I’ve been having a hard look at my investment funds after realising I have too many. At the end of 2019 I had 11 funds, which is just getting out of hand (again). What are they all doing? How did I end up in this situation? So this year, along with continuing my automatic investing, I want to downsize my investment portfolio.
I think one reason is that I ended up with so many funds is that it would create diversification. I want to create diversification so that I can minimise risk. But over time I have learnt that more funds can actually reduce diversification- doesn’t sound right does it. This is especially true when it comes to NZ funds– for example, the Smartshares NZ Top 50, NZ Mid Cap, NZ Dividend all invest in the same companies. So although you are buying more funds, you may just be concentrating your money into certain companies.
Cutting Back on Funds
So to start off with cutting back my funds I decided to have a closer look at my NZ funds. It’s no real surprise that they overlap quite heavily not that I think about it. Given that there are only 160 odd companies listed on the New Zealand stock exchange. And many of the funds only focus on the largest 50 companies. There are only a few ways you can cut that cake.
In my portfolio- I managed to end up with 4 NZ funds- In hindsight, I do see that I had a false sense of diversification from the fund names. Yes, I wanted to invest in the Top 50 NZ companies, and also yes I’d like some mid-cap NZ companies-oh and the ones paying good dividends I want those too. I don’ t think I am the only one doing this.
So let’s go through each and see what they are made up of. The four funds that I’m invested in are the Smartshare NZ50, Smarthares NZ Mid Cap, Smartshares NZ Dividend fund, and the AMP capital NZ share fund. And while I’m at it I’m going to have a look at the AMP capital Australasian property fund and the Smartshares NZ property fund for good measure.
Popular NZ Funds Available on InvestNow
Now for a quick recap of the NZ funds available on InvestNow;
|Smartshares NZ Top 10||The largest 10 companies on the New Zealand stock exchange|
|Smartshares NZ Top 50||The largest 50 companies on the New Zealand stock exchange|
|Smarshares NZ Mid Cap||The 11th to 50th larges companies on the New Zealand stock exchange|
|Smartshares NZ Dividend Fund||The 25 highest Dividend stocks from the 50 largest companies on the New Zealand Stock exchange|
|AMP Capital NZ share Fund||The New Zealand Shares Fund is a diversified portfolio of predominantly New Zealand shares with the aim of outperforming the S&P/NZX 50 Index.|
From this summary alone you can see that there are major overlaps between all these funds. The Smartshares NZX 50 fund contains the 50 largest companies, the Smartshares NZ top 10 contains the largest 10 companies on the NZ exchange, the Smarshares Mid Cap fund contains all the companies in the NZ Top 50 excluding the NZ top 10. And the Smarshares NZ Dividend fund contains the top 25 dividend-paying companies, all of which are in the Smartshares top 50.
Comparing NZ Share Funds
When you dig into each fund a little deeper- past the top 10 holdings of each fund you can see that there are large overlaps. If you want to learn how to look into the funds a bit deeper I would suggest having a look at the recent post by MoneyKingNZ.
From the table above you can see that many of the funds hold the same companies. Sure there are slight differences between them. But does that justify investing in all the NZ funds?
And because tables are sometimes hard to read, here it is in graph form.
Comparing Australiasian Property Funds
A similar trend can be seen between the Smarshares NZ property fund and the AMP capital property fund. The AMP Capital fund holds nearly all the companies in the NZ property fund at about half the weighting of the Smartshares NZ property fund, but the AMP capital fund also holds Australian property investment companies.
Which fund to sell?
The question then becomes, which one do to get rid of? Do you priorities the fund with the most diversification? say the NZX Top 50 or AMP NZ share fund. Or do you priorities fees? or are you over analysing it too much?
I think I’m going to keep my investment in AMP capital NZ share fund and the AMP capital Aurtralaisan property fund. My reasoning for the AMP capital over the Smartshares funds- and your gonna like this one- it’s the cheapest at 0.34%.
And why AMP capital Australasian fund over the Smartshares NZ property fund? again, it comes down to fees ( 0.33% vs 0.50%) and that the AMP capital Property fund is more diversified than the Smartshares property fund. Both in terms of how many companies make up the fund, 27 companies, vs 11 companies, and the AMP is an Australasian fund, while the Smartshares fund is NZ based.
Sure, there is still an overlap between the AMP NZ Share fund and the AMP Australasian Property fund. Both invest in the Kiwi Property Group, Goodman Property Trust, Precinct Properties of New Zealand, Argosy Property Fund, Property for Industry Ltd, Vital Healthcare Property Trust, and Stride Property Group.
But the AMP property fund also invests in several other property REITs, and the AMP NZ share fund invests in about 40 other NZ companies. So, I think, the overlap is worth it to get the small amount of NZ exposure that I want in my portfolio.
Down to 8 Funds: It’s a Start
I’ve culled my NZ Dividend fund, NZ Top 50, and NZ mid-cap funds. That takes the number of funds I hold down from 11 to 8. Still a way to go but it’s a start.
Also, you should check out Money King NZs post on More funds = less diversification? Are you investing in too many funds?