absolutezero wrote:I'm a bit twitchy on my diversification.
Food Producers 12.53 %
Financial Services 11.87 %
Telecommunications 8.49 %
Banks 8.48 %
Household Goods & Home Construction 7.91 %
Oil & Gas Producers 7.26 %
Mining 7.04 %
Travel & Leisure 6.78 %
Insurance 6.73 %
REIT 6.28 %
Pharmaceuticals 6.27 %
Media 5.4 %
Software & Computer Services 2.11 %
Beverages 1.7 %
Investment Trust 1.13 %
I'd be a bit twitchy on it as well. In particular, I don't really like having more than 10% in a sector or more than 20% in a group of strongly-related sectors. So I would regard Food Producers and Financial Services as somewhat overweight sectors, and "financials" as a rather more seriously overweight group of sectors (Financial Services + Banks + Insurance = 27.74%). Some might also count REITs and Investment Trusts as "financials", which would make the "financials" group positively obese, but I don't. As far as I am concerned, REITs are mainly based on property as an asset class rather than cash, and Investment Trusts aren't a sector: individual investment trusts are packaged-up portfolios that have their only sector distribution, which might be quite concentrated or very diversified depending on how specialised or general the investment trust is.
Incidentally, the difficulty of tracking that properly is a big reason why I would regard any significant holdings of investment trusts as a separate portfolio rather than part of a HYP. There's a basic difference of approach between a HYP and an IT portfolio: the HYP has you managing which companies and sectors it's holding, the IT portfolio has the IT managers doing that and you only exerting much vaguer, once-removed control over it by your choice of ITs - you're basically picking IT managers rather than companies. So diversification management is a job that one probably wants to do at a much more detailed level for HYPs than for IT portfolios - and it's quite a lot of work to track the diversification of the combined portfolio at a level that is both detailed enough for managing the HYP and copes with the much more soft-focus diversification picture one gets of the IT portfolio. Much less work IMHO to treat them as separate portfolios that you manage in different ways from each other.
But that really is "incidentally" in this context, because your Investment Trusts weighting of 1.13% hardly counts as significant holdings!
Anyway, I'm not saying that your approaching-30% holding in financials is an utter disaster in the making, but if something were to hit financials hard, it could be pretty painful - I speak from experience here, having made the mistake of letting my financials weighting creep up to over 30% in the run-up to the 2008-2010 financial crisis! And something hitting financials hard is by no means inconceivable: a bad Brexit outcome definitely has the potential to do that...
absolutezero wrote:NG - Avoiding all utilities. Ohhh Jeremy Corbyn
Reason understood! But I think that totally avoiding all electricity, gas and water companies is an overreaction to that risk - IMHO it's a reason to keep their weighting fairly low rather than to make it zero. Basically, taking risks is unavoidable where equity investment is concerned: the reason for diversifying is the realistic aim of making the individual risks acceptably small, not the unrealistic one of eliminating them entirely.
To sum up this post, I'd be less twitchy about your portfolio's diversification if it had a few percent in each of energy utilities (i.e. gas and electricity combined - I wouldn't try to separate them as different sectors because most such companies have significant operations in both) and water utilities, and only around 20% in financials. Not totally untwitchy about it, but considerably less twitchy...
Gengulphus