Sunday, April 06, 2008

Investing for Snork Maiden: Part II

I've looked through the Colonial First State (CFS) First Choice prospectus and come up with this tentative allocation of funds. The plan would be to invest $A3,000 initially and then do a regular investing plan of $A300 per month. We can always add money in chunks when we have it available. I'm wondering whether six funds is overkill. But it seems to me this is a reasonably balanced stock portfolio and there are no minimums for investment in each individual fund. Roughly 50% is in Australian stocks and 50% in foreign stocks. Two of the funds are geared (levered in American) - that is they borrow money - and so actual investment exposures for those funds are greater than the money invested. The portfolio overall would be borrowing 35% on top of the money actually invested. The two core investments are the CFS geared funds with 75% of the Australian exposure in the core fund and 50% of the foreign exposure in the core fund. I believe that CFS is the best manager of large cap Australian stocks. On the other hand their foreign stock performance has not been that good, but does seem to be improving, therefore, I allocate less to them on the foreign side. On the Australian side I include some small cap exposure - Souls seem to be doing better recently than CFS and this diversifies management.

Of the other three foreign managers - two - Platinum and Acadian are long-short funds - while Generation is the fund co-founded by Al Gore. Retail investors in the US can't invest in it, but ironically, Australians can. Acadian is a 130/30 fund - they maintain 100% long exposure to the stock market by investing 130% of net assets long and 30% short. Platinum is a more traditional long-short fund that at the end of December 60% net exposure to the market, with 25% short and 15% in cash. This gives us some exposure to alternative investments. There is an Acadian 130/30 Australian fund available on the platform, but given there track-record in managing Australian shares (they are based in Boston and Singapore), I'm skeptical that they can add value here.

Any other suggestions?

I could just invest the whole thing in one fund to complement the rest of our portfolio, but like the idea of having a mini fund-based portfolio to experiment with and see what happens.

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