For a long time, the default answer to "How should I invest?" has been to buy a passive index fund. I don't want to spark an active vs. passive debate. Passive investing is a perfectly sensible option. It's cheap, simple, and even Warren Buffett has said the vast majority of people are better off with low-cost index funds. Who am I to argue with the Oracle of Omaha?
However, to make this newsletter more tangible, I'm going to report on a portion of my portfolio that I run actively. This is often known as a "satellite" portfolio. It's the smaller, actively managed part of a "core-satellite" strategy, where the "core" is built on low-cost passive funds. The goal of the satellite is to generate higher returns.
Will I outperform a passive benchmark? Probably not, but for fun and reader entertainment, I’m willing to give it a go. Fundamentally, this is an experiment to pressure-test a core belief: that by stepping away from the herd, a thoughtful individual investor can still carve out an edge. My focus will be on generating absolute returns over the long term.
A proper experiment needs a control group. So, when I ask if I can outperform a passive benchmark, I need to be specific about which one.
A simple UK index like the FTSE All-Share isn’t a fair comparison, as this portfolio has global holdings. A broad global index like the MSCI World isn’t right either, as its tiny UK allocation wouldn’t properly test my UK-focused stock picks.
The benchmark to beat, therefore, will be the Vanguard LifeStrategy® 80% Equity Fund (Accumulation).
While no benchmark is perfect, this one is an excellent fit for three key reasons:
It’s multi-asset. With an 80% allocation to stocks and 20% to bonds, it reflects the fact that this portfolio also holds bonds and cash for stability.
It has a UK home bias. Like this portfolio, the LifeStrategy fund is globally diversified but retains a significant allocation to the UK. This means the experiment is a fairer test of UK stock selection, not just a bet on the UK market itself.
It’s a sensible default. For many UK investors, this fund is a simple, set-and-forget option. Beating it would mean this active approach has added genuine value.
The challenge is to see if a concentrated portfolio of my best ideas can outperform this simple, low-cost, and diversified passive option.
The experiment also needs a clear framework to operate within. These are the rules for this portfolio:
Long only. I'll only buy things. No shorting, no derivatives. This isn't a hedge fund.
Simple securities. Investment Trusts, REITs, ETFs, and individual stocks. Things anyone with a basic brokerage account can buy.
Concentrated. Around 15-20 holdings. If you're going to be active, your decisions have to matter. A portfolio of 100 stocks is just an expensive index fund. However, it's important to state that this concentration, while necessary for active returns, also increases risk. The performance of a single company will have a much greater impact on the overall portfolio.
Mostly UK-listed. As a practical matter, it's hard to follow many different markets well. For direct stock picking, the focus will be on the UK. My preferred way to gain overseas diversification will be through UK-listed Investment Trusts and ETFs. This approach reduces complexity and the drag from foreign exchange fees.
Tax-free account. All trades will happen inside a SIPP. This removes tax as a variable, so we're only measuring investment skill (or lack thereof).
Long time horizon. The money isn't needed for at least ten years. This is perhaps the most important rule. It's the biggest structural advantage an individual has over a professional manager. We can afford to be patient.
Style Agnostic. Not aiming to be a growth, value, or income investor. Only interested in total return.
I’ve started building the portfolio this past week, with an official start date of 1st July 2025. Here are the top ten holdings and their starting weights:
Smithson Investment Trust (SSON): 11.2%
Pollen Street Group (POLN): 9.5%
Monks Investment Trust (MNKS): 9.5%
iShares USD TIPS 0-5 UCITS ETF (TP05): 9.0%
Oakley Capital Investments (OCI): 6.3%
iShares UK Gilts 0-5yr UCITS ETF (IGLS): 6.3%
Conduit Holdings (CRE): 5.5%
XP Power (XPP): 5.5%
RM plc (RM.): 4.6%
Cake Box Holdings plc (CBOX): 4.4%
The remaining ~28% is split between several smaller positions and cash.
There is a thesis behind every one of these names. Over the coming weeks and months, I'll write about them. I'll explain what they do and why they've earned a place in the portfolio. The goal is to show the reasoning, not just the results.
On that note, I won't be reporting on performance frequently. To do so would be to fall into the trap of short-termism. The stock market is a noisy place day-to-day, and obsessing over weekly or even monthly fluctuations is a recipe for bad decisions.
I will report on performance quarterly. The first report card, covering the quarter ending September 30th, will be published in early October. Until then, the focus will be on the "why."
Until next time,
Happy investing.
Disclaimer: The content of this post is for informational and entertainment purposes only. It does not constitute investment advice. Please do your own research and consult the full disclaimer on the 'About' page.