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Asset Allocation for 2018
Posted: 02 January 2018 14:49:00(UTC)

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Having made some adjustments at the end of 2017 my overall portfolios (SIPP and ISA's combined) are allocated as follows:

UK 30.1% Mostly small and mid caps
Europe 9.3
Asia Pacific 11.4%
Emerging Mkts 11.5%
Japan 1.4%
Healthcare 4.3% (incl WCPT)
REIT 6.0%
Global Utilities 2.6%
Infrastructure 1.0%
Cash 22.4%

I currently hold a mixture of It's (in my HL account) and OEICS (in my ii account)

I am inclined to add a little to Japan and to Europe but not sure what to do with the rest of the cash. It seems to be too much to be holding in cash waiting for a downturn. I would probably want my cash holding to be no more than 15%.

I have a 5 year time horizon.

Any thoughts anyone ?
Sara G
Posted: 02 January 2018 15:09:25(UTC)

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These are observations, not criticism...

- No significant US exposure
- Quite an aggressive asset allocation (78% equities, or sectors that are not totally uncorrelated from equities)
- 3 areas with holdings below 3% (indicating lack of conviction or room to top up)

I can understand not wanting to add US exposure given valuations, but not everything will be expensive - possibly US small caps or a value fund like Dodge & Cox could work?

UK exposure looks about right to me - I am also overweight the UK at the moment, not least because it's a useful hedge against sterling rising. I think there will be value opportunities in large caps too this year though.

I've split my holdings into the categories suggested by Mr Helpful on another thread:

Risk - 63% (57% equities 6% private equity)*
Defensive 22% (Multi-asset, precious metals, property & absolute return)
Cash 15%

* Region split:
UK 40%
US 15%
Asia 15%
Japan 10%
Europe 5%
Latin America 5%
Other 10%

This year I'll be aiming to increase private equity and defensive holdings and maintaining or increasing cash.
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Shetland on 02/01/2018(UTC), Slacker on 02/01/2018(UTC), Bellabeck on 02/01/2018(UTC), satish mittal on 02/01/2018(UTC), John Grant on 02/01/2018(UTC), Alastair Kendall on 03/01/2018(UTC), Mike L on 07/01/2018(UTC), Ozwebuk on 07/01/2018(UTC)
King Lodos
Posted: 02 January 2018 15:41:52(UTC)

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So far today I've bought iShares Japan ETF and business software company Intuit.

The pound's been rising quite strongly against the dollar .. So my main concern this year is probably keeping dollar exposure under control
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c brown on 02/01/2018(UTC), Mike L on 07/01/2018(UTC)
Keith Cobby
Posted: 02 January 2018 15:52:59(UTC)

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I made a few changes during 2017 selling UK trusts and reinvesting into asia-pacific and global trusts. Don't expect to do anything this year other than remain 100% invested as usual. Like global, asia-pacific, and small caps. Hope Baillie Gifford have another good year!
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Posted: 02 January 2018 15:56:03(UTC)

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Would you please point me in the direction of the breakdown for:

Risk - 63% (57% equities 6% private equity)*
Defensive 22% (Multi-asset, precious metals, property & absolute return)
Cash 15%



Sara G
Posted: 02 January 2018 16:31:23(UTC)

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andy;54832 wrote:

Would you please point me in the direction of the breakdown for:

Risk - 63% (57% equities 6% private equity)*
Defensive 22% (Multi-asset, precious metals, property & absolute return)
Cash 15%



See post #10 in this thread:


% split is my own and will vary depending on individual circumstances.
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andy on 02/01/2018(UTC)
Posted: 02 January 2018 17:19:56(UTC)

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I will also be looking very closely at my IT's with regard to the discount level compared to historic levels and how much of the 2017 performance was narrowing of the discount and how much was real NAV performance.
John Griffiths
Posted: 02 January 2018 17:21:01(UTC)

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Shetland's question on asset allocation is hard to answer without any knowledge of age or expected time in the markets. Certainly the cash is too high and Japan and Europe are good regions to consider with the ongoing sluggishness in UK due to Brexit uncertainty. I also understand a reluctance to do too much the the USA.
All of USA, Europe and Asia are currently on an upswing and so this is a positive for investment. Many people seem to be staying away from fixed interest but some steadying factor in investment is helpful - againdepending on how much time is available to saty invested. I have found TIPs (Trustee Investment Plans) useful there are funds that have performed steadily in the 4.5-5.5% range that are nearly as low risk as cash.
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Shetland on 02/01/2018(UTC), DGL on 02/01/2018(UTC)
Posted: 02 January 2018 17:34:50(UTC)

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I am aged 64 and we will enjoy 2 final salary pensions plus 2 state pensions so income is not needed. I am investing for a 5 year horizon.
Posted: 02 January 2018 19:38:21(UTC)

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I'm recently retired so my main focus is on income producing funds i.e. Corporate & Strategic Bonds plus a couple of Multi-Asset and Global funds. " Experts" for years have been saying the bond run is coming to an end, however mine still seem to jog along quite nicely producing the regular dividend income I need plus a steadily rising capital gain.

I'm tempted to make an investment in Asia/Pacific, but am too concerned over the unstable political situation there to make anything other than a small commitment. America/ the Middle East, also seem politically uncertain. putting me off further Global commitment.

Despite Brexit, UK Smaller Company funds seem to be doing rather well at the moment, probably because they trade mainly domestically, so are relatively unaffected by all the political Brexit waffle and Global turmoil.
Rob In Oxford
Posted: 02 January 2018 21:32:39(UTC)

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Interesting thread.

Looking beyond pure equity portfolio my current toal asset allocation including pension is:

Equities ; 46%
Cash, commodities and fixed interest (combination of bonds and P2P lending) ; 18%
Property (buy-to-let and student / holiday let property) ; 36%

Have been planning to reduce my equity exposure, but the bull market keeps pushing this up.
Pension is very over weight in equities as I don't plan on drawing on this for a few years so willing to take more risks (plus limited options in a SIPP).

Overall what I am trying to do is to maintain an asset portfolio that provides me an income > current expenses without eating into the capital. Hence the properties and fixed interest / P2P.

Within equities my Geo mix is :
UK 46% (I am OK with this as 90% of my expenses are GB£ based and for longer term hedging)
Europe 10%
US 13%
Japan 22%
Asia / Emerging 6%
Global 3%

A bit underweight in the US (felt it was over valued at the start of '17 - which shows how much I know!) and overweight in Japan.
Plan to rebalance a bit in the new tax year or if there is a market correction.

Japan is overweight primarily because of one fund - "Legg Mason Japan Equity (Hideo Shiozumi)" which has been by far my most successful fund over the last 5 years and despite taking profits along the way continues to drive up Japan mix.

I would be interested to hear
a) are others using property and P2P investments as part of an overall asset portfolio and
b) what other folks think of the ongoing prospects for Japan equities vs US equities and whether others who have invested with Legg Mason Japan Equity think its run can continue???

Look forward to seeing other posts.
King Lodos
Posted: 02 January 2018 22:08:29(UTC)

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I recently bought Tritax Bigbox and Aberdeen European Logistics (both warehouse REITs positioned for growing online retail across UK/Europe – Amazon, Ikea, Ocado, etc) .. Decent investment case and income characteristics.

P2P lending

I'm wondering if Bitcoin/altcoins are going to go this way .. I've had 10% spread across Funding Circle, Zopa and RateSetter since fairly early on .. And never lost money – consistent 5-7% returns .. But back then, all the forums were full of people chasing much higher returns in things like Rebuilding Society(?), Fat Cats(?) .. I revisited the forums recently, and everyone's lost money – far more than I'd have imagined possible.

I'm basically moving away from P2P at the moment .. None of them are set to reinvest cash now .. I've massively reduced Funding Circle, Zopa's losing the provision fund, so as of December I've not been reinvesting .. RateSetter's my favourite, but as a company they're losing money, and the provision fund been called into question a bit recently.

My general attitude is to reduce risk, reduce junk – I'll probably get my allocation down to a certain size, then just run it in RateSetter, assuming things still look okay.

Japan .. I only think as far ahead as next month .. They're likely to keep using stimulus – it's probably the smart place to invest in terms of liquidity and reasonable valuations
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Rob In Oxford on 02/01/2018(UTC), Chris Howland on 03/01/2018(UTC)
Rob In Oxford
Posted: 02 January 2018 22:43:26(UTC)

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Thanks King Lodos

I have also been invested across Funding Circle, Zopa and Ratesetter.
My problem with Ratesetter is the returns, currently less than 4% on 5 year investment. After tax that is less than CPI.
I have pulled back on Zopa also.
I have kept the faith with Funding Circle though. Even though the defaults have been creeping up, I am still seeing returns of well over 6% after these and I do like the idea of investing in small companies.
I guess we will really need to go through a full economic cycle to judge this.

Thanks for your feedback. I should take a look at those REITs. Might be a good option to diversify the pension.
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King Lodos on 03/01/2018(UTC)
King Lodos
Posted: 03 January 2018 06:24:12(UTC)

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I think my RateSetter's still around 6% – a lot of the loans being older of course .. And I used to have a minimum yield requirement of up to 6% on new loans, so I wouldn't reinvest instantly at market rate – and with risk rising across the sector, I'd probably do the same now.

Lending rates are volatile – just a few weeks ago there was fear around the industry, and you got the 1 year rate I think going over 5%.

Funding Circle's still providing good returns for me, but I'm not convinced it's a better risk/reward case than something like Royal London Short Duration Credit .. and GAM Star Credit Opportunities has been my star fund in that space .. And of course both give you the ability to get out at signs of trouble in the credit market (while P2P ties you up).

I think diversifying across property income, P2P, credit, and I've got 10% in multi-asset funds like RIT Capital Partners, Hawksmoor Vanbrugh (they do a Distribution fund too), is the safest bet .. And NS&I Guaranteed Income Bonds at 2.15% aren't a bad deal .. I think you always need *something* to insure against losing money – and I don't know that real inflation is much higher than 2% yet .. Our current figure is partly down to currency weakness, and we're not seeing in places like wage growth.

My favourite source of income at the moment is quality stocks (not necessarily dividend stocks) .. Again, you're looking at 2-3%, but some of these companies, like Johnson & Johnson, had incredible resilience in the financial crisis .. I think these may be lower risk and higher yield than bonds at the moment – which might mean they're undervalued, with so much euphoria chasing things like Tech
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Don Revie on 03/01/2018(UTC)
Posted: 03 January 2018 19:58:27(UTC)

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Hi Shetland. At 64 and comfortable with pension situation I am not sure about your 5 yrs horizon.
Hopefully you have many more years to come. I too am comfortable pension wise and have 2 long term holdings, and like a business man look to think ahead 5 yrs or so. I note comments to the effect hold US stocks and UK stocks also Japan and Asia. No one mentioned India or China as an investment, both of whose economies are on the march. For 2018 I have invested in both at a small percentage of my holdings for a sporting chance, and see what develops. As your own fund manager you can easily adjust if markets go against you. I invest through global funds for US,UK,EU stocks. My wife and I are both 77, so you could have many more years to come. Good hunting!
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Captain Slugwash on 03/01/2018(UTC)
Posted: 07 January 2018 01:47:45(UTC)

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How about value stocks?

Wall St Week Ahead-U.S. fund managers expect value stocks to jump in 2018

Another category is overlooked stock markets.

Poland was one of the overlooked markets in the world and it underperformed badly in 2014, 2015 and 2016. However, The Warsaw Stock Exchange WIG Index reached an all time high of 65733.79 in October of 2017. Among the emerging markets in Europe, Poland was another rising star in 2017. The MSCI Poland Index gained 48.3% despite the country’s ruling Law & Justice Party facing criticism from the European Union. However, their GDP growth expected to drop from 4.3% to 3.5% in 2018.
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gillyann on 07/01/2018(UTC)
King Lodos
Posted: 07 January 2018 08:53:48(UTC)

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It's usually growth stocks early in the cycle, and value when the it's getting on a bit – you saw growth dominating in the 90s, then value and small-caps in the 00s.

There still seems to be a lot of momentum in Tech though – and it's down to earnings growth .. Stocks like Facebook and Google still look cheap, extrapolating earnings a few years ahead .. And it's still what the big hedge funds seem to be betting on.

Value should do well if inflation continues to rise – because resources do well, then rates rise and banks do well .. My contrarian bet seems to be quality defensives – which are probably due a period of underperformance, but I still demand could rise if growth and inflation disappoint, and if value flees bonds in a stronger hiking cycle
Posted: 07 January 2018 10:33:09(UTC)

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Hi Shetland,
This might be a slightly revolutionary idea, but how would a 4-fund (or IT) portfolio that has returned more than 8% pa compound over the last 15 years (including 08/09, that is!) suit? Worst pullback 22% (2008), other times 8% or less.
It would involve rebalancing every 12 months, so you might get a CGT hit depending...
I regret I did not invest in this way, instead have had endless soul-searching on asset allocations, etc. You know the issues.
Anyway, the 4 funds/trusts would be
1) global equities
2) UK equities
3) UK gilts
4) UK-based corporate bonds
Set up ruthlessly 25% in each, rebalance ruthlessly at the same time each year.
No more thinking or agonising.
This approach is underpinned by roughly 100 years of research. If you are interested I can provide details.
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Mickey on 07/01/2018(UTC)
King Lodos
Posted: 07 January 2018 11:01:55(UTC)

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I'm generally optimistic on Brexit – but 75% UK assets would be a very high home-country bias .. and I think the only economy resilient enough to attempt that with is the US.

Also 50% bonds, when bonds are yielding 0-3%, means returns of 0-3% for the next several decades are likely.

Bonds were a great hedge against stocks over the past 15 years, because we started (17 years ago) with stocks on CAPE ratios around 40, and bonds yielding 7%, not knowing inflation would wind up this low, or how much bond-buying central banks would be doing a few years later .. It's always easy designing a portfolio that would've done well in the past .. After the 70s, an 80s investor would probably design a portfolio composed entirely of gold and high yield bonds (and would've done terribly)
Posted: 07 January 2018 11:04:42(UTC)

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It's a nice idea, but do you mean sticking with the same 4 choices through thick and thin?
Funds, ITs, managers, sectors etc. come and go over the years.
One reason I started stakeholders for my children as opposed to SIPPs is that once I'm gone they may fail to take any interest and I wouldn't want them to be invested in a rudderless ship stocked with 'has beens.'
Apologies if I have misunderstood.
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