) is well worth considering.

i'll dig out a few links for you before the end of the day. Essentially it takes Schiller's CAPE (cyclically adjusted pe ratio) and inverts it to a yield, eg. A CAPE of 20 becomes a yield of 5%. It then compares it (as I remember) to long term bond yields for that country and that yield gap is then used as a predictor of long term returns. It has a very good record of prediction. This makes the US not look as expensive as some argue but relatively the UK and Japan look cheap as chips.

i'll try and post a couple of links later.

Thanks Phil

whatmore1951

Get the book The Long and the Short of It by John Kay. It is written for someone in your situation. He shows how to build a portfolio of ETFs and ITs as a core and some riskier stuff around the edges. There is a lot in it about risk also..

Thanks, will check that out

Matthew Wood

My first question would be, is this a SIPP (you managing your own pension) or a more general investment account? What's your time horizon? If I was young and starting out my SIPP, I'd be pretty aggressive, Bonds wouldn't factor and I'd be looking to "frontier" markets as well as "emerging".

I like the mix of geographic and industry sector focus - I do similar but am careful not to overload on US. Personally due to the prevalence of richly valued tech in the S&P 500, I'd probably look to ETFs that closer mirror small cap /mid cap US indices (S&P400, Russell 2000).

Also I'm a big fan of Closed End Funds to give me real differentiation, obviously this is an "active" element but still passive from your perspective.

5th Feb '21

An initial article is here but this focuses most on justifying the US market valuation. I will try and find an article which talks to relative market valuations.

Try this

Newbie question: high level folio balance

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Stuartrlittle

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