Concentration of risk in Wealth Preservation

Hi All,

I've been putting together different asset allocations with limiting draw downs as a primary (but not sole) aim.

One option was a 50/50 growth/wealth preservation with the latter selected for diversification and volatility over the last decade.

The 8 funds/IT's I initially whittled my selections down to contains 4 Ruffer offerings.

RICA and Ruffer Total Return are very similar in composition roughly 50/50 in equities vs global index linked bonds + cash.

The other 2 are Ruffer Equity & General and Ruffer European which seem to be offering a degree of overlap in ratios (equities 70%, bonds/cash 30%) but with the obvious geographical tilts.

If you were to put together:

RICA
Ruffer Equity & General
Ruffer European

Looking through the rear view mirror their performance is excellent during market stress with a still acceptable degree of capture of the upsides. However, my concern is that there might be a risk of whatever processes they use in their equity selections delivering similar types of composition risk across all 3 funds/IT.

A reasonable assumption or no?
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Comments

  • IanSt
    IanSt Posts: 366 Forumite
    I'd say that there's a definite possibility of the type of risk you are worried about.

    That's one of the reasons why I personally keep a big chunk of my investments in simple tracker funds and diversify any managed funds across different providers to try to minimise any 'group think'.
  • Linton
    Linton Posts: 17,045
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    Many thanks for bringing the Ruffer Equity and European funds to my attention. WP is an important part of my investment strategy. The Ruffer IT is often mentioned in WP discussions but the OEICs aren't. Yet their performance during both the tech crash and the 2008/2009 crash was remarkably good, much better than the average for their sector (40%-85% mixed investment). They have the advantages over the IT fund in lower volatility as there is no market variation between NAV and price and the absence of stamp duty.

    Both funds show very similar performance though their equity holdings (around 70%) are quite different. Currently both have around 60% in cash with 30% shorted. Neither hold any bonds at the moment, which is pleasing. So clearly they are employing some sort of financial engineering approach which I dont understand. But it has been very successful in meeting its objective over nearly 20 years.

    So of the 3 listed after a bit more research I would go for a significant holding in the Equity & General fund but look elsewhere for the rest of the portfolio. Perhaps something a bit higher risk/return to complete the equity 50% and something rather more ordinary and cautious for the rest of the WP 50%.
  • Deneb
    Deneb Posts: 420
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    Linton wrote: »
    Many thanks for bringing the Ruffer Equity and European funds to my attention. WP is an important part of my investment strategy. The Ruffer IT is often mentioned in WP discussions but the OEICs aren't. Yet their performance during both the tech crash and the 2008/2009 crash was remarkably good, much better than the average for their sector (40%-85% mixed investment). They have the advantages over the IT fund in lower volatility as there is no market variation between NAV and price and the absence of stamp duty.

    I have also been looking towards moving part of my portfolio into WP and am more attracted to OEICs within my SIPP as I intend to draw down from this over the next few years, moving the assets into my ISA without attracting the dealing charges that selling and repurchasing ITs would involve.

    I was also unaware of the Ruffer OEICs. However, having just done a bit of searching across the three platforms I am on, it appears that HL are the only one offering either of them, but both attract a 1% initial charge which makes the lack of stamp duty and NAV not quite so clear cut and would still leave me with dealing charges in the selling and repurchasing involved in moving out of the pension wrapper.

    So far, I have already switched some of my SIPP into Troy Trojan O and am thinking of adding CGT IT in my ISA.
  • jamei305
    jamei305 Posts: 635
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    Bestinvest carry Equity & General albeit with a 0.5% initial fee.

    Doing well during a downturn 10 years ago whilst giving decent growth afterwards doesn't of course mean it will do well in the next downturn. If its strategy is different from other funds in this sector it just might be an outlier on the downside during the next crash.
  • planteria
    planteria Posts: 5,321
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    interesting thread.. i'm not at wealth preservation stage, but i like the thought processes above.

    i haven't invested with Ruffer, but an experienced and cautious colleague of mine is comfortable with significant funds managed by them. he has told me about them and their approach. they have certainly gone against the herd, and been creative.
  • Audaxer
    Audaxer Posts: 3,505
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    I like the look of the Ruffer Equity and General fund. The only downside seems to be the initial charge of 1% and OCF of 1.28%.

    The other thing I noticed is that the Defensive part of the equity is low at 11.42% with the Sensitive part high at 62.56%. I would have thought it would be the other way round in Wealth Preservation fund?
  • Linton
    Linton Posts: 17,045
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    jamei305 wrote: »
    Bestinvest carry Equity & General albeit with a 0.5% initial fee.

    Doing well during a downturn 10 years ago whilst giving decent growth afterwards doesn't of course mean it will do well in the next downturn. If its strategy is different from other funds in this sector it just might be an outlier on the downside during the next crash.

    It isnt just a single event 10 years ago. Ruffer Equity & General also had half the fall of the FTSE World index during the 2002 Tech crash. If you had invested in the fund at the height of the Tech Boom you would still be just ahead of the World Index. It has continuously shown a very low volatility. The fund has one of the lowest Trustnet Risk Scores in its sector - around 122nd out of 133 with a performance over 10 years of 5th out of 60.
  • bostonerimus
    bostonerimus Posts: 5,617
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    Wealth Preservation in retirement is just risk, tax and spending management and as such isn't much different from what you should have been doing all your life. The capital gains, interest, dividends and maybe some capital that you allowed to accumulate while working are now going to be spent. You can approach this in numerous ways, but one approach is to basically stick with your pre-retirement allocation (as I assume it's worked for you so far) and maybe add a larger cash/short term bond allocation. This doesn't need to be complicated.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • Audaxer
    Audaxer Posts: 3,505
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    Wealth Preservation in retirement is just risk, tax and spending management and as such isn't much different from what you should have been doing all your life. The capital gains, interest, dividends and maybe some capital that you allowed to accumulate while working are now going to be spent. You can approach this in numerous ways, but one approach is to basically stick with your pre-retirement allocation (as I assume it's worked for you so far) and maybe add a larger cash/short term bond allocation. This doesn't need to be complicated.
    If you are moving lump sums from Cash ISAs to investments with say a 60:40 equity/bond allocation to generate better returns, I don't see a problem in putting some of the cash savings into Wealth Preservation funds in anticipation of a possible equity crash in the next few years. They would just be a sort of buffer between keeping too much in cash savings and the 60:40 investment portfolio, to lessen the drop in your overall wealth if/when the next crash comes.
  • bostonerimus
    bostonerimus Posts: 5,617
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    edited 14 January 2018 at 7:22PM
    Audaxer wrote: »
    If you are moving lump sums from Cash ISAs to investments with say a 60:40 equity/bond allocation to generate better returns, I don't see a problem in putting some of the cash savings into Wealth Preservation funds in anticipation of a possible equity crash in the next few years. They would just be a sort of buffer between keeping too much in cash savings and the 60:40 investment portfolio, to lessen the drop in your overall wealth if/when the next crash comes.

    You're just talking about asset allocation. Wealth Preservation sounds like a marketing term just to describe a conservative multi-asset fund.....although at almost 60% equities RICA would take a hit if equities crashed particularly in the UK and Japan with it's weighting.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
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