Last Updated June 9, 2017
I will shortly be launching a new model fund which will be called the UKVI 20. This fund will be separate from my personal investments, although the two will be very similar to start with and I expect them to eventually have exactly the same constituent parts but with slightly different weightings.
I’ll put up the facts and figures for the UKVI 20 onto the web site in due course and I’ll keep posting my private investment performance for several more years until the new fund has some reasonable amount of history behind it.
The fund consists of UK listed equities and has the goal of outperforming the FTSE 100 over periods longer than 5 years.
The target number of holdings is 20 to provide adequate diversification without excessively watering down the ‘best ideas’ approach.
Each holding will be allocated approximately 5% of the fund on purchase.
Each holding must have a better 5 year estimated total return than the FTSE 100. This estimate is based on past growth, returns on equity, dividend payouts, share price levels and other factors affecting the holding’s future total return.
Each month the holding with the lowest 5 year estimated returns will be sold and replaced with a new holding that has a 5 year estimated future return higher than the one it’s replacing.
The monthly buy and sell decisions will be posted to the blog, as well as re-valuations of the fund as a whole and constituent companies when annual reports come out.
Why the monthly trades?
This process of selling the least attractive holdings and replacing them with more attractive ones is my way of continually weighing the portfolio as a whole towards companies with higher expected returns than the benchmark.
So each month, rather than the quarterly review of the FTSE 100, instead of kicking out the smallest company by market cap I will kick out the company with the lowest estimated future returns and replace it with the company that has the highest estimated future returns that isn’t currently in the fund.
This approach should over time ensure that the fund is always holding companies that have better current earnings and dividend yields than the average, and that also have better long term growth prospects than average. That combination should help the fund to show the various FTSE UK indices a clean pear of heels in the long term.
One buy and one sell decision each month is also a good pace for the general stock picker I think. More often than that and they risk getting too close to the market and less often, perhaps once a year, means they may risk getting bored and switching to a different method, over and over again. Constant switching from one idea to another has a proven track record of under-performance and should be avoided at all costs.
When does it start?
The UKVI 20 will have a start date of 1st January 2011 and an opening balance of £20,000, which I think is a minimum amount for running this sort of fund due to trading commissions and tax. It already has several new holdings; in fact all of my private purchases since buying BP in March have been added to the UKVI 20. The buy dates and prices are the same as for my private investments and that will be the case going forwards.
Why are you doing this?
The reason for this split is that my private investments have had a fair amount of style creep over the years whereas the UKVI 20 will be starting with a clean sheet and strictly defined criteria based on my current approach to finding attractively valued companies.
Why should I care?
The UKVI 20 may be able to help investors in their stock picking efforts. Readers who see that I have added Vodafone to the fund, for example, may decide to take my thoughts and opinions to their financial advisor to discuss its suitability with them. The ideas on diversification and using a systematic approach to trading may give someone the disciplined framework from which to manage their own investments, again with their financial advisor to hand.
If that sounds like you then I hope it proves useful. If that doesn’t sound like you then I hope you find it interesting nonetheless.