William Stanley is looking for defensive growth from his £480,000 portfolio of funds and shares. He's risk averse, and prefers investing in liquid FTSE100 companies. You can see more details of his portfolio . Below, you can read the views of Chris Dillow and Richard Hunter.
Chris Dillow, economist, Investors Chronicle:
This is, with a couple of exceptions, a remarkably well-diversified portfolio. Its two biggest holdings - Glaxo and Vodafone - are quite lowly correlated (0.32 in weekly returns in the last five years), and have low correlations with with the third biggest holding, United Utilities. Most people would think this a good thing, but remember that diversification can reduce returns in good times.
The portfolio's big holdings in Glaxo and utilities give it a defensive bias so it's well place to take advantage of the tendency for low-risk stocks to do better than they should. There's also a smaller value bias, with the holdings in banks and housebuilders. Value stocks tend to be cyclical, doing badly in recessions but well in recovery.
However, there are two issues to consider. First, your stakes in Glaxo and Vodafone are bigger than you think, as these are the two biggest holdings in Newton's Income and Growth funds. This raises the question: what functions are your fund holdings doing? If you want cheap diversification and/or a little income bias, you might consider replacing these funds with more of your FTSE 100 ETF and either the dividend plus ETF or perhaps one of the special situations funds.
Second, there is no exposure to resource stocks, except through the funds. You are, in effect, betting that commodity prices will continue to fall - especially if you're on a fixed rate annuity (which is hit by rising inflation) and/or own no index-linked bonds. This is a reasonable bet, but it leaves you vulnerable to the danger of, say, disruptions to oil supply.
I stress that these are only points to consider. There's no right and wrong here. The point is merely to ensure that you are wholly comfortable with what your holding.
Richard Hunter, head of UK equities at Hargreaves Lansdown:
On the whole, the portfolio is well diversified, but not necessarily quite so well balanced. For example, the top five holdings (Glaxo, Jupiter Div & Growth, Northumbrian Water, United Utilities and Vodafone) account for 53 per cent of the portfolio by value. Whilst there is nothing wrong with any of these holdings, it could be an idea to "top slice" them and repatriate the monies elsewhere. In terms of Glaxo and Vodafone, for example, some of these monies could even be invested in other stock(s) within the pharmaceutical and telecom sectors.
The reader’s attitude to risk is low to moderate and some of the previous FTSE100 companies with no immediate recovery prospects should be re-examined within the portfolio. Most notably there are three housebuilding stocks, and the UK banks have recently lost their allure as an investment destination for income seekers.
One would normally expect a portfolio of this size to have some exposure further afield. The holdings of, say Glaxo and Vodafone, arguably give some US exposure. But perhaps some thought could be given to building on this – not necessarily through direct equity exposure, but perhaps by way of a fund. Similarly, the emerging markets (China, India, etc) seem under represented, although this may be explained by the reader’s lower attitude to risk.
In terms of some of the income being lost through the bank holdings, and the extra capital available from any top slicing, there should be room to add some high quality corporate bonds, via a fund perhaps, or even gilts to the portfolio.
