‘the March 20 low rose by 138% to ATH Nov 21 subsequently dropping back by around 20%.’
Any past performance should give little assurance of long term future performance, especially 20 months of performance so we shouldn’t let a 138% rise encourage us at all if that’s why you noted it.
‘I suppose I like the ‘story’ behind it ’
And I suppose it depends on how hard-nosed you want to be about your investing. There can be a place in your investing for ‘ideals’; I like people who rescue stray cats, and would invest readily in such a business, but really would it be the wisest type of investing?
People ‘liking the story behind’ something is what prompts fund managers to keep creating new funds to cater for those tastes. Thus we have more funds on the planet than stocks to go in them. It makes money for the managers in fees, and if the funds fall by the wayside as they too commonly do, no loss for the managers as they just move on to a new fund. And because these ‘like the story’ funds have some interesting attractive notion to them, customers will pay higher fees than for a boring fund they have no emotional attraction to.
‘t but hard to justify having it in the portfolio based on the evidence’
It’s not only the evidence, however weak that is, it’s the theory as well. I don’t know if Felix is right in his position, or if it might apply to some but not all thematic funds, but I think we know that taking a bet on a theme is reducing diversification (compared with your VHVG), and undiversified risk is uncompensated.
Buying a whole-market fund gives you market risk (which is more than govt bond risk) for which stock investors require better returns. Companies issuing stock can’t avoid paying that higher return or no one would take on the risk. But if you buy only one stock or theme stocks you take on the risk that the whole market represents (from war, inflation, interest rate changes etc) as well as the risks particular to that stock or thematic stocks, and because you don’t have to take that risk no one will want to pay you for taking the risk. Of course, it might turn out that those stocks outperform the market, or underperform the whole market, but idiosyncratic risk is uncompensated whereas market risk is compensated. Basically it’s a bad deal. No crime in having a small part of your portfolio in a bad deal that might shoot the lights out, or investing in cat rescue, but at least we should recognise that’s what we’re doing.
SMT – I like the style of growth orientated
This flies in the face of current theory of factor models explaining stock returns, the most recognised of which is the Fama French 3 factor model which says stocks returns are best explained by the risk of the market as a whole, the outperformance of small companies and the outperformance of ‘value’ as opposed to ‘growth’ companies. They got a Nobel prize for that, and if you wanted to pursue a factor based approach to investing you wouldn’t choose growth I think. Indeed, unless you sort of understand factor investing and have the courage to withstand long periods when your factor underperforms, it might be better to stick to the whole market instead.
a portfolio of around 100 companies
A portfolio of 100 companies is not as diversified as one with 3000. It’s a risk you don’t need to take and aren’t on average rewarded for, although you can be lucky and get above market returns just as you can get below market returns. I think it’s hard to quantify how much better diversification you get with 100 than 20, and with 3000 than 100, and perhaps the measure changes over time, but why bother when it costs you more?
nearly 20% in unlisted private equity companies I feel that it adds something different than the passive investments.
There can be an advantage there, as you should be rewarded for the risk associated with illiquidity. But it was illiquidity that harmed Woodford’s high flying fund, and no one knows the actual value of illiquid assets if they’re not traded.
Secondly, ‘feeling that it adds something different from passive investments’ is not a logical justification on which to base a view that there will be better risk adjusted returns surely. Buying into a high conviction fund that holds 2 stocks and some bitcoin would be ‘something different’, but would it be sensible?
. Valuation while sky high has come down and likely will continue to fall offering at least a more reasonable place to start slowly accumulating than a few months prior.
Valuation coming down means people think it is worth less. If so, how does it become a more sensible investment now than before?
Long term approach to investing means
That’s what you want, but is it longer term than your VHVG? You’re adding nothing.
The unlisted element is 20% of 25% of your portfolio. That’s 5% overall. The unlisted section would have to do amazingly better to have much impact on your overall portfolio returns. And you’re paying an extra 1%/year in fees, a guaranteed ‘loss’ for an uncertain gain. I don’t think so.
You haven’t convinced me to change my portfolio, but thanks for sharing your ideas. But you don’t have to convince me, you have to convince yourself in 10 years time when you review your portfolio and it’s doing so-so. Are your reasons robust enough that despite disappointing performance you’ll say ‘it’s sound, I’ll stick with it’, or will you think ‘that was bad justification, I’ll ‘sell low’ and buy something else’?