Ruffer/Personal Assets or Gilt ETF?

[OLTB]

Afternoon All

I am in the throes of putting together a 'whisky and water' portfolio for my SIPP a la Tim Hale and, for the 'water' element, elected for a joint option of the Ruffer (RICA) and Personal Assets (PNL) ITs (10% of my portfolio holding in each). They both seem to have large exposures to fixed interest and gold (which is what I'm seeking to balance the growth assets) and they also hold stocks to a lesser extent.

The alternative (and less expensive) option would be to invest in a short dated gilt ETF and index-linked gilt ETF. I have mapped the performances over the last 10 years and the ITs trump the short dated gilt ETF, however, the index-linked has not been far behind the two ITs.

I appreciate that the principle of the 'water' element is to act as a hedge against volatility, but then again, I don't want to waste growth potential just to have a holding in gilts for the sake of it.

Am I being overly optimistic with my two holdings of RICA and PNL or is a it a sensible choice - if anyone has experience of either / both ITs, that would be helpful (or any other ITs that are in the fixed interest/alternative assets class sector).

Cheers, OLTB.

[Plutus]

Hello OLTB.

I'm far from an expert investor but here is my opinion and it may start a useful debate from our more learned friends.

If you take a look at the Quarterly report from PNL you will see that the asset allocation is:

http://documents.financialexpress.net/L ... 470597.pdf

Equity 47%
---
US TIPS 20%
UK treasury bills 15%
UK index linked Gilts 4%
---
Gold bullion 10%
Cash/equivalents 4%

I think that you could calculate the allocation of your entire investment portfolio and consider your current appetite for risk. You could mirror a capital preservation IT such as PNL by adding more gilts, cash, gold etc. whilst leaving your equity allocation alone.

If you add e.g. PNL then you are also adding another portion of equities, albeit they do look like 'quality' defensive companies.

I am in a similar situation, weighted 80-20 between equities and mainly cash at the moment but I am tempted to add up to 5% gold via the PGHP etf.

I hope that this is of some help as I'm also interested in other opinions.

[OLTB]

I hope that this is of some help as I'm also interested in other opinions.

Thank you Plutus - this is of help and I also hope that some further comments / opinions make the decision a little clearer.

Cheers, OLTB.

[Kantwebefriends]

Equity 47%
---
US TIPS 20%
UK treasury bills 15%
UK index linked Gilts 4%
---
Gold bullion 10%
Cash/equivalents 4%

I am interested in how to mimic a portfolio like that at lower cost than holding the IT's shares. The main impediment is my lack of knowledge of how ITs are taxed.

For instance I don't think I could buy gold bullion, nor store it, as cheaply as them. But if they sell the bullion do they have to pay tax on their profits? I ask because I could buy gold sovereigns (more expensive than bullion) and store them somehow (tho' how I don't know) but the profit on sale would not be taxed: they are CGT-free.

Obviously I'd expect to get a better return on cash than them: if I add the 4% cash to the 15% UK treasury bills, then getting better interest on 19% of the portfolio isn't negligible. (That's assuming the OP means 'bills' and not 'bonds'.)

How about an ETF for the TIPS? Easy.

I could buy other ITs that trade at a discount to correspond the equity bit of their portfolios, or use ETFs.

Would my higher trading costs negate the advantage of avoiding their charges? Is it worth the fuss? Should one just buy some Personal Assets, with its favoured UK and US equities, and Ruffer, with its favourite Japanese equities, and leave it at that?

[masmon]

I have also looked at creating a low volatility component to my portfolio instead of bonds. A mix of RCP (RiT capital) PNL (Personal Assets) RICA (Ruffer) and CGT (Capital Gearing) gives a very good account of itself over the last ten years as a low volatility mix. Of course, this has been a good time to have been invested in bonds / treasuries, which all except RCP have exposure to. Who knows what the next ten years will hold though.

Something worth considering with these trusts is their exposure to the US$ and other currencies, who knows what sterling will do over the next two years - one would hope that the managers of these trusts effectively change their currency exposure accordingly with market conditions. Returns on GBP denominated securities with foreign currency exposure over the last few years have done well due to the weakening of sterling.

When the next recession / bear market strikes then intermediate to longer term duration gilts and treasuries will probably do better than this mix of IT's, but before that time they may struggle. I think this area of the portfolio is best served by investing in areas that are actively managed like this mix of IT's.

Another area to consider as well would be buying individual corporate bonds issues, just be careful to undertake due diligence with the issues you are purchasing. Alternatively an ETF such as ishares 0-5 year investment grade corporate bond fund is an easier option, duration is kept low which will help when interest rates start rising and as investment grade it will give a smoother ride, although the returns are never going to be particularly remarkable.

[richfool]

I just came across this older thread and a thought occurred to me:

Comparing Ruffer, Personal Assets and Capital Gearing, (all of which I see as defensive trusts), - would it be too simplistic to take the view that whichever has the highest percentage of fixed interest and the lowest percentage of equities ought to be the most defensive of the three, in the event of a major market correction? If so, on that basis, I would expect Capital Gearing to be the most defensive of the three, though note * below..

Capital Gearing:
Fixed Int: 57%
Equities: c 18%

Ruffer:
Fixed Int: 31%
Equities: c 44%

Personal Assets:
Fixed Int: 26%
Equities: c 50%

* I note that Personal Assets has by far the largest percentage of cash at 26%.

Percentages obtained from Citywire:

[Lootman]

would it be too simplistic to take the view that whichever has the highest percentage of fixed interest and the lowest percentage of equities ought to be the most defensive of the three, in the event of a major market correction?

It might be if, say, they are holding a lot of derivatives, which enable much more or less exposure to an asset class than might meet the eye.

I know that Personal Assets historically used futures to gain or hedge equity exposure. Not sure of the others.

[richfool]

My thinking was that as Capital Gearing has by far the largest proportion of fixed interest and the lowest proportion in equities (of the three), is that likely to make it the most defensive of the three in a major correction?

I have noted that when equity markets fall, Personal Assets does also fall, presumably because of its higher exposure to equities, which suggests to me it isn't really that defensive. All of which leads me to ponder if it's really worth hanging on to my holding of PNL, or if I really want to be defensive, should I switch my PNL holding to CGT.

[Spet0789]

Note that PNL’s holdings in bonds are short-duration. Use short-duration bond ETFs if you want to replicate. A typical gilt or Treasury ETF will give you greater yield risk.

For example, the newish iShares 0-5 TIPS ETF (TIP5 I think) is a good option. There’s also a 1-3 year nominal UST ETF which I hold as my cash reserve.

I follow PNL closely but don’t own.

[richfool]

Note that PNL’s holdings in bonds are short-duration. Use short-duration bond ETFs if you want to replicate. A typical gilt or Treasury ETF will give you greater yield risk.

For example, the newish iShares 0-5 TIPS ETF (TIP5 I think) is a good option. There’s also a 1-3 year nominal UST ETF which I hold as my cash reserve.

I follow PNL closely but don’t own.

Spet, I do hold PNL and a few US$ TIPS (by way of ETF - ITPS)

[richfool]

I just came across this Citywire article, - "experts pick their IT safe havens", which includes reference to: PNL, Ruffer (RICA), CGT, and RIT Capital Ptrnrs, plus a few others:

http://citywire.co.uk/investment-trust- ... -news-list

[Spet0789]

Note that PNL’s holdings in bonds are short-duration. Use short-duration bond ETFs if you want to replicate. A typical gilt or Treasury ETF will give you greater yield risk.

For example, the newish iShares 0-5 TIPS ETF (TIP5 I think) is a good option. There’s also a 1-3 year nominal UST ETF which I hold as my cash reserve.

I follow PNL closely but don’t own.

Spet, I do hold PNL and a few US$ TIPS (by way of ETF - ITPS)

I also own ITPS but given how flat the real yield curve is in the US I plan to shift to the new iShares 0-5 product.

[gbjbaanb]

I just came across this Citywire article, - "experts pick their IT safe havens", which includes reference to: PNL, Ruffer (RICA), CGT, and RIT Capital Ptrnrs, plus a few others:

http://citywire.co.uk/investment-trust- ... -news-list

What do they know? the Fool board has a discussion on safe haven trusts here a little while back

viewtopic.php?f=54&t=7491

[Bluestone77]

I also own ITPS but given how flat the real yield curve is in the US I plan to shift to the new iShares 0-5 product.

Also TIP5/TP05 has a lower TER at 0.10% vs 0.25% for ITPS.
Two interesting new ETFs from iShares are currency hedged versions of the above two - TI5G & ITPG. TERs quoted are 0.12% & 0.27% respectively.
I currently hold ITPS but am reviewing the additional 3 options.

[richfool]

I also own ITPS but given how flat the real yield curve is in the US I plan to shift to the new iShares 0-5 product.

Also TIP5/TP05 has a lower TER at 0.10% vs 0.25% for ITPS.
Two interesting new ETFs from iShares are currency hedged versions of the above two - TI5G & ITPG. TERs quoted are 0.12% & 0.27% respectively.
I currently hold ITPS but am reviewing the additional 3 options.

Spet and Bluestone, thanks for "tip" re the TIP5 & TP05.

I like the idea of holding (US) "TIPS", because I see prospects of inflation rising in the US before here in the UK. Though I don't see the need to hedge, as I see the US dollar continuing to be stronger than sterling over the longer term.

[Spet0789]

I also own ITPS but given how flat the real yield curve is in the US I plan to shift to the new iShares 0-5 product.

Also TIP5/TP05 has a lower TER at 0.10% vs 0.25% for ITPS.
Two interesting new ETFs from iShares are currency hedged versions of the above two - TI5G & ITPG. TERs quoted are 0.12% & 0.27% respectively.
I currently hold ITPS but am reviewing the additional 3 options.

Spet and Bluestone, thanks for "tip" re the TIP5 & TP05.

I like the idea of holding (US) "TIPS", because I see prospects of inflation rising in the US before here in the UK. Though I don't see the need to hedge, as I see the US dollar continuing to be stronger than sterling over the longer term.

I agree. I think TIPS ETFs make a lot of sense. Almost 3% interest, US inflation is likely to surprise on the upside with Trump’s policies, and protect against weaker GBP.

[jsan22]

FWIW I hold some of each of these safety-first funds : Ruffer/CGT/PNL although I prefer to hold the unit trust equivalent where available (not for CGT)

As things can get so messy in a crisis, I just split my defensive holdings between them, rather than try to agonise over which will perform best.

Also, as someone else pointed out, it is good to have some flexibility built in to your defensive strategy, and these 3 funds can go anywhere really.

I also have quite a bit in Baillie Gifford Mixed Assets as they have lower equity and bond holdings.