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How to increase defensiveness of IT portfolio

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
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Re: How to increase defensiveness of IT portfolio

#230878

Postby richfool » June 19th, 2019, 10:38 pm

Gadgeisbackagain wrote:Hi Richfool,

Thanks. likewise, I tend to find what you are up to quite interesting as well.

Maybe this will help your thinking. This is what John Baron bases his IT portfolios on....

https://www.pimfa.co.uk/private-investo ... llocation/

Gadge

PS I just took a look at Mate and think their share selection looks fantastic. I may well buy some soon so thanks for the heads up on that one.

Hi Gadge,

There is a separate thread on MATE. It is quite a small trust:

viewtopic.php?f=54&t=15401&p=195844&hilit=MATE#p195844

Take a look at the fact sheet for MATE, as it shows the split between the various assets classes, such as fixed interest, currencies, infrastructure etc. It is also at a discount of 9.4%.

https://www.hl.co.uk/shares/shares-sear ... ary-shares

Is there anything particular you would suggest to increase global exposure? I am overweight with MYI & MCT, about right with JPGI, and slightly underweight with HINT. (Also overweight Asian trusts). My thoughts are to: add NAIT, or top up HINT or JPGI, noting that JPGI targets growth stocks including some technology, whilst still paying a dividend yield of 3.50 - 4.00% partly paid from capital, and so gives me diversification into 'growthier' stocks.

Or, I could just add a global growth trust like: Monks or FRCL. I did previously flirt with the latter two, but shied away as the dividend yield was so low and if I got caught in a correction or bear market, there wouldn't be anything to offset the likely falls in capital value. And of course they aren't defensive trusts.

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Re: How to increase defensiveness of IT portfolio

#231083

Postby Gadgeisbackagain » June 21st, 2019, 1:50 am

I like and hold MVOL.

Doing well for me so far as a low cost core holding.

Gives low cost exposure to minimum volatility shares.
If does give currency risk but I am happy to take that risk at the moment. There is a hedged gbp version too though if you prefer that.

It is accumulating though so no divs.

Take a look at the holdings. I think you will be impressed.
It does indeed seems to fall less that the market on down days so it is as defensive as an all equity item could be.

https://www.ishares.com/uk/professional ... -ucits-etf

Gadge

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Re: How to increase defensiveness of IT portfolio

#231128

Postby Julian » June 21st, 2019, 9:54 am

Gadgeisbackagain wrote:I like and hold MVOL.
...
It is accumulating though so no divs.
...

Please excuse the dumb question but there is a gap in my knowledge re ETFs and you used a word above (bolded by me) that is a potential red flag to me...

For unit trusts I tend to avoid accumulation variants and go with the income variants of a UT assuming one is available. That is because, as I understand the UT rules, an accumulation trust is still seen by HMRC as having made income payments to the holder it's just that the income was automatically accumulated within the holding rather than physically being paid out. That does however mean that a potential tax liability arises for each income event such that a holder of accumulation units, if their tax situation is such that the accumulated income payments are taxable, needs to keep "feeding" money into their investment (as in make a payment on its behalf to HMRC) to meet that tax liability each year.

Is the same true of ETFs in that, even if one is physically getting no income from them, there might still be a payment due to HMRC each year to meet the tax on income never actually paid out or by "accumulating" did you mean that they are 0% yield, there are no income events that might attract HMRC's attention, and hence MVOL (for instance) can be held as a buy-and-forget holding without any additional annual tax liabilities?

I'm pretty sure it's the later but for clarity would appreciate confirmation on that.

- Julian

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Re: How to increase defensiveness of IT portfolio

#231132

Postby 77ss » June 21st, 2019, 10:07 am

Julian wrote:
Gadgeisbackagain wrote:I like and hold MVOL.
...
It is accumulating though so no divs.
...

Please excuse the dumb question but there is a gap in my knowledge re ETFs and you used a word above (bolded by me) that is a potential red flag to me...

For unit trusts I tend to avoid accumulation variants and go with the income variants of a UT assuming one is available. That is because, as I understand the UT rules, an accumulation trust is still seen by HMRC as having made income payments to the holder it's just that the income was automatically accumulated within the holding rather than physically being paid out. That does however mean that a potential tax liability arises for each income event such that a holder of accumulation units, if their tax situation is such that the accumulated income payments are taxable, needs to keep "feeding" money into their investment (as in make a payment on its behalf to HMRC) to meet that tax liability each year.

Is the same true of ETFs in that, even if one is physically getting no income from them, there might still be a payment due to HMRC each year to meet the tax on income never actually paid out or by "accumulating" did you mean that they are 0% yield, there are no income events that might attract HMRC's attention, and hence MVOL (for instance) can be held as a buy-and-forget holding without any additional annual tax liabilities?

I'm pretty sure it's the later but for clarity would appreciate confirmation on that.

- Julian


I would be interested in an answer too - being ignorant about ETFs.

I think you overstate the position with UTs - as I understand it, the only time one has to worry about this is when you sell (assuming they are not held within a tax shelter) - for calculating your CGT liability. I welcome a correction if I've got it wrong.

Naively perhaps, I would have assumed accumulating ETFs to attract the same tax treatment.

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Re: How to increase defensiveness of IT portfolio

#231146

Postby Spet0789 » June 21st, 2019, 11:32 am

richfool wrote:
Spet0789 wrote:
richfool wrote:Further to the above thread, would anyone suggest any bond funds to increase defensiveness?

I am aware that the likes of PNL and CGT would give some exposure, albeit at a price. Another option, after watching Monabri's suggested Vanguard video, could be an ETF such as VIGBBD, IGLH or VGOV.


IBT5. US inflation linked bonds sub 5 years. Basically inflation proof cash in the world’s reserve currency.

Thanks for the suggestion. In the event I decided to leave bonds alone, as I didn't understand them well enough and they are much too high. I will just rely on the exposure I get through some of the IT's mentioned in my previous post.


Short dated inflation linked bonds are different animals. They have very little interest rate risk. US govt issued inflation linkers (TIPS) are also offer yields higher than inflation (positive real yield) while U.K. linkers pay negative real yield.

In my view they are the best reserve asset out there. I don’t hold them for return. I hold them as I am 100% certain they will preserve and grow the real value of my money.

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Re: How to increase defensiveness of IT portfolio

#231232

Postby richfool » June 21st, 2019, 3:05 pm

Spet0789 wrote:
richfool wrote:
Spet0789 wrote:
IBT5. US inflation linked bonds sub 5 years. Basically inflation proof cash in the world’s reserve currency.

Thanks for the suggestion. In the event I decided to leave bonds alone, as I didn't understand them well enough and they are much too high. I will just rely on the exposure I get through some of the IT's mentioned in my previous post.


Short dated inflation linked bonds are different animals. They have very little interest rate risk. US govt issued inflation linkers (TIPS) are also offer yields higher than inflation (positive real yield) while U.K. linkers pay negative real yield.

In my view they are the best reserve asset out there. I don’t hold them for return. I hold them as I am 100% certain they will preserve and grow the real value of my money.

Spet, Thanks for your thoughts.

I can't find IBT5 or TIP5 through my broker. It would have to be a UK based bond or ETF to avoid incurring extra brokerage fees etc. STIP seems to be traded on the NYSE. Though my broker does recognise ITPS.L, which is on the LSE. The latter appears to be US TIPS but not limited to 0 - 5 years. Might ITPS do the job?

In my research I came across this, which mentions a PBTP but that again appears to be US based:

https://uk.finance.yahoo.com/news/octob ... 06581.html

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Re: How to increase defensiveness of IT portfolio

#231250

Postby Spet0789 » June 21st, 2019, 4:28 pm

HL offer both so there’s no fundamental issue for U.K. holders. Perhaps you can ask your broker?

ITPS (which I also hold) is as you say longer dated TIPS. From memory I think the average duration is around 8 years. Still a good option but this will have a bit more sensitivity to interest rates (in the same sense as bonds) and to inflation expectations.

If you can’t get TIP5, it’s not a bad option.

I didn’t mention it, but short dated TIPs are the largest part of the holdings of Personal Assets Trust. They often get tagged as a holder of gold but they have 3x invested in inflation linked bonds.

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Re: How to increase defensiveness of IT portfolio

#231394

Postby mc2fool » June 22nd, 2019, 12:41 pm

77ss wrote:
Julian wrote:
Gadgeisbackagain wrote:I like and hold MVOL.
...
It is accumulating though so no divs.
...

Please excuse the dumb question but there is a gap in my knowledge re ETFs and you used a word above (bolded by me) that is a potential red flag to me...

For unit trusts I tend to avoid accumulation variants and go with the income variants of a UT assuming one is available. That is because, as I understand the UT rules, an accumulation trust is still seen by HMRC as having made income payments to the holder it's just that the income was automatically accumulated within the holding rather than physically being paid out. That does however mean that a potential tax liability arises for each income event ...

I think you overstate the position with UTs - as I understand it, the only time one has to worry about this is when you sell (assuming they are not held within a tax shelter) - for calculating your CGT liability. I welcome a correction if I've got it wrong.

Yes, you've got it wrong :D

Julian has it right, the "income" from accumulation units (OEICs, UTs & ETFs) is potentially taxable, even though it never went to you directly. The amount you have to declare is given in the consolidated tax certificate issued by your broker after the end of the tax year. You're taxed on income you receive from an investment even if you immediately reinvest it into that investment, and that's in effect what is (automatically) happening with accumulation units.

It is, as you say, also a concern for calculating CGT, but in that case the other way, as all of the "income" you (nominally) received should be added onto your base cost (just as you would if you'd actually received it and then reinvest it into the investment).

https://www.justetf.com/uk/news/etf/distributing-or-accumulating-etfs-how-to-handle-investment-income.html

On MVOL itself, I can't find anywhere on the iShares site any information as to how much the nominal yield is/has been. It can't be 0% given many of the holdings. One thing to note is the MVOL is the USD class, the GBP class is MINV (not to be confused with the GBP Hedged class, which is WMVG...)

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Re: How to increase defensiveness of IT portfolio

#231487

Postby 77ss » June 22nd, 2019, 10:25 pm

mc2fool wrote:
77ss wrote:
Julian wrote:Please excuse the dumb question but there is a gap in my knowledge re ETFs and you used a word above (bolded by me) that is a potential red flag to me...

For unit trusts I tend to avoid accumulation variants and go with the income variants of a UT assuming one is available. That is because, as I understand the UT rules, an accumulation trust is still seen by HMRC as having made income payments to the holder it's just that the income was automatically accumulated within the holding rather than physically being paid out. That does however mean that a potential tax liability arises for each income event ...

I think you overstate the position with UTs - as I understand it, the only time one has to worry about this is when you sell (assuming they are not held within a tax shelter) - for calculating your CGT liability. I welcome a correction if I've got it wrong.

Yes, you've got it wrong :D

Julian has it right, the "income" from accumulation units (OEICs, UTs & ETFs) is potentially taxable, even though it never went to you directly. The amount you have to declare is given in the consolidated tax certificate issued by your broker after the end of the tax year. You're taxed on income you receive from an investment even if you immediately reinvest it into that investment, and that's in effect what is (automatically) happening with accumulation units.

It is, as you say, also a concern for calculating CGT, but in that case the other way, as all of the "income" you (nominally) received should be added onto your base cost (just as you would if you'd actually received it and then reinvest it into the investment).

https://www.justetf.com/uk/news/etf/distributing-or-accumulating-etfs-how-to-handle-investment-income.html

On MVOL itself, I can't find anywhere on the iShares site any information as to how much the nominal yield is/has been. It can't be 0% given many of the holdings. One thing to note is the MVOL is the USD class, the GBP class is MINV (not to be confused with the GBP Hedged class, which is WMVG...)


Thanks for that mc2fool - and for the link to the useful looking justetf site!

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Re: How to increase defensiveness of IT portfolio

#231648

Postby richfool » June 24th, 2019, 9:30 am

Spet0789 wrote:HL offer both so there’s no fundamental issue for U.K. holders. Perhaps you can ask your broker?

ITPS (which I also hold) is as you say longer dated TIPS. From memory I think the average duration is around 8 years. Still a good option but this will have a bit more sensitivity to interest rates (in the same sense as bonds) and to inflation expectations.

If you can’t get TIP5, it’s not a bad option.

I didn’t mention it, but short dated TIPs are the largest part of the holdings of Personal Assets Trust. They often get tagged as a holder of gold but they have 3x invested in inflation linked bonds.

Hi Spet, Thanks for the info.

My broker confirms that I can trade TIP5.L (though I note their trading screen doesn't recognise that ticker, - I may have to email them if & when I decide to purchase). So that looks the best option. As current pressure on US interest rates appear to be downwards, I will probably monitor it for a while. In the meantime, I'm currently enjoying some "protective upside" from gold.

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Re: How to increase defensiveness of IT portfolio

#231725

Postby 0x3F » June 24th, 2019, 2:15 pm

richfool wrote:My broker confirms that I can trade TIP5.L (though I note their trading screen doesn't recognise that ticker, - I may have to email them if & when I decide to purchase). So that looks the best option.


You probably want TP05 which is the GBP quoted version, otherwise may be hit with xrate fees. I hold it.

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Re: How to increase defensiveness of IT portfolio

#232109

Postby richfool » June 26th, 2019, 9:32 am

0x3F wrote:
richfool wrote:My broker confirms that I can trade TIP5.L (though I note their trading screen doesn't recognise that ticker, - I may have to email them if & when I decide to purchase). So that looks the best option.


You probably want TP05 which is the GBP quoted version, otherwise may be hit with xrate fees. I hold it.

Thanks, 0x3F.

I assume that TP05 is a sterling version/equivalent of TIP5 and as such would avoid having to transact FX and thus be a more straight forward choice. Or ITPS if aiming at longer than 0-5 year TIPS.

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Re: How to increase defensiveness of IT portfolio

#232153

Postby richfool » June 26th, 2019, 12:35 pm

richfool wrote:
0x3F wrote:
richfool wrote:My broker confirms that I can trade TIP5.L (though I note their trading screen doesn't recognise that ticker, - I may have to email them if & when I decide to purchase). So that looks the best option.


You probably want TP05 which is the GBP quoted version, otherwise may be hit with xrate fees. I hold it.

Thanks, 0x3F.

I assume that TP05 is a sterling version/equivalent of TIP5 and as such would avoid having to transact FX and thus be a more straight forward choice. Or ITPS if aiming at longer than 0-5 year TIPS.

I've also just come across this: PBTP - Invesco PureBetaSM 0-5 Year US TIPS ETF
The investment seeks to track the investment results (before fees and expenses) of the ICE BofAML 0-5 Year US Inflation-Linked Treasury IndexSM (the "underlying index"). The fund generally will invest at least 80% of its total assets in the component securities that comprise the underlying index. The index is designed to measure the performance of the shorter maturity subset of the U.S. Treasury Inflation-Protected Securities ("TIPS") market, represented by TIPS with a remaining maturity of at least one month and less than five years. The fund is non-diversified.

https://uk.finance.yahoo.com/quote/PBTP?p=PBTP
The underlying ICE BofAML 0-5 Year US Inflation-Linked Treasury Index measures the performance of US Treasury Inflation-Protected Securities with a remaining maturity of at least one month and less than five years. Effective maturity of the fund is 2.36 years and effective duration is 2.31 years. It yields 2.75% annually and charges 7 bps in fees (read: Goldman Sachs Launches TIPS ETF).

https://uk.finance.yahoo.com/news/octob ... 06581.html

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Re: How to increase defensiveness of IT portfolio

#232178

Postby 0x3F » June 26th, 2019, 2:35 pm

richfool wrote:I assume that TP05 is a sterling version/equivalent of TIP5 and as such would avoid having to transact FX and thus be a more straight forward choice..


It has the same underlying holdings of US bonds as TIP5, its the same fund - just quoted in GBP to avoid fees. Its mentioned in the fact sheet for TIP5 if you go the the iShares website.

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Re: How to increase defensiveness of IT portfolio

#232244

Postby jaizan » June 26th, 2019, 11:22 pm

For defensiveness, I purchased:
1 IBTS as my US treasury ETF, with the main attraction being the short duration of the holdings (average under 2 years).
2 Gold ETFs.

Although most of that was done earlier in 2018.

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Re: How to increase defensiveness of IT portfolio

#232260

Postby PrefInvestor » June 27th, 2019, 6:21 am

I thought that TIPS sounded like an interesting defensive investment. But having a read around I found the following article which implies to me that while buying an actual TIPS bond is good holding an ETF or mutual fund exposes you to additional risks.

https://www.thebalance.com/are-tips-saf ... tfs-417125

Personally I avoid investing in anything that doesn’t pay a dividend so accumulation funds are a no no for me. I don’t want to be in a position to have to sell holdings to generate income. I am also a strong believer in the 8th wonder of the world (compound interest) and re-investing of dividends, especially at low points in the market, I see this as key to long term success in volatile markets. I recognise that accumulation funds effectively automatically re-invest the income from that investment resulting in additional units. But I want the ability to select where I make my re-investments nit be forced to add them to an existing holding.

ATB

Pref

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Re: How to increase defensiveness of IT portfolio

#232281

Postby richfool » June 27th, 2019, 9:24 am

PrefInvestor wrote:I thought that TIPS sounded like an interesting defensive investment. But having a read around I found the following article which implies to me that while buying an actual TIPS bond is good holding an ETF or mutual fund exposes you to additional risks.

https://www.thebalance.com/are-tips-saf ... tfs-417125

Personally I avoid investing in anything that doesn’t pay a dividend so accumulation funds are a no no for me. I don’t want to be in a position to have to sell holdings to generate income. I am also a strong believer in the 8th wonder of the world (compound interest) and re-investing of dividends, especially at low points in the market, I see this as key to long term success in volatile markets. I recognise that accumulation funds effectively automatically re-invest the income from that investment resulting in additional units. But I want the ability to select where I make my re-investments nit be forced to add them to an existing holding.

ATB

Pref

Thanks for the link PrefInvestor.

As interest rate and inflation pressures seem to be downwards, particularly in the US, I am tending to shy away from TIPS for the time being.

An alternative option I am pondering, is to buy into PNL as it holds TIPS (c 33%), gold (c 8%) and stocks, as they will understand the products and adjust asset allocations better then I will.

I continue to hold gold through ETF SGLN.

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Re: How to increase defensiveness of IT portfolio

#232304

Postby PrefInvestor » June 27th, 2019, 10:41 am

richfool wrote:An alternative option I am pondering, is to buy into PNL as it holds TIPS (c 33%), gold (c 8%) and stocks, as they will understand the products and adjust asset allocations better then I will.


Yes I can see that PNL has been doing well, up sort of 7-8% YTD and it held up well during the big dip in US markets at the end of 2018 looking at the chart. Yield is rubbish though and at 42,400p (£424) a share I guess you wont be buying that many !. Its a bit like buying Amazon isnt it !!.

ATB

Pref

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Re: How to increase defensiveness of IT portfolio

#232332

Postby Spet0789 » June 27th, 2019, 1:43 pm

richfool wrote:
PrefInvestor wrote:I thought that TIPS sounded like an interesting defensive investment. But having a read around I found the following article which implies to me that while buying an actual TIPS bond is good holding an ETF or mutual fund exposes you to additional risks.

https://www.thebalance.com/are-tips-saf ... tfs-417125

Personally I avoid investing in anything that doesn’t pay a dividend so accumulation funds are a no no for me. I don’t want to be in a position to have to sell holdings to generate income. I am also a strong believer in the 8th wonder of the world (compound interest) and re-investing of dividends, especially at low points in the market, I see this as key to long term success in volatile markets. I recognise that accumulation funds effectively automatically re-invest the income from that investment resulting in additional units. But I want the ability to select where I make my re-investments nit be forced to add them to an existing holding.

ATB

Pref

Thanks for the link PrefInvestor.

As interest rate and inflation pressures seem to be downwards, particularly in the US, I am tending to shy away from TIPS for the time being.

An alternative option I am pondering, is to buy into PNL as it holds TIPS (c 33%), gold (c 8%) and stocks, as they will understand the products and adjust asset allocations better then I will.

I continue to hold gold through ETF SGLN.


My feeling is that PNL is too expensive given you can buy the pieces for about 1/3 of the annual cost... UNLESS you believe that the manager can time the market and switch from bonds/gold to equities at the best times. Then it’s worth the fees.

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Re: How to increase defensiveness of IT portfolio

#237262

Postby richfool » July 17th, 2019, 2:00 pm

I hold Shires IT amongst my UK trusts, which holds 25% in fixed interest. With the downward pressure on interest rates and bond yields, should I see that fixed interest element as an increased risk or a defensive component? (I am pondering whether to sell Shires).


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