A new 'semi' core holding

[elephanthunt11]

I've been debating whether to make a post about this for a few days now. Ironically, I'm after advice which I am well able to give, however - in this instance it applies to my own money, which makes things very different, as you know.

I've attached a screengrab of my portfolio which you can see here - https://i.imgur.com/6bCGQPN.png

For context, I'm 31 and this portfolio is primarily for growth, with a little income.

I have just sold a quarter of my Barratt (BDEV) holding as BDEV has recenly climbed and grown to 12% of my portfolio.

I'm now in a quandary as to what I should do with my cash on account.

Option 1 Historically it'd just be a case of rolling it into my core holding of index funds. I'm disinclined to do this now as I feel I'm too tech heavy (30%) largely owed to my US index and Tech index holdings. I don't want to put it into global small caps as I would like to reduce volatility, and I don't want to put it into FTSE 100 as that's going nowhere anytime soon.

Option 2 Would be a case of sticking it in a money market fund until I know what I want to do with it, another option which I'd prefer not to do as I've got cash in banks/savings bonds/easy access etc. at good rates.

So, I've been toying with using the cash on account (£3k), liquidating my FTSE 100 index fund (£4k), and (maybe) trimming some from my tech fund (£3k) to have £10k to open another semi-core holding, whose purpose for holding within the portfolio is different from that of the global small cap and global tech index.

The funds I have considered using to create a new semi-core holding are JGGI, CTY and/or Vanguard SRI Eurpoean stock (FTSE Developed Europe inc. UK)

Sense check my thinking please guys - am I jumping the gun?/am I rightly redeploying cash?/am I being a general wazzock?

Critical friends and cautious supporters welcome.

[DrFfybes]

Option 2 Would be a case of sticking it in a money market fund until I know what I want to do with it, another option which I'd prefer not to do as I've got cash in banks/savings bonds/easy access etc. at good rates.

I tend to consider cash in my Investment Accounts as 'not cash' and regard it very differently to cash that we keep as cash. It is 'uninvested money' and looking for an investment opportunity. At least with HL you get some interest whilst waiting for something to come along.

I did notice there is quite a "non EU" bias in your funds, and your shares except AZ seem geared towards an Economic upturn, being housebuilder, credit card, and luxury goods.

You're in it for the long term, so perhaps consider some long term performers... FCIT, ATST, BRKB have all been handy things to own over the last couple of decades. However markets are once again around an all time high, and one of the hardest things I found was to sit on cash whilst thing rose around me and wait a few months.

Personally I moved about 2% of our investments into Bond funds six weeks ago, as falling interest rates usually mean rising values. It was a 'gut' decision as it seemed the world over inflation was dropping and interest rates would follow. I've been very lucky so far with VAGP up 6% and IDTG up circa 15%. Seems there is a first time for everything

Paul

[Dicky99]

Why not make a global all world fund the core of your portfolio such as VWRL or at least compare the geographical allocation of such a fund to your own to highlight where you are currently light on exposure.

[elephanthunt11]

I tend to consider cash in my Investment Accounts as 'not cash' and regard it very differently to cash that we keep as cash. It is 'uninvested money' and looking for an investment opportunity. At least with HL you get some interest whilst waiting for something to come along.

My approach over the last 6 years has been militant, so I view any cash (regardless of where) as uninvested. It's taken me time to accept that I need a cash buffer with emergency fund...which I have now built

I did notice there is quite a "non EU" bias in your funds, and your shares except AZ seem geared towards an Economic upturn, being housebuilder, credit card, and luxury goods.

This is partly by design - I made a conscious decision 2 years ago to go 100% developed markets, this has evolved to look like a mostly US/UK bias but I'm not against more EU exposure. And as far as these appearing geared for an upturn - I've held these so long now they've gone through upturns and downturns to a point where i'm just holding them, and comfortable doing so

You're in it for the long term, so perhaps consider some long term performers... FCIT, ATST, BRKB have all been handy things to own over the last couple of decades. However markets are once again around an all time high, and one of the hardest things I found was to sit on cash whilst thing rose around me and wait a few months.

Some really good recommendations - for FCIT and ATST, there would be a degree of replication of my top ten holdings so I'm disinclined to go with those, BRBK on the other hand does tick a few boxes...

[simoan]

Why not make a global all world fund the core of your portfolio such as VWRL or at least compare the geographical allocation of such a fund to your own to highlight where you are currently light on exposure.

The OP said that he is already overweight technology so this should rule out VWRL I would think. VWRL is 61% exposed to the S&P500 and the S&P500 is 40% technology - don't let some of the sector definitions fool you. This gives you 24% exposure to US technology related companies when you buy VWRL.

[BullDog]

At 31 and investing for growth, City of London IT would be the very last thing to buy. JGGI makes a lot more sense. In the event that the OP wants more UK exposure, I'd suggest LWDB.

[elephanthunt11]

Why not make a global all world fund the core of your portfolio such as VWRL or at least compare the geographical allocation of such a fund to your own to highlight where you are currently light on exposure.

The OP said that he is already overweight technology so this should rule out VWRL I would think. VWRL is 61% exposed to the S&P500 and the S&P500 is 40% technology - don't let some of the sector definitions fool you. This gives you 24% exposure to US technology related companies when you buy VWRL.

Kind of agree here. There would be a lot of replication and I'm less keen to increase tech exposure, nominally or percentage

[elephanthunt11]

At 31 and investing for growth, City of London IT would be the very last thing to buy. JGGI makes a lot more sense. In the event that the OP wants more UK exposure, I'd suggest LWDB.

I completely agree CTY makes little sense - I think the reasoning behind it as a suggestion is that I don't mind including something in my PF which serves a distinct purpose, be it income or growth. I'm more averse to those middle-of-the-road picks that do neither particularly well.

LWDB is an interesting suggestion. As someone that's never invested in an IT - what benefits would LWDB have over, say, a FTSE 100 index tracker? Dividend yield almost identical, fees .49%, performance - middling etc. am I missing something?

[simoan]

The OP said that he is already overweight technology so this should rule out VWRL I would think. VWRL is 61% exposed to the S&P500 and the S&P500 is 40% technology - don't let some of the sector definitions fool you. This gives you 24% exposure to US technology related companies when you buy VWRL.

Kind of agree here. There would be a lot of replication and I'm less keen to increase tech exposure, nominally or percentage

One region I'm looking at, and to which I currently have no direct exposure, is Japan. There are some interesting developments going on where the government is forcing companies to realise more shareholder value (many are trading at large discounts to book value) whilst similarly providing incentives for the population to invest in Japanese equities rather than hold all their savings in cash. Given that inflation is picking up in Japan for the first time in years, they are very incentivised to do so seeing as the populations huge savings get virtually no interest. Other government incentives, include encouraging more workforce mobility and improving working conditions. It is worth considering gaining some exposure on a 5 year view IMHO. I will probably use an IT for my exposure but their are hedged ETFs.

All the best, Si

[Adamski]

Depends a lot on your attitude to risk. Whether your got other pensions and savings. Have you lived through stock market crashes and corrections? Can you sleep easily at night, knowing tomorrow you could lose 20-30%? The importanr thing is to stay invested long term. I'm risk adverse so built up a lot of fixed rate savings since interest rates have gone up. If not something could consider a gold etf or a defensive fund in your portfolio.

[simoan]

Depends a lot on your attitude to risk. Whether your got other pensions and savings. Have you lived through stock market crashes and corrections? Can you sleep easily at night, knowing tomorrow you could lose 20-30%? The importanr thing is to stay invested long term. I'm risk adverse so built up a lot of fixed rate savings since interest rates have gone up. If not something could consider a gold etf or a defensive fund in your portfolio.

The OP has informed us they are 31 and want to invest for growth. Hopefully they are in well paid full-time employment with many years ahead or earning and saving. I don’t particularly like giving out advice but given they have such a long way to go, I would think they can probably afford to take on a bit more risk than someone over twice their age.

[Urbandreamer]

LWDB is an interesting suggestion. As someone that's never invested in an IT - what benefits would LWDB have over, say, a FTSE 100 index tracker? Dividend yield almost identical, fees .49%, performance - middling etc. am I missing something?

Very many things. Now if they are important to you is another matter.

One key advantage of IT's over trackers is that they can retain profits. This can smooth out income payments. Another is that you are not directly buying the underlying assets, but a company that invests in them. This means that at times, though not at the moment with LWDB, you can buy at a cut price (discount to NAV). This is actually the hard part for many to grasp. You can either pay over the odds or get a bargain, depending upon popularity.
I don't believe that LWDB do this, but other IT's (i.e SMT) buy companies that are not tracked because they are not traded on the open market.
Then there is the fact that LWDN is not supposed to track. The point of these active funds is that the manager is supposed to have an opinion and invest based upon that opinion. LWDB claim to have outperformed the UK market for some time and the AIC seem to agree.

https://www.theaic.co.uk/companydata/la ... erformance

Ok, you have convinced me. I've been looking for a home for some cash as well and will do something about it tomorrow.

Ps, I'm not suggesting you buy TRIG, even though I have a significant holding. But I do recommend that you look at them and think about why it is that you can spend 90p to buy £1 worth of assets.

[simoan]

Ps, I'm not suggesting you buy TRIG, even though I have a significant holding. But I do recommend that you look at them and think about why it is that you can spend 90p to buy £1 worth of assets.

TRIG is an income investment and I would say is not that suitable for a 31 year old. There are lots of companies where the share price is below NAV but where the NAV doesn’t rely on something as shaky as a DCF calculation.

[Urbandreamer]

Ps, I'm not suggesting you buy TRIG, even though I have a significant holding. But I do recommend that you look at them and think about why it is that you can spend 90p to buy £1 worth of assets.

TRIG is an income investment and I would say is not that suitable for a 31 year old. There are lots of companies where the share price is below NAV but where the NAV doesn’t rely on something as shaky as a DCF calculation.

Did you miss the bit about my not suggesting it as an investment for the OP?

It was simply a quick example of an IT with significant discount. As you say, there are other reasons for discounts. I SERIOUSLY doubt that SSIT's discount is due to the DCF, and it might be a more suitable choice for a 31 year old, if I were actually recommending a given IT.
I was not. I was answering what the difference is between an IT and a index tracker.

There are reasons to understand the concept of discount and premium when it comes to IT's.

[simoan]

TRIG is an income investment and I would say is not that suitable for a 31 year old. There are lots of companies where the share price is below NAV but where the NAV doesn’t rely on something as shaky as a DCF calculation.

Did you miss the bit about my not suggesting it as an investment for the OP?

It was simply a quick example of an IT with significant discount. As you say, there are other reasons for discounts. I SERIOUSLY doubt that SSIT's discount is due to the DCF, and it might be a more suitable choice for a 31 year old, if I were actually recommending a given IT.
I was not. I was answering what the difference is between an IT and a index tracker.

There are reasons to understand the concept of discount and premium when it comes to IT's.

I don’t even understand why you mentioned it. It’s inappropriate in the the context of the OP.

[Lootman]

LWDB is an interesting suggestion. As someone that's never invested in an IT - what benefits would LWDB have over, say, a FTSE 100 index tracker? Dividend yield almost identical, fees .49%, performance - middling etc. am I missing something?

Very many things. Now if they are important to you is another matter.

One key advantage of IT's over trackers is that they can retain profits. This can smooth out income payments. Another is that you are not directly buying the underlying assets, but a company that invests in them. This means that at times, though not at the moment with LWDB, you can buy at a cut price (discount to NAV). This is actually the hard part for many to grasp. You can either pay over the odds or get a bargain, depending upon popularity.

I thought the thing with LWDB was that it contains a fiduciary business and that that can be accretive to earnings in a way that is not reflected in the listed NAV. Although TBH it is a few years since I looked at it. LTI is another IT with a substantial "side hustle".

As for ETFs versus ITs versus OEICs, I think it is instructive to see how they behave in freakish market conditions. OEICs have been known to freeze redemptions. ITs still trade but go to huge discounts. ETFs can do a combination of both although only usually get trading suspended when the underlying market freezes.

[elephanthunt11]

Depends a lot on your attitude to risk. Whether your got other pensions and savings. Have you lived through stock market crashes and corrections? Can you sleep easily at night, knowing tomorrow you could lose 20-30%? The importanr thing is to stay invested long term. I'm risk adverse so built up a lot of fixed rate savings since interest rates have gone up. If not something could consider a gold etf or a defensive fund in your portfolio.

Similarly to cocaine, I have a fairly healthy respect for risk; great in moderation but too much at once and things start to get hairy. I've been fully invested since 2017 and experienced the changing fortunes of markets during that time, good and bad. I hold about £20k across easy access and fixed bonds and about £4.5k in physical gold bullion (recently sold down from £7k after new ATHs) so don't feel a defensive element is necessarily needed in the portfolio. The gold and cash act as ballasts for volatility. Anything that makes its way here must be doing something, be it generating cash or consistently growing.

P.S I have an eye-mask and a machine that simulates whale song, so I sleep well, thanks for asking x

[elephanthunt11]

LWDB is an interesting suggestion. As someone that's never invested in an IT - what benefits would LWDB have over, say, a FTSE 100 index tracker? Dividend yield almost identical, fees .49%, performance - middling etc. am I missing something?

Very many things. Now if they are important to you is another matter.

One key advantage of IT's over trackers is that they can retain profits. This can smooth out income payments. Another is that you are not directly buying the underlying assets, but a company that invests in them. This means that at times, though not at the moment with LWDB, you can buy at a cut price (discount to NAV). This is actually the hard part for many to grasp. You can either pay over the odds or get a bargain, depending upon popularity.
I don't believe that LWDB do this, but other IT's (i.e SMT) buy companies that are not tracked because they are not traded on the open market.
Then there is the fact that LWDN is not supposed to track. The point of these active funds is that the manager is supposed to have an opinion and invest based upon that opinion. LWDB claim to have outperformed the UK market for some time and the AIC seem to agree.

https://www.theaic.co.uk/companydata/la ... erformance

Ok, you have convinced me. I've been looking for a home for some cash as well and will do something about it tomorrow.

Ps, I'm not suggesting you buy TRIG, even though I have a significant holding. But I do recommend that you look at them and think about why it is that you can spend 90p to buy £1 worth of assets.

Some great points here. As someone that has never invested in ITs, I should say I am familiar with gearing, discounts/premium to NAV etc

Funnily enough, I've spent the best part of two hours on AIC's site today after the first mention of LWDB. I get that premiums/discounts to NAV appear on a supply or demand basis, but what I struggle with is this: if discounts (for argument's sake) are appearing, maybe the sector/manager are out of favour etc, why are ITs not bought up in seconds as an IT discount is as officially undervalued as something gets, and we all love something for nothing... are we just hoping for mean reversion here...?

I could buy £1 worth of assets for 90p all day, happy in that knowledge and not actually caring what the market valuation is as I know what I have is undervalued, but, when does the market realise this?

[Urbandreamer]

I could buy £1 worth of assets for 90p all day, happy in that knowledge and not actually caring what the market valuation is as I know what I have is undervalued, but, when does the market realise this?

When things change of course.

Again taking TRIG as an example as I've researched it a bit. It was selling at a premium not that long ago. You had to pay £1.10 for £1 worth of assets. Why did the market change and realize that they should only pay 90p?

Well..
The income from TRIG was effectively guaranteed by the government, until it wasn't. The UK government decided that while they would continue existing agreements, they would slap a windfall tax upon all energy producers until 28, but allow oil and gas to reclaim up to 90% of that tax.

That is why TRIG went from a premium to a discount. I doubt that recent changes by the government will erode that discount, but I expect that the government will want to make further changes before we all wind up sitting in the dark. If the government decides that we need wind energy, I would expect the discount to vanish. If not....

That is an example specific to that sector, but you get the idea. Things change.

Of course sometimes an investor will get it wrong, but the point is to be aware and think about such things.

Again, I'm not recommending TRIG to you. It's not appropriate. However if you do look into TRIG you will see how things are changing and are predicted to change. How the actions of the UK government roll off and their repositioning of assets/investment elsewhere. In any case, do you not think that the end of the significant windfall tax upon their UK profits in 5 years won't have an effect?

The same is true of IT's in other sectors. You just need to be aware and form your own opinions about discounts and premiums.

[Mememe]

31 year old, growth, looking for something different……private equity….

Hvpe
Pin
Hgt

I hold about 15% in PE now. Mostly hvpe. Some HGT. Have held Pin previously. I would say Pin and Hvpe could easily be core holdings. Sat on massive discounts too. When rates turn properly I suspect this will fly.