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"ETFs Allow Me to Go Global"

Investor Views: Private investor Ved Narang is building a diversified portfolio from low-cost index funds

Emma Simon 4 November, 2020 | 11:33AM
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Investor views

When it comes to investing Ved Narang takes a global view, and he tries to ensure his money is invested across different geographical markets and sectors.

Ved moved to the UK four years ago to work as a doctor in the NHS and in the last couple of years has started savings into an Isa. For Ved, who now lives and works in Scotland, this Isa is a longer-term saving plan which he hopes will give him decent standard of living in retirement when he stops working.

While some of his money goes into a pension, he doesn’t really get to choose how this money is invested.When it comes to his investment strategy for his Isa though, diversification is important, and he is also keen to keep investment costs down to a minimum.

As a result, he mainly invests in index-tracking funds, which offer low fees and the options to invest across a range of global markets.

Ved says: “I have invested in actively managed funds in the past, but I did not feel it was always clear what they were charging for.”

When it comes to diversifying his holdings, Ved also looks to split his money between different fund houses so he doesn’t have too much of his savings concentrated with any one asset manager.

Ved invests on a monthly basis to try to smooth out the ups and downs on the stock market and take advantage of pound cost averaging (where you buy more units when prices are low and fewer when prices are high). “I have been drip feeding my money in on a regular monthly basis, rather than investing a lump sum. This has proved beneficial this year, and the steep fall in the stock market  earlier this year has not been too harmful to may savings as a result.”

Large-Cap Bias

When it comes to individual funds, Ved’s portfolio is weighted towards large cap stocks in more developed markets.

But he says: “I don’t want to put all of my eggs in one basket, so also have smaller amounts in mid- and small cap indices as well as some higher risk funds.”

Ved's holdings include iShares S&P 500 (IDUS) and well as iShares FTSE 100 (ISF). He also has holdings in Vanguard Developed Europe, Invesco Nasdaq (EQQQ) and Artemis Smaller Companies. He invests in these funds through his Isa with AJ Bell.

The Silver-rated Vanguard Developed Europe fund has a four-star rating from Morningstar.

Morningstar analysts say this fund represents “a cheap and balanced way for UK-based investors to add diversified exposure to continental European companies.”

Morningstar points out that the fund’s portfolio represents 90%-95% of the European developed equity market. In addition the fees on this fund, at 0.12%, are among the cheapest passive options in its category, and far cheaper than the category’s average peer.

Artemis Smaller Companies also has a Morningstar Analyst Rating of Silver, as well as a two-star rating.

Morningstar analyst Samuel Meakin says: “The experienced management and consistent approach make Artemis UK Smaller Companies a strong UK small-cap offering.”

Meakin says the approach is to invest in “smaller companies with strong business franchises, at multiples that are not aggressively high.”

He adds: “The managers look for predictability of earnings, solid balance sheets, strong returns on capital, and growth, while paying attention to valuations, with free cash flow yield an important measure in this regard.”

The smaller companies sector has not fared so well in recent years, compared with larger cap peers. According to Morningstar data the Artemis fund has generated annualised losses of 9.18% over the past three years, although its longer-term record is stronger, with investors generating returns of 7.38% over the past 10 years.

How to Beat the Market

Ved has steered clear of direct investments in individual shares. “It seems to me this a more risky path to take. You certainly need a lot of time to keep track of what you hold, how prices have moved and potential buying opportunities.” As he points out, his demanding job does not leave him time to manage his investments on a daily basis as well.

Ved tries to follow the wisdom of famous investors, such as Warren Buffett, but he thinks there are very few fund managers who consistently outperform the market.

“I don’t think that an individual like me would be able to do so. For the same reason I’d rather simply put my money in an index tracking fund, where it is invested in a lot of companies, and you get a return in line with the market. This seems to make more sense than paying for a fund manager who might outperform some years, but is likely to underperform in others.”

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Emma Simon

Emma Simon  is a financial journalist, specialising in investment and consumer issues, writing for Morningstar.co.uk