- Investors can struggle to look at their portfolios holistically, but tools can help to show overall allocations
- Tools and methods to help you stay on top of your portfolio
Building a portfolio is often easier than monitoring it. From runaway tech stocks to popular funds such as Fundsmith Equity (GB00B4LPDJ14), some of the most successful investments have set a clear track record in recent years. But working out what overall exposures your portfolio has, from your geographical and sector weightings to any biases in investment style, can be a good way to identify potential improvements.
A holistic view can alert you to potential shortcomings, such as whether you are much more exposed to a particular sector than you assumed or are missing out on an exciting investment theme. And there are a number of resources and methods to help you do this.
Usefully, the most widely used investment platforms tend to offer their customers a portfolio breakdown covering basic attributes such as geographic and sector composition. Many also provide data such as your market cap exposures, how your portfolio is exposed to different investment styles such as value or growth, and the interest rate sensitivity of fixed-income allocations. Many platforms also provide useful granular details on, for example, exposure to different equity categories such as cyclical or defensive.
All platforms highlight your largest underlying holdings, for example, which stocks held by funds in your portfolio are among your biggest positions. With US and Asian markets dominated by a handful of huge tech stocks, and UK equity income funds holding many of the same shares, it is not difficult for fund investors to inadvertently develop a big position in one company.
It is also important to note the areas where platforms differ, as outlined in the table below.
|How some of the main platforms break down your portfolio|
|Platform||Frequency of portfolio breakdown||Top 10 underlying holdings shown?||Can investments you don't hold be included in analysis?||Investments covered in portfolio analysis|
|AJ Bell Youinvest||In real time||Yes||No||All|
|Bestinvest||In real time||Yes||No||All|
|Fidelity International Personal Investing||In real time||Yes||No||All|
|Hargreaves Lansdown||In real time||Yes||Yes||Open-ended funds excluding absolute return funds, direct share holdings|
|interactive investor||In real time||Yes||Possible via "watchlist" function||All|
For example, many investment platforms provide portfolio breakdowns in real time online, but Charles Stanley provides full portfolio details via six-monthly reports.
Hargreaves Lansdown allows users to include holdings they don't yet own in their portfolio analysis, enabling them to see how any new addition would affect a portfolio's overall composition. Interactive investor does not enable this, but its customers can recreate their portfolios with potential new holdings via its 'watchlist' function to see what asset allocation they end up with. Other platforms tend only to offer analysis of existing holdings.
Hargreaves Lansdown's 'x-ray' analysis function, which shows customers what their largest underlying stock exposures are, covers most open-ended funds and shares. But it cannot be applied to holdings in investment trusts, exchange-traded funds (ETFs) or absolute return funds. This means that underlying exposure to sectors, regions and individual shares of any investment trusts you hold would not feed into the analysis. Although they are still included in the platform's portfolio performance analysis, users would need to carry out their own analysis to see how such holdings would affect their overall allocation.
The extensive data provided by platforms can also be confusing or mislead investors about the nature of their exposure because of the use of broad categories. A Charles Stanley spokesperson noted: “Some platforms offer this [breakdown] in real time which we currently don’t do. Our experience is that there tend to be misclassifications, and lots of things end up [classified as] ‘other’ by a lot of the tools that are available.”
Such confusion can take many forms. One breakdown of a portfolio’s equity exposures seen by Investors Chronicle described a US healthcare ETF, something that carries stock market risk, as 'defensive'. While health stocks may be viewed as a defensive sector, such classifications could mislead investors about the level of risk being taken.
Some very technical metrics, meanwhile, may not be that useful unless you are keen to know details such as your standard deviation or Sharpe ratio.
Doing your own research
It can generally be useful to keep an eye on individual holdings yourself. ETF providers tend to regularly give full or extensive details of their funds' underlying holdings and exposures. Investment trusts and funds provide more limited disclosures via their factsheets, usually detailing their top 10 positions, and sector and regional weightings.
Some active funds include a greater level of detail on their factsheets. Fidelity’s fund factsheets, for example, detail a fund’s biggest overweight and underweight positions relative to its benchmark index, volatility metrics, market cap exposures and portfolio concentration. Some fund factsheets also show what the investment manager has recently bought and sold.
However, other disclosures are more limited. Fundsmith Equity’s factsheets do not disclose how large its top 10 holdings are, and Scottish Mortgage Investment Trust's (SMT) factsheet does not disclose its regional or sector allocations. But investors can check investment trusts' and open-ended funds' annual reports for more detail on their positioning at their year ends.
If a fund’s disclosures are limited, platforms can be useful even if you are not one of their customers. If a platform offers a certain fund, it tends to show a basic breakdown of, for example, the fund’s asset allocation.
Data provider Morningstar, meanwhile, offers freely accessible pages on different funds with details of their broad exposures, main holdings and technical metrics related to volatility and past performance. Morningstar also offers a portfolio analysis tool. If you register for a free account you can see some of this analysis, but have to pay to see the full data.
As we noted in the issue of 11 September in 'Getting the best out of best buy lists', those run by platforms and other lists such as the IC Top 100 Funds offer more qualitative analysis of funds. If you want to consider how a fund might fit in with your other holdings, or gauge the theme or approach behind a potential new position, buy list analysis can shed some light.
But while asset allocation data can give you an insight into the general strengths and weaknesses of your portfolio, always remember what your portfolio aims are and what role each holding should fulfil. Grouping holdings within categories of your own may also prove useful.
Your own metrics
Younger investors may simply want to grow their savings, while others will have more specific aims for their holdings. Some positions might act as diversifiers to equity exposure and others might be expected to generate an income. Similarly, if you invest with specific themes in mind you might want your holdings to be a play on these.
Such categories could influence how you treat your portfolio. Dennis Hall, chief executive of Yellowtail Financial Planning, says that you could “mentally assign certain funds such as trackers to a buy, hold and forget strategy, and hold others for specific or shorter time periods, meaning that you need to monitor them regularly".
He adds that investors may wish to be aware of a fund’s underlying approach, including whether its managers take a bottom-up approach focused predominantly on company fundamentals, or try to factor macroeconomic trends into their investment decisions.
Qualitative analysis may help you to form a better understanding of this. Such sources of information include fund manager updates and buy list commentaries. Fund manager commentaries and presentations, in particular, can give you an idea of what scenarios they might be preparing for.
You could also select holdings according to risk, in which case some of the more technical metrics provided by the likes of Morningstar, such as volatility figures, may prove useful.
A fund’s past performance can also be instructive. For example, defensive funds should hold up better than the market at times of volatility but absolute return funds have been criticised for failing to do this. As an example, Argonaut Absolute Return (GB00B7FT1K78) posted stellar returns in 2020, but can be highly volatile and fell 25.6 per cent in 2016. This fund is unlikely to suit an investor looking for a steady option.
Some funds, such as investment trusts, must produce Key Investor Documents outlining how risky they are and how their portfolios might fare in different market conditions. But analysts have pointed out that the market conditions, set out in four different scenarios, have been based on the bull market of recent years, so could be misleading.
Again, more qualitative analysis could prove useful. Fund manager and external commentaries may provide clues about how focused a team is on capital preservation as opposed to growth or income, for example. Market shocks can also provide information about how comfortable with risk you really are, and whether your asset allocation needs to change.