gnawsome wrote:VRD
ITs like CTY may well be a considerable duplication of underlying holdings.
I puzzle why this is a problem.
Sorry if I didn't make the context clear.
If a HYPer is building their portfolio and has currently reached say, 10 different UK FTSE100 companies, and then decides that to get a bit more diversification, they'll add some CTY, they may not realise (without looking at what CTY holds) that the extra holding of CTY provides very little additional diversification!
E.g. Our intrepid HYPer has built a portfolio of:
RDSB
HSBC
BATS
DGE
BP
VOD
Pru
ULVR
LLOY
GSK
As luck would have it (and it's very lucky, nothing to do with me having the CTY fund sheet in front of me!) the above constitute just over 1/3 of the holdings of CTY so our budding HYPer has effectively used 1/3 of their top up money to purchase more of what they already had.
If this is repeated with a few more UK focussed ITs, the portfolio may well have 15 - 20 holdings, but the overlapping holdings within the ITs may mean our portfolio holder has a much greater concentration of assets in a few key shares than they would be comfortable with if the holdings were direct.
For many holders, this duplication isn't a problem, because they have chosen not to hold the underlying assets directly, (e.g. if 10 ITs each hold 5% of RDSB, and our investor holds all ten equally, they still only have 5% exposure to RDSB). The issue is when the holder also has 5% of RDSB directly, making a portfolio concentration of 10%, which may be more than they realised!
The message I'd like to get accross is that IT holders need to be aware of what the IT holds, and whether this is compatible with the rest of their holdings from a stock or sector perspective. Pretty obvious, but worth mentioning, especially in the context of mixing ITs in with a HYP style equity portfolio.