Introduction of ITs to my portfolio...views?

[moneybagz]

Hi,

I'd like to add some ITs into my portfolio in an attempt to outperform the market. I believe that my best chance of achieving this would be to use low cost ITs with high conviction and a good track record. As my portfolio is only £100k I'd like to keep it as simple as possible to avoid transaction charges when rebalancing each year.

I'm still learning about ITs so if any could pass comment on my choices, or recommend alternatives, I'd be grateful:

30% Vanguard FTSE Dev World ex UK
23% Vanguard Global Bond Index
10% JPMorgan Emerging Markets IT (JMG)
10% Law Debenture IT (LWDB)
10% Scottish Investment Trust (SMT)
10% WisdomTree Physical Gold GBP Hedged (GBSP)
7% TR Property Investment Trust (TRY)

Portfolio TER is 0.46%. X-ray tool indicates:

Greater Europe 37%
Americas 42%
Greater Asia 21%

Cyclical 48%
Sensitive 34%
Defensive 18%

P/B 2.67
P/E 18.61
P/C 12.35

Large 72% (21% value, 22% blend, 29% growth)
Mid 19%
Small 9%

Many Thanks

[monabri]

Vanguard funds as a bedrock and SMT & JMG for spice. I'm curious as to why LWDB. Was it for the current yield and cover ( reserves) which is why I added it last week?

[moneybagz]

I added LWDB as it was a cheap way to balance out the portfolio with some value equities.

[moneybagz]

I've considered City Of London (CTY) as an alternative

[MusingMarket]

10% Scottish Investment Trust (SMT)

The ticker (SMT) is for Scottish Mortgage not Scottish Investment Trust (SCIN).

mm

[moneybagz]

...missed out the word 'Mortgage'

[ADrunkenMarcus]

...missed out the word 'Mortgage'

Scottish Mortgage is a good long term choice IMHO.

Best wishes

Mark.

[Nocton]

"As my portfolio is only £100k I'd like to keep it as simple as possible to avoid transaction charges when rebalancing each year. "
Choose 10 ITs - that's plenty for diversification. Don't rebalance each year, just let the winners keep winning if they can. Re-invest dividends automatically, if you can afford to. My choice of ten:
Aberdeen Diversified Inc & Grth (ADIG)
Bankers (BNKR)
Foreign & Colonial (FCIT)
Henderson Smaller Cos. (HSL)
European Opportunities (JEO)
Monks (MNKS)
North American Income (NAIT)
RIT Capital Partners (RCP)
Scottish Mortgage (SMT)
Witan (WTAN)

[JohnW]

Hi,

I'd like to add some ITs into my portfolio in an attempt to outperform the market.

As I understand it ITs are closed ended. Are you comfortable facing the possibility of your ITs trading at a substantial discount to NAV when you need to sell any if you didn't buy them at that or a bigger discount?
The average investor can't outperform the market because the market is made up of those beating and those losing compared to the market, with the average of all being the market return. Do you have a good basis for believing you are above average in fund picking?

[DavidM13]

Hi,

I'd like to add some ITs into my portfolio in an attempt to outperform the market.

The average investor can't outperform the market because the market is made up of those beating and those losing compared to the market, with the average of all being the market return. Do you have a good basis for believing you are above average in fund picking?

It is clear from his post that previously he has only been in ETFs and he would like to do something different to "beat the market" . One thing can be assured (save for tracking error) is that you cannot beat the market in an ETF. So if he wants to outperform the market he needs to try something else.

[moneybagz]

Thanks for the replies. I'm guessing that now is as good a time as any to start looking at buying ITs, as discounts have generally widened over the last month and may widen further. I'm also looking to save money in my SIPP (HL) by moving my portfolio into ITs and ETFs. As an average investor, all I can rely on is trying to find a low cost IT that is well managed, with a higher than average conviction and a decent track record of beating the market. I've purposely left my passives in large US/developed markets, and the majority of my actives in the more inefficient markets. I can't claim I have an ability to pick above average actives, all I can do is improve my chances by using the evidence available.

[colin]

Hi,

I'd like to add some ITs into my portfolio in an attempt to outperform the market.

The average investor can't outperform the market because the market is made up of those beating and those losing compared to the market, with the average of all being the market return. Do you have a good basis for believing you are above average in fund picking?

It is clear from his post that previously he has only been in ETFs and he would like to do something different to "beat the market" . One thing can be assured (save for tracking error) is that you cannot beat the market in an ETF. So if he wants to outperform the market he needs to try something else.

At times like these it's relatively easy to outperform broad indexes as long as you can hold long enough for favourable conditions to sell, selecting ITs on the basis of which ones performed above average in the past is pointless and likely to be counter productive, you just need to buy a sensibly diversified trust or two or three and wait untill such time that discounts have moved to premiums then sell and buy the same market exposure in etfs should you wish to remain fully invested, success guaranteed every time.

[Mememe]

Pretty balanced selection. You aren’t over diversifying with too many trusts. Assuming you’ve got the time horizon and happy with the risk it’s thumbs up from me

[JohnW]

The average investor can't outperform the market because the market is made up of those beating and those losing compared to the market, with the average of all being the market return. Do you have a good basis for believing you are above average in fund picking?

One thing can be assured (save for tracking error) is that you cannot beat the market in an ETF.

At times like these it's relatively easy to outperform broad indexes as long as you can hold long enough for favourable conditions to sell, selecting ITs on the basis of which ones performed above average in the past is pointless and likely to be counter productive, you just need to buy a sensibly diversified trust or two or three and wait until such time that discounts have moved to premiums then sell and buy the same market exposure in etfs should you wish to remain fully invested, success guaranteed every time.

I'm not so familiar with IT's, so thanks for pointing out the strategy to beat the market using them. Would be interested to know if that's the only way to do it with them, apart from picking brilliant managers.
The potential out-performance, from premium/discount, arises from their reduced liquidity I'd guess; one can be rewarded for taking on the liquidity risk which other people decline. I think it was a liquidity problem that sunk a star fund manager recently, but if the individual manages the portfolio and can resist forced selling at the wrong time there's a market return to be beaten.
For the sake of other beginners, just to note that ETF is a legal structure with buy/sell options, it doesn't always mean a passive investment vehicle that tracks a market index. I think there are active ETFs. They're just more liquid than ITs (if they're closed ended), I think.

[DavidM13]

[/quote]
.
The potential out-performance, from premium/discount, arises from their reduced liquidity I'd guess; one can be rewarded for taking on the liquidity risk which other people decline. I think it was a liquidity problem that sunk a star fund manager recently, but if the individual manages the portfolio and can resist forced selling at the wrong time there's a market return to be beaten.
.[/quote]

Hi,
I think we are talking about two different types of liquidity here? The liquidity on the fund or the liquidity on the underlying holdings.

Liquidity on the closed end fund = how easy to buy and sell the amount you want on the exchange. Very rare for a retail shareholder to have any issues with this. It is more the wealth managers who may run in to problems on the smaller trusts.

Liquidity on the underlying holdings = The Star Fund Manager you speak of, Neil Woodford, was sunk for among other reasons the vehicle that was employed to invest. It was an open-ended fund, which means people do not buy and sell shares on the stock exchange, rather they subscribe and redeem shares directly with the manager. So when Kent County council were at the end of a long line of investors asking for their money back and wanted £250m Woodford didnt have enough cash to service them, and its holdings were not liquid enough to make cash quickly. If he had a lot of liquid stocks like HSBC, Tesco, Amazon he could have sold and serviced the requirement but these were private, unlisted or very illiquid holdings and raising cash at a fair value was very hard.

If this was in a closed-end structure then people could't have asked for their money back from him and he could have carried on managing the vehicle safe in the knowledge that there were no redemption shocks to worry about. Of course the discount could have moved and the market price dropped still.

Sorry if I am misunderstanding the point but I felt the liquidity argument was getting confused

[Dod101]

[I'm not so familiar with IT's, so thanks for pointing out the strategy to beat the market using them. Would be interested to know if that's the only way to do it with them, apart from picking brilliant managers.
.

If only. There is no such thing as 'the' strategy to beat the market with ITs or anything else. If there were we would all be doing it. It takes time, luck, some experience and timing amongst other things to beat the market. Do not over analyse, buy your selection of ITs and then see how they develop. You will learn as you go along. ITs are not difficult to understand but you need to become familiar with them and how they react to different situations and the management styles of the different managers. It can be interesting and instructive and I wish you luck.

Dod

[richfool]

I note the IT's proposed are mainly growth focused. Even if the investor doesn't need income, I think it would be prudent to have some income (income & growth) trusts in the mix.

[88V8]

Income... CTY and MRCH nicely priced this morning, and long histories of divi increase.

V8

[JohnW]

I think we are talking about two different types of liquidity here? The liquidity on the fund or the liquidity on the underlying holdings.

You're right, I conflated two types of illiquidity.
It may be very rare for a retail shareholder to have any issues with this, as you say, and now would be an unrepresentative time to be witnessing such happenings. But I think what's happening now, not widely, is that a closed ended fund which doesn't revalue its holding frequently enough risks investors valuing those holdings themselves; then volatility hits that market segment (or the whole market like now) and some investors harshly mark down the value of the fund's assets and panic sell which drives down the bid price. Other investors think otherwise, or at least aren't prepared to sell far below (out of date) nett tangible asset value, and so the offer price stays high. Now we have a big buy/sell spread which discourages trading and so liquidity falls.
With an open ended fund investors have another avenue of trading, with the fund manager. And I suppose, if you can trade with the fund manager frequently enough then they have to value their holdings that frequently at least, in which case you don't get the individual investor liquidity problem in the first place.
The fund holdings might be not be as illiquid as real estate, or in such big chunks, there just has to be uncertainty as to their true value.

[DavidM13]

I think we are talking about two different types of liquidity here? The liquidity on the fund or the liquidity on the underlying holdings.

With an open ended fund investors have another avenue of trading, with the fund manager. And I suppose, if you can trade with the fund manager frequently enough then they have to value their holdings that frequently at least, in which case you don't get the individual investor liquidity problem in the first place.
The fund holdings might be not be as illiquid as real estate, or in such big chunks, there just has to be uncertainty as to their true value.

Most UK OE property funds, who offer daily redemptions, have suspended redemptions due to uncertainty in valuations.
https://www.investmentweek.co.uk/analys ... -repeating