The Investment Doctor helps a reader looking to invest £500 per month in a Stocks and Shares Isa.
Question: I am investing £100 a month, which is split equally between two US tracker funds - HSBC American Index (C class)* and Vanguard US Equity Index.
My target is to invest a total of £500 each month via a Stocks and Shares Isa wrapper. Looking at Moneywise’s First 50 Funds, I have shortlisted a few funds but I’m not sure how much I should invest in each. The investment is for my children but I would like it to be done through my Isa allowance.
The funds I’ve shortlisted are: F&C Global Smaller Companies*, Fidelity Index Emerging Markets (W Acc)*, Fidelity Index UK (W Acc) [Moneywise says: We dropped this from our First 50 Fund list in July 2017 in favour of L&G UK Index Trust*], Fidelity Index World (W Acc)*, Malbororough UK Micro-Cap Growth (P Acc )*, Scottish Mortgage Investment Trust*, Stewart Investors Asia Pacific Leaders (B Acc)*, Vanguard Global Small-Cap Index (Acc)*, Vanguard LifeStrategy 80% Equity, and Witan Investment Trust*.
Initial diagnosis
The combination of funds you’re considering provides a decent geographical spread, according to Juliet Schooling Latter, research director at investment firm Chelsea Financial Services.
“We’d suggest that a substantial weighting to smaller companies investments could be sensible given you are investing for very young children over the long term,” she says.
Monthly investments will also help as they take advantage of pound cost averaging, which results in more shares bought when prices are low and fewer when they’re high.
“Given the sum of money per month is £500, we would suggest a reduced number of funds – a maximum of eight to 10 – as the money would be spread too thinly and the portfolio almost too diversified,” she adds.
It’s also worth revisiting the two existing US funds you hold. “They are tracking very similar indexes and performance is also very similar, as you would expect,” she adds. “You could look at investing in just one and the HSBC fund is cheaper.”
Treatment plan
Peter Sleep, senior investment manager at Seven Investment Management, warns that buying costs can add up.
“Check the terms and conditions of your Isa provider to see whether listed investment trusts or unit trusts are most cost effective,” he says.
He also suggests investing fully in equities as they tend to beat bonds over time, in the same way evidence suggests smaller stocks beat larger ones over the longer-term.
“Vanguard Global Small Cap Index is an excellent core fund for any long-term investor and one I have personally invested in,” he adds.
Diversified treatment plan
Jason Hollands, managing director, business development, at Tilney Group, believes the focus should be on achieving a broad spread.
“Your top priority should be adding exposure to other markets, including the UK, Europe, Asia and Emerging Markets to truly diversify,” he says.
For example, he doesn’t believe it makes sense to narrowly focus on “tiny, illiquid micro-cap” companies in the Marlborough fund mentioned.
“Consider instead a fund like Liontrust Special Situations*, which invests across the full bandwidth of the UK equity market including, large, medium sized and smaller companies,” he says.
He suggests good European options include Jupiter European or Henderson European Focus.
“Stewart Investors Asia Pacific Leaders has a very sizeable position in India, which is the brightest spot of all the major emerging markets,” he adds.
Mr Hollands believes it’s also a mistake to ignore Japan, with the CF Morant Wright Nippon Yield fund being one that he’d consider.
Of course, an alternative to investing in regional funds is buying a truly diversified, global investment strategy that invests across all these markets.
“Foreign & Colonial Investment Trust has diversification to more than 500 companies in 35 countries, including an allocation to private equity funds,” he says.
*Denotes Moneywise First 50 Fund for beginners.
Rob Griffin writes for The Independent, Sunday Telegraph and Daily Express.
Do you have a question for the Investment Doctor? Email editor@moneywise.co.uk.
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