Help me rebalance my failing S&S ISAs Portfolio - Sept 2011

jamesd

DavidLaGuardia wrote: »

I think one easy less academic way is to look at what funds were being promoted and highly regarded a few years ago and look at their postion/performance now.

That's something I did here a few years back, for both the Global Growth sector and funds in general. I found that outperformance persisted.

To start you might look at Should I invest some money in a equity fund? from 2007. From that post. updated with a manager change in one of the replies:

---

here's how the top 10 in 2003 results did for 2003 through 2006:

Neptune MM: 1 2 6 105 New manager 2005.
Invesco: 2 14 63 14
First State: 3 101 2 173 New manager 8/06
SJP Recovery: 4 50 39 34
GAM Global: 5 68 64 24
M&G Basics: 6 1 5 16
Jupiter: 7 4 10 7
M&G Int: 8 5 61 46
New Star: 9 72 3 133
Neptune Global A: 10 9 1 5

---

That's very clear documentation showing that fund outperformance persisted, with manager changes that would have prompted active fund users to sell explaining much of the failure to persist.

I haven't looked at how long that persistence lasted beyond 2006 but I assume that it gradually declined over time and that checking the ranks each year would have continued to predict future outperformance, except during a change in market conditions ( meaning 2008 and later:) )

The results for the global growth sector are similar.

DavidLaGuardia wrote: »

Ironically the behavioutalists who seek to dismiss the EMH theory based on its flaws have repeatedly failed to come out with an alternative way of working that sticks.

That's a much harder challenge than the relatively simple EMH so I'm not surprised.

It's also much harder to do a proper comparison of active vs passive funds that does account for things like manager changes, so I'm not greatly surprised that the studies are generally of appallingly bad quality with massive structural flaws.

DavidLaGuardia wrote: »

When anyone (myself included previously) picks a successful managed fund it is too easy to be convinced it was based on sound evidence like the guy on the fruit machine who expouses his "great playing talent" when the jackpot turns up.

I simply studied performance, looking to see if outperformance persisted, and found that it does.

I'm happy to accept that average outperformance after taxes doesn't exist in the simplistic studies that are done but I don't care about average, I care about ability to select outperformance, avoid systematically bad underperformance, and avoid underperformance introduced by predictable factors like manager changes.

DavidLaGuardia wrote: »

This will continue to be an interesting debate and I'm not so dogmatic or closed minded as to ignore anything that challenges my position, its just that every path I have followed to counter the passive argument has sent me full circle back to it.

I've yet to read even a single study of active vs passive funds that didn't have massive structural flaws. So I don't generally find them to be very persuasive. Get one that does things like accounting for fund manager (human and fund house) changes and it'd be a lot easier for the results to be credible rather than not. They are nice academic studies, shame that for simplicity they ignore what real people do and how the real world works.

jamesd

MrMalkin wrote: »

it isn't clear to me what the strategy is for the people who have posted their portfolios which are more actively managed - it's not obvious why the specific funds were chosen or why they are held in the ratios stated. Perhaps this is something you and other active investors can expand upon?

My views on which sectors are most likely to do well, with lots of cash, some of which was reinvested over the last few weeks, due to market conditions that made it viable to sell higher and buy back lower.

While I have at times used sector allocated portfolios I don't currently use them, instead preferring to take quite strong views on what may work well. It's generally worked, as has my market timing, including things like my decision in early 2008 to make very large regular pension purchases for the next year by salary sacrifice. Generally doesn't mean always, of course. But I have done quite well when it comes to when to be in cash and when to pump lots of money in to markets, doing things like borrowing £30k+ in 2009 and investing it.

I'm currently doing regular rebuying and borrowing to invest at current depressed prices is pending - borrowing to get the investing done earlier than otherwise possible, while prices are depressed.

jamesd

MrMalkin wrote: »

Well I think you can probably guess by now that my sentiments lie with the camp that says market timing is impossible

Do you think that you can observe that prices now are lower than the long term average and lower than past market highs and surmise that there is an enhanced chance that now rather than a year from now is more likely than not to be a good time to buy? Now more likely than three years from now? Late 2008 and early 2009 rather than a year or three later than those times?

That is, do you think you can see times when prices are lower and there's an enhanced possibility of benefiting from a reversion to mean. If you do think this then you're potentially interested in market timing. And of being caught in a Japanese problem if reversion doesn't happen for decades.

MrMalkin

jamesd wrote: »

That is, do you think you can see times when prices are lower and there's an enhanced possibility of benefiting from a reversion to mean. If you do think this then you're potentially interested in market timing. And of being caught in a Japanese problem if reversion doesn't happen for decades.

Potentially, but I think benefitting from these situations is automatically built into my portfolio due to the fact that I make regular contributions from my income, thus benefitting from pound cost averaging, and due to the way I rebalance my portfolio which causes me to sell high and buy low to maintain my allocation.

What I have absolutely no confidence in is my own ability to predict that an asset class (the FTSE, tech stocks, Zimbabwean bonds, Unobtanium mining futures, whatever) will over or under perform, and when. Therefore I don't even try.

Ark_Welder

MrMalkin wrote: »

Well I think you can probably guess by now that my sentiments lie with the camp that says market timing is impossible Time in the market, rather than timing the market, as the phrase goes.

I think a portfolio should reflect your attitude to risk rather than any expectation of what markets are about to do. For longer term investors this generally means a more conservative attitude in terms of asset allocation, so emphasis on bonds rather than equities. For shorter term investors I genuinely have no idea, I haven't spent a great deal of time thinking about it since all my goals are long term.

I will say that I think it's very clear from the portfolio that I posted earlier what my strategy is and how I will manage my portfolio going forward. However, it isn't clear to me what the strategy is for the people who have posted their portfolios which are more actively managed - it's not obvious why the specific funds were chosen or why they are held in the ratios stated. Perhaps this is something you and other active investors can expand upon? I'd genuinely be interested and maybe we can start to turn this thread away from the catty (and somewhat boring) active vs. passive debate.

And yes I fully agree with your previous post - by far the most important thing is to be comfortable with your portfolio. For me, I was never fully comfortable with my managed funds. Coming across the passive + asset allocation strategy really cleared away some of the opacity of investment and left me with a much greater comfort factor. For others things may well be different There, something we can agree on!

I subscribe to the thinking that there are occasions when both time and timing are important: if you get your timing wrong then the time needed for a recovery might exceed that which is available. The problem is that timing is verifiable only with hindsight...

Perhaps what is more important than either time or timing, is timescale. Someone with 20 years to achieve an aim might have a different approach than someone with only 5 years to theirs. Plus, the aims could be different.


When discussing equities vs. bonds over longer terms it is usually deemed to be better to have a higher proportion in equities for the longer the timescale, gradually moving more into bonds as the timescale gets shorter. The following is about investing for pensions, but it does explain it a bit better: http://www.bgtrustonline.com/articles/capital-hill/capital-hill-oninvesting-through-the-decades.aspx

But that line of thinking has to be taken in the context of the 30-year bull market in quality bonds that has taken (is still taking?) place, and the fact that interest rates are at rock bottom or thereabouts. That's an area where we do have a difference of opinion: I'm trying to anticipate events - ususally of the negative variety - so questions I am mulling are where economies, and therefore bonds and equities, may go on from here.

I agree with your sentiments regarding strategies and explanations, and also why someone has a particular strategy and what their timescale is. And often the same can be said about inidividual share holdings/purchases too. Another point that is not always clear is the proportion of cash held: e.g. someone might say they are 50% in far east equities and 50% in US bonds, but when combined, these might make up just 10% of assets with cash as the remaining 90%.

I might have a go putting some notes together with regards to my portfolio. It is a 'portfolio of two halves', you might say, because of the pension and non-pension aspects. I have always considered them to be a single entity when looking at asset allocaions, but perhaps I should see them now as performing two separate tasks. So it may be time again for a 'step back and examine'.

MrMalkin

Ark_Welder wrote: »

When discussing equities vs. bonds over longer terms it is usually deemed to be better to have a higher proportion in equities for the longer the timescale, gradually moving more into bonds as the timescale gets shorter. The following is about investing for pensions, but it does explain it a bit better: http://www.bgtrustonline.com/articles/capital-hill/capital-hill-oninvesting-through-the-decades.aspx

Agreed, this is why I aim to have roughly my age in bonds with an eye on retirement.

Ark_Welder wrote: »

Another point that is not always clear is the proportion of cash held: e.g. someone might say they are 50% in far east equities and 50% in US bonds, but when combined, these might make up just 10% of assets with cash as the remaining 90%.

There are various theories as to the amount of cash anyone should hold. 6-12 months expenses as an emergency fund seems to be the general concensus, but if you have a major expenditure in the offing (house deposit etc) then you should gradually sell off assets to build a sufficient cash pot as the purchase date approaches.

Ark_Welder wrote: »

I might have a go putting some notes together with regards to my portfolio. It is a 'portfolio of two halves', you might say, because of the pension and non-pension aspects. I have always considered them to be a single entity when looking at asset allocaions, but perhaps I should see them now as performing two separate tasks. So it may be time again for a 'step back and examine'.

It's tricky, you should really manage the whole thing as one portfolio but the very nature of pensions means that things like rebalancing are difficult across different vehicles. I try to keep roughly similar proportions of major asset classes in both pension and ISA, then confine the rebalancing to within each vehicle just to keep things simple. This may mean that one or the other becomes proportionately bigger, but then no portfolio strategy is perfect and I think in the larger scheme of things this is a minor issue.

kar999

jabbahut40 wrote: »

Many thanks to jedersmart, jamesd and bendix for sharing their portfolio holdings. Is anyone else (atush? arkwelder? gadgetmind? darkpool? kar999? etc) happy to share their portfolio UT/OEIC holdings so that I can see some other examples as help?

Thanks in advance.

Jabba

I've already posted my main holding (58%) Invesco Perpetual High Income. Since the tax year 6th April 11 to yesterday, against a backdrop of a market of less than 5400, it has risen +2.83% (and +142.0% since Apr09). Meanwhile my HSBC FTSE 100 tracker (in my virtual porfolio) has fallen -9.75% and FTSE 250 tracker -13.62% this tax year to date.

One stock also in my VP is Troy CF Trojan Fund which is +1.69%

Most of my other holdings have fallen along with the market (and some worse!). First State Asia Pacific Leaders though is currently only showing a small loss of -2.54%.

JPM Natural Resources has been far too volatile and has been up and down more times than a wh0res drawers. Currently -24.66% but thankfully I only retain a small holding of less than 1%.

Overall, mainly because of my overweight position in High Income (and ETF's in Physical Gold) I'm well ahead of the market.

Hope that helps.

jamesd

MrMalkin wrote: »

Potentially, but I think benefitting from these situations is automatically built into my portfolio due to the fact that I make regular contributions from my income, thus benefitting from pound cost averaging, and due to the way I rebalance my portfolio which causes me to sell high and buy low to maintain my allocation.

Hmm, I'm not sure you're really benefiting from the pound cost averaging part except through just continuing to buy instead of stopping buying due to fear.

What you might find interesting is an alternative that does in theory improve performance compared to lump sum investing, value averaging. That ends up investing more when prices are down and withdrawing money when they are high.

MrMalkin

jamesd wrote: »

What you might find interesting is an alternative that does in theory improve performance compared to lump sum investing, value averaging. That ends up investing more when prices are down and withdrawing money when they are high.

Yep I know about value averaging, but I don't have a lump sum to invest at all so basically PCA is my only realistic option, all my investments are coming from income. If my lottery tickets come through though VA is on the agenda

Jegersmart

Ilya_Ilyich wrote: »

So all an active fund investor has to do is successfully pick one of the small percentage of funds that will outperform the market in the future?

If you take the 12 year period from 1999 to 2011 (a very unfortunate period ofc) a FTSE100 Tracker would be overall considerably down. Very few managed funds have done anywhere near as bad as that.

I would only ever use a tracker at extreme lows and even then I prefer to pay extra for a fund manager with a long history of overperformance. At the end of the day, a tracker is a dumb instrument - can be used to great effect with skill but for longer term plays they suck imho.