Personal Assets

[Nocton]

In 2011, having a large sum of money from sale of a business I invested most in 10 ITs:
Aberdeen Diversified Inc & Grth (ADIG) - previously and for most of the period, Aberdeen UK Tracker
Bankers (BNKR)
Foreign & Colonial (FRCL)
Jupiter European Opportunities (JEO)
Monks (MNKS)
North American Income (NAIT)
Personal Assets (PNL)
RIT Capital Partners (RCP)
Scottish Mortgage (SMT)
Witan (WTAN)

Only the dividends from the tracker/ADIG were re-invested.
Over the period of 6-7 years (the investments were spread over 10 months):
- the portfolio has risen exactly 100%
- the FTSE All Share has risen 36%
- the tracker/ADIG with dividends re-invested has risen 50%
- PNL has risen 19%

PNL was included as a "steady" holding to give some protection against market downturns - they say that their first priority is not to lose your money, but that seems to come at the expense of not even matching the general market. After yet another "market correction" PNL has still performed less well than the portfolio as a whole. A tracker would have been better and RCP, the other "steady" holding has returned 48% plus dividends.
To say I am disappointed is an understatement and today I have reviewed the LTBH strategy which has worked well for the other 9 ITs. As a result I have started selling PNL to replace with Henderson Smaller Cos. (HSL)

[Muddywaters]

Depends what you want. If I was going to hold personal assets I would either hold 100% or split my funds over similar trusts. I wouldn’t expect it to beat the market, because that isn’t what it’s for.

I personally don’t see the point in holding it as a small part of a portfolio that isn’t geared towards capital preservation. I would buy it if I made enough money not to need to make more, but wanted to beat cash and keep pace with inflation.

I would be fairly happy with 100% growth over 6/7 years mind

[Dod101]

I held PNL for some time as part of a much bigger portfolio but came to the same conclusion as the OP and as Muddywaters has mentioned. Even if it retained its value in a general downturn it is not going to make a lot of difference to a portfolio of which it is only a minor part. I suspect it is designed for wealthy Edinburgh types who have a lot of serious money and they may even have most of their liquid assets in PNL. I am not in that category and so I sold. I used to attend their AGMs and like the Directors who are all very approachable as is Sebastian Lyon, the portfolio manager. They have increased their equity holdings over the last few years but it does not seem to have made a lot of difference to the out turn.

Dod

[Aminatidi]

I thought that the whole point of funds like PNL was not to lose your money at the expense of returns.

Saying you're disappointed by the returns of a wealth preservation fund so you're putting your money into a 100% small company equities fund doesn't make sense to me tbh as surely it's comparing apples to.. bricks

[Lootman]

I thought that the whole point of funds like PNL was not to lose your money at the expense of returns.

Saying you're disappointed by the returns of a wealth preservation fund so you're putting your money into a 100% small company equities fund doesn't make sense to me tbh as surely it's comparing apples to.. bricks

Yes, a cynical soul might aver that this is a screaming buy signal for PNL which, despite its alleged under-performance, still has the highest unrealised gain in my taxable portfolio.

[Dod101]

I agree with Aminatidi but Muddywaters and I are commenting on whether PNL has a place in a portfolio of generally growth shares not on its individual performance. I decided that the benefits of PNL were outweighed by the general lack of performance in good times and even if in a downturn of 30% or more it maintained its value, it would not make a lot of difference overall with a holding of typically 5% or less so I sold.

To the OP well only he can decide but seems to have come to much the same conclusion from a slightly different angle.

Dod

[Lootman]

Depends what you want. If I was going to hold personal assets I would either hold 100% or split my funds over similar trusts. I wouldn’t expect it to beat the market, because that isn’t what it’s for.

I personally don’t see the point in holding it as a small part of a portfolio that isn’t geared towards capital preservation. I would buy it if I made enough money not to need to make more, but wanted to beat cash and keep pace with inflation.

Another way to look at that would be that you can safely invest far more in PNL than you might be willing to invest in more conventional funds. You might feel, for instance, that you don't need to hold so much cash as a safety margin.

As an example, I went into 2007-2009 with a six-figure sum invested in PNL. In the previous few years it had under-performed the market, as you'd expect it to when the market is going up. But it proved its worth in 2007-2009. It actually went down a little, but not a lot. I was able to sell it and buy into growthier names at much lower prices. It's unlikely that I would have kept such a sum in cash, but I was happy to hold it in PNL.

As the market rose over the following few years, I began to build a position in PNL again.

[Nocton]

Thanks for all the comments.
Aminatidi wrote:

I thought that the whole point of funds like PNL was not to lose your money at the expense of returns.

Saying you're disappointed by the returns of a wealth preservation fund so you're putting your money into a 100% small company equities fund doesn't make sense to me tbh as surely it's comparing apples to.. bricks

Yes, but from all the interesting (and justifying weak performance) newsletters PNL does not suggest their approach will be at the expense of returns compared to the overall market - just that one would have a smoother ride with less chance of loss vs. lower chance of gain.
And as Dod and Muddywaters have said, the holding is/was part of a diversified portfolio. Hence HSL can go in to the portfolio to give more, but different, diversification. My disappointment with PNL is that hey have not done what they promised and 7 years and two sharp downturns in the market is enough time to see if their strategy works. In terms of real, inflation-adjusted, return PNL has barely given a real return. Passive investing with a tracker would have been better.

[hiriskpaul]

A system that reliably delivered near market returns on the upside, with less than market downside protection is something of a holy grail for investing. Such a system would be of great interest to investment banks and hedge funds as it could be safely geared up to produce exceptional returns. AFAIK no one has found such a system and if this is what Personal Assets claim to be able to do they are selling snake oil.

[Lootman]

A system that reliably delivered near market returns on the upside, with less than market downside protection is something of a holy grail for investing. Such a system would be of great interest to investment banks and hedge funds as it could be safely geared up to produce exceptional returns. AFAIK no one has found such a system and if this is what Personal Assets claim to be able to do they are selling snake oil.

That is not what PNL claims to do. In fact both the last manager and the current one have said that they expect to under-perform in bull markets. Rather, the aim is to out-perform over entire market cycles.

Now, you could criticise PNL for really just doing a variation on market timing, and that timing doesn't work. Or that it is an asset allocation fund, to which the same criticism may be made. But over the very long term it has done well by that standard. The one big mistake it made was holding dogs like RBS going into the mortgage crisis, but then they were hardly alone in that error. And that was under the old manager. And as I noted above it performed credibly in that period.

But the utility of PNL may be less than 20 or 30 years ago because there are more retail alternatives now, such as hedge funds, absolute return funds, hedging via options and so on. And perhaps 1% a year is a lot to pay for a fund that may be 50% in cash for periods.

All that said I'd agree with others who said that there is no point in having PNL as a small part of a portfolio. Either go big or go home.

[richfool]

I have been tending towards Lootman's last para above "thinking", though have held onto PNL mainly for its exposure to things like index-linked securities and gold, things that I dont wish to have separate holdings of.
Though noted its proportion of my portfolio as a whole is relatively small and therefore it probably makes little difference (to be worth maintaining).

[Parky]

I don't see anything wrong with using PNL to dampen the volatility of a portfolio by including the cash and IL bond holdings of PNL. My ISA is about 30% PNL, and I intend to increase that if geopolitical and economic risk (e.g. Brexit, Trump instability) keep increasing.

[Nocton]

I don't see anything wrong with using PNL to dampen the volatility of a portfolio

I think you may have missed the point I was truing to make, Parky.
My results show that PNL has only "dampened the volatility" by not actually rising very much. A stock that doesn't change in value certainly dampens volatility, but is of no practical interest. Holding a FTSE tracker would have given a little more volatility, but mainly because of large upswings. If you compare the charts over the last 5 years you will see that RCP is equally less volatile than PNL but has actually achieved decent growth. So on the evidence I would recommend that you switch all or most of your PNL to RCP.

[Aminatidi]

Thanks for all the comments.
Aminatidi wrote:

I thought that the whole point of funds like PNL was not to lose your money at the expense of returns.

Saying you're disappointed by the returns of a wealth preservation fund so you're putting your money into a 100% small company equities fund doesn't make sense to me tbh as surely it's comparing apples to.. bricks

Yes, but from all the interesting (and justifying weak performance) newsletters PNL does not suggest their approach will be at the expense of returns compared to the overall market - just that one would have a smoother ride with less chance of loss vs. lower chance of gain.
And as Dod and Muddywaters have said, the holding is/was part of a diversified portfolio. Hence HSL can go in to the portfolio to give more, but different, diversification. My disappointment with PNL is that hey have not done what they promised and 7 years and two sharp downturns in the market is enough time to see if their strategy works. In terms of real, inflation-adjusted, return PNL has barely given a real return. Passive investing with a tracker would have been better.

I thought PNL made really clear that preservation of capital is the priority and returns very much secondary?

Don't get me wrong, I'm not suggesting you shouldn't be doing something different, and I'm not trying to be obtuse but PNL does a very specific thing in my view.

Do HSL or any small companies fund say their priority is preserving capital? That's where I'm confused

[Nocton]

Do HSL or any small companies fund say their priority is preserving capital? That's where I'm confused

No, but for me as part of a portfolio of 10 ITs they provide a useful diversification. I originally added PNL and RCP as 'steadier' ITs as part of that diversification. RCP has delivered PNL have not.

[Aminatidi]

Do HSL or any small companies fund say their priority is preserving capital? That's where I'm confused

No, but for me as part of a portfolio of 10 ITs they provide a useful diversification. I originally added PNL and RCP as 'steadier' ITs as part of that diversification. RCP has delivered PNL have not.

Which makes me happy as I also chose RCP for a "steadier" but with a seemingly good historical average return

[Lootman]

My results show that PNL has only "dampened the volatility" by not actually rising very much. A stock that doesn't change in value certainly dampens volatility, but is of no practical interest. Holding a FTSE tracker would have given a little more volatility, but mainly because of large upswings. If you compare the charts over the last 5 years you will see that RCP is equally less volatile than PNL but has actually achieved decent growth. So on the evidence I would recommend that you switch all or most of your PNL to RCP.

But the last 5 years have been a bull market. In fact it's about 9 years old at this point.

If we had a few down years then the idea is that PNL would out-perform those other funds because they would go down and PNL would not.

So it's like you bought insurance but your house didn't burn down. Was the insurance premium therefore a waste?

[scotia]

So it's like you bought insurance but your house didn't burn down. Was the insurance premium therefore a waste?

But there is no guarantee that it is an insurance. PNL contains a lot of cash or cash equivalents - is this wise if inflation takes off? And there is a substantial holding of gold - possibly OK if you are a believer - I'm not. And if there is a substantial fall in equities, then its 42% (approx.) equity exposure will also fall. I really can't see it creating a substantial out-performance in a medium term market down-turn which would make up for the loss of growth in more benign market conditions. Now if there was a decade-long Bear Market, then the best place would be out of the market - rather than holding an IT which was less bad than the rest.

[Eboli]

The OP talks of an investment in 2011. It would be instructive to see the comparison of returns had the investment been made not 7 years ago but 14.

FWIW I treat PNL as a cash substitute in my Luni Bo7 (Basket of 7) IT portfolio and this seems to have worked very well. Originally I divided the amount to be invested into 8 and invested in the Bo7 + PNL. I draw an amount near to the natural yield from the Bo7 but...(pace! Luni...I use a "collar" to keep a sort of equal weighting in the constituents of the Bo7 (in my case selling if an individual constituent exceeds 14% of 1/7th of the value of the Bo7 and buying when it falls below 7% of 1/7th of the value. I reduce the up collar to 7% when the total value is within 1% of the all time high. This is where PNL comes in because any trades are from or to the sums held in PNL. What I like about this is it is entirely mechanical and an Excel programme alerts me automatically when I trade (about 2 or 3 times a year).

Eb.

[Parky]

Nocton said "you have missed the point".

No, I don't dispute your statement that RCP has outperformed PNL over the last 5 years. But, you are looking backwards, and assuming this will continue. I am looking forwards, and setting up my asset allocation to suit my view of the possible/likely future. RCP has a much higher equity allocation than PNL, and in simplistic terms, that is riskier at the current time of "generous" equity valuations.
I tend towards Eboli's view of PNL as a cash substitute but in a looser way, not as rule based as he does.
I also expect and trust PNL to keep their asset allocation under review, and be able to make a better judgement than I of when the equity market is "undervalued", and be able to move into riskier assets quicker/better than I can.

Time will tell.