The Lemon Fool

Hi,

I'd like to make some changes to my portfolio by introducing some active funds/ITs, reducing my US exposure, and adding some EM value (if available?)

Ideally I'd like active funds/ITs that possess:

1. A defined, transparent strategy
2. High conviction, low turnover, and no sign of index tracking
3. Manager has skin in the game
4. Low costs and fair fee structures

I'll have some cash ready to invest in 3 weeks time so any suggestions on the best funds/ITs that meet my criteria would be appreciated.

Also, my portfolio (retirement pot) consists of SIPP, ISAs, and LISAs. Are certain investments best suited to a particular investment vehicle or does it not matter?

My current portfolio looks like this:

31% Vanguard Lifestrategy 80
8% Vanguard iShares Global Property Eq tracker
8% Vanguard Global Small Cap Index
8% Vanguard Momentum VMOM
8% Vanguard Global Value Factor
8% Vanguard Global Bond Index Fund GBP Hedged
8% Royal London Short Duration Global Index Linked
8% CF Lindsell Train UK Equity
8% iShares Physical Gold ETC
5% Vanguard Emerging Markets Stock Index

All views appreciated.

Many Thanks

1. I think that active fund managers don't like to define or make clear their strategy lest potential customers build their own fund with the same holdings, thus depriving the manager of her fees.
3. Could you point to ANY fund manager who indicates what their financial interest in their fund is, apart from 'the bigger the fund, the more in fees'?
4. A genius manager's fair fee could justifiably be 'high'; is it realistic to expect better than index fund performance for a fee which is both low and fair?

Nick Train seems to fit the criteria, he buys a small selection of good quality companies and holds them for a long time. He invests in his own funds and his UK Equity fund charges just 0.5% (hl). Do you agree?

JohnW wrote:1. I think that active fund managers don't like to define or make clear their strategy lest potential customers build their own fund with the same holdings, thus depriving the manager of her fees.
3. Could you point to ANY fund manager who indicates what their financial interest in their fund is, apart from 'the bigger the fund, the more in fees'?
4. A genius manager's fair fee could justifiably be 'high'; is it realistic to expect better than index fund performance for a fee which is both low and fair?

The Finsbury Growth & Income Investment Trust (FGT), managed by Nick Train. The strategy is well-defined (strong brands, competitive advantages, Buffett's moat). FGT doesn't hold many different companies (only 25 in the 2018-19 annual report with the top five holdings usually being at least 45% of the total assets).

Because the portfolio doesn't change too much it's fairly easy to replicate something similar (I have substantial shareholdings in four of its holdings (Burberry, Diageo, Mondelez International and Unilever)

Mr. Train owns 2,665,336 million shares in FGT according to the 2018-19 annual report, which is worth approximately £21.1 million. That's some serious skin in the game.

FGT's fees are 0.6% p.a. on the first £1 billion, 0.54% on the next £1 billion and 0.48% on amounts over £2 billion. There are index funds with much bigger charges once you add in the platform fees. FGT's performance for quite a few years has beaten the index by miles.

FGT is my biggest investment trust holding by quite some way. It doesn't own any of the Lindsell Train fund management company, so its shares aren't anything like as volatile as the Lindsell Train Investment trust (where the premium mostly represents its stake in Lindsell Train).

JohnW wrote:3. Could you point to ANY fund manager who indicates what their financial interest in their fund is, apart from 'the bigger the fund, the more in fees'?

Terry Smith has (as of last May) much of his estimated £300m net worth in his funds, mostly Fundsmith but also Smithson (£29.5m) and Fundsmith Emerging Equities (£7.8m). https://www.theaic.co.uk/aic/news/cityw ... steps-back

And, as others have noted, Michael Lindsell and Nick Train have large investments in their funds.

And then there's the "family wealth" ITs, like RIT Capital Partners (RCP), which is the investment vehicle for the Rothchilds, and Caledonia, that of the Cayzers ... and another that's slipped my mind at the moment.

Oh, and FWIW, of course Neil Woodford had skin in his funds.

i don't think it's at all unusual, although those above are in their own league in terms of scale....

That's an eye-opener, thanks.
Just to note that Finsbury Growth & Income Investment Trust (FGT) seems to overlap a lot with the existing '8% CF Lindsell Train UK Equity'.