I had indicated a while ago that I would discuss my portfolio and subsequent performance in more detail. This article starts that journey, but first I want to discuss my investing context (if such a thing exists). To surmise conventional investment "wisdom", one can conclude that 99% of expected return from the stock market is down to asset allocation, dividends and (possibly) timing. If that is true, then it makes sense to go and buy a few index trackers, ideally in the form of low-cost ETFs, set your dividends to reinvest themselves, and then go off and wash the car, creosote the fence or whatever else is on the 'to do' list. This approach assumes that the market is "efficient" and that it is not worth your while spending effort and energy in trying to finding market-beating investments, because you will not be able to do so sustainably in the long-term.
At the other end of the spectrum, if the market is not so efficient then consistent above-average returns can be made from stock-picking the right companies at the right time a la Buffett, Graham & Co. I take the middle ground and adopt a bit of both. My portfolio of ISAs and SIPPs is currently structured into three components as set out below. NB - I did not deliberately set out to create three components, but after considering my rationale and doing some analysis, I realised that my portfolio fell into three camps. For more instructive discussion and analysis on portfolio allocation and passive investing, I would heartily recommend spending some time with Monevator.
Three Components
A - Thematic - Big picture: the global population is growing; resources are finite; food, energy and infrastructure will be in demand; emerging markets are...emerging. My sphere of knowledge extends to UK listed companies. I do not have the expertise or time to try to understand overseas companies with a degree of comfort. I also believe that emerging markets in particular are less efficient and that a good stock-picker (fund manager) should be able to generate superior returns (in the medium-term at least). In the past, I have favoured Investment Trusts as these can often be bought at a discount to net assets and tend to have lower charges than Unit Trusts. Going forwards, I will look increasingly at ETFs. On a PE/yield basis, Brazil and Russia look cheap,…
