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The kind of lazy, simple investment ideas highlighted in our main feature have now begun to find their way over to the UK.
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Stephen Barber, head of research at stockbrokers Selftrade has set up a series of standard portfolios built around unit trusts sold via their funds platform. Barber freely admits a big debt to the ideas of lazy investing in that the portfolios are simple to understand, built around a small number of funds, diversified and designed to reflect different investors' tolerance of risk. There's a caveat though - the Selftrade portfolios don't conform to all the principles behind lazy investing, particularly as the underlying funds used are all actively managed unit trust funds.
| BALANCED GROWTH | |
|---|---|
| UK Equity | 50 per cent |
| International Equity | 30 per cent |
| Bonds | 10 per cent |
| Property | 10 per cent |
| INCOME | |
| UK Equity Income | 45 per cent |
| Bonds | 35 per cent |
| International equity Income | 10 per cent |
| Property | 10 per cent |
| OPPORTUNITIES | |
| UK Special Opportunities | 45 per cent |
| International Special Situations | 25 per cent |
| Resources | 15 per cent |
| BRIC/Emerging Markets | 15 per cent |
| GLOBAL GROWTH | |
| North America | 35 per cent |
| Europe exc UK | 30 per cent |
| Asia/Pacific (inc Japan) | 15 per cent |
| UK equity | 10 per cent |
| BRIC/Emerging Markets | 10 per cent |
| CAUTIOUS | |
| Corporate Bond | 50 per cent |
| UK Equity Income | 20 per cent |
| Absolute Alpha (equivalent to hedge or absolute returns funds) | 10 per cent |
| Cautious | 20 per cent |
Another organisation that's worked hard on building simple to understand portfolios is the investment trade body APCIMS – its Private Investor Index tracks three notional portfolios: Income, Growth and Balanced.
APCIMS doesn't recommend funds for your own model, lazy portfolio but running down the list of 'representative indices' used by APCIMS, the cheapest and most popular FTSE All Share tracker fund comes from Fidelity via its UK Moneybuilder unit trust (although Lyxor runs a slightly more expensive ETF that's more accurate), while Deutsche's DBX unit runs a FTSE World index tracker that excludes all UK stocks. iShares by contrast runs both a FTSE Gilts Index fund and a UK commercial real estate fund built on the FTSE/NAREIT index series, leaving us with only one omission, namely hedge funds although it's worth mentioning that there is in fact a specialist hedge fund ETF available from New Star (EPIC – HXS) that tracks the Royal Bank of Canada 250 index of top funds.
| % Income portfolio | % Growth portfolio | % Balanced portfolio | % Representative index | |
|---|---|---|---|---|
| UK shares | 45 | 50 | 45 | FTSE All-Share |
| International shares | 10 | 30 | 22.5 | FTSE World Ex-UK Index calculated in Sterling |
| Bonds | 35 | 5 | 17.5 | FTSE Gilts All Stocks index |
| Cash | 5 | 5 | 5 | 7-Day LIBOR -1% (London Interbank Offer Rate) |
| Commercial Property | 5 | 5 | 5 | FTSE UK Commercial Property Index |
| Hedge funds | - | 5 | 5 | FTSE Hedge |
| Total | 100 | 100 | 100 |
Borrowing from the funds of funds approach
Professional fund managers often use a fund of fund approach that invests your money into a range of different funds to balance out the risk and rewards.
For example, boutique fund manager Thames River has developed a series of multi-manager portfolios built around different risk profiles, carefully allocating the overall fund to a range of funds that invest in everything from commodities to emerging markets stocks. The table below shows the list of different portfolios, with recent fund composition alongside a guide measure from analysts at Lipper which tells you the equivalent average for the wider sector.
Thames River invests in other actively managed funds but it is possible to create similar portfolio structures using passive index tracking funds.
The logic here is simple – multi-managers can often deliver above average results (at lower risk in some cases) but to do this they do incur higher expenses based on not only their charge but also the management fee of the underlying funds. The total figure – called the total expense ratio – can add up to a little under 2.5 per cent per annum in many cases, whereas every low cost alternative suggested below charges less than 1 per cent per annum, with most charging less than 0.5 per cent per annum. Our simple, lazy alternatives may not deliver you the very best boutique funds in the business – as Thames River aspires to do – but it is probably charging you a good 1.5 per cent less in fees every year giving you a valuable head start.
| INCOME FUND | % of portfolio | 6% current yield | Low cost replacements – ETFs and trackers |
|---|---|---|---|
| UK Equities | 22.50% | Fidelity UK Moneybuilder unit trust | |
| Overseas Equities | 5.50% | DBX FTSE All World exc UK ETF | |
| Fixed income – bonds and gilts | 54% | iShares FTSE All Stock Gilt and £ Corporate Bond fund (50/50) | |
| Cash and other | 18% | ||
| CAUTIOUS MANAGED – LOW RISK | Lipper Average | ||
| UK Equities | 39% | 37.70% | Fidelity UK Moneybuilder unit trust |
| Overseas Equities | 7.50% | 8.80% | DBX FTSE All World exc UK ETF |
| Fixed Income | 42% | 42.80% | iShares FTSE All Stock Gilt and £ Corporate Bond fund (50/50) |
| Cash/other | 11.50% | 10.70% | |
| BALANCED MANAGED – MID RISK | |||
| UK Equities | 49% | 46.60% | Fidelity UK Moneybuilder unit trust |
| European Equities | 12% | 13.60% | iShares DJ Eurostoxx 50 |
| Asia/Japan/Emerging Markets | 10% | 8.30% | Deutsche DBX MSCI Global Emerging Markets ETF |
| US Equities | 8% | 7.80% | Lyxor MSCI USA ETF |
| Fixed Income | 11% | 11.80% | iShares UK FTSE All Stocks Gilts ETF |
| Cash/other | 10% | ||
| GLOBAL BOUTIQUES – Higher risk, fast growth | |||
| UK Equities | 27% | 16.40% | Fidelity UK Moneybuilder unit trust |
| US Equities | 22% | 33.40% | Lyxor MSCI USA ETF |
| European Equities | 20% | 25% | iShares DJ Eurostoxx 50 |
| Asia/Emerging Markets Equities | 14.50% | 11.80% | Deutsche DBX MSCI Global Emerging Markets ETF |
| Japan Equities | 7% | 8% | Lyxor TOPIX ETF |
| Cash/other | 9.50% | 5.40% |
Back to our main feature on lazy investing
See the ten portfolios, matching various investment criteria, that we have put together using cheap investment products available in the UK (IC Advantage subscribers only)
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-IC-1.9.0c-prod - 15/05/2009 11:00:33 - stuart.turner
