Thursday, 17 May 2018

How to Choose a Fund

Fund supermarkets offer a good and low-cost service to retail investors.

However, the fund information provided is not always the best information to use when choosing a fund.

Yesterday, for example, I looked at a fund supermarket, picked a random managed sector, and picked ten funds at random. They all showed essentially the same chart.



Every fund out of thousands seems to say that their performance is great, i.e. in the information there's a line that is above another line. What if my investments were that horrible line at the bottom? I'd better buy the fund!

In the early days of my independent investment career, using charts like this gave me FOMO, so I bought a lot of funds.




Eventually I realised that by owning  so many products I was now the proud owner of a very expensive world tracker.

So, I now treat fund supermarkets as with any other shop - I like to know exactly what I want before I enter. I use other sources of research (Morningstar, general financial press, my own experience etc.), and compare different funds and benchmarks together.

I have a very clear idea of the geographical split I want and if I can't find managers who I am confident will beat the benchmark I select then I go for a cheap tracker.

Where I do have managed funds it's now with a limited range of individual managers who have a style I like (I read what they write, watch what they record, see how invested they are in their funds and look at their portfolios and activities). Alex Wright, Nick Train and Terry Smith are 3 examples of active managers whose funds I hold.

Having fewer funds and a small range of fund managers means that I don't fall in to the trap of merely looking backwards, I can make a judgement about how well placed the managers are to preserve my wealth in the future.

Bottom line, fund supermarkets are a very good service, but the choice is huge and the fund information on the sites a sales pitch. So I do plenty of research of my own, and go in there to buy only what I've already selected.

The Rural Investor



Thursday, 10 May 2018

Focus on Costs

If I could give one bit of advice to myself as a novice investor 20-25 years ago it would be to take costs seriously. I remember thinking "1%, that's OK" when looking at an early PEP (now ISA) that I started.



A rough calculation tells me that all the avoidable charges I've paid over the years would compound up to the value of a very fancy car, something red and Italian. That's platform percentages, wealth management costs and IFA commissions.

I really became aware of this issue when I started using a discretionary wealth manager for about £250K of assets. They sold me on the skill and personal attention that would be paid to my portfolio in return for 1% a year, and then proceeded to invest the money mainly in c.£5K chunks charging £90 commission a time, and churning regularly. They would even buy tracking ETFs for my portfolio, so I was paying £90 plus 1.15% a year for something I could have bought for £10 plus 0.15% a year.

The moment of clarity came when after a presentation from a small telecoms company my wealth manager bought £10K worth of their shares for me. Soon after the shares halved, so they doubled-down, as 'the investment case has not altered'. Soon after this the company failed.

I'd spent a few years telling myself they knew what they were doing, justifying my original decision, but after this large capital loss I admitted what was really happening and withdrew my assets (incurring huge dealing fees). It was at this point that I started trusting my own decision-making ability above that of paid experts.

I chose a platform charging 0.3% a year, which seemed really low. The portfolio did well, and I was happy.

But a couple of years ago when the value of the investments had grown through appreciation and extra contributions I took another look at the costs, and realised I could make large additional savings (several thousand pounds a year) just by moving to a fixed fee platform - so that's what I've done.

What about people who don't have any knowledge or expertise about investing?

If I was qualified to advise (I'm not) I would say pay a qualified adviser on a fee basis to get your asset allocation  and risk appetite sorted, and then invest in the cheapest Vanguard (or similar) product that gives you the allocation and level of risk you need.

Then choose either a percentage charge or fixed fee platform, depending on the value of your assets.

I would suggest that most people need look no further than Vanguard's own platform and their LifeStrategy or Target Retirement products in the first instance, until they find their feet and start looking at other trackers, investment trusts, funds and possibly individual shares.

The Rural Investor






Monday, 7 May 2018

Some Changes in May

In my last post I said was continuing to hold some Woodford Patient Capital Trust (WPCT) as a kind of gamble. Well I kept thinking about that, and realised that it just wasn't logical. If I was going to hold risky stocks I didn't really like, just in case, then why not buy a whole load more risky investments that I didn't like, just in case. What a great plan that would be!

So, more changes to be made.

I track the 3 main parts of my portfolio against a benchmark I've chosen - Global Flex Cap Equity.

Over the last 12 months I have achieved the following personal return against the benchmark of 7.7%

- Managed and passive funds - 6.4%
- Investment Trusts and ETFs - 12%
- Individual Shares - 9.8%

The managed and passive funds have been held back by having a high proportion of under performing UK funds (e.g. Woodford).

The excellent showing of my ITs and ETFs has benefited from quite a concentrated strategy, with large investments in Japan and UK smaller companies, and I'm happy with this mix.

Of course I'm most pleased that the individual shares have beaten my benchmark.

These are a range of UK and overseas shares, and I adopt a buy and hold strategy, only selling if there's a compelling reason to do so (e.g. I sold my Tesla shares when the price seemed ridiculously high and bought Renault instead - so far so good with that one).

There's a range of shares I'd been watching, so after releasing funds from my WPCT holding and another small random ETF (Vanguard Global Momentum) that didn't sit well in my portfolio, I had some cash to play with.

My purchases are:

- Bodycote
- Chemring
- De la Rue
- GVC
- Lloyds
- Ultra Electronics
- Rolls Royce
- Umicore (adding to an existing holding)
- ZPG

This brings me to a total of 43 individual shares. I lot I know but as I'm not trading daily, and I invest overseas as well, I think it's OK.

I've come to realise that my biggest mistakes have been selling too early. An example is Thomas Cook. I bought this in 2016 and sit on a profit of close to 100%. However, I had previously bought in 2012 at a very low price and thought I'd done well to sell at a small profit. I think I paid about 20 pence a share first time round; the price is now about 130 pence. It was a bit of a mental challenge to buy-in again at price above where I'd sold!

Finally, what lovely weather in this part of the world at the moment. Here's a photo that I took on a walk yesterday, it's one of my faithful friends who is reminding me as I write that I should be outside right now, not at my desk.



The Rural Investor


Friday, 27 April 2018

Woodford Funds

I hadn't intended to do much in the early part of the year, but I decided to sell my entire largish holding of Woodford's Equity Income Fund. This was prompted by the news from Prothena that sent their share price down by 60% or so. However, there are a couple of broader reasons for the decision.

Firstly, the fund seems to contain some large and pretty risky bets, and holds companies I don't particularly like or rate. The dangers of gambling on early stage drug trials was illustrated by events at Prothena and this came after a string of share price falls with other large holdings e.g. Capita and Provident Financial.

Secondly, I'm being generally a little more ethical in my life, and the Prothena news gave me a good excuse to drop a fund that has a tobacco company as its largest holding.

I still hold a little of Neil Woodford's Patient Capital Trust, but I accept it's nothing more than a gamble.

I spread the proceeds amongst a range of funds I already hold, and used the opportunity to increase the proportion of passive funds in my portfolio.

- Vanguard Emerging Market Tracker
- HSBC FTSE 250 Tracker
- Marlborough UK Micro Cap
- Liontrust Special Situations
- Stewart Asia Pacific Leaders

I wonder if Neil Woodford's move to run his own funds has given him too much leeway to follow his own interests.

The Rural Investor





Thursday, 12 April 2018

New Year

Well new financial year anyway.

I used ISA allowances early, mainly just transferring the same investments across, although I did swap an iShares EM tracker for JP Morgan's Indian Investment Trust.

I've been watching Michael Portillo's Great Indian Railway Journeys on TV, and it reminded me what great economic potential that country has. I plan this as a long-term hold alongside Jupiter's India Fund that I already have.

In addition I added to my holding of the Marlborough UK Micro Cap fund, and also bought some Facebook (NASDAQ: FB) on the recent dip.

Finally, I saw a Daily Telegraph article about maybe swapping Baillie Gifford's Japan Trust (which trades on a premium) to Fidelity Japanese Values (which trades on a discount). The former is soon to see its manager leave, and the 3 year performance of the two trusts is pretty identical. So I did a bit research and have switched my holding in BGFD for FJV. I expect the FJV discount to narrow, and the trade allowed me to start using my CGT allowance for 2018-19.

The Rural Investor

Tuesday, 13 March 2018

Recent Activity

Mainly watching and waiting in recent weeks. I've sold my Miton Infrastructure Fund holding to build on an existing holding in the HSBC FTSE 250 tracker. I only want to own one infrastructure fund, and the First State one I have seems more solid. With hindsight it was a mistake buying the Miton fund when it launched as it didn't add anything to my portfolio, but I am more circumspect these days and less inclined to over complicate.

The HSBC tracker is simple and very cheap, particularly as I don't pay any platform charge (I'm on a quarterly fee model). I'm guessing the UK market is going to do well in years to come, as it's currently held back artificially by the weight of incredibly boring and not so relevant brexit chatter.

I have a sense that the brexit referendum will have caused some positive behaviour change within the UK's business community, which will show itself in an improved export and home market performance in years to come.

I have also added a little bit to my @FundingCircleUK account and I'll continue to do this in the new financial year. I've used Funding Circle for a few years and the return after costs and bad debts has been a very steady 7% or so.

The Rural Investor

Thursday, 8 February 2018

Cineworld

I have taken-up my Cineworld rights, selling some of the Woodford Equity Income Fund to fund this. In fact I sold a bit more of Woodford than necessary to add a few thousand to my holding in Baillie Gifford's Shin Nippon Trust (LON: BGS).

I see the Cinema business as having great potential; excellent films will continue to be made and Cineworld seems to me to be a well-run company with long-term owners who seem to know the business inside out and who are rightly focused on increasing customer spend.

Of course I might be wrong, but I have a gut feel that it's an undervalued business, and when facing the legions of quantitative analysts, gut feel is as good a way as any to try and achieve an edge.

Reducing my Woodford holding in exchange for BGS is simply swapping something underwhelming for something that continues to impress, in a part of the world that is really getting its act together.

I've owned Woodford since the start, so overall performance over time isn't too bad, but some of the investment decisions seem strange and for what should be a steady part of my portfolio he holds some quite large positions in risky businesses. That said it's still large holding of mine, I'll probably just reduce rather than increase over time.

I've done nothing to react to the recent / current little market crashes / corrections, remembering that trying to time the market is just gambling.

The Rural Investor






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How to Choose a Fund

Fund supermarkets offer a good and low-cost service to retail investors. However, the fund information provided is not always the best in...