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Arbit, HYP and OEICS 2021 Q1

General discussions about equity high-yield income strategies
Arborbridge
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Re: Arbit, HYP and OEICS 2021 Q1

#407374

Postby Arborbridge » April 27th, 2021, 1:52 pm

1nvest wrote:
Personally I’d go for 60% diversified equity, 20% gold and 20% cash. If we see long term real bond yields positive again, allocate back to bonds then.

Pretty similar to my actual intent :)

So, would it be fair to say, then, that all this discussion is pretty much theoretical, or are you actually doing anything about it?

I've looked at various ideas for investment, including running dummy portfolios. My experience suggests that applying them isn't so easy, and probably not as successful as theory says they should be.

Really, the only thing I have managed to stick with as a method (and make work reasonably well) is HYP, in addition to basic IT investing.


Arb.

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Re: Arbit, HYP and OEICS 2021 Q1

#407376

Postby 1nvest » April 27th, 2021, 2:09 pm

Of course the FT250 does comprise many IT's, was something like 43 or 47 when I last looked some years back, so I guess with around a third in FT250 and perhaps 20% of that being IT's I already hold 6.6% exposure to a broad basket of IT's. You could also perhaps form a HYP out of a selection of just FT250 stocks, so I hold one of those as well - maybe formed from 30 of the stocks, 12% of the whole, 4% when weighted to 33% FT250 holdings. Should I entrust to perhaps 15 different IT managers/individuals to do a better job than the expertise (and incompetence) of the market as a whole? Individual managers, even a bunch of 15/whatever of them are perhaps more inclined to miss things that others (market as a whole) might spot, but equally they might spot opportunities that others might have missed or be restricted from taking timely response/action.

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Re: Arbit, HYP and OEICS 2021 Q1

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Postby 1nvest » April 27th, 2021, 2:47 pm

Arborbridge wrote:So, would it be fair to say, then, that all this discussion is pretty much theoretical, or are you actually doing anything about it?

Primarily my core holdings for a number of years now has been BRK (proxy for US stock), 2MCL 2x FT250, and gold, and now quite recently a fair chunk of cash. Benchmarked to 33% each BRK/FT250/Gold (and TJH Accumulation HYP) and where I try to better that (alpha) using discretion adjustments. Since having (early) retired in 2005 achieved double digit annualised real gains my net wealth is substantially higher (multiples higher in real terms after also drawing spending). My choice of asset allocation/style isn't static however, has evolved and may very well continue to evolve in the future. My forward time objective for instance having recently turned 60 is more inclined to being more defensive, preservation of wealth a priority over maximisation of rewards.

A tinkerer over that of buy and forget, and as a such a lot of theoretical analysis. I guess a hobby of sorts - perhaps a sad one. For instance the other day I was looking into spread bets, held for just the day, so no overnight time value cost. Observing that 64% of upside since 2000 occurred during 'in hours' (68% of gains in 25% of time), and theoretically working that ... to conclude that foregoing the dividend, avoiding the time value cost, factoring in trading costs etc. led to a outcome comparable to 'the market' in net terms (but with a lot of human capital (time) cost on top). Keeps me occupied - too much so at times for instance at the cost of not doing other things that I should be doing, such as redecorating :(

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Re: Arbit, HYP and OEICS 2021 Q1

#407406

Postby 1nvest » April 27th, 2021, 5:37 pm

Spet0789 wrote:There is almost no chance that the returns of holding 10yr bonds over the next 30 years will resemble those returns of the last 30 years.

You might say the same for stocks and bonds.

I do wonder about holding 20 year Gilts for the forward time bond holding. In a time of low price/income gains then it can be volatility that pays 'dividends' (rebalancing back to target weights is a form of 'trading'). The convexity and actual price motions can surprise. Take post WW2 for instance when cash interest rates were continued to be kept low (0.5% levels i.e. similar to recent) whilst prior low/no inflation spiked up to 12% levels before dropping back down again to more around 5% levels by the mid 1950's and when in the 1950's interest rates were again permitted to rise back also to around 5% levels. Many might opine such a period was disastrous for long dated Gilts, but it wasn't. Yes the rewards were light, 1944 to 1955 for instance yielding 1% annualised real gains, compared to around 6% for stocks and 4% for commodities/PM. A third in each and near 4% average compared to 6% for all stock (speaking in after inflation terms).

The broader situation with rising inflation as sooner or later I expect we'll see repeat is not a smooth/linear transition but rather increasing spikes/troughs and then subsequent declining spikes/troughs ... i.e. quite volatile. During that zigzagging around so long dated gilts will also be volatile and convexity tends to see the 'good years' gains counter and more the 'bad years' losses. Maybe something like 5% inflation one year, 8% the next, then back down to 6% the next year, before then spiking to 12% and then falling back down to 7% before reducing further to 5% and things tending to flatten off thereafter. Long dated Gilts under such conditions will see considerable volatility but where when part of a portfolio and rebalanced that all compounds out to a much less overall loss than perhaps envisaged across a period when interest rates and inflation had been 'high/rising'. Or overall real gains despite "interest rates and inflation having broadly risen quite significantly".

As with some saying long dated gilts only had one way to go after 2009 when interest rates fell to 'such low levels' perhaps being surprised that such gilts gained 100% since. Predicting outcomes is notoriously difficult and more often the actual outcomes surprise many.

I suspect as a defensive asset allocation a third each 50/50 UK/US stock, gold and a 20 year Gilt combination yearly rebalanced might do relatively OK. Something like a 2.5% inflation bond (SWR) but where historically on average there was also a additional 2.5% real gain thrown in on top. Investors sell one asset to buy another and flows between each of stock/bonds/gold. I have no idea which may see the greatest inflow/rise in value over the next 12 months, stocks, bonds or gold. A equal probability bet has you stake equal £ amounts on each. Or you could guess/predict, if so I'd probably suspect stocks or gold were more inclined to do OK. I might even guess that given US great recent gains that they might relatively decline and UK stocks might do better, so in predictive terms I could perhaps opt for 50 UK stock, 25 US stock 25 gold ... as a guess/prediction. I wouldn't however bet the farm that that would do better than a equal three way split as often predictions prove to have been wrong.


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