Investment strategy musings

[toofast2live]

Tuk that's the May 2016 update. No 2017 update, yet?

[colin]

or am I misunderstanding the purpose of 'growth' investments?

Yes absolutely, companies which grow also grow their dividend. In the long term it's not an either or thing.

[hiriskpaul]

or am I misunderstanding the purpose of 'growth' investments?

Yes absolutely, companies which grow also grow their dividend. In the long term it's not an either or thing.

Agreed, dividend growth rates is something many people seem to overlook. To illustrate, consider the Vanguard US listed ETFs VTV (US large cap value) and VUG (US large cap growth). VTV historic yield as at 29/06/2008 was 3.3% and income per share had risen by 27% for year ending 30/06/2017. In comparison VUG started with a historic yield of only 0.99%, but income per share rose by 178%.

In terms of total return, the growth ETF has trounced the value ETF, up by 132% over 10 years to 30/06/2017 compared to 76% for VTV. Not that this has any predictive value for the future.

[Hariseldon58]

The simple answer is that no one knows what comes next.....

My own investing over a period of 28 years has flirted with many diffferent approaches including those in the full thread and its easy to forget that what works well in one period may not do as well in another.

I think your two investment approach is pretty sesnsible and whilst I personally would have favoured VWRL Vanguard All World rather than Developed World adding an element of Emerging Markets makes sense, but they can be very volatile over the decades, really , really volatile ! Now if you keep saving through thick and thin over an extended period you can do really well.

I held two of the three Emerging Market trusts and replaced them with VFEM Vanguard Emerging Index ETF.

Another possible addition is Value, it’s done poorly for years but it’s day will probably come and a personal favourite is VVAL Vanguard Global Value

It’s very difficult to make a choice on investment strategy without being heavily influenced by recent events and I have been thinking a lot on this topic recently (proceeds of selling two houses need to be invested) by researching prior 1,3,5,10 year periods but looking back at data from the present, 1 year ago, 2 years ago...up to 10 years ago , using data going back 20 years, its been very interesting.

The upshot is basically a blend of UK and Global passive ETFs, a global value ETF and a ‘basket’ of 6 investment trusts, not a million miles from the OP’s basic portfolio structure

[TimR]

The upshot is basically a blend of UK and Global passive ETFs, a global value ETF and a ‘basket’ of 6 investment trusts, not a million miles from the OP’s basic portfolio structure

I have a blend of UK and Global passive ETFs

Equity Allocation :-
USA ----- 37 % ----- (-VUSA + ISP6)
UK ------- 11% ----- (-VUK --- + -- VMID-)
Euro ----- 20% --- - (-VERX -- + -- XESX-)
Japan ----- 8% --- -- (-VJPN-)
APac ----- 7% ------- (-VAPX-)
EM ------- 10% ----- -(-VFEM--)
Value ------7% ------ (-Vanguard VVAL)

I have heard several 'experts' on TV saying that 'Active management' has more offer in the areas of small caps and Emerging markets. I've been considering investment trusts to cover small caps - UK (Aberforth Smaller Co ASL), Euro (JP Morgan small cap) as well as Templeton Emerging Markets (TEM) for the whole of EM.

[Hariseldon58]

Tim R

The overall effect on your total portfolio of the small changes to the smaller companies and Emerging sectors by going active is going to be minimal.
IE unless you feel very strongly I'd leave well alone.

Personally I have held a few UK Investment trusts for many years and on balance the slightly higher charges are mitigated by the discount and gearing and they have a definite investment style and I feel they are worth holding because I want to, the effect on the total portfolio is only ever going to be marginal because they are dwarfed by other elements of the portfolio but it doesn't stop me indulging myself in holding them !

[colin]

consider the Vanguard US listed ETFs VTV (US large cap value) and VUG (US large cap growth). VTV historic yield as at 29/06/2008 was 3.3% and income per share had risen by 27% for year ending 30/06/2017. In comparison VUG started with a historic yield of only 0.99%, but income per share rose by 178%.

Time and time again the mantra 'bulk of returns from dividends' is used by those with an axe to grind to imply that shares bought at a high dividend yield will outperform the wider market. The reality is that all equity returns must come from companies which grow their dividend, even if they choose to re-invest that dividend on behalf of the shareholder.

[Chrysalis]

Wouldn't it be more accurate to say 'grow their profits' - which can be paid out as dividends, or ploughed back into the company.

[hiriskpaul]

Wouldn't it be more accurate to say 'grow their profits' - which can be paid out as dividends, or ploughed back into the company.

Yes! The other option is for companies to (judiciously) buy back their own shares. If we get more dividend taxes we may see much more of this for UK listed companies, as has happened in the US.

Of course, some companies will find it much harder than others to grow earnings, in which case paying a larger proportion of earnings out in dividends/buy backs is likely the best option - frequently a better option than an empire building spending spree.

[colin]

Wouldn't it be more accurate to say 'grow their profits'

Well yes of course , any company that increases its dividend before increasing profits must be liquidating capital or borrowing to pay a dividend.

[bejocomo]

Thank you to all that have replied.

As long as the companies growing their profits end up being bought by SWDA and the like that'll do for me.

Wouldn't we all like to identify an early stage Apple or Google...my crystal ball is however a little murky!

Hariseldon58, I had flirted with the idea of VWRL but opted for SWDA as it is accumulating, and therefore I'd save money by not incurring dividend reinvestment costs. The intention being of course to add an emerging market element at a later date.

The other option of course is to cease investing in SWDA altogether and commence investing in the Vanguard LifeStrategy 80% Equity Fund.

I'm aware that keeping costs low is critical over the long term.

So for a fund:

0.22% TCF (Vanguard LifeStrategy 80% Equity Fund)
0.35% Broker (TD Direct Investing)
0.57% total

And for an ETF:

0.40% (£1.50 dealing charge on £375.00 monthly investment in SWDA)
0.20% OCF
0.60% total

My logic being that although I am paying a little more now, in the long term, as I am able to invest more, the fixed charge element of investing in an ETF will act in my favour. But perhaps the saving doesn't outweigh the benefits attached to the LifeStrategy Fund...

[StepOne]

You can buy Vanguard funds in an iWeb Share Dealing ISA with no platform fees, so you will only pay the 0.22%, plus a one-off £5 to purchase it.

[FoolishFilFive]

Try the Ishares ETF EIMI. 0.25% a year charges.

Aberdeen Emerging Markets - about 1.25% a year charges.

Put £100K into EIMI, hold for ten years, pay them about £2500

Put £100K into Aberdeen emerging markets, hold for ten years, pay them about £12,500

You'd have to be pretty confident in whoever is running the investment trust to pay them the extra ten grand.

Phil

[Pipsmum]

Seeing as this thread is about investment strategy. I would like to ask a newbie question if I may.

There is something that burns a question on gains, other than the long held method of leaving shares well alone.
By watching shares go up and down whether in a HYP or not. The SP makes some money sometimes and loses money sometimes.

The question I have is about a buying low and selling high strategy. If the share is a long term zig zag type mover. Is there not a layer of liquidity to be had in the centre of the charts? To repeatedly buy in the trough and sell on the peak. Not necessarily by getting it very right about the lowest trough or the highest peak. Just the gap in-between the cost, the sale price and the two commissions either side. It wouldn't work with low volume but would with high volume because the commission wouldn't be such a high percentage of the trade.

I haven't tried it of course but is this a method that has any following?

[Itsallaguess]

The question I have is about a buying low and selling high strategy.

If the share is a long term zig zag type mover. Is there not a layer of liquidity to be had in the centre of the charts? To repeatedly buy in the trough and sell on the peak.

Not necessarily by getting it very right about the lowest trough or the highest peak. Just the gap in-between the cost, the sale price and the two commissions either side. It wouldn't work with low volume but would with high volume because the commission wouldn't be such a high percentage of the trade.

I haven't tried it of course but is this a method that has any following?

You'd have to run some spreadsheet simulations to fully appreciate the risks involved with such a strategy, but depending on the swing involved, you'd perhaps have to commit very large sums of money into a single 'swinging entity' to make the whole process worth doing, I'd imagine.

Then, you're taking on a great deal of risk regarding that trade really going against you for what might be a relatively small advantage if it went your planned way.

The other aspect is that if it were that 'simple' (and by that I mean that at any one time, there probably are people looking for this type of 'sure thing', with large resources to take advantage of them if they were to actually exist or arise....) then these types of situations would inevitably get 'traded out', so that large, regular swings would not last long enough to actually take advantage of...

Ask yourself why such a 'sure thing' could ever exist, either at all, or for long enough for the private investor to take real, worthwhile, low-risk advantage of.....

Cheers,

Itsallaguess

[tjh290633]

Seeing as this thread is about investment strategy. I would like to ask a newbie question if I may.

There is something that burns a question on gains, other than the long held method of leaving shares well alone.
By watching shares go up and down whether in a HYP or not. The SP makes some money sometimes and loses money sometimes.

The question I have is about a buying low and selling high strategy. If the share is a long term zig zag type mover. Is there not a layer of liquidity to be had in the centre of the charts? To repeatedly buy in the trough and sell on the peak. Not necessarily by getting it very right about the lowest trough or the highest peak. Just the gap in-between the cost, the sale price and the two commissions either side. It wouldn't work with low volume but would with high volume because the commission wouldn't be such a high percentage of the trade.

I haven't tried it of course but is this a method that has any following?

My view is that you have to eliminate market noise, which affects different shares in different ways. For this reason I list my shares by holding value, and calculate the relationship with the median holding value. Some shares will be above the median and some will be below it. Some will rise more than others and some will fall more than others.

What I do is set an upper limit on the multiple of the median holding value that a share can rise to, which depends on the number of shares in the portfolio. With 20 holdings I used twice the median, while over 30 holdings I reduced this to 1.5 times the median. If a share goes past the limit, then I trim it back by 25% or thereabouts. The cash released goes into shares below the median value, selected by their prospects for generating dividends, as does cash from accumulated dividends which I do not wish to withdraw from the portfolio.

There will be the occasional share like Carillion, which can be ignored as a lost cause, probably sold off.

Because I am interested in dividend generation, I also cull any holding which has risen so much that the dividend yield has fall to less than half that of the market, well under 2% at this time.

By using the median holding value as my yardstick, I ignore movements of the market as a whole.

TJH

[JohnB]

Market timing requires the private investor to have an 'edge' over the big boys, which with delayed information and transaction costs you are unlikely to have. It will be hard to come up with a strategy that others haven't tried, and all the good ones have been arbitraged out of the efficient markets. Time in market tends to win over Timing the market.

[paulnumbers]

I'm finding it difficult to decide upon an investment strategy because there is such an abundance of information regarding investment returns.

To this end I have purchased a number of books on the subject, but they are yet to be delivered and I have been reading whatever I can find on the internet in the meantime.

The articles I have read (Why Dividends Matter - Gareth Atkinson Funds and Means, Ends and Dividends - Blackrock amongst others) state that the overwhelming majority of the total returns derived from equities come from dividends, and the reinvestment of those dividends. If this is true, why are there so many investments that target 'growth'? If each investor is aiming to maximise total returns (ignoring other objectives such as preserving capital for a moment), then it would be logical to invest predominantly in dividend paying investments. Does the dividend versus growth divide merely distinguish between businesses that are established and have limited opportunity to grow further and those that need to reinvest cash to grow the business?

Looking to a scenario where an investor is trying to build a portfolio to support them in retirement, this can be simplified into a 'building' phase and a 'drawing' phase. During the building phase, the aim must surely be to grow the total capital value as quickly as possible, whether that comes from dividend income or capital growth, or a combination of the two. In order to draw an income come the 'drawing' phase, this could be achieved by investing in income generating investments or by selling growth investments that offer a lower yield.

History seems to show us dividend paying equities are likely to outperform over the long term. Should investments targeting growth just be seen as an alternative to diversify an investment portfolio, or am I misunderstanding the purpose of 'growth' investments? Does it matter all that much anyway?

Thoughts welcome.

For a few years I have been moving a rag tag collection of shares, either high yield, or what I considered value, gradually towards ETF index funds. I've found life so much simpler, and have stopped building up cash and agonizing over decisions. The next stage of my moves will be gradually moving from individual indexes to the cheapest passive global tracker I can find (which I think is probably fidelity world @ 0.13%).

https://www.fidelity.co.uk/fund-superma ... 00BJS8SJ34

The further I move down the investing path, the more I crave simplicity.

I've been heavily influenced by a 'board' on reddit. Admittedly the crowd there is much much younger than here, and inexperienced too, but the general thrust is towards passive global index trackers and I guess it's rubbed off on me.

https://www.reddit.com/r/UKPersonalFinance/

[Hariseldon58]

The fidelity fund at .13% is very cheap but you will need a platform that does not charge too much. The fidelity charges are not cheap.

I note that the fund is holding futures and an S&P500 Fund this tends to suggest it is not a straightforward physically replicated tracker , my personal take would be a Vanguard World ETF eg VEVE at .18% it’s other costs are very low and they act in a very investor friendly manner, have huge scale in the operation to minimise vista and tracking error. These hidden costs are often more significant than the headline fund charge.

You might consider adding an Emerging markets fund/etf as well, I doubt if you will be disappointed in the results long term.

[dspp]

Seeing as this thread is about investment strategy. I would like to ask a newbie question if I may.

There is something that burns a question on gains, other than the long held method of leaving shares well alone.
By watching shares go up and down whether in a HYP or not. The SP makes some money sometimes and loses money sometimes.

The question I have is about a buying low and selling high strategy. If the share is a long term zig zag type mover. Is there not a layer of liquidity to be had in the centre of the charts? To repeatedly buy in the trough and sell on the peak. Not necessarily by getting it very right about the lowest trough or the highest peak. Just the gap in-between the cost, the sale price and the two commissions either side. It wouldn't work with low volume but would with high volume because the commission wouldn't be such a high percentage of the trade.

I haven't tried it of course but is this a method that has any following?

Somebody I know does this with VOD. His smallchange would pay off my mortgage. Do you feel lucky ?

regards, dspp