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Portfolio Review Risk-Off

A helpful place to also put any annual reports etc, of your own portfolios
moneybagz
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Portfolio Review Risk-Off

#183648

Postby moneybagz » November 28th, 2018, 10:00 pm

Hi,

I've recently updated my portfolio and added some asset classes to take some risk off. I'd appreciate any views on my amended portfolio as I'm still relatively new to investing. Here's how my portfolio looks:

30% Vanguard Lifestrategy 60% Equity
9% Vanguard Global Value
9% Vanguard Global Small Cap
9% Vanguard Emerging Markets
9% Vanguard Global Short Term Bond
9% Lindsell Train UK Equity
9% iShares Physical Gold ETC
6% iShares Global Property Securities
5% Lyxor MSCI World Consumer Staples ETF
5% ETFS Agriculture ETC

A morningstar x-ray revealed:

65% Stocks
21% Bonds
14% Commodities

39% US
20% UK
14% Emerging Asia
13% Europe
7% Japan
7% Rest

48% Cyclical
26% Sensitive
26% Defensive

22% Large Value
18% Large Blend
21% Large Growth
9% Mid Value
10% Mid Blend
8% Mid Growth
5% Small Value
4% Small Blend
3% Small Growth

Fixed Income
6.42 Effective Duration
7.87 Effective Maturity
Average Credit Quality A

I'm 40 years old and I'm hoping to retire at 55. The government bonds, gold, agriculture, and consumer staples have been added to protect against a market crash, but will be ploughed back into equities, once they've performed their defensive role.

Many Thanks

monabri
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Re: Portfolio Review Risk-Off

#183963

Postby monabri » November 30th, 2018, 1:05 pm

I'm wondering if you'd get more replies if you were to post on the " passive investments" board? This is the right place for a " review " but maybe more people read the other board?

Raptor
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Re: Portfolio Review Risk-Off

#183972

Postby Raptor » November 30th, 2018, 1:37 pm

As this is the right place for a "review" you may want to post over on the other boards with a "link" to this thread.

Raptor.

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Re: Portfolio Review Risk-Off

#183974

Postby TUK020 » November 30th, 2018, 1:43 pm

Moneybagz,
Looks like a disciplined exercise in asset allocation/diversification.
Is it all accumulation funds, or does it have a natural yield ?
Any idea what the expense ration is for the portfolio?
tuk020

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Re: Portfolio Review Risk-Off

#184001

Postby Dod101 » November 30th, 2018, 3:18 pm

Not sure what the OP wants from us but to me, for a 40 year old, it is much too defensive. He ought to listen to Tom Slater and James Anderson talking about investment on the Baillie Gifford site. Irrespective of when he intends to retire, he has a life expectancy of how long? 45 years?

https://www.bailliegifford.com/en/uk/in ... /insights/

And how will he know when the bonds, gold, agriculture and consumer staples have done their defensive role?



Dod

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Re: Portfolio Review Risk-Off

#184070

Postby moneybagz » November 30th, 2018, 9:15 pm

Thanks for the replies. All my funds are accumulation funds and the total cost of the portfolio is 0.28. Most of my investments are held within ISA's. I must admit, my portfolio has been influenced by the forecasts of Ray Dalio and Jim Rogers. The defensive measures have been put in to minimise the impact of a crash. I understand that nobody has a crystal ball but I've made great returns over the last 7 years and taking off risk when the market is high seems logical. In your opinion, should I be 100% equity at 40 years old?

One part of my portfolio that I was considering reducing was the 20% allocation to UK equities. As the market cap is only 6% globally, should I reduce it to this level?

Thanks

Dod101
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Re: Portfolio Review Risk-Off

#184075

Postby Dod101 » November 30th, 2018, 10:11 pm

I do not see the market as very high (in the UK anyway) US based stuff is of course high. I do not know if a crash is coming any more than anyone else, including those that you mention. You must do what you feel most comfortable with and so I would never advise you what you should be doing.

I live in the UK, and live off my investments so have mostly a UK oriented portfolio but even that of course has lots of overseas earnings. Judging by the yields on offer the UK is certainly not high and so to reduce your UK exposure at the moment would I think be unwise. There is a huge amount of nervousness about Brexit and this is hitting property particularly London property as well as other sectors.

I would not go any further than that because as I said you must do what you feel most comfortable with but remember you are likely to have a long time frame to ride out any rough patches (which of course you will encounter)

Good luck

Dod

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Re: Portfolio Review Risk-Off

#184085

Postby Itsallaguess » December 1st, 2018, 4:23 am

Dod101 wrote:
I live in the UK, and live off my investments so have mostly a UK oriented portfolio but even that of course has lots of overseas earnings.

Judging by the yields on offer the UK is certainly not high..


I admire your confidence in the use of the word 'certainly' in the above....

I'd perhaps have been a little more circumspect -

Judging by the yields on offer then either the UK market is not high, or some of those yields may be at near or medium-term risk....

Cheers,

Itsallaguess (hoping the UK market is not high.....)

Dod101
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Re: Portfolio Review Risk-Off

#184096

Postby Dod101 » December 1st, 2018, 8:04 am

The UK market is not high by historical standards. I think that is surely a given. Look at the FTSE100 now compared to say 18 years ago. There are problems and a lot of queries in certain sectors. Utilities, support services, contractors, housebuilders and many London centric property companies to name a few and they help to explain the relatively low valuations. Some of these sectors have real problems owing to structural changes in the marketplace, others may be a passing phase because of Brexit or perceived political issues, or a combination of any of these. The fact is though that the UK market in general seems pro tem to have lost the confidence of the international investment community and so is not high as far as I can see.

I am not advocating piling in particularly, but I do not think it is a time to sell out of the UK market per the OP, in what appears to be a worldwide reallocation.

Dod

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Re: Portfolio Review Risk-Off

#184097

Postby Aminatidi » December 1st, 2018, 8:11 am

moneybagz wrote:Thanks for the replies. All my funds are accumulation funds and the total cost of the portfolio is 0.28. Most of my investments are held within ISA's. I must admit, my portfolio has been influenced by the forecasts of Ray Dalio and Jim Rogers. The defensive measures have been put in to minimise the impact of a crash. I understand that nobody has a crystal ball but I've made great returns over the last 7 years and taking off risk when the market is high seems logical. In your opinion, should I be 100% equity at 40 years old?

One part of my portfolio that I was considering reducing was the 20% allocation to UK equities. As the market cap is only 6% globally, should I reduce it to this level?

Thanks


I'm in my early 40's and I'm roughly as follows:

Lindsell Train Global Equity Fund 26.32%
Fundsmith Equity I Acc 26.32%
Capital Gearing Trust Plc 16.67%
Personal Assets Trust 16.67%
RIT Capital Partners 7.02%
Ruffer Investment Company 3.51%
iShares Physical Gold ETC 3.51%

To some it's too conservative but it's also high conviction on the equities portion - like yourself the way I see it is that whatever you read about the immediate future, none of it seems to be especially positive nor is there any consensus.

I think it's easy to overthink things, I do this massively, but I sleep well :)

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Re: Portfolio Review Risk-Off

#184102

Postby richfool » December 1st, 2018, 8:47 am

Accepted this is not "risk-off", but because so many global investment managers are wary of or are avoiding the UK, I have been topping up my UK equity exposure, with the thinking that once Brexit is resolved, in whatever way, UK equities may well bounce up.

I keep a well diversified global exposure (through IT's) and have built up further asset class diversity through things like infrastructure, alternative energy (wind & solar assets), commercial property and some utilities. I generally place the emphasis on income and (so) have reduced my growth holdings and added CGT (Capital Gearing trust) for some protection when the next bear market comes.

In the meantime, I keep collecting the dividends.

I am well into state pension age.

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Re: Portfolio Review Risk-Off

#184331

Postby hiriskpaul » December 2nd, 2018, 1:17 pm

I have never really understood the investment case for commodities, other than perhaps as a diversification benefit to a portfolio. For a start, you are not usually investing in the commodities, but in commodity futures in some way. Commodity futures are usually in contango, so have a built in expected loss most of the time. In addition there are the trading costs, which are seldom disclosed. From your description, I assume that your physical gold ETF is actually backed by bullion in a vault somewhere. What are the costs of security, etc. associated with that and is it disclosed? Non-physical ETCs/ETFs are often swap based, adding another layer of opacity and risk between you and the underlying assets.

Stripping away the costs associated with investment, there is then the issue of the assets themselves. The prices are governed purely by supply and demand and can be extremely volatile. In comparison bonds have a net positive expected return, barring default. Ordinary shares also have a net positive expected return because companies make and distribute profits to shareholders. Whilst that is of course not guaranteed and many companies will lose your money, the capitalist system has a good long term track record and the expectation is that if you invest in shares you will make a positive return. The longer you hold, the more likely it is that you will get a return. Property is another asset class with an expected positive return from the rental income it generates.

Ok, there may be a diversification benefit to commodities, but there is also a diversification benefit to holding cash/short dated bonds which are nowhere near as volatile as commodities.


On the equities side, you are about 14% overweight to global value, small caps and emerging markets. Additional risks, but IMHO all justifiable for a long term outlook as they are expected to have higher longer term returns than the market. You might want to add momentum exposure in there as well via Vanguard's momentum ETF. Partially by virtue of your holding the LS fund, you are very overweight UK stocks. I don't really see the justification for this on a long term basis, although the UK market is reasonably priced compared to the FTSE World Index. But so is Japan and Developed Asia Pacific and you are not overweighting there.

Not sure what the Lindsell Train fund is doing in there either. Leap of faith based on past performance? If so, that is quite a dangerous way to go and long term you are playing the losers game. If you really want to have a punt on actively managed funds like this I would reduce the exposure and diversify across other managers.

MSCI World Consumer Staples ETF - Why? There is no consumer staples factor and you already have exposure to Global Value, if that is the intention. If this is an attempt to take risk off the table, you might be better off with Vanguard's minimum volatility ETF. Or just reduce your overall equity risk by switching into mainstream global equities and slightly more bonds.

If you want to hold your own chosen equity asset allocation the LS funds make this complicated due to the overweight position in UK stocks. The LS funds are also a little more expensive than the sum of their parts. I think you would be better off selling the LS funds and investing directly in regional trackers and a global bond fund. For example, the Vanguard Developed World ex-uk fund and a FTSE all share tracker, weighted according to your chosen asset allocation, with probably less in the UK.

Short duration bond funds don't seem worth holding at present as you can get better returns on cash without the volatility. So I would suggest either switching more into shares/longer duration bonds, or into cash.

I am not really sure about property companies anymore. I do hold a US listed REITs ETF in my SIPP, which is extremely tax efficient and I will hold on to it, but I don't think I want to overweight the asset class in future, except perhaps on a speculative basis if the price collapsed. 6% in the iShares fund, which is at least very low charging, is probably as much as I would want to go to. Property companies are of course included in the other equity funds you hold.

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Re: Portfolio Review Risk-Off

#184485

Postby moneybagz » December 3rd, 2018, 1:38 pm

Thanks for the thorough advice hiriskpaul, much appreciated. I'll amend my portfolio based on your recommendations. I'll sell Lindsell Train UK Equity fund, Lyxor ETF and the Lifestrategy fund and buy the regional trackers to bring down the portfolio cost down to 0.19. What % allocation would you give to the Vanguard momentum fund? For the bond allocation, would the Vanguard Global Bond Index be the recommendation?

Many Thanks

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Re: Portfolio Review Risk-Off

#184488

Postby Aminatidi » December 3rd, 2018, 1:54 pm

moneybagz wrote:Thanks for the thorough advice hiriskpaul, much appreciated. I'll amend my portfolio based on your recommendations. I'll sell Lindsell Train UK Equity fund, Lyxor ETF and the Lifestrategy fund and buy the regional trackers to bring down the portfolio cost down to 0.19. What % allocation would you give to the Vanguard momentum fund? For the bond allocation, would the Vanguard Global Bond Index be the recommendation?

Many Thanks


Why? I'm all for simplifying things but until you've a reason to think otherwise Nick Train is running one of, if not the best , UK focussed funds.

At 9% unless you're intent on going down a passive/tracker route that doesn't seem like the biggest of your potential things to be concerned about.

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Re: Portfolio Review Risk-Off

#184520

Postby Hariseldon58 » December 3rd, 2018, 4:24 pm

buy the regional trackers to bring down the portfolio cost down to 0.19


Cost is important but a reduction from 0.28 to 0.19 is not hugely significant, unless your portfolio is very large.

With any ETF/Fund they all have costs associated with transactions and foreign with holding taxes etc that often dwarf the management costs.

With fifteen years to go, you could very well decide on portfolio allocations and just let it run ! Rebalance annually if you wish, its not obligatory.

You don't have to do anything and I'd be very cautious of taking anyones advice, on trying to effectively time the market, it is very hard to do it consistently.

For what's it worth ( probably nothing !!!!) I have gone the other way, going from almost entirely passive, back to partially passive, largely active with Investment Trusts, including adding to UK holdings. So my cost ratio has gone from 0.13% to .49% on a seven figure portfolio. I feel there are opportunities and attractive discounts on select Investment Trusts. I may well be wrong but have 30 years experience and tend nowadays to only make such judgements every few years based on my own decisions.

If you are new to investing then I wouldn't listen to me but build up experience, make a diary of your thoughts and stick to your well diversified passive portfolio and watch what happens. If in a few years your thoughts would have worked out, because your judgement and analysis was good and you can see why things happened then perhaps in the future follow your judgements. Blindly following someone else who has done well in the past is probably not a good idea.

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Re: Portfolio Review Risk-Off

#184659

Postby hiriskpaul » December 4th, 2018, 10:59 am

moneybagz wrote:Thanks for the thorough advice hiriskpaul, much appreciated. I'll amend my portfolio based on your recommendations. I'll sell Lindsell Train UK Equity fund, Lyxor ETF and the Lifestrategy fund and buy the regional trackers to bring down the portfolio cost down to 0.19. What % allocation would you give to the Vanguard momentum fund? For the bond allocation, would the Vanguard Global Bond Index be the recommendation?

Many Thanks

Not advice, just my opinions. You need to make up your own mind!

I would weight the momentum fund the same as your value and small cap funds. There is a lot of evidence to show that the value and momentum factors are negatively correlated and you get a diversification benefit by holding long only funds of both.

A single bond fund is probably all you need and the Vanguard Global Bond fund would be a good choice.


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