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Am i diversified enough?
arnhemrd
Posted: 14 February 2017 10:40:19(UTC)
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I'm about to start the process of tweaking my portfolio before adding 20k in April. Trying to diversify but with no real method behind it. Are there any areas, sectors or allocations that I may have missed out. I realise there is some duplication but any regions, sectors, or holdings that you feel I should focus on? Emerging Markets has been suggested, but they do seem to be higher risk so possibly not suitable for my age group. Portfolio pot at the moment is approximately 250k. I'm 63, retired and can live comfortably on my private pension so I'm just looking to let this pot grow in the future to pay for health care or to leave to my son. Cash pot of 35k retained in best interest paying bank accounts. Any observations or suggestions please. Thanks.

Asset Allocations:-

Vanguard LS 80% Acc 38.42%

CF Woodford Equity Income C Acc 21.19%

Old Mutual Managed R Acc 12.85%

Old Mutual UK Mid Cap R Acc 7.26%

Royal Dutch Shell B 5.28%

Vanguard FTSE Developed
World ex UK Equity Index Acc 5.06%

Vanguard Global Small Cap Index Acc 5.06%

Vanguard FTSE Developed
Europe ex UK Equity Index Acc 4.89%
Mickey
Posted: 14 February 2017 11:20:10(UTC)
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I would consider moving the lot into just the one Vanguard Life Strategy fund, perhaps the VLS 60 if wanting a little less risk. Alternatively stay with the VLS 80, up it to 70% and stick the rest into Personal Assets Investment Trust as more of a safe haven with its gold and treasuries.
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arnhemrd on 15/02/2017(UTC), dlp6666 on 16/02/2017(UTC)
Keith Hilton
Posted: 14 February 2017 11:57:29(UTC)
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I'd consider adding healthcare, infrastructure & commercial property to diversify the income stream. Also, some Asia Pacific for growth.
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arnhemrd on 15/02/2017(UTC), Bellabeck on 19/04/2017(UTC)
King Lodos
Posted: 14 February 2017 16:27:50(UTC)
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One way to look at it is the Vanguard fund gives you exposure to everything – so anything else you hold is really going to be overweighting one sector and underweighting another (and paying more for the privilege).

For me, the possible reason to deviate from Vanguard LS is that stocks and bonds are both expensive now (the tides of QE and 37 years of falling interest rates having brought everything up together) .. So it *could* be prudent to hold some cheaper assets too.

Emerging Markets (Vanguard again) could be one way to do that – although you already hold that in the Vanguard fund .. I quite like Ruffer Total Return as a small-ish holding, as they focus on value and capital preservation .. I wish there were a really obvious global value fund to recommend .. Or you could consider the Fundsmith route, and just stick with great companies (and accept a 10-15 year period of underperformance may be inevitable at some point).
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arnhemrd on 15/02/2017(UTC), dlp6666 on 16/02/2017(UTC)
Jezzer
Posted: 15 February 2017 17:36:29(UTC)
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I've recently restructured my pf along the lines of the MoneyWeek Lifetime Wealth portfolio asset allocation, in an attempt to reduce 'maintenance'...

Equities 50%
Commercial Property 10%
Gold 5%
Cash 10%
Bonds 25%

Pick whichever funds you like within these asset classes.

Some of my "bonds" are actually higher-yielding bond-like alternative investments such as solar infrastructure (FSFL), lease finance (SQN) and a mix of income-producing assets (HDIV), in an attempt to reduce the effect of interest rate rises on bond prices.

Thoughts on this from anyone up here welcome!
4 users thanked Jezzer for this post.
Ron Dawes on 15/02/2017(UTC), Cyrus Zaydan on 15/02/2017(UTC), dlp6666 on 16/02/2017(UTC), arnhemrd on 16/02/2017(UTC)
King Lodos
Posted: 15 February 2017 18:15:25(UTC)
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That's about as good an asset allocation as I could recommend to anyone.

I'd perhaps have 5-10% of equities in private equity (like HVPE). Perhaps look at GAM Star Credit Opportunities for 5-10% bonds.

I'd maybe take property down to 5% and put 5% in Ruffer Total Return. But little quirks of mine really.
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Jezzer on 15/02/2017(UTC), dlp6666 on 16/02/2017(UTC), arnhemrd on 16/02/2017(UTC)
Sara G
Posted: 15 February 2017 18:42:15(UTC)
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I think if you want to take a hands-off approach and re-balance occasionally, that's fine. I like the idea of using Solar funds as a bond proxy.

For myself I like to be more active and don't see the need to own every asset class at all times, so currently I'm sticking to Equities (via Funds and ITs mostly), with precious metals and cash for balance. I did hold some bonds when they got very cheap in 2009, but sold out far too soon - I'll be back in if that scenario repeats itself.

I do try to stick to Benjamin Graham's 'never more than 75% / never less than 25%' in shares rule, and am at the top end of that range at the moment - I don't think I've ever been anywhere near the lower limit though!

I agree with King Lodos about Private Equity - it offers a degree of diversification with significant growth prospects. I like PIN - Pantheon International.
6 users thanked Sara G for this post.
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Jeff Liddiard
Posted: 15 February 2017 19:19:03(UTC)
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I can see an historical discount/premium chart on Trustnet for PIN but as HVPE does not subscribe to Trusnet, where can I see a chart? (I've looked on the LSE and HVPE websites but I can't see one.)
Micawber
Posted: 15 February 2017 19:38:05(UTC)
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Jeff Liddiard;43291 wrote:
I can see an historical discount/premium chart on Trustnet for PIN but as HVPE does not subscribe to Trusnet, where can I see a chart? (I've looked on the LSE and HVPE websites but I can't see one.)


Try Morningstar. I find them good on ITs & discounts.

PS: and they also work out the z-score.
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Jeff Liddiard on 15/02/2017(UTC), dlp6666 on 16/02/2017(UTC)
Jon Snow
Posted: 15 February 2017 20:14:46(UTC)
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Jeff Liddiard;43291 wrote:
I can see an historical discount/premium chart on Trustnet for PIN but as HVPE does not subscribe to Trusnet, where can I see a chart? (I've looked on the LSE and HVPE websites but I can't see one.)


Jeff,

I think part of the issue may be to do with the valuation process used in ITs that hold relatively non liquid assets such as private equity and commercial property trusts.

How do you value a portfolio of private companies when you only really know three things -

What you bought it for

What further funds you invested in it

What you realise when you sell it

PIN & HVPE calculate unaudited NAV each month however the methods used carry a few caveats and even the audited NAV are reliant to a certain extent on management valuations.

for example see footnote 3 and disclosure section of PIN factsheet -

http://www.fundslibrary....er=hl_website_documents

And I can't find a chart of HVPE discount either. The best I can offer as an indicator is page 9 of the annual report showing NAV, sp and discount annually -

http://www.fundslibrary....er=hl_website_documents

Discount was 14.66% today, so the gap is narrowing.
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Jeff Liddiard on 15/02/2017(UTC)
Jeff Liddiard
Posted: 15 February 2017 20:17:11(UTC)
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Micawber;43295 wrote:
Jeff Liddiard;43291 wrote:
I can see an historical discount/premium chart on Trustnet for PIN but as HVPE does not subscribe to Trusnet, where can I see a chart? (I've looked on the LSE and HVPE websites but I can't see one.)


Try Morningstar. I find them good on ITs & discounts.

PS: and they also work out the z-score.


Thanks Micawber, I use Trustnet and Digital Look and always forget about Morningstar! (now in my favourites).

How do I find the Z score on Morningstar?
Jon Snow
Posted: 15 February 2017 20:18:48(UTC)
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Jeff Liddiard on 15/02/2017(UTC), dlp6666 on 16/02/2017(UTC)
Jeff Liddiard
Posted: 15 February 2017 20:26:06(UTC)
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Got it! (the Z score) Thank you Micawber and Jon
Law Man
Posted: 15 February 2017 21:44:02(UTC)
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Arnhem:

I am a little older than you, but otherwise in similar circumstances.

"Wrapper": You do not say if the assets are held in a SIPP, ISA, or ordinary a/c. SIPP is good for passing assets to beneficiaries on death free of tax; but you may not use a SIPP.

If they are in an ordinary a/c, transfer the maximum amount into an ISA each tax year; but ensure gains on sale are within your CGT allowance.

"Charges": It is worth keeping these low. This militates towards using assets which are not OEIC funds; such as ETFs and ITs.

If you do not wish to have much management work, go for broad index tracker ETFs. Even if you do take a close interest (as I do) use index trackers as a basis, adding on satellites.

"Risk": I assume you are content to have the large majority in equities. I run a 'Balanced' portfolio, including infrastructure, wealth preservation ITs (PNL, RICA) and a corporate bond ETF.

I like your concept of holding some in cash, particularly at present.

Asset allocation spread: You are somewhat light on US, although the Vanguard tracker includes a fair amount. You are underweight on Japan, Asia exc Japan and EM. My own prejudice is against Japan, although I am thinking of adding a small Nikkei 400 tracker. I dislike EM, and hold none. I like Asia exactly Japan. Personal choice.

I like your choice of trackers.

I would not hold any individual shares, and certainly not over 5% in one company (Shell).

You have over 20% in Woodford: a high concentration.

Why Old Mutual funds? Check the record and prospect AFTER charges.

In summary: keep it simple, diversify, and keep the charges down; and do not buy & sell other than occasional rebalancing or reducing risk.
2 users thanked Law Man for this post.
dlp6666 on 16/02/2017(UTC), arnhemrd on 17/02/2017(UTC)
Micawber
Posted: 15 February 2017 22:23:13(UTC)
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Jeff Liddiard;43300 wrote:
How do I find the Z score on Morningstar?


Just look down the page centre left.....
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foxy ron on 16/02/2017(UTC), Jeff Liddiard on 16/02/2017(UTC), dlp6666 on 16/02/2017(UTC)
kWIKSAVE
Posted: 16 February 2017 00:21:20(UTC)
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GAM Star Credit Opportunities looks great .

Will invest part of my 2017/18 ISA there.

Thanks King Lodos for highlighting this fund.
King Lodos
Posted: 16 February 2017 05:28:24(UTC)
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kWIKSAVE;43320 wrote:

GAM Star Credit Opportunities looks great .

Will invest part of my 2017/18 ISA there.

Thanks King Lodos for highlighting this fund.


Well I hope it keeps performing well.

It's possibly not the kind of bond fund you'd want to be fully invested in through a recession, or if there are any big problems with UK banks .. It's an area of debt I'm not too familiar with, but I like the strategy and management a lot.

These higher yielding bonds can behave a lot like stocks when markets turn sour.
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dlp6666 on 16/02/2017(UTC)
kWIKSAVE
Posted: 16 February 2017 07:49:14(UTC)
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Build up a portfolio of 40 or 50 stocks and you should have no trouble sleeping at night. Why worry about a fall in the price of oil or a sector-wide drop in supermarket sales when, say, Royal Dutch Shell and Tesco only constitute a small proportion of your portfolio? With the possible exception of a general market slump, any drop in the share prices of these stocks could be greeted with a shrug of the shoulders and the knowledge that your other holdings should be able to compensate.

The trouble with running such a substantial portfolio however, is that the larger it gets, the more it will begin to track the index its constituents are a part of. Put simply, owning a large number of FTSE 100 companies will give you a similar return to that generated by the FTSE 100 index. You may as well purchase a tracker and put your feet up.
Royal Dutch Shell Plc B Shares
2,274.5p 0.00%
Tesco plc
196.85p 0.00%

Prices delayed by at least 15 minutes
Switch to live prices

Moreover, a large portfolio means that keeping in touch with your investments could prove exceptionally time-consuming. Fail to regularly review your holdings and you run the risk of overlooking problems as they emerge.

There’s also the fact that the more stocks you add to your portfolio, the greater the cost of acquiring (and eventually selling) the shares. Even if you buy and sell only once, you’re still roughly £20-£25 down in commission costs, irrespective of how that specific company performs over the time that you own it. All this before stamp duty and the spread you pay when buying and selling the shares have been taken into account.

On the flip side, those with highly concentrated portfolios might own only a small number of companies - sometimes as few as four or five. Others might have slightly more stocks but a disproportional amount of their capital invested in their best ideas.

The possible consequences of this approach aren’t hard to fathom. Pick the right stocks in the right industries at the right time and - thanks to the high level of concentration - you could well be on you way to early retirement. Of course, pick the wrong companies and you could be sitting on substantial paper losses if just one of your stock picks fails to perform, particularly if it’s a speculative, illiquid small-cap company.
Happy medium?

Thanks to investors having different financial goals, investing horizons, required returns and tolerance to risk, it would be absurd to suggest that there should be a standard size of portfolio that all should be working towards. In my opinion however, anything more than 15-20 stocks and you run the risk of being too diversified. Anything less and the stock-specific risk may be too great to justify the possibility of substantial returns.

This view isn’t dissimilar to that postulated by legendary investor, Warren Buffet, who suggested that investors adopt a “punch card” system when selecting companies for their portfolios. In Buffet’s opinion, investors would make better decisions - and probably emerge with greater wealth - if they were restricted on the number of companies they could buy shares in over their investment careers. Follow this approach and you may just make a million over the long term.

This article was written by Paul Summers from The Motley Fool UK and was legally licensed through the NewsCred publisher network.

23 hours ago

3m read
AAA




Article originally published by Motley Fool. Hargreaves Lansdown is not responsible for its content or accuracy and may not share the author's views. News and research are not personal recommendations to deal. All investments can fall in value so you could get back less than you invest.
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dlp6666 on 16/02/2017(UTC), Guest on 19/02/2017(UTC)
Mr Helpful
Posted: 17 April 2017 14:44:33(UTC)
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Petula has belatedly begun to prune the privet hedge. I say belatedly as apparently one should wait until the end of the bird nesting season.
Anyway while pruning she fell into discussion with our neighbour Rupert and was telling him about some of the difficulties we were having with our investments.
It turns out that Mrs R is something of a whizz with numbers and has been running their investments successfully for many years.

After her talk with Rupert, Petula is now full of useful information : “Apparently Mr H when our Nigel was just a nipper and you were investing in those dot.com and cynical chip stocks, Mrs R had realised that rental properties were paying out six times as much money as the stock market. So she took Rupert out to show him and they bought some. They then saved all the rental money and bought stocks when they went cheap after the sub-whatsit meltdown and are now quite comfortably off!
That’s how they can afford all those erotic foreign holidays.
Why don’t you go round and talk to Rupert’s wife? Would be better than reading all those investment books they keep sending you from the Amazon, about sufficient markets and no free dinners”.

To keep Petula happy maybe I should go round and talk to Mrs R.
But then there is this new book about the latest hot thing ‘factor investing’.
Perhaps I should read the book first as that might be the answer to all our money troubles?
chubby bunny
Posted: 17 April 2017 15:29:25(UTC)
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Mr Helpful;45919 wrote:
That’s how they can afford all those erotic foreign holidays.


Do you know who they book them through? Asking for a friend.
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