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  • FIRST POST
    • MPN
    • By MPN 11th Sep 17, 10:09 AM
    • 236Posts
    • 79Thanks
    MPN
    Wealth Preservation Funds/IT's
    • #1
    • 11th Sep 17, 10:09 AM
    Wealth Preservation Funds/IT's 11th Sep 17 at 10:09 AM
    Instead of holding bonds to reduce risk on a portfolio, I am thinking of just holding some wealth preservation IT's or funds. I have a good cash buffer so I feel this may be a viable option to bonds with slightly better returns?

    I am considering RIT Capital Partners (RCP), Personal Assets (PNL), Capital Gearing (CGT) and Ruffer Investment Company (RICA)?

    If anybody has any experience with these IT's your views would be appreciated. Also, are there any other funds or IT's to consider and is this really a realistic alternative/option to bonds?
Page 2
    • bostonerimus
    • By bostonerimus 12th Sep 17, 2:02 AM
    • 1,119 Posts
    • 628 Thanks
    bostonerimus
    Seems rather a dogmatic approach! I could turn round and say that ETF's are mostly located offshore, some are synthetic and many indulge in loaning out shares to third parties
    Originally posted by dividendhero
    Not really, I just like to know what I own. ITs can go off in all sorts of directions.
    Misanthrope in search of similar for mutual loathing
    • bowlhead99
    • By bowlhead99 12th Sep 17, 3:36 AM
    • 6,888 Posts
    • 12,399 Thanks
    bowlhead99
    Not really, I just like to know what I own. ITs can go off in all sorts of directions.
    Originally posted by bostonerimus
    To be fair, it's pretty rare for them to go off in a direction they didn't tell you about in advance, or for them not to discuss those directions in their published reports, or fail to disclose them in their financial statements.
    • StellaN
    • By StellaN 12th Sep 17, 11:12 AM
    • 187 Posts
    • 55 Thanks
    StellaN
    So that isn't really 100% equities I'd have said.
    Originally posted by bigadaj
    Agreed. The point I was trying to make is that if you have a good cash buffer then instead of holding bonds you can invest in 100% equities as long as you can suffer the consequences of a downturn over a period of time.
    • MonroeM
    • By MonroeM 12th Sep 17, 11:28 AM
    • 114 Posts
    • 32 Thanks
    MonroeM
    Instead of holding these wealth preservation IT's you may want to consider a fixed income alternative such as Invesco Perpetual Enhanced Income (IPE) which is a global high income IT.

    This is also fairly low risk but has a good yield of 6.25%. Over the past 10 years it has achieved similar results/performance figures as the 4 wealth preservation IT's that have been mentioned?
    • ColdIron
    • By ColdIron 12th Sep 17, 12:11 PM
    • 3,568 Posts
    • 4,279 Thanks
    ColdIron
    I wouldn't call IPE low risk. Compare it with PNL 9 to 10 years ago during the GFC. From Oct '07 to Oct '08 it took a near 70% hit compared to the 10% to 20% comparative blip of PNL. With my wealth preservation hat on I would be very pleased that one of these funds did what I wanted it to do but spitting feathers at the other and it's complete failure to meet that objective. IPE's objective is to provide a high level of income not primarily to preserve capital. It achieves this in its investment choices and a fairly high level of gearing which increases risk and can (and often does) magnify losses. PNL's objective is explicitly to protect and increase (in that order) the value of shareholders’ funds and employs no gearing. I have IPE in my mildly high yield unwrapped portfolio but I don't kid myself that it's a low risk holding or hold out much hope in the way of capital gains. Horses for courses
    • bostonerimus
    • By bostonerimus 12th Sep 17, 12:50 PM
    • 1,119 Posts
    • 628 Thanks
    bostonerimus
    To be fair, it's pretty rare for them to go off in a direction they didn't tell you about in advance, or for them not to discuss those directions in their published reports, or fail to disclose them in their financial statements.
    Originally posted by bowlhead99
    Yes that is fair and I agree. It's easy enough to see the amount of borrowing done by the fund and they will state the use of things like swaps and other derivatives or return of capital in the dividends. As a passive investor such techniques are kryptonite to me.
    Misanthrope in search of similar for mutual loathing
    • bowlhead99
    • By bowlhead99 12th Sep 17, 1:01 PM
    • 6,888 Posts
    • 12,399 Thanks
    bowlhead99
    I wouldn't call IPE low risk. Compare it with PNL 9 to 10 years ago during the GFC. From Oct '07 to Oct '08 it took a near 70% hit compared to the 10% to 20% comparative blip of PNL. With my wealth preservation hat on I would be very pleased that one of these funds did what I wanted it to do but spitting feathers at the other and it's complete failure to meet that objective.
    Originally posted by ColdIron
    I agree Coldiron. IPE is basically single sector - a high yield bond fund - which means it will be likely to perform quite differently in a crash to a multi-asset defensive fund. HY bonds can have similar characteristics to equities during market downturns. It does have about 20% investment grade bonds on the basis that it can fund them with cheap debt as part of its gearing policy. Its gearing has been over 50% some years, so not one for 'widows and orphans' looking for a safe ride.

    However, even with the boost from gearing of about 15-30% over the last few years, you have to go back to 2013 to find a year where they actually had more net income than they paid out in dividends. 2015, 16 and 17 they are simply maintaining the 5p level of dividend payouts even though they are not bringing that much money in as interest income yield from their assets, it's being taken from capital.

    Which might seem fine and dandy when you get a capital boost due to over half your bond holdings being in a foreign currency at the time that sterling devalues, or when the bonds increase in value due to continuing low global interest rates in the market's search for scarcer and scarcer yield. However, in an environment where rates rise, QE reverses, GBP strengthens and equities crash, a geared bond fund investing internationally at the high yield end of the market will have a Very Bad Time (tm). And if you paid a 3-4% premium for it and it moves to (say) a mild 10%-12% discount in a crash... that's another 15% decline in the market value of your shareholding, on top of the underlying decline of net assets.

    I wouldn't call that a capital preservation IT at all. It is simply an IT that has done well in a period of rising equity and bond markets over a long bull market since it last tanked by 70%.
    • bostonerimus
    • By bostonerimus 12th Sep 17, 1:12 PM
    • 1,119 Posts
    • 628 Thanks
    bostonerimus
    Instead of holding these wealth preservation IT's you may want to consider a fixed income alternative such as Invesco Perpetual Enhanced Income (IPE) which is a global high income IT.

    This is also fairly low risk but has a good yield of 6.25%. Over the past 10 years it has achieved similar results/performance figures as the 4 wealth preservation IT's that have been mentioned?
    Originally posted by MonroeM
    IPE has only 191 issues in it's portfolio, a third of them are below investment grade and it uses significant gearing. I would not call it low risk.
    Misanthrope in search of similar for mutual loathing
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