Investing in defensives

dllive

Hi all,

Id like to max out my S&S ISA for 12/13. Im a very cautious investor and so have nearly all my investments in Invesco Perpetual High Income fund. This has performed consistently since I invested in it, however Im aware that I have all of my eggs in one basket.

Are there other defensive funds which arent 'in the same basket' as my High Income fund - in other words: arent invested in the same companies or same types of companies but are also defensive stock?

I seem to remember Hargreaves doing an article on this a few months ago but I cant find it now!

Thanks

Linton

Another option for a cautious investor is to go for a balancing equity/bond fund. You can buy ones with different % allocation - the higher the % of equity the less cautious the fund.

The ones receiving publicity at the moment are the Vanguard Life Strategy trackers. Or you could look on https://www.trustnet.com for funds in the "IMA Mixed Investment" sectors choosing an equity % to suit your requirements. You can get some idea of how cautious a fund has been in practice by looking at the "48-60 month" return, this being the year of the major crash. Funds with a return of -20% or better could reasonably be considered cautious.

Be aware that bond prices are unusually high at the moment. However some people argue that equity prices are as well. Assuming you are a long term (>> 5 year) investor its not so much of an issue, and if you arent then as a cautious investor you may be better with some or all of your money in cash.

ColdIron

You might want to have a look at Troy Trojan, it's very defensive and quite different to IPHY

http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/t/troy-trojan-class-i-accumulation

dllive

Thanks guys - some useful suggestions here. I shall have a closer look at the links tonight.

gadgetmind

The defensive end of our portfolios is in Personal Assets (IT analogue of Troy Trojan), Ruffer, and infrastructure such as HICL, JLIF and BBGI. We also hold some bonds and I'm also considering CGT as the premium is narrowing.

If you prefer funds, then the CF Miton Defensive one is OK but all of these will lag in rising markets and tend to show multi-decade underperformance compared to more racy investments.

dllive

hmm, maybe Ill make my first exploits into buying direct equities. Im looking at Unilever (ULVR). This looks defensive and also looks like my Invesco Perpetual High Income fund doesnt invest in them (which means I have a bit of diversification. Of course I may be wrong, maybe IP does have holdings in Unilever!).

Im using Hargreaves Lansdown. In terms of cost, what do you think the better return will be - invest in the Troy fund or invest in Unilever shares?

Linton

dllive wrote: »

hmm, maybe Ill make my first exploits into buying direct equities. Im looking at Unilever (ULVR). This looks defensive and also looks like my Invesco Perpetual High Income fund doesnt invest in them (which means I have a bit of diversification. Of course I may be wrong, maybe IP does have holdings in Unilever!).

Im using Hargreaves Lansdown. In terms of cost, what do you think the better return will be - invest in the Troy fund or invest in Unilever shares?

Buying one share, even a defensive one, is pretty high risk. As a small investor you really need to invest in funds so that problems with any particular company wont serious damage your wealth. Cant say whether IPHI invests in Unilever as the published lists only show the largest holdings. However IPHI is an Income Fund, Unilever does not pay as good a dividend as those companies that do appear in the IPHI list so you would not expect it to be a major investment.

As a cautious investor you logically should not be chasing the highest returns as generally speaking the higher the return the more volatile the price. You should be happy with a consistent steady return. To that end the suggested funds seem reasonable to me.

gadgetmind

dllive wrote: »

hmm, maybe Ill make my first exploits into buying direct equities. Im looking at Unilever (ULVR). This looks defensive

As Linton pretty much said, the best defence is diversity. My wife holds Unilever, but she also hold another 25+ shares of a similar nature across a wide range of sectors.

My view is that you need at least £50k-£75k to play with before moving away from collective investments such as trackers, Investment Trusts and funds.

dllive

Thanks guys.

donniej

As others have said, diversity is key. I'd add that with collectives, this doesn't mean investing in a number of funds in the same sector - the idea is that by investing in a number of different funds in different sectors, you protect your self against shocks to that sector as well as potential issues with the collective itself (i.e. if you invest in 2 UK funds, you're not reducing your risk that much.)

The ideal is to build a balanced portfolio - i.e. something that is both diverse and meets your aims in terms of growth. For instance you might invest heavily in emerging markets if you want to go aggressive, but still have a element of e.g. bonds; similarly, for something very cautious you could have most of your investment in fixed interest but still maintain a component of (probably UK) equity.

This is effectively how Vanguard construct their LifeStrategy funds for instance, or how a number of providers create their 'model' or 'standard' portfolios.