Phil Haddon: The funds I have picked for my Sipp

Good article, v interesting. Curious to know why you have no exposure to hedge funds, particularly as strategies such as Managed Futures have been a very solid consistent performer over the years whilst not suffering from the opaque and illiquid nature of some HFs.

I am interested to know why you have chosen finds rather than trusts when . looking at the funds listed, there are some trust alternatives run by the same people on broadly the same lines.

My preference for trusts is based on lower-costs, closed-end and ability to gear and I don't understand when offered broadly similar trusts/funds, the trust isn't an automatic choice for an investment professional.

"if gold continues to soar"?

Regarding OEIC versus Investment Trust, isn't the downside that closed ended funds are effectively investments in a company (offering a fund), and so is like shares, subject to supply and demand. As a consequence they must fluctuate more than an open ended investment

Why not buy indices, or are there no suitable vehicles for the asset classes that you're after?

I only ask as I've read several reviews by the Economist over the years, which consistently show that the only winners from investing with asset managers are the asset managers.

This article looks suspicious, a bit of free advertising on the F/M's behalf methinks.

timc: absolutely right! That’s what the evidence has proven. However, indices aren't in widespread use, as active managers have successfully marketed themselves and the public are unaware of the full range of evidence that exists. The evidence and common sense based route shows that indices give you the best chance of success going forward. Why have your money eaten away by charges and underperformance?

As for the article, it’s a very interesting read and will inevitably lead to a debate on policies. Everyone thinks they know best! My observations are as follows.

You have developed an eye for the best performing managers over that time. Not who they are going forward! No matter how much research is undertaken, just as an active manager cannot accurately and consistently picks stocks, investors cannot accurately and consistently pick managers who will outperform in the future, other than by luck and speculation. Do you also destroy wealth by switching in and out of funds and sectors?

Fund picks have been based on marketing not on an evidenced base view.

Obviously I’m unaware of the size of your Sipp, but are you over-diversified? You have numerous funds and therefore a massive spread of Equities and Bonds in different sectors and countries, is there really a need for Gold? Spreading capital too thinly across all Assets and Sub Assets Classes is over-cautious! Any gains experienced may be cancelled out by losses! Risk does need to be taken on to get a return (I don’t mean the extra layer of risk/return by using a fund manager! Potentially rewarding but more potentially wealth destroying!)

The article itself is a good piece of marketing for Active Management!

A prudent and efficient way to invest:

1.Strategic Asset Allocation 2.Trackers 3.Rebalancing

It would seem to me that Mr Haddon is only interested in people he has met or who he knows about. The only reference he makes to a business is BP, which he concedes he should not have invested in. What message is he trying to get across? Investors should put ALL their faith in someone elses judgement?

I accept that for very long term investments such as a SIPP, funds should be the first consideration, but I prefer individual stocks. I focus a large part of my attention on the flow of news from individual companies as I track global developments. I like to think that I am continually learning how to form a shrewd opinion as to what constitutes a well run viable business which will sustain profits into the future. You can only do that if you understand what businesses are about, and what directors actually mean when they make statements.

I note that Mr Haddon is not married (yet). I'm sure he will meet a suitable candidate eventually as their are plenty of women around who would yield to a "I earn it, you spend it" aproach.

Very Interesting. To a view of the observations above, how many funds does one consider to be enough? And going on a fund managers past performance is really the only way to pick a manager as this gives a guide to their investment style, you dont want a manager who changes his investment style on a whim.

When it comes to ETF's as these pick up in popularity they well may become the norm but it is always worth comparing a funds performance along with a relevant ETF. I dont buy the charges angle though unless your comparing mediocre fund performance, but why would anyone buy a lack lustre fund.

To Michael Hellman:

How many funds does one consider enough?- There is no correct answer! I was just making the point that over-diversification is dangerous and potentially wealth destroying.

With regards to past performance, thats my point really, you can only go on the past and there is no way of knowing the future. Their investment style will change though as they take different positions depending on their environment. Also investors switch in and out of funds at whim as soon as performance drops, most of the time switching to a top performing fund that year which then underperforms the following year, as the fund they switch out of starts to recovery.(sell low buy high+costs) Timing can never be right.

Shane, I would agree that over diversifing is dangerous to ones pot, and it is true so I read, that a common trait with investors is to ditch a fund in favour of last years top performer, but one also has to weigh up that if the fund theme is on a roll, eg years ago, Boltons special sits, which was on a roll for many a year, when do you go in?

Philip has got an interesting selection and the only fund that matches with me is First States Asia Pacific Leaders.

Michael: exactly the problem, when do you go in? Indeed, how long for? when do you get out? Whats driving this?

You can look back and analyse when you should of got in and got back out, but you can't see the future at that time!

Its very dangerous to get involved with a herd like that, as you don't know what's round the corner. Timing can never be right, as you can't consistently get in at the lowest point and then get out at the highest point.

I would suggest not to get involved with this sort of noise, that comes from all directions, claiming what's going to happen and where to invest! Usually bearing out from vested interests!

With investing I like to pick what i think will be a growth area and pick a fund which matches, but too often in the past the fund did not exist. Anyway, that style of thinking has so far served me well. What I dislike about the fund industry is when its too late to invest, like New Stars property fund. And yet the mass advertising for it would have drawn in people on the hype. So it proved to me yet again im comfortable in the way i choose a fund.

So Shane, how do you pick your funds? Or anyone else.

Michael, as you can tell from my earlier comments, I believe in Indexing and Passive investment. Therefore I buy an Index to capture the whole of the market, thereby removing any underperformance of active approach.

I set up my Asset allocation and stick to it thereby removing any emotions and biases which will provide a drag on long term performance.

I rebalance once a year with the aim of reducing volatility and increasing returns through selling high and buying low.

Shane, one of my hardest tasks is removing my emotions from the buying and selling process. Although the older I get the easier I find it. But removing emotions I do, which again has served me well.

Whilst I like the idea of keeping a fund running in my portfolio for years, im so glad that I have not and there have been times when ive gone almost to cash. Maybe looking forward now I can leave the Brics sitting there for a good few years.

Michael, removing your emotions is the key, this stops one from jumping from class to class, destroying wealth in the process. The longer the time horizon the better, that give you the most chance.

The problem is the financial media giving ideas about the next great investment for the next X years. BRICS is just on of them. who knows when it will fizzle out? Best to just capture that in a wider global index.

Shane, agree often once in the media, its too late to join the Party. Ten years ago I started investing in India, through the JPMorgan I.T, bought and sold a few times, but India I do expect to keep now for the long term. My concern is not how long can the brics go but more of how long can the west survive.

Beware of gold. I remember discussing the role of gold as a hedge whilst reading economics in the late 1970's. Gold peaked then and anyone who bought gold at that time would not have seen any profit for nearly 30 years!

Ref: Tony Silcock's comment.

Yes of course you are perfectly correct if you analyse the markets retrospectively, but that was then, this is now. If my memory serves me correctly Spike Milligan recorded a song around that time. "I'm walking backwards to Christmas." We have to decide which events from the past are pertinent to the present in order to plan for the future.

From1970 until 2007 fiat currencies remained relatively strong, supported by expanding economies, population growth, and a viable global banking system. There was no reason to think of gold as a safer alternative. The situation that exists today is very different. Sovereign debt has risen to unsustainable levels especially in western developed nations. The global banking system has imploded and would have collasped entirely if it were not for temporary supportive measures such as the printing of additional paper. As of now GDP forecasts suggest that the major currencies are still teetering precariously towards serious devaluation. Meanwhile some developing nations are building balance of payments surpluses. Therefore it is logical to think that the treasuries of these countries will wish to purchase gold as an inflation proof store of wealth. Also there are many private individuals who consider gold to be more real than paper, and more portable than property.

Gold is a rare mineral which means stocks of the refined metal can only be added to very slowly. In view of the world's burgeoning population growth and the afore mentioned criteria I think it would be advisable to include gold miners in a portfolio of long term investments.

Ref Hotrod

Whilst I agree with much of what you say I would still advise caution because we cannot see into the future to know if gold has peaked or not and the past tells us that such peaks do happen. One should buy gold knowing something of its price history and as part of a diversified portfolio.

Re funds vs ETFs, it's very unlikely that most funds will outperform indices, as they dominate the market and have admin, management and trading costs. That still allows a few good managers to do better. According to the Efficient Market Hypothesis, any outperfomance is pure luck. I don't buy that theory, it means that Warren Buffet and associated value investors were just lucky. Here's someone who disagrees:

http://amateurassetallocator.com/2009/07/01/warren-buffetts-record-is-not-evidence-the-efficient-market-hypothesis-is-wrong/

Anyway I like managers with a good long term track record, although of course that is no guarantee. Assuming Phil is at least a reasonabe judge of managers, with his knowledge of them, I think his SIPP is quite reasonable.

Re gold, there are a couple of things I've read, probably in Money Week, which I think are interesting.

1) It is a hedge against government (e.g. creating too much money, which I won't get started on).

2) Many rich people put 5% of their assets into gold and hope it goes down. That's because if there's a crisis gold goes up, supposedly. And maybe it will if there are serious sovereign defaults, but it's also been an asset that goes up and down with everything else recently.