My Asset Allocation

This portfolio has been established for an investor looking to structure the UK equity portion of his investment portfolio. It is only suitable as part of a larger asset allocation and diversification model. The above selections may be quite unusual compared with those made by some other investment managers because of the large holdings in tracker funds. My portfolio will only use passive funds to track the performance of the FTSE 100 index. This is because the FTSE 100 index is so efficient that the number of large-cap funds that have proved themselves capable of outperforming it on a consistent basis is fairly small. The portfolio does not include any funds that track further down the capitalisation scale because these markets are less efficient and, as a result, create better opportunities for the very best stockpickers. Put simply, top-quality mid and small-cap managers should have less difficulty outperforming their benchmarks than top-quality large-cap managers. Both of the selected tracker funds use full replication, an approach that is clearly easier to achieve with large companies and should give them every opportunity to match the performance of the FTSE 100 to a strong degree. The Credit Suisse fund does have high charges for a tracker fund, though it is assumed that investment is made with either commission reinvested or on institutional terms. The portfolio as a whole has a sizeable weighting to large-cap companies. One of the major reasons behind this is simply that large-cap stocks make up a high percentage of the UK market. The case can also be made, though, that large-cap stocks are on more attractive valuations than their mid and small-cap counterparts. Beside the tracker funds I have included some good-quality “core” funds that have disciplined risk controls in place. These funds will not tend to take big bets at either the sector or stock level. It is hoped that the Gartmore, Isis and JPMF funds will add alpha to the portfolio. Each of these funds benefits from proven fund managers or investment teams. Although these funds may all fall into the category of “focus” funds, they are run entirely differently and this contrast does mean that they sit well alongside each other. Two specialist mid-cap funds have been selected, though of course there will be mid-cap exposure from some of the other funds. Andy Brough, fund manager of the Schroder UK Mid 250 fund, is perhaps the most respected of all mid-cap managers, but there must be concerns that the size of this fund will impact on future flexibility and, as a result, on future performance. The Threadneedle fund is that much smaller and this should enable the manager, Paul Cramp, to take advantage of situations that may not be so worthwhile to Schroders. Paul Jourdan is building a strong reputation in the small-cap arena and, while his First State fund is still small enough to be nimble at the smaller end of the market, this situation should continue to be monitored. This portfolio has a fairly modest weighting to small-cap companies, reflecting their modest weighting in the overall market and the extra risk of investing down the capitalisation scale. Model portfolio Capital invested Liontrust Top 100 £44,000 Credit Suisse FTSE 100 £34,000 BWD UK Blue Chip £24,000 Old Mutual UK Select Lge Cap £24,000 Lazard UK Alpha £14,000 BGI UK Growth £8,000 Cazenove UK Growth & Inc £8,000 Gartmore UK Focus £6,000 Isis UK Prime £6,000 JPMF UK Dynamic £6,000 Schroder UK Mid 250 £8,000 Threadneedle UK Mid 250 £8,000 First State British Smaller Cos £10,000