Holly's Blog: Holly's tips in a global melt-up

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Hi everyone. How are you all? As well as many of us pretending to be competent adults (who aren’t secretly wishing that any old person would come and remove their children for 24 hours), I think there are also lots of people pretending to be competent investors. But who are actually secretly wondering what on earth to do. I don’t think even the Chief Investment Doodahs with smart haircuts, good tailoring and Canary Wharf headshots know what’s going on.

It feels as though we are in the final stages of a market melt-up. And when I say final this could be 2 weeks, 2 months or 2 years so don’t spill your coffee and scramble into action.

Some who have held a pretty mainstream collection of the usual global equity fund suspects over the last few years will be looking at 50%+ returns. (Nice problem to have.) But worrying that something is going to give. There are lots of signs that things are uncomfortably exuberant. Tesla. Clean energy stocks. Bitcoin. The Nasdaq. I could go on.

On the basis that I don’t know what is going to happen when, and that we could be idiots now (cashing in too soon) or idiots later (selling too late after a slump), here are the most sensible suggestions I have.

  1. A wee topical aside - I personally think bitcoin is bonkers. I opened a test account with £100 in 2017, as I was writing a piece for the paper and wanted to see for myself how it worked. It’s worth £735 today. However, the only reason I haven’t sold it is because I cant work out how to and keep forgetting about it :0) I’d avoid like the plague or at least be prepared to lose it all.

  2. If you are relatively young (let’s say under 50) and saving on a long-term basis, don’t worry about your investments too much and just keep up the regular savings, chipping in as much as you can as often as you can into diversified mainstream stuff.

  3. If you are older and/or have more wealth to protect, or need to draw an income, things get a bit more complicated. I would check diversification. Have any of your holdings grown so much that they are now worth more than 6% or 7% of your portfolio? Is this large weighting to any fund or share on purpose? Is it time to rebalance?

  4. I would think for larger accounts that about 20 funds is not unreasonable. I once talked to someone who was so keen to hedge his bets that he had 75 funds. Pointless. 75 dribbles here and there, as active fund manager A’s actions are then undone by active fund managers B’s actions and so on. He would have been better off buying a cheaper passive multi-asset fund. Conversely, too few and you are probably not diversified enough.

  5. 20 is not gospel but approximate. Don’t sweat it.

  6. Here is the most important point. Holding 20 funds does not mean you are diversified. If you use a platform which offers up an X-Ray screener, just have a look at where your money is and what your top 10 holdings are. How much do you have in tech? How much in Tencent, Alibaba, Microsoft? Are you more exposed to either the US or technology, for example, than you want to be?

    By way of example, Lindsell Train’s Global Equity fund has not had such dramatic returns as many this year – its core sectors are beverages, media and main holdings include Nintendo, Disney and Heineken. Good companies who make things that people want. But not 2020’s Flash Harrys. I’m not necessarily advocating this fund but using it as an example of a global equity fund which offers up different types of shares to many. Don’t just cull funds which have had a less glossy 2020.

  7. Should I take profits? My friends I cannot answer this. The first question to ask yourself is about timeframes. Do you need cash over the next three years? If so, you really don’t want to be a forced seller in rubbish markets so shoring up a cash position when markets are high is sensible (and you just need to talk your greedy self out of FOMO). If you don’t need the cash, then market timing is generally a pretty bad idea so it’s probably more about rebalancing than selling up. 

  8. That said. As someone who rode the dot.com boom all the way up and all the way down (with a margin loan OUCH), I personally think that one way to deal with sky-high performers psychologically can be to sell enough to cover what you paid for something. And then it’s all upside. I did this with Scottish Mortgage Investment Trust in an ISA which had increased by disconcerting amounts. It might not be how the purists would think about investing allocations but it made me feel better.

  9. Just remember capital gains tax if you are selling things outside an ISA or a pension. A penny over £12,300 of profit and you’ll typically get clobbered with tax.

  10. Finally. I went to a couple of platforms and put my question to them. If readers are nervous about ‘doing too well’ and have a collection of global funds which have gone gangbusters…..and they worry about being overly exposed to similar stuff, where might they look.

Interactive Investor thinks that Biden’s presidency could be a game changer for green funds:

“Biden has already vowed to make climate change a top priority and reverse many Trump administration policies, such as re-joining the Paris Agreement immediately upon taking office.

“We like Brown Advisory US Sustainable Growth Fund which excludes companies that defy the United Nations Global Compact Principles; derive any of their revenues from controversial weapons; conduct animal testing for non-medical purposes; own fossil fuel reserves; or generate power from fossil fuels”

Over at AJ Bell, they suggest that unloved value funds offer diversification:

“Quality growth and technology have been two themes that have been great drivers of growth for many global funds in the last few years. However, with the market potentially changing, it does potentially leave portfolios open to underperformance if yesterday’s winners turn out not be tomorrow’s winners. As a result, it might make sense to look at value focused funds to bring a little diversification to a portfolio. This is often uncomfortable for investors … a look at the factsheet will often show 4th quartile for plenty of periods. However, that’s the point, and it important to look beyond recent performance and think about what might happen, not what has happened”.

They suggest Schroder Global Recovery as an option. It buys out-of-favour companies that still have strong potential and actively avoids expensive, flavour-of-the-month stocks. As a result, it is massively underweight in technology, healthcare and industrials and significantly overweight in financials, materials and energy.

“At a country level, this means a big underweight to the US and small overweights just about everywhere else. Against global favourites such as Fundsmith or Lindsell Train, it has low correlation, demonstrating the low stock overlap that exists and making them strongly complementary for an investor wanting to diversify their portfolio.”

And Hargreaves Lansdown echo the sentiment:

“Global equity income funds are a good place to start if looking to diversify. Tech firms tend not to pay dividends so fall short of the entry criteria for these portfolios. Artemis Global Income is a good example. Its lack of tech has hurt relative performance in recent years, but is a good hedge against the growth-style trade.”

There you have it. I don’t have the crystal ball. But hopefully there are some useful nuggets in there.

Have a good weekend all. More dragging children out for walks with a fake jolly smile on my face. “Oh I know! Let’s go for a walk!!!????” More bad TV which seems mostly to be about serial killers and con men. How uplifting! I leave you with a final tip. Treat yourself to a big glass of something at 5.30 today. It’s the new 6pm dahlings.

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