Changes at Personal Assets (PNL)

[tikunetih]

I've really no idea why PNL appears so contentious, with posters here regularly moaning about it and trotting out the same old stuff.

In reality, PNL is one of a gazillion funds available out there operating a conservative strategy, with either explicit or implicit volatility targeting. Unlike the many alternatives, it just so happens to be an IT instead of OEIC and have been around for a while, with its strategy evolving somewhat over this period, primarily when the current manager took over a decade+ ago, being run since then as a mirror of Troy's Trojan fund strategy.

Its return profile over that past decade is somewhat similar to the IA Volatility Managed sector, albeit with those returns achieved in a different way than most funds due to its "barbell" approach of holding equities plus lots of safe assets, rather than lots of credit as other funds do. Many of these alternatives will be much cheaper, using largely passive vehicles for portfolio construction, with the cheapest coming in at <20-30bps OCF (eg. L&G Multi Index 4, HSBC Global Strategy Conservative).

Where it differs to many other funds with similar 5 and 10 yr return profiles is that its Flexible mandate means at the manager's discretion it could dramatically ramp up risk asset exposure. The manager is valuation driven, so I'd expect them to do this if they saw equity valuations that they judged to be mouth-watering, ie. valuations capable of delivering very attractive long term returns in their judgement. This provides the potential for some optionality in the fund's returns: modest returns in normal times with low volatility, relatively defensive and protecting capital reasonably well during periods of market stress and bear markets, with the ability to deliver high returns following a deep bear market if valuations got to meet the manager's strict criteria.

I'd say this optionality is what you're paying for with this actively run fund, when you outsource the decision making and judgement to Troy rather than doing this yourself. Troy runs about £6B under this mandate so there's a market for this, but clearly it's not for everyone.

"Market timing", mentioned above, is generally considered to be buying or selling based on predictions of shorter term market direction.

Valuation is widely recognised as a very poor market timing tool, but an excellent long term returns predictor. Troy practises acute valuation discipline - and from what I've seen they are just about the last people to ever get caught up in some fashionable investment fad - but I've never seen them attempt any market timing by calling short term direction, nor do they claim to do that and they certainly don't have the skillset (the trading skills) to attempt it.

Markets need some people to practice valuation discipline otherwise they wouldn't function properly, so folks like Troy fulfill a useful purpose.

[tikunetih]

II'm beginning to wonder about my wealth preservers, in particular PNL (and not including RCP in my concerns). PNL might yet be for the chop at some point in the not that distant future with funds released going to passive trackers.

Are you getting tired of their drag on your portfolio's performance, causing you to question why you're paying the manager's ~1% per year for the privilege?

What do you intend buying with the proceeds?

You mention buying passive trackers - do you intend switching the proceeds into equity index trackers, thereby significantly raising your risk asset exposure on this invested money? Or do you mean switching into multi asset funds that make use of underlying passives (equity, credit, govies), such that the risk profile of this money might not change significantly but the management cost will be lowered?

[Lootman]

I see it as one of those vehicles which suits the Edinburgh elite, and gives them a suitable place to park a million or two, and that of course is who it is designed for. It is of little value to the ordinary mortal.

As to targetting an elite, I think that is stated explicitly since its stated primary mission is to preserve wealth, which implies that it is a vehicle designed for high new worth individuals. One aspect of that which has been mentioned regularly in the quarterlies is the tax efficiency of having most of your wealth in PNL as you can swap between asset classes without incurring the CGT that you would suffer if you were instead doing a DIY version using ETFs etc. Such tax concens benefit only those who have more assets than they can shelter in ISAs, SIPPS etc.

I used to own Personal Assets and knew it quite well, but gave up because I could not see the point. Supposing it does hold up in a market sell off, so what? It would only ever be a small proportion of my portfolio so it wold not make much difference and the static dividend is not even open to foreign exchange variations. The dividend has been at its current level for maybe 10 years? I have not looked, and it has of course been steadily losing purchasing power over that time.

I do not believe that PNL targets any particular level of dividend and, if I am correct about that, then it should not be judged in that way. Clearly holding things like gold, cash or short-dated debt instruments is not going to be an income proposition. PNL aims for total return at a lower level of risk.

As for holding up in a bear market, I think that was partially proven during the 2007-2009 crash. As I recall it was down about 20% at its worst compared to 50% for a lot of things. Whether that works for you probably depends on what you were expecting. Given that it is always at least about one third in equities then it will still fall when equities do, just less. What good is that? In my case at the time I had a very large position in PNL (six figures). After the fall I sold the entire position (luckily it was in an ISA) and redeployed the money in equities.

In other words I did the "market timing" that I perhaps should have trusted PNL to do. At that time they remained cautious although that might have been caused the then manager's guilt about not seeing the crash coming, his subsequent death, and the appointment of a new manager. Anyway the point is that PNL did work for me. I was willing to commit a much larger amount of capital to PNL than I would have felt comfortable committing to an all-equity fund, and that is a key consideration for me i.e. that I don't need to hold a big wodge of cash as well. I can seek a a higher allocation to PNL than to other funds.

Anyway the reinvested PNL proceeds did well as the markets recovered and, after a few years I took another position in PNL as equities became richer. If markets swoon again then I will see how PNL responds and either ride them or cash out again and redeploy in shares. Meanwhile it does grind higher each year in a fairly uninteresting way, so I sleep at night and don't often think about it.

As mentioned before I have LTI to give me excitement and fear.

[Aminatidi]

I tend to think that of the traditional "preservation" options Capital Gearing Trust looks the most compelling.

The long term track record is there though as I think was mentioned Peter Spiller may not want to work forever.

Their long term record is bordering on unbelievable and perhaps illustrates the long term value and benefits of this kind of vehicle.

I struggle to think of many safer options for money that I'm prepared to expose to some risk as savings rates are non-existent.

I wonder if I may be a bit of an exception though as, with all respect, many members here to seem to be looking for dividends/income.

[Julian]

II'm beginning to wonder about my wealth preservers, in particular PNL (and not including RCP in my concerns). PNL might yet be for the chop at some point in the not that distant future with funds released going to passive trackers.

Are you getting tired of their drag on your portfolio's performance, causing you to question why you're paying the manager's ~1% per year for the privilege?

What do you intend buying with the proceeds?

You mention buying passive trackers - do you intend switching the proceeds into equity index trackers, thereby significantly raising your risk asset exposure on this invested money? Or do you mean switching into multi asset funds that make use of underlying passives (equity, credit, govies), such that the risk profile of this money might not change significantly but the management cost will be lowered?

I haven't fully decided but am leaning towards putting the proceeds into the later, something like Vanguard Life Strategies, L&G Multi-Indexes, HSBC Global Strategies or the New Blackrock stuff (Consensus(es)?) - all pluralised because each is a family of funds targeting differing allocation/volatility profiles. I haven't really done any research on the alternatives yet beyond collecting the names of candidates to research.

Ultimately on risk as Dod101 observed I too have such a small percentage of my overall investment portfolio in these things, about 1.6% in PNL on current valuation, that I'm not sure how much preserving that bit of wealth gets me. At any given time I hold about 4 or 5 times more in cash than I do in PNL.

One could question why I ever invested in the first place at such a low percentage. It was at a time when I was experimenting with various strategies and broadly speaking had decided to move away from a 100% HYP strategy by building a more capital-growth-oriented portfolio alongside my income-oriented portfolio where I would choose the investments in that new portfolio with no regard for yield and extract extra annual income from this second portfolio by making capital sales each year hopefully top-slicing growth. I decided to temper the risk within that second portfolio by having about 30% of it in the wealth preservation funds I mentioned.

I suppose that you could well be right when asking whether I have some frustration with the drag in my portfolio but only if looking only at my capital-growth-based portfolio; once my income portfolio is added any drag is pretty much unnoticeable to me. When looking just at my growth-oriented portfolio though about 7 or 8 years on there is relatively little locked in growth in PNL to harvest for annual income vs for instance various Vanguard equity trackers (or RCP for that matter) where there is significantly more.

I do realise that there is no such thing as a free lunch and that taking the more conservative approach is likely to reduce upside gains but I'm thinking that perhaps re-configuring that bit of my capital-growth-oriented portfolio towards one or more of the multi-assets funds might to some extent combine the roles of a tracker that I can top-slice for income plus some downside protection (wealth preservation), generally simplify things, and reduce costs. If I was happy with the multi-asset tracker approach I might well then consider switching some of my pure equity trackers at least partially into the multi-asset passives(*) to adjust the risk profile in that growth-oriented-portfolio as I felt inclined to do at the time.

(*) almost passives - I realise that some of these funds can actively change asset allocations between the underlying trackers to meet volatility targets or for other reasons but as mentioned I am at roughly stage zero in researching these things.

- Julian

[tikunetih]

Ultimately on risk as Dod101 observed I too have such a small percentage of my overall investment portfolio in these things, about 1.6% in PNL on current valuation, that I'm not sure how much preserving that bit of wealth gets me. At any given time I hold about 4 or 5 times more in cash than I do in PNL.

One could question why I ever invested in the first place at such a low percentage. It was at a time when I was experimenting with various strategies and broadly speaking had decided to move away from a 100% HYP strategy by building a more capital-growth-oriented portfolio alongside my income-oriented portfolio where I would choose the investments in that new portfolio with no regard for yield and extract extra annual income from this second portfolio by making capital sales each year hopefully top-slicing growth. I decided to temper the risk within that second portfolio by having about 30% of it in the wealth preservation funds I mentioned.

I don't much like the HYP strategy, so if the token PNL holding played a small part in you beginning to diversify away from HYP then that's something useful in my mind!

I do realise that there is no such thing as a free lunch and that taking the more conservative approach is likely to reduce upside gains but I'm thinking that perhaps re-configuring that bit of my capital-growth-oriented portfolio towards one or more of the multi-assets funds might to some extent combine the roles of a tracker that I can top-slice for income plus some downside protection (wealth preservation), generally simplify things, and reduce costs. If I was happy with the multi-asset tracker approach I might well then consider switching some of my pure equity trackers at least partially into the multi-asset passives(*) to adjust the risk profile in that growth-oriented-portfolio as I felt inclined to do at the time.

Fair enough, sounds reasonable to me.

With any multi-asset trust or fund, I think it's worth looking into what they actually hold so you have some appreciation of how they might perform in different circumstances, so as not to be taken by surprise...

For example, if a fund holds a fair amount of corp bonds, in bad times these may behave quite a lot like equities. If a fund holds long duration gov bonds and inflation returns and interest rates rise, this part of the portfolio may well take a beating. Some of the multi asset trusts have largely avoided both of those asset classes, a decision which will have had an ongoing performance cost for years now, but in certain circumstances their choice could serve them very well.

With the volatility-targeted funds and especially the actively-managed trusts, both have scope to change allocations, so we don't really know how or whether their portfolios might change in the face of changing markets. I'm interested to see if the volatility targeted portfolios actually do change materially in times of market stress, or whether the changes would be minimal; there's not much history to go on of these products.

Without knowing what the future holds perhaps an appealing option is to back a number of approaches, i.e diversify across multi-asset strategies to some extent, so long as each is fundamentally sound and can be bought cost effectively, ensuring you enjoy a blend of results rather than just attempting to guess which might work best? I can see arguments both for and against that.

What I do like about these multi asset trusts and funds is that they alleviate psychological pressure on the investor. Successful long term investing requires discipline, and it's hardest to exercise this discipline when markets are either tanking or racing away. Having someone else tasked with oversight, rebalancing etc. will, for many people, deliver a better result, and for most people will deliver an easier ride.

[richfool]

Ultimately on risk as Dod101 observed I too have such a small percentage of my overall investment portfolio in these things, about 1.6% in PNL on current valuation, that I'm not sure how much preserving that bit of wealth gets me. At any given time I hold about 4 or 5 times more in cash than I do in PNL.

One could question why I ever invested in the first place at such a low percentage. It was at a time when I was experimenting with various strategies and broadly speaking had decided to move away from a 100% HYP strategy by building a more capital-growth-oriented portfolio alongside my income-oriented portfolio where I would choose the investments in that new portfolio with no regard for yield and extract extra annual income from this second portfolio by making capital sales each year hopefully top-slicing growth. I decided to temper the risk within that second portfolio by having about 30% of it in the wealth preservation funds I mentioned.

I don't much like the HYP strategy, so if the token PNL holding played a small part in you beginning to diversify away from HYP then that's something useful in my mind!

I do realise that there is no such thing as a free lunch and that taking the more conservative approach is likely to reduce upside gains but I'm thinking that perhaps re-configuring that bit of my capital-growth-oriented portfolio towards one or more of the multi-assets funds might to some extent combine the roles of a tracker that I can top-slice for income plus some downside protection (wealth preservation), generally simplify things, and reduce costs. If I was happy with the multi-asset tracker approach I might well then consider switching some of my pure equity trackers at least partially into the multi-asset passives(*) to adjust the risk profile in that growth-oriented-portfolio as I felt inclined to do at the time.

Fair enough, sounds reasonable to me.

With any multi-asset trust or fund, I think it's worth looking into what they actually hold so you have some appreciation of how they might perform in different circumstances, so as not to be taken by surprise...

For example, if a fund holds a fair amount of corp bonds, in bad times these may behave quite a lot like equities. If a fund holds long duration gov bonds and inflation returns and interest rates rise, this part of the portfolio may well take a beating. Some of the multi asset trusts have largely avoided both of those asset classes, a decision which will have had an ongoing performance cost for years now, but in certain circumstances their choice could serve them very well.

With the volatility-targeted funds and especially the actively-managed trusts, both have scope to change allocations, so we don't really know how or whether their portfolios might change in the face of changing markets. I'm interested to see if the volatility targeted portfolios actually do change materially in times of market stress, or whether the changes would be minimal; there's not much history to go on of these products.

Without knowing what the future holds perhaps an appealing option is to back a number of approaches, i.e diversify across multi-asset strategies to some extent, so long as each is fundamentally sound and can be bought cost effectively, ensuring you enjoy a blend of results rather than just attempting to guess which might work best? I can see arguments both for and against that.

What I do like about these multi asset trusts and funds is that they alleviate psychological pressure on the investor. Successful long term investing requires discipline, and it's hardest to exercise this discipline when markets are either tanking or racing away. Having someone else tasked with oversight, rebalancing etc. will, for many people, deliver a better result, and for most people will deliver an easier ride.

Well in the light of the recent market falls, I've just been having another look at Personal Assets (PNL) and note that despite all its defensive qualities, it is showing as having fallen by 7.2% in the last week (acc to HL website), though I suppose some would argue that is a lot less than many funds.

Another thought that occurs to me, is that surely its holdings of TIPS and index-linkers aren't going to be much use during a period of recession even with the stimulus being provided by central banks.

[MusingMarket]

Well in the light of the recent market falls, I've just been having another look at Personal Assets (PNL) and note that despite all its defensive qualities, it is showing as having fallen by 7.2% in the last week (acc to HL website), though I suppose some would argue that is a lot less than many funds.

Another thought that occurs to me, is that surely its holdings of TIPS and index-linkers aren't going to be much use during a period of recession even with the stimulus being provided by central banks.

Friday close to Friday close Net Asset Value was down 'only' 3.25% (compared to 16.8% for the FTSE All-share, not sure if PNL's NAV took into account the late US rally on Friday though). PNL was issuing equity at the beginning of last week (at a premium to NAV) and buying it back today (at a discount) which would be a reason for the disparity between NAV and share price.

Price action around 9am today, when PNL was under £380, shows how all this fluff about keeping discounts/premiums constrained isn't really possible when volatility is so high. It's why I prefer the OEIC equivalent (in this case Troy Trojan - same manager, obviously the board makes a difference longer term) where the underlying assets are highly liquid (relatively) and there's little or no discount to NAV.

Index-linked bonds can have deflationary protection properties (search "tips deflation floor").

mm

[richfool]

Well in the light of the recent market falls, I've just been having another look at Personal Assets (PNL) and note that despite all its defensive qualities, it is showing as having fallen by 7.2% in the last week (acc to HL website), though I suppose some would argue that is a lot less than many funds.

Another thought that occurs to me, is that surely its holdings of TIPS and index-linkers aren't going to be much use during a period of recession even with the stimulus being provided by central banks.

Friday close to Friday close Net Asset Value was down 'only' 3.25% (compared to 16.8% for the FTSE All-share, not sure if PNL's NAV took into account the late US rally on Friday though). PNL was issuing equity at the beginning of last week (at a premium to NAV) and buying it back today (at a discount) which would be a reason for the disparity between NAV and share price.

Price action around 9am today, when PNL was under £380, shows how all this fluff about keeping discounts/premiums constrained isn't really possible when volatility is so high. It's why I prefer the OEIC equivalent (in this case Troy Trojan - same manager, obviously the board makes a difference longer term) where the underlying assets are highly liquid (relatively) and there's little or no discount to NAV.

Index-linked bonds can have deflationary protection properties (search "tips deflation floor").

mm

Thanks, I also spotted this:

https://www.treasurydirect.gov/indiv/re ... ps_faq.htm

What happens to TIPS if deflation occurs?

The principal is adjusted downward, and your interest payments are less than they would be if inflation occurred or if the Consumer Price Index remained the same. You have this safeguard: at maturity, if the adjusted principal is less than the security's original principal, you are paid the original principal.

[richfool]

The principal is adjusted downward, and your interest payments are less than they would be if inflation occurred or if the Consumer Price Index remained the same.

So upon thinking about the above overnight, then the interest payments would reduce during a period of deflation. I'm not sure what would happen to the capital value during that period, that the likes of PNL would be showing in their NAV.

[richfool]

Personal Assets latest report, April 2020, is out (with their view on inflation) and can be accessed through here:

https://www.patplc.co.uk/literature/quarterly-reports

[Dod101]

Personal Assets latest report, April 2020, is out (with their view on inflation) and can be accessed through here:

https://www.patplc.co.uk/literature/quarterly-reports

Thanks for the link. I like Sebastian Lyon and he has written what seems to me to be a helpful and perceptive report, about the first one I have read on the current crisis and the likely way out for us investors. Better fasten our seat belts.

Dod

[jackdaww]

Personal Assets latest report, April 2020, is out (with their view on inflation) and can be accessed through here:

https://www.patplc.co.uk/literature/quarterly-reports

======================

a good read . thanks.

[richfool]

US Treasury Inflation-Protected Securities (TIPS) and gold will protect us from real interest rates moving more negatively, i.e. when the inflation rate stands above the rate of interest. With state forces pushing money into the economy, an inflationary outcome cannot be ruled out. Cash is likely to have its value eroded if real rates go more deeply negative, and if this happens our cash weighting is likely to fall in the years to come. For now it continues to provide essential dry powder for us to deploy.

If it wasn't for his holdings of tobacco stocks I would be very amenable to buying some PNL for its exposure to US TIPS and gold.

[ADrunkenMarcus]

PNL's equity holdings are worth a look:

Microsoft
Nestle
Unilever
Alphabet
Philip Morris
Diageo
Visa
British American Tobacco
Medtronic
Berkshire hathway

form the top ten.

Best wishes

Mark.

[Lootman]

PNL's equity holdings are worth a look:

Microsoft
Nestle
Unilever
Alphabet
Philip Morris
Diageo
Visa
British American Tobacco
Medtronic
Berkshire hathway

Of those I hold the eight non-tobacco shares. PNL has never been about stellar share-picking and has been invested in major household names for as long as I know. So what you get (or don't get) with PNL is more their supposed asset allocation and timing skills.

There is nothing it holds that you could not duplicate. But are you as deft at making allocation changes as they claim to be? And would you take a CGT hit if you tried to do that yourself?

[Aminatidi]

US Treasury Inflation-Protected Securities (TIPS) and gold will protect us from real interest rates moving more negatively, i.e. when the inflation rate stands above the rate of interest. With state forces pushing money into the economy, an inflationary outcome cannot be ruled out. Cash is likely to have its value eroded if real rates go more deeply negative, and if this happens our cash weighting is likely to fall in the years to come. For now it continues to provide essential dry powder for us to deploy.

If it wasn't for his holdings of tobacco stocks I would be very amenable to buying some PNL for its exposure to US TIPS and gold.

Whilst it's an OEIC not a trust remember that Troy offer an ethical version of their Trojan fund.

[ADrunkenMarcus]

PNL's equity holdings are worth a look:

Microsoft
Nestle
Unilever
Alphabet
Philip Morris
Diageo
Visa
British American Tobacco
Medtronic
Berkshire hathway

Of those I hold the eight non-tobacco shares. PNL has never been about stellar share-picking and has been invested in major household names for as long as I know. So what you get (or don't get) with PNL is more their supposed asset allocation and timing skills.

There is nothing it holds that you could not duplicate. But are you as deft at making allocation changes as they claim to be? And would you take a CGT hit if you tried to do that yourself?

I hold Unilever and Diageo myself, plus MasterCard in lieu of Visa - together they account for about 26% of my portfolio.

For me, I just look at PNL and other trusts for the occasional idea for further research. I'm in all equities at my stage of investing although it would be nice to grow wealthy enough to need PNL as a preservation tool eventually.

Best wishes

Mark.

[richfool]

PNL has used some of its dry powder, by buying more Alphabet, Berkshire Hathaway, Medtronic and Visa:

Reports for Lyon’s £4.4bn Trojan fund show the manager has upped the proportion of the portfolio held in shares to 42%, up from 34% at the end of January.

The manager bought more shares in Google owner Alphabet (GOOG.O), Warren Buffett’s investment vehicle Berkshire Hathaway (BRKa.N), medical device manufacturer Medtronic (MDT.N) and payments processor Visa (V.N) last month.

https://citywire.co.uk/funds-insider/ne ... s/a1347380

[Dod101]

PNL has used some of its dry powder, by buying more Alphabet, Berkshire Hathaway, Medtronic and Visa:

Reports for Lyon’s £4.4bn Trojan fund show the manager has upped the proportion of the portfolio held in shares to 42%, up from 34% at the end of January.

The manager bought more shares in Google owner Alphabet (GOOG.O), Warren Buffett’s investment vehicle Berkshire Hathaway (BRKa.N), medical device manufacturer Medtronic (MDT.N) and payments processor Visa (V.N) last month.

https://citywire.co.uk/funds-insider/ne ... s/a1347380

It does not affect me but are you sure he has been buying for Personal Assets? It reads as though he has been buying for the Trojan fund.

Dod