Risky to invest heavily in 1 fund?

Risky to invest heavily in 1 fund?

Author
Discussion

98elise

Original Poster:

26,376 posts

160 months

Monday 15th May 2017
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I've recently consolidated some old pensions, and added a large cash sum to create a single SIPP. This is where all my future pension savings will go.

I initially chose a couple of funds to spread the risk, but one has a good track record for growth and since I've invested in has risen a further 8% in about 3 months. The other has done very little. I wish I'd put the whole lot in the main fund I liked.

Is it too risky to put my whole SIPP into a single fund? Obviously by nature the fund is a spread of shares, but managed by a single entity.

The SIPP only accounts for half my pension. The other is an ex company pension that's fully managed, and I also own some investment property.

Edited to add...it's Lindsell Train Global Equity if it's of any significance.

Edited by 98elise on Monday 15th May 19:33

LeoSayer

7,299 posts

243 months

Monday 15th May 2017
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Performance seems very good but it is invested in only 27 companies, one of them (Unilever) represents 8.5% of the fund.

I wouldn't want this to be my only investment - not enough diversification.


K12beano

20,854 posts

274 months

Monday 15th May 2017
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Sort of defeats the object of a SIPP if you're risking all in one basket.

And whilst it's a fund that's done well, how often have funds stayed at the top of the league for ever through all sorts of economic backdrops?

Whilst it's not your entire plan, if it were me I wouldn't have more than 10% in a single fund - unless your funds are small and not scaled to the point that that would be economic....

Jockman

17,912 posts

159 months

Monday 15th May 2017
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Yes, you need a wider spread of funds in different areas.

98elise

Original Poster:

26,376 posts

160 months

Tuesday 16th May 2017
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Thanks for the advice.

I've been investing in shares for years so a fund seemed like a big enough diversification, however it was still niggling me that I would be with one fund manager hence the initial split between two.

I'll look around for a couple of other global funds with good performance.


GT03ROB

13,207 posts

220 months

Tuesday 16th May 2017
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98elise said:
Thanks for the advice.

I've been investing in shares for years so a fund seemed like a big enough diversification, however it was still niggling me that I would be with one fund manager hence the initial split between two.

I'll look around for a couple of other global funds with good performance.
Get yourself on a site like Morningstar. They can show you the analysis of things such as stock overlap. You will find that certain stocks are common to many funds & while trying to diversify it is easy to actually increase your exposure to certain companies.

sidicks

25,218 posts

220 months

Tuesday 16th May 2017
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GT03ROB said:
Get yourself on a site like Morningstar. They can show you the analysis of things such as stock overlap. You will find that certain stocks are common to many funds & while trying to diversify it is easy to actually increase your exposure to certain companies.
Indeed - no point in seeking out a manager that has the same benchmark as your existing fund as, necessarily there will be significant overlap between the underlying assets.

98elise

Original Poster:

26,376 posts

160 months

Tuesday 16th May 2017
quotequote all
GT03ROB said:
98elise said:
Thanks for the advice.

I've been investing in shares for years so a fund seemed like a big enough diversification, however it was still niggling me that I would be with one fund manager hence the initial split between two.

I'll look around for a couple of other global funds with good performance.
Get yourself on a site like Morningstar. They can show you the analysis of things such as stock overlap. You will find that certain stocks are common to many funds & while trying to diversify it is easy to actually increase your exposure to certain companies.
Thanks, I'll do that.

MadProfessor

253 posts

131 months

Tuesday 16th May 2017
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It depends on how active you want to be in researching and managing your portfolio, but you could look at automated/managed platforms like Nutmeg.

CaptainSensib1e

1,432 posts

220 months

Tuesday 16th May 2017
quotequote all
98elise said:
I initially chose a couple of funds to spread the risk, but one has a good track record for growth and since I've invested in has risen a further 8% in about 3 months. The other has done very little. I wish I'd put the whole lot in the main fund I liked.
Three months isn't anywhere near long enough to judge the performnace of a fund. Different funds will perform well at different times, depending on what and where they invest, and their management style.

Depending on the amount in your pension you could consider diversifying. For £5k, I wouldn't worry about it, £500K I certainly would.

In truth you're not going to get any decent advice on an internet fourm, especially when posting such limited information. You either need to go away and do some more research, or speak to a financial adviser.

Whatever you decide, your pension is likely to be one of your biggest assets, so it's worth taking your time to manage it properly.

Bluesgirl

766 posts

90 months

Tuesday 16th May 2017
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I was in the same boat as you approx 3/4 years ago. I had a significant SIPP to invest and split it between 5 tracker funds. Within 18 months I was wishing I'd put it all into the emerging markets fund tracker, but I didn't, I left them where they were. (Selling low and buying high isn't the way to go, I'm told.) I'm glad I left it all alone, now the emerging markets tracker is the least well-performing of the 5.

I recommend 'Smarter Investing' by Tim Hale.

FredClogs

14,041 posts

160 months

Tuesday 16th May 2017
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My SIPP is in 18 funds, it's not a massive amount of money either.

I have Lindsell Train in there, it's a good fund and it performs well, only 27 holdings but they're all decent blue chips, not dissimilar from Fundsmith or Woodfords approach, the Warren Buffet way, that's about 1/3 of it, about 1/3 is in trackers and the remaining 1/3 is split between emerging market stuff and some dynamic equity on the UK markets. The plan being that each year an amount of profit is taken and put into bond funds.

You most likely won't go far wrong with Lindsell Train though. Does sort of negate the point of having a sipp though, you're paying a platform fee for a product you're not using and you'll always be exposed just picking one fund.

CrouchingWayne

682 posts

175 months

Tuesday 16th May 2017
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I'm 100% invested (ISA only - not pension) in a Vanguard LifeStrategy fund - think that's ok as it's more diversified than your one above.

Obviously different focused funds - if wanting a one fund portfolio you probably need to look at ones that market themselves as such. Vanguard and Blackrock I think both have offerings in this space.

Yipper

5,964 posts

89 months

Tuesday 16th May 2017
quotequote all
It depends on how much you like to gamble.

Nobody gets truly rich by diversifying. They get rich through 1 or 2 products at most and a good slice of luck.

Low risk = low return.
High risk = high return.

RichS

351 posts

213 months

Tuesday 16th May 2017
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I have a vaguely-not-very-scientific asset allocation:

20% bond funds (I'm 43 so this should be higher based on 100-your age, but I am willing to take more risk on equities, plus more FAs these days are saying 120-your age is the right allocation for equities)
15% UK funds (split between Fundsmith and Schroder small caps)
10% European fund ex UK (HSBC tracker)
30% US (Blackrock)
6% Japan (Legg Mason)
8% Emerging Markets (3 different funds)
8% India (Jupiter) (yes I know it's an emerging market too but I think it's worth a punt)

If you look at sites like Monevator they're a great help in both suggesting/cautioning against various asset allocation permutations and also suggestions for really cheap funds/trackers. Don't forget most fund managers don't beat the general market most of the time. So sometimes it makes sense to buy a lower cost passive tracker and avoid the "demonic mouse" nibbling at your cheese. That said, I often don't take my own advice and I don't see anything wrong with a bit of active action like Fundsmith.

Also look at the correlation of top/middle/performing sectors over the past 10-15 years. Monevator and I think HL do a colour coded chart. Basically, there is no correlation. Hence better to spread your risk.

98elise

Original Poster:

26,376 posts

160 months

Tuesday 16th May 2017
quotequote all
CaptainSensib1e said:
98elise said:
I initially chose a couple of funds to spread the risk, but one has a good track record for growth and since I've invested in has risen a further 8% in about 3 months. The other has done very little. I wish I'd put the whole lot in the main fund I liked.
Three months isn't anywhere near long enough to judge the performnace of a fund. Different funds will perform well at different times, depending on what and where they invest, and their management style.

Depending on the amount in your pension you could consider diversifying. For £5k, I wouldn't worry about it, £500K I certainly would.

In truth you're not going to get any decent advice on an internet fourm, especially when posting such limited information. You either need to go away and do some more research, or speak to a financial adviser.

Whatever you decide, your pension is likely to be one of your biggest assets, so it's worth taking your time to manage it properly.
I did a lot of research before choosing that fund, and it has a good track record. That seems to be paying off. I've dabbled in stocks and shares for about 20 years so I know the value of research.

I think I need to look at moving the other half of my SIPP to something that stands up to the same scrutiny.

98elise

Original Poster:

26,376 posts

160 months

Tuesday 16th May 2017
quotequote all
FredClogs said:
My SIPP is in 18 funds, it's not a massive amount of money either.

I have Lindsell Train in there, it's a good fund and it performs well, only 27 holdings but they're all decent blue chips, not dissimilar from Fundsmith or Woodfords approach, the Warren Buffet way, that's about 1/3 of it, about 1/3 is in trackers and the remaining 1/3 is split between emerging market stuff and some dynamic equity on the UK markets. The plan being that each year an amount of profit is taken and put into bond funds.

You most likely won't go far wrong with Lindsell Train though. Does sort of negate the point of having a sipp though, you're paying a platform fee for a product you're not using and you'll always be exposed just picking one fund.
The idea was to have 2 initial funds, and punt new contributions into a 3rd. If that worked well I was going to transfer my other pension in and split that over 3 additional funds.

At the moment my SIPP accounts for about 25% of my retirement planning, which reduces my exposure a bit.

I've also been limiting myself to the HL Wealth 150 funds, which I think is a bit short sighted.

FredClogs

14,041 posts

160 months

Tuesday 16th May 2017
quotequote all
98elise said:
The idea was to have 2 initial funds, and punt new contributions into a 3rd. If that worked well I was going to transfer my other pension in and split that over 3 additional funds.

At the moment my SIPP accounts for about 25% of my retirement planning, which reduces my exposure a bit.

I've also been limiting myself to the HL Wealth 150 funds, which I think is a bit short sighted.
Most of mine are on the HL wealth 150 list, just because they seem to advertise most highly the ones they get the most discount and one of my aims was to get my average fee below 0.55% so when you add the platform fee on I'm below 1% ongoing fee for the lot.

What isn't on the wealth 150... pictet water, fundsmith, japanese smaller companies, china consumer and the L&G global tech index.

FWIW here's my portfolio, any IFAs or experts please don't flame me, I'm just a poor boy from a poor family...



BTW that set up has returned 6.5% YTD (from Jan) and those percentages represent the purchased amount not the current value.


Edited by FredClogs on Tuesday 16th May 19:51

sidicks

25,218 posts

220 months

Tuesday 16th May 2017
quotequote all
Yipper said:
It depends on how much you like to gamble.

Nobody gets truly rich by diversifying. They get rich through 1 or 2 products at most and a good slice of luck.

Low risk = expected low return.
High risk = potential for high return.
Edited for accuracy!

WindyCommon

3,354 posts

238 months

Tuesday 16th May 2017
quotequote all
Fred, without picking on your well diversified and interesting portfolio I'd like to use one of your holdings to illustrate a point.

According to FE Trustnet the L&G UK 100 Index Fund C Class has returned 20.7% over 3 years vs an index return of 21.9% and a sector average of 27.0%. It is ranked #301 in a peer group of 540 funds that includes 58 passives.

The share class that you own is a "special" for HL with its OCF discounted from 0.10% to 0.06%. For the privilege of accessing this discount you are paying HL 0.45%, roughly 0.20% higher than elsewhere.

Whilst a fund OCF of 0.06% is certainly cheap, it is not so clear that it represents good value!

Neil Veitch of SVM (a well regarded fund manager) said recently: "In some respects, there is an element of investors being ‘penny-wise, pound-foolish' with this focus on OCFs, but it is not going to go away because of the way the market is structured. There is an ever decreasing value chain within the asset management industry and everyone wants a piece. But there is a disproportionate emphasis on the fund management groups compared to other parts of the value chain. Ultimately, price is what you pay, but value is what you get. This emphasis on price in the industry instead of value is encouraging sub-optimal outcomes."

Whilst I use passive funds at times myself I am somewhat dismissive of the religion of low costs that has been grown around them. The passive industry has marketed itself well on the premise that active managers frequently fail to match index returns. But its dirty secret is that passive funds generally fail the same test themselves. In this example, only 7 of the 58 UK All Companies sector passive funds have matched the index return over the last 3 years.

I am not trying to argue that active is better than passive, only to observe that thoughtful investors need to look deeper and more sceptically at the self-serving claims of the passive industry.

Edited by WindyCommon on Tuesday 16th May 22:30