consolidating and stabilising my portfolio

[DavidA]

Having reached the point of drawdown thought I would review my very simple portfolio. I have slimmed it down to 4 funds/trusts. HSBC FTSE ALL World, Murray International, Personal Assets and Ruffer Investment. I am just looking to at worst preserve capital and at best add some growth.
Having looked at them I know Personal Assets has been a bit off recently it has served me well for a long time and I cant really see any reason to dispose. HSBC is just there as a cheap tracker and I will continue to hold. Murray and Ruffer are the 2 in question. Murray is performing ok if I replaced it what with? Ruffer is doing badly and I probably need to ditch it as I cant see where the improvement comes. I am worried about replacing them with trusts that are similarly constituted and therefore perform just as badly. I am considering the following in order of preference Law Debenture, Bankers Trust, Capital Gearing and Caledonian. I would hope to make the change and then just leave it and not worry as I am really not in to tinkering. Anybody got any views on what should be done and who to switch to. TIA

[Kantwebefriends]

"If you don't need the return don't take the risk." How defensive are you prepared to be?

Could you put up with a variant of the Harry Browne Permanent Portfolio e.g. 25% equities (your ETF?), 25% cash (all sterling?), 25% index-linked gilts (a ladder?) and 25% gold (a mixture of sovereigns and ETCs?)?

Are you prepared to try to "time" the market? (My own experience: it's been easier to time the sale of equities than their purchase.)

Or vary Harry a bit more e.g. 20% Large equities, 20% small, 20% of each of the other three.

Or last of all: one sixth of each of that list of five plus one sixth Fixed Interest bonds? Personally I don't fancy fixed interest in an inflationary period but someday they'll be a good bet again.

Must you stick to drawdown: have you considered using part of the capital to buy, say, an inflation-linked annuity?

[Newroad]

Hi DavidA.

Firstly, you don't indicative relative holdings in each of the four, so I'm going to assume 25% in the comments below.

I would be wary about changing your mix at all - see the following (source: Trustnet)



It's done OK'ish and protected your capital reasonably (in a relative sense) during the Covid crash. As always, do you own research, but don't jump out of the frying pan into the fire - especially if you think there is a material risk of a recession coming (any switch you might make would arguably be better during/after that than now).

Regards, Newroad

[Dod101]

That is a helpful table from Newroad but you should I think simplify it and look only at the 3, 5 and 10 year returns. Anything less is too short term. On that basis Ruffer looks fine so unless there is something specific that has changed I would not ditch it. I too would be inclined to sell alone. It is a pretty simple portfolio at the moment and you should (continue) to get stability and some growth from it for some time to come. All holdings have got a well engrained policy and not all will fire at the same time as they have modestly different strategies.
Dod

[Newroad]

Hi Dod.

I would have looked at 10 years (and initially tried to) but the HSBC fund hasn't been around that long. If you look at the data in the image, you will see this.

Hence, 5 years is the best I can do (from that source at least).

Regards, Newroad

[EthicsGradient]

Hi Dod.

I would have looked at 10 years (and initially tried to) but the HSBC fund hasn't been around that long. If you look at the data in the image, you will see this.

Hence, 5 years is the best I can do (from that source at least).

Regards, Newroad

The HSBC fund ought to be tracking the FTSE World value (though it worryingly seems to be at least 2% less each year). That should mean you could assign a value of 165-170% growth to it over 10 years.

[vand]

Personally I think that your portfolio at the start of drawdown shouldn't look very different at all from what it looks like in the final few years leading up to that point.

Don't know what your allocation percentages are, but from Newroad's charts your portfolio doesn't look too bad at all imo. Sure it has underperformed FTSE world but then you would expect that with the more defensive holdings you have, and it definitely is less volatile.

Have you got an idea of what Sharpe ratio your portfolio is generating? Looking at return as a function of risk is one of the smarter ways of assessing portfolio performance.

[Hariseldon58]

The driving force of growth in your portfolio is clearly the HSBC All World Tracker.

Personal Assets or Capital Gearing Trust are basically an equity component and at present a significant Index Linked portfolio.

You could replicate something similar yourself.

Surprised that ErhicsGradient is seeing a 2% annual tracking welder or for the FTSE All World index fund. The 3 and 5 years figures from the HSBC website show an annualised tracking error of 0.04% which is what I would expect.

My own solution the same problem is some short term cash/bonds and around 10 years living expenses in TIPs and the bulk of the portfolio in various world trackers plus some equities in various factors to provide some dispersion of returns.

If equity returns are disappointing then the TIPs would keep us going for 10 years , otherwise the equities can provide the income if doing well.

[EthicsGradient]

Surprised that ErhicsGradient is seeing a 2% annual tracking welder or for the FTSE All World index fund. The 3 and 5 years figures from the HSBC website show an annualised tracking error of 0.04% which is what I would expect.

I didn't realise that "FTSE World" is a little different from "FTSE All World" (you'd think they'd use an adjective if "World" is restricted).

The FTSE All-World Index is a market-capitalisation weighted index representing the performance of the large and mid cap stocks from the FTSE Global Equity Index Series and covers 90-95% of the investable market capitalisation. The index covers Developed and Emerging markets

TheFTSE World Index is a market-capitalisation weighted index representing the performance of the large and mid cap stocks from the Developed and Advanced Emerging segments of the FTSE Global Equity Index Series and covers 90-95% of the investable market capitalisation

Not much difference from the description, you'd think, but "FTSE All-World" has 3.46% China, 1.67% India and some other developing countries that plain "FTSE World" doesn't (though there's also a "FTSE Developed" index). So All-World's 1, 3 and 5 year figures are
2.6 42.7 43.5
while "World" has
3.4 46.1 47.9
so the difference is the "bit more emerging" that All-World includes, which has not done so well over the past 5 years.

In calendar years 2013-2017 inclusive, All-World grew 71.9%, and World 73.7% so, since it's not a systemic error, we might say the HBSC 10 year growth would have been about 182-183% (can't say exactly, since the calendar year figures don't precisely match the end-Apr to end-Apr figures).

[DavidA]

Thank you everybody for your reassurance that I am not doing anything too wrong! As regards split it is currently approx 25% in each. I am surprised there were no comments on Ruffer because from where I sit it doesn’t look like a long term hold. But as you say don’t go from the frying pan to the fire. I will do a bit more research in to the relative holdings.

[scotia]

Having reached the point of drawdown thought I would review my very simple portfolio. I have slimmed it down to 4 funds/trusts. HSBC FTSE ALL World, Murray International, Personal Assets and Ruffer Investment. I am just looking to at worst preserve capital and at best add some growth.

We can't foretell the future - and this is particularly relevant with actively managed funds - the manager may make the correct guesses over a number of years, then it goes all wrong - or vice versa. And looking at your current selection, the dull world tracker beat the lot over the past 5 years. So maybe more of the tracker might be a good choice. Looking at your two "defensive" funds, Ruffer was under the water for most of the first two years of the past 5 years, so I am not convinced of its defensive properties. Personal Assets is certainly less volatile than the others - but you pay for it by its poorer long term return

Looking at total returns over 3 years and 5 years on your investments (from Hargreaves Lansdown)


As well as trackers, I have held Fundsmith (a global managed fund) over a number of years.


Others have noted that you should consider other non-equity investments. I keep a cash buffer.

[Hariseldon58]

Thank you everybody for your reassurance that I am not doing anything too wrong! As regards split it is currently approx 25% in each. I am surprised there were no comments on Ruffer because from where I sit it doesn’t look like a long term hold. But as you say don’t go from the frying pan to the fire. I will do a bit more research in to the relative holdings.

Ruffer is Ruffer , it has a distinctive approach to preserve capital and is similar to Personal Assets in that, but they differ in the details. If you like these approaches then it makes sense to hold them for a long time, they are distinctive and will underperform a lot of the time but they may well save the day in the bad times.

Your portfolio is effectively around 60% equities and 40% capital preservation, a big chunk of which is short dated bonds and index linked bonds plus some gold and others.



It seems a perfectly reasonable portfolio.

For listed assets I have three ‘funds’ a collection of Index funds that are halfway between World and All World , a collection of factor passive funds ( including size, yield, value, multi-factor ) and a safety fund that is primarily a TIPs index fund.

So not so different, except I have a greater emphasis on the World Index and less on protection.

[Dod101]

Hi Dod.

I would have looked at 10 years (and initially tried to) but the HSBC fund hasn't been around that long. If you look at the data in the image, you will see this.

Hence, 5 years is the best I can do (from that source at least).

Regards, Newroad

Five years is fine. It is just that ten years was shown in the chart. Also as you will know, for periods shorter than a year, the results are fairly
meaningless; more market noise than anything else and anyway you need to see trends.

The HSBC fund looks interesting.

Dod

[mc2fool]

I am just looking to at worst preserve capital ...
...Ruffer is doing badly and I probably need to ditch it as I cant see where the improvement comes. I am worried about replacing them with trusts that are similarly constituted and therefore perform just as badly. I am considering the following in order of preference Law Debenture, Bankers Trust, Capital Gearing and Caledonian. I would hope to make the change and then just leave it and not worry as I am really not in to tinkering. Anybody got any views on what should be done and who to switch to. TIA

The thing with the three "capital preservation" ITs, CGT, PNL & RICA is that they kinda oscillate around each other and when one is doing badly (and I take it you're referring to just a recent, maybe 1 year, view of RICA) the others don't (or they all do together). You can see that in this 15 year chart of CGT & RICA (unfortunately ADVFN's chart doesn't compensate for PNL's recent split so adding it just makes a mess of the chart!).


http://uk.advfn.com/stock-market/london/capital-gearing-CGT/share-price

You can get a TR view of all three by going to https://www.theaic.co.uk/companydata/capital-gearing-trust/performance and adding PNL & RICA, and then playing with different time periods to see (personally I recommend clicking "Display" and selecting Share Price TR -- it gets a bit crowded with the NAV in there too!)

So, my recommendation on the capital preservation front would be not to sell Ruffer but to add Capital Gearing to get all three (maybe sell a third each of PNL & RICA to buy in CGT, if there's no external source of funds to just add it).

[DavidA]

and a safety fund that is primarily a TIPs index fund.

Thanks again a morning of looking through charts etc has revealed exactly what Hariseldon pointed out a lot of equity and not so much in bonds. I am intrigued by the safety fund you refer to what is this?

I am considering rebalancing the portfolio by making it 50:50 equity to bonds by increasing the HSBC element and then putting the rest in defensive funds that are predominantly bonds like CGT, PNL and another which I haven't decided. Still searching for that one. Could of course split the equity element in to Hsbc and Fundsmith.

Had a look at Law Debenture which had been recommended in newspapers and Money Week but it seemed too orientated towards the UK financials and banks though its fees were attractive.

Thanks again the research continues.

[JohnW]

You didn’t give us much to go on with respect to suggesting asset allocation or strategies like annuities or bond ladders. So considering just the funds you mention, here’s a couple of thoughts but firstly the current mix looks tolerable even if you changed nothing.
You’ve chosen to have perhaps half your portfolio in higher costing funds like PNL, and half in a low cost tracker. This will result in an overall funds management payment (based on their fees) by you of about 0.3%/year (half your portfolio costing 0.7%/year rather than 0.1%/year). That’s not much unless it’s 0.3% of a lot, in which case you probably won’t miss it; nor is it a lot of a small portfolio, which you might not bother you either. And since you’re into drawdown, it’s not a cost that’ll be compounding for 50 years - perhaps 35.
So, do you have enough basis for the belief that these ‘capital protection’ funds justify their costs above a similar asset mix of passive stocks/bonds, or just plain bonds either in funds or held as individual bonds (no annual management fee)? If the 0.3%/year extra fee is not ‘great’ for you, then perhaps the basis for your belief can be weak but still allow that choice. You’re the best one to decide this.
So, what is the basis for your belief?

[DavidA]

John W, thank you I am not really that sophisticated an investor. Just trying to keep it relatively simple without trying to shoot the lights out. Most of my investment is in a SIPP and I would like to keep it that way. Mainly because we have my wife's public sector pension coming soon which sort of provides a safety net. Hope that makes sense. I haven't really got the inclination to start investing in individual stocks or bonds.
I suppose if i really wanted it simple I could go all in passive funds. Are there any that cover the bond market?
I have no idea what a bond ladder is so you might have to educate me on that one.
Thanks

[DavidA]

Another idea I have is if inflation is going to continue which i think it will maybe an Infrastructure Fund is a good idea something like BBGI or 3i? Not sure where people sit on these being a good investment in the current economic climate.

[Hariseldon58]

John W, thank you I am not really that sophisticated an investor. Just trying to keep it relatively simple without trying to shoot the lights out. Most of my investment is in a SIPP and I would like to keep it that way. Mainly because we have my wife's public sector pension coming soon which sort of provides a safety net. Hope that makes sense. I haven't really got the inclination to start investing in individual stocks or bonds.
I suppose if i really wanted it simple I could go all in passive funds. Are there any that cover the bond market?
I have no idea what a bond ladder is so you might have to educate me on that one.
Thanks

You have an equity fund and the low cost HSBC All World is a rational choice for just one equity fund.

The safety fund is something that can provide cash when you need it to finance lifestyle , reduce volatility of the equity fund and to aid sleeping at night. Everything that was meant to be safe last year went down … a lot. We have seen the move from incredibly low internet rates to much higher in relative terms but not high in an absolute sense. That led to expected losses in bond funds ( they are of course much better value after the price falls) and the assets that we were led to believe were ‘safe’ , the infrastructure funds etc were found to be far more vulnerable to rising rates and consequently fell.

If you want something that is safe in the short term then you need short duration bonds.

My own view is US$ TIPS for mid term safety, the yield is around 1.5% real plus US inflation , clearly you have the currency risk and the inflation is US inflation. This is not unattractive in my view.

The simplest portfolio for you might be a Vanguard Life Strategy fund, you can have 40:60 or 60:40 equity:bond or a blend for a 50:50, there is a UK bias but low cost and a one stop solution.

You need to isolate what happened in 2022 from what goes forward, in truth in 2021 bonds were very expensive ( and had been so for years) they are now far better value going forward , equities are not cheap though…

Your present approach is not bad but perhaps can be improved. Investment returns are very noisy and recent market movements are not a great guide to the future.

[JohnW]

…I am not really that sophisticated an investor. …I haven't really got the inclination to start investing in individual stocks or bonds.
I suppose if i really wanted it simple I could go all in passive funds. Are there any that cover the bond market?
I have no idea what a bond ladder is so you might have to educate me on that one.
Thanks

I’m sure you’ll find funds that cover the bond market or the bits of it you might be interested in. But it does lead me to suggest you might find value in reading Hale’s book Smarter Investing, and similarly good but perhaps broader in financial management than you need is his and Hollow’s book How to fund the life you want. They both address UK folk.
Indeed you don’t need to bother with individual bonds, and certainly not stocks, but bonds have a property that bond funds don’t which can be useful and appeals to some people: they mature at a specified date, giving 100% predictable returns. If that met (some of) one’s needs, then a bond ladder of bonds maturing progressively over some years is the very instrument. But have a sniff around those books first, as there’s no rush to tweak your investments, and even consider Ferri’s All About Asset Allocation, or Bernstein’s The Intelligent Asset Allocator. They can turn you into a sophisticated investor able to out-do most professionals over the long term if the past is any guide!