Investment funds

[pocketpairs]

Hello everyone. By pure chance, had all my ISA invested in tech funds over past few years, and they have done remarkably well. Cashed out a few months ago. But how have just cash sitting in the account not growing (Or growing with tiny interest rate - 2.68%).

Don't know what to do now, any suggestions anyone? Ideally looking for a fund with a small AMC.

Why did you cash out? Do you need the money soon for something else?

Good question, just thought the valuations were getting ridiculous (e.g. Nvidia 60 PE ratio). Maybe it was the wrong move, no don't need money atm.

Was thinking to but rio tinto, which give near 7% dividend, but is risky as it'll might have future pension deficits to deal with, which may cause it to cut dividend.

How about an ETF. Can't get cheaper than that. MSCI World, S&P or FTSE 100 etc. Look at Vanguard or Ishares range.

hsbc is pretty solid and stable for dividends. Vodafone has become a growth stock to watch out for now it’s stopped paying a dividend - I think it might be the next rolls royce so I’m investing as much as I can spare. Then of course there’s rolls royce itself which is about to pay dividends from next year. How much do you have?

Thanks, I'll look into those a little more closely. Looked at Vodafone previously, but share price has been declining for a couple of years, which put me off.

Too bad about selling Nvidia, it just hit an all-time high today.

This is a nice example of a couple of investing truisms: you can't time the market (nobody can); but you should sell when you have a good reason for needing the money. Perhaps it's home improvements, or a holiday. But whatever the purpose, do sell if you want to fund a specific activity or project, and do not worry about timing.

As for applications of the cash you are holding, I suggest buying VWRL, a low-fee global ETF, with thousands of holdings. It's what I do.

Having said that, I am a little bit concerned about the high level of concentration in the global stock market: 10 companies (Apple, Microsoft, Nvidia, Facebook, Google, etc.) account for 25% of total global stack market value, and thus so does VWRL.

For professional investors, fund managers and the like, this collapses all their usual multifarious allocation decisions down to just one: do I invest with the same highly-concentrated weighting as the market, or do I possess some secret sauce insight that means I should "underweight" them ? For the past few years, the "Magnificent 7" (now more like M10) have surprised everybody with their relentless progress.

But this can't go on forever. So, I am also buying Invesco World Equal Weight ETF (MWEP), which holds thousands of companies, but at an equal weighting, so every company accounts for a tiny fraction of the total. This is different from most ETFs, including VWRL, which are "Market Weighted".

I aim to arrive at a mix of 80% VWRL and 20% MWEP, to provide a bit more diversification, and (possibly ?) reduce M10 concentration risk

But this can't go on forever.

Why?

Because if you extend the current performance of say NVIDIA into the future, you run into mathematical impossibilities: it will end up having a bigger market value than the planet in a few years.

There's a useful concept called "mean reversion" that is worth pondering:

https://en.wikipedia.org/wiki/Mean_reversion_(finance)

But, just for fun, let's say that NVIDIA's growth does contain some useful signals about the future, and it continues to grow until it is worth more than the planet. What would this mean ? Bad things. It suggests that the Machines will take over.

Well that is obvious, but not what you meant. You meant the magnificent seven cannot continue to outperform the rest of the market.

I was asking you why you thought that.

I thought had explained adequately, but whatever. Here is a message from the amazingly useful Perplexity AI, which expands on what I said:

www.perplexity.ai

-----------------------

"While the "Magnificent Seven" (M7) stocks have shown remarkable performance in recent years, there are several reasons why their outperformance may eventually cease:

## Market Saturation and Size Limitations

As the M7 companies grow larger, it becomes increasingly difficult to maintain the same growth rates. Their sheer size means they represent a significant portion of the market, making it challenging to consistently outperform it[1].

## Cyclical Nature of Markets

Markets are cyclical, and periods of outperformance are often followed by periods of underperformance. The current success of M7 stocks may not be indefinitely sustainable[2].

## Valuation Concerns

The M7 stocks are trading at higher multiples compared to the broader market. This premium valuation may limit future outperformance potential as it becomes harder to justify even higher valuations[2].

## Regulatory Scrutiny

As these companies grow more dominant, they face increased regulatory scrutiny. Antitrust lawsuits and potential breakups could impact their market positions and growth trajectories[1].

## Competition and Innovation

The tech industry is highly competitive and rapidly evolving. New innovations or competitors could disrupt the M7's market positions, potentially eroding their dominance[3].

## Economic and Market Factors

Changes in interest rates, geopolitical events, or economic downturns could disproportionately affect high-growth tech stocks like the M7[3].

## Reversion to the Mean

Financial theory suggests that extreme outperformance tends to revert to average returns over time. The M7's exceptional performance may eventually align more closely with broader market returns[2].

## Diversification Trends

As investors become more aware of concentration risks, there may be a shift towards broader diversification, potentially reducing demand for M7 stocks[4].

While the M7 stocks have demonstrated impressive growth and market influence, their ability to consistently outperform the market indefinitely is not guaranteed. Prudent investors should consider these factors when making investment decisions and maintain a well-diversified portfolio to mitigate risks associated with overexposure to any single group of stocks."

Thank you. I didn't read all of it. Very flakey.

Nvidia is in uncertain territory. It’s chips are going to be being used in every market, every industry as AI grows (AI growth has barely even begun). And the biggest industries are still fledgling themselves. The machines won’t take over but they will take over the running (and logic application) of other machines, they’ll even take over technology approvals and development and this has barely even begun yet. This is why you need to do your own research rather than rely on blogs etc.

Nvidia is massively undervalued based on what all industries intend to do with AI.

If any one of the M7 fail or stall, the global banking markets will all fail and it won’t matter one jot how well diversified your portfolio is it will still tank.

I work in investing (and have to interview fund managers regularly). The Magnificent 7 are highly valued and if they don't hit earnings expectations, they could head downwards. They've also invested a lot in AI and investors are getting impatient for visibility of returns on this. They dominate US and global equity indices so beware of overlap if you're going down the ETF route.

Personally I'm a big fan of active funds and I still think the U.K. has potential given current valuations. Some U.K. equities have outperformed NVIDIA in the last 12 months (e.g, Funding Circle and Filtronic) or there's U.K. small cap funds that are up by 150% in value over the same period.

Trustnet is a brilliant resource for looking at active and passive funds. Generally US actives struggle to outperform passives due to the Mag 7 dominance but they can do well in other markets.

Another good resource is the consensus brokers' share price forecasts for the next 12 months - not sure whether they're behind a paywall on the FT but you can get this info for free on other websites.

"banking markets" ? Surely you mean equity markets ? How would the failure of one company disrupt the global lending system ? I don't understand the mechanism - can you explain ? Equity and debt markets continue to function during world wars; can you explain why one corporate failure would destroy the global banking system when world wars do not ?

Also, let's assume that the biggest quoted company, Apple, does fail. This would knock about 3% off the total value of the market capitalisation of all stocks. Valuation changes of this magnitude routinely happen, without any sort of disruption

Perhaps you could explain your apocalyptic scenario in more detail.

"The machines won’t take over" Interesting. Do you have a reference for this statement of certitude ?

"Nvidia is massively undervalued" Nvidia's current valuation is the census view of millions of investors around the world. But you are certain that you know better than them. Can yo explain more ?

"I'm a big fan of active funds"

I'm not.

Active funds consistently and universally underperform passive index ETFs, while charging much higher fees.

This report:

https://www.spglobal.com/spdji/en/research-insights/spiva/

backs up what I claim in the most exhaustive detail: Active underperformance is a well-documented fact, beyond debate.

Similarly, the "U.K. has potential", but the UK stock market has been a chronic underperformer for more close on 20 years, and there's no compelling reason to expect it to change.

Funding Circle and Filtronic have indeed performed well recently, but to benefit from that, you need to be clairvoyant, so you can choose them and not the thousands of other stocks in the UK market. I am not clairvoyant.

"Brokers forecasts" are distorted by all sorts of client-customer relationship management shenanigans, and have a poor track record of accuracy in any case. But more than this, such forecasts are available to everybody, including high frequency trading systems, which can put in an automated, algorithmically-driven order within milliseconds of the information being published. So, even if broker estimates were a useful signal, ordinary punters would be outgunned by professionals.

"Vodafone previously, but share price has been declining for a couple of years"

Wrong. Vodafone's price is no higher than it was in September 1997, that's 27 (!) years ago. It's an utterly mature company, not there's anything wrong with that, if you invest mostly for dividend income.

Dear readers of the Investment section of Mumsnet, please ignore any and all of the uninformed, poorly researched and unsupported-by-analysis share tips made by other posters. If you want to invest, keep it simple by buying a global passive ETF, such as VWRL (Vanguard global tracker).

@urbanspaceman2023 and @Ozanj stop derailing this thread with your childish one-upmanship. It’s embarrassing and not helpful to the OP.

OK, I'm out. I was trying to illustrate how careful people should be when they're investing, with carefully written messages backed up by facts and analysis.

I will leave you to your mature and adult discussions, and spare your embarrassed blushes.

Sorry to have broken the rules of the Longhouse.

Mansplaining PLC has crashed.

@urbanspaceman2023 I'm not going to derail the thread by responding to your questionable analysis either because I also believe it's not helpful for the OP.

Personally I wouldn't put everything in a global tracker. The Mag 7 are so dominant due to their market caps that it's not as diversified as you'd expect. They're also very highly valued and a key theme of our recent seminar series with fund managers was when will the extreme concentration start to unwind?

I'm fortunate in speaking to a wide variety of fund managers in my job (and have to write about my portfolio as part of my job in a slightly ritual public humiliation every month).

I have around a quarter of my portfolio in active U.K. funds. My favourite UK small cap fund is up by 45% in the last year, compared to 18% for the FTSE small cap index, so that's more than double the return of an ETF. Or if you're looking over 5 years, it's up by 145% v 28% for the index. That's why I like active funds in certain markets where there's a lack of research.

I have invested in emerging markets due to their growth potential (and my Indian funds have done particularly well). Again, active management works well here as it's such a large universe and on the ground resources can make a difference. I have some commodity funds and ETFs - these are volatile but demand for minerals is forecast to soar with the net zero transition.

I also have some sector specific funds (tech, biotech and private equity). Some infrastructure funds which were an inflation hedge but were hit by rising interest rates but could do well in a falling rate environment.

Prior to the pandemic, my investments typically made 25-30% a year but I'm comfortable with higher risk which not everyone will be.

In my spare time, I run courses on investing for teenagers (and at work I'm leading the initiative to encourage more women to invest). Studies show that women lack confidence around investing but actually they shouldn't. The kids on my course produce some really impressive analysis because they don't have the fear we sometimes have as adults. And there's so much information online that it's not hard to learn. TED talk rant over....

Could you please let me know the name of your favourite UK small cap fund? (And any of the others that you mention!).

I’m conscious that far too much of my portfolio is reliant on the big 7, either directly or in funds.

@Ozanj interesting, do you think it's still worth buying nivida then?

Op my sipp has gone crazy, unfortunately there isn't much in it at all but it's give off like a rocket these past few weeks more so than any time in 7 years.

I don't know why you cashed out.
Buy index funds and then skim them if you need cash and have a small amount of gamble buys