JPMorgan Natural Resources -48% down but still hanging on

bowlhead99

Pensionsaver wrote: »

M&G Feeder of Property Portfolio

A SIPP implies you're making some personal choices among a very wide range of options. I'm not sure how much of a true 'SIPP' the FL SIPP is, and what selection of funds and other investments you really have access to. Generically SIPPs are usually broader than regular personal pensions although the fund choice available on your particular platform will not literally be every fund in existence.

If you have a choice of investing into M&G's actual Property Portfolio as opposed to the Feeder, you should do that. The main Property Portfolio is structured as a 'PAIF' which splits its income into separate streams, and is able to distribute property income distributions and interest income without any deduction for tax. If you're investing through a pension, and are therefore not a taxpayer, this is a good option.

By contrast, the Feeder was set up by M&G just to help out those investors whose platforms can't process those distributions and/or are going to need to pay tax on the income anyway. The feeder gets the income, pays corporation tax, and distributes out the remainder to its investors. If you don't need to pay tax because you're in a pension, that's not a very efficient way for you to hold the investment because you'll be exposed to a non-zero amount of tax on the underlying income that came out of the main fund. It's simply not the appropriate choice if there are two choices. Unfortunately some investors DIYing their pensions via a SIPP, will pick the wrong one at random.

So, broadly speaking, a non taxpayer investing into a feeder when you could invest in the main fund directly, is a waste. You may find that FL are only able to offer the feeder and not the main fund, because their systems don't handle PAIFs properly and all of the funds you're being offered are 'FL versions' of an underlying fund, and they haven't made one for the main fund, only for the feeder fund. In that case I suppose investing via a taxable feeder is no worse than the position you'd have been in a couple of years back before PAIFs were invented. Still, to make a long story short, it's worth checking if there's an option to invest into M&G Property Portfolio rather than M&G Feeder of Property Portfolio.

Disclaimer, I'm not making any claim that the M&G fund is better or worse than any other rival funds out there. Just that the main fund is better than the feeder - which would also be the case if it was e.g. L&G or Standard Life or someone ele's instead of M&G.

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JPM Natural Resources

You have obviously put some thought into revising your portfolio so I won't use this thread to trash talk it too much . I don't know what other investments you hold and perhaps it fits perfectly into some overall grand plan.

But as a standalone portfolio it looks a little odd, as you seem to be going gung-ho for US and UK and Europe and completely missing Japan, the rest of Asia/Pacific ex-Japan (developed markets like Hong Kong, Singapore, Australia, South Korea, Taiwan), and all emerging markets (China, India, emerging asia, south africa, latin america etc etc). And this is for a 35 year investment term? Why would you handicap yourself by avoiding large swathes of the world markets?

If you are completely lost, take a look at how Blackrock Consensus (which you mentioned before) allocates its equity allocation around the world. They don't just completely ignore one timezone and hope for the best.

zolablue25

jamesd wrote: »

Back after the initial question was posed on 21-12-2013 after the poster had seen almost a 50% drop from the high I observed:

"20-12-2013: 566.40
21-11-2008: 297.10
4-1-2011: 1194.00

The 2008 low was 52% of 20-12-2013 price and 24.9% of the 4-1-2011 price."

That compared then with high and low in recentish history. The price today is 364.9 up from a bit under 300. So the fund has now proceeded to revisit its 2008 low value. Way better as a buying time than it was but it's still high compared to its older past and a further halving seems entirely possible.

As a mere beginner in this whole area I'm just wondering whether it is possible to look at historic prices for an ACC fund and draw the conclusions you have drawn? By being an ACC fund you have all of the value of the dividends added so it isn't a fair comparison as the underlying share values are distorted, isn't it?

When checking against historical values wouldn't it be more realistic to comparethe INC fund that does not include all of the reinvestment in its price? If so, here is the chart for the INC fund https://am.jpmorgan.com/gb/en/asset-management/gim/adv/products/d/jpm-natural-resources-fund-a-net-income-gb00b1xmtq84

Like I said, I'm pretty new to this game so may have misunderstood these things. Please put me right if I have.

Edit: I know in my head what I think I'm trying to say, but I'm not sure that I have made my point very well. Sorry about that.

bowlhead99

In most cases there's no point in trying to review performance that's on offer from only looking at a chart of what happened to the capital value (i.e. the price of the INC fund without reinvestment). Because that's only a part of the returns available from the fund.

If you invest in a fund you have access to its total return. Some funds choose to structure their portfolio so that a high level of cash is ripped out of the underlying businesses and thrust into the hands of the fund owners. Other funds do not care too much about doing that and will keep the money at work, invested in the businesses. To understand how much the fund can deliver, on an apples-to-apples basis, compared to other options, you have to look at the *total return* that's available, otherwise it's very unfair on the funds whose investments put cash back in the hands of investors via dividends.

You get the total return that's really available by either:
holding an ACC fund, or
holding an INC fund and immediately reinvesting any dividends they pay to you. In other words, keeping the money invested in the businesses instead of pulling it out of the businesses.

If you look at a chart that is just the price of the income fund without any of the dividends reinvested, that's the return you get if every time you get a dividend, you throw it in the bin. Is the same thing that confuses people who say that everyone holding the the FTSE100 companies since 1999 must have lost money because the FTSE index today ignoring dividends received and reinvested is only 6100 compared to March 1999 when it was 6200.

So yes, if you look at an Acc find which cost 100 and a year later it is 70, you can see that the risk and volatility to which you're exposing yourself is 30% loss per year (for example). Your total return after a year is -30% because your investment is worth 70 and it gives you an example of how much you can gain or lose.

If instead you looked at an income fund without dividends reinvested you might see the price had gone from 100 to 65 and your investment was worth 65 which is 35% loss. But is it a 35% loss? Or do you have 4 of dividends which you could have reinvested to leave you with an investment of 70? Or dividends of 6 which you could have reinvested to leave a total investment of 70? Or dividends of 1 which you could have invested to leave you with an investment of 66.12345? You won't know how much your investment is really worth because the "INC fund, dividends not reinvested" chart is not properly telling you the story of what performance was available from the investments made by the fund.

Actually what you often find is that charts of an Inc fund are shown on a divs reinvested basis unless you explicitly request them not to be - because otherwise it's very hard to judge their true performance against any other funds which are Acc funds or perhaps Inc funds which yield a different level of dividends.

jamesd

zolablue25 wrote: »

By being an ACC fund you have all of the value of the dividends added so it isn't a fair comparison as the underlying share values are distorted, isn't it?

Right. It happened that I had the older acc prices available so I used them but it is flattering to the current values and makes it look as though it has done better than it really has.

zolablue25

Bowlhead. Thanks for taking the time to respond. I understand what you are saying but what I was trying to say was that by comparing how much the ACC fund was worth, say, 10 years ago with what it is now and saying that it still has further to fall to get back to its historical lows is not a direct comparison.

I'm not good at explaining myself so I'll try and give an example for what I mean.

Lets say that Acme ACC fund was 200p in 2006 and since ten has been on a roller coaster of a ride rising 1000% before falling back to 400p today. In my mind you couldn't then say "well it was 200p in 2006 and so it could easily fall another 50% to get back to its historical low". Of course, it could still fall but the historical low is meaningless as you aren't comparing like for like. You have had 10 years of income added to the funds value.

Is that a correct reading of the situation?

sabretoothtigger

This question might be applicable in general as all companies retain some earnings over time but also suffer depreciation and investment needs naturally. Depends on the business but mining is pretty capital intensive afaik

Look at HL for a chart that might separate out ACC income, or at least I think it includes optionally income in the distribution units so you can compare them better

Today ANTO suspended its dividend. The share price fell 10% but the real situation is unchanged just that they decided sensibly to retain that money for future use not pass it to shareholders.
As a share, in its value the share has not changed. ie. the whole ex-div thing So is that a reasonable time to take interst in Anto as its 10% cheaper on effectively no news but just maneuvering and perceptions of traders

An older example in that time span similar way is Lloyds which used to pay 45p divs and fell to below that price total. Now it once again pays divs but was the situation ever changed, just that it required to use that money itself for a while. IF a company does good business the div is not a factor just a consequence

bowlhead99

zolablue25 wrote: »

I'm not good at explaining myself so I'll try and give an example for what I mean.

Lets say that Acme ACC fund was 200p in 2006 and since ten has been on a roller coaster of a ride rising 1000% before falling back to 400p today. In my mind you couldn't then say "well it was 200p in 2006 and so it could easily fall another 50% to get back to its historical low". Of course, it could still fall but the historical low is meaningless as you aren't comparing like for like. You have had 10 years of income added to the funds value.

Is that a correct reading of the situation?

Well effectively when people thought it was worth 200, that was based on summing up all the values of the underlying assets. Those assets included a bunch of companies. The companies were valued at 200 total because the companies had things like mineral rights, proven and probable reserves of gold and oil etc in the ground, infrastructure and a functioning business model or a decent plan that meant they would be able to profitably pull the assets out of the ground and provide capital growth or dividends to their investors for a long time into the future. Those assets and the expected dividend stream were "worth" £200 to the investors, who would rather pay £200 to own the companies and their assets and future performance, than not.

When the company actually pays a cash dividend of, say, 10, it then has less money in its bank account; shares usually fall on ex-dividend day because the company or fund is only giving the investor something in their hand which they owned anyway. So share price would fall to 190, all things being equal.

The next year the company digs up some of its resources, sells them as per its plan, and distributes the profits to its investor, which the investor was already expecting it to do when paying £190 or £200 for the share of the company. As the shareholder take another 10 out of the business and walks off with it, should the company now be valued at 180, or still at 190? If the company value had rocketed up to 1000 or 2000 and fallen back to 400, is the comparable "back to square one" a loss of 50% to 200 or a loss of 52.5% to 190 or a loss of 55% to 180?

Effectively the company that pays you dividends of 10 each year is only paying you with your own assets, or rights to assets or expectations of profits, that you owned anyway. So if you take them entirely "off the table" and don't reinvest them, you are perhaps artificially driving down the value to create a false comparison.

Some companies and funds would not have paid you the dividends and would have kept the money in the companies. With those companies and funds, or with Acc funds, or with "Inc funds divs reinvested", you still have 'what you bought for 200' and you should probably think it could go back to 200 after a couple of years. Whereas with "Inc funds divs not reinvested", the value that has been taken out of the business by the owner is no longer around and so the buy price of 200 is probably not the floor of what the price could go back to.

Of course if you're looking back 10 or 20 years - rather than 1 or 2 months or 1 or 2 years - the situation is not quite so straightforward.

Going back to the valuation of £200 being based on what people think it is worth in terms of realisable profits. There's an assumption that the company will make money going forward out into the future. We expect to make 10 profit next year. And the year after. And the year after. Maybe for the next 40 years plus. But we don't value the whole thing at 40x10 =400, because actually a tenner in 40 years time after inflation or considering what else we could have invested into with similar risks, the tenner is only really worth a quarter of a tenner in real terms. So we value the business at 100% of the first tenner of expected annual profit and 97% of the next tenner and so on down to the 40th year of getting a tenner which is worth £2.50 to us, and beyond that we don't really care because it makes little difference so far out.

With that analysis driving your value then clearly if you pull £10 out by taking this first years profits as a dividend, you would maybe value the remaining business at 190 instead of £200. The business is less valuable if you've taken cash out. *BUT* also you've moved along the timeline. So after a year, you still do have another "current" year of income to pay yourself, and you are a year closer to all the future profits which will probably still be going out another 40 years plus anyway. And the "annual tenner" might have grown at least as much as inflation or another opportunity, because successful companies do tend to grow.

So perhaps you still value it at 200 after all, and not at 190, and if someone bids the company up to a ridiculous 1000 or 2000 before it crashes back, you still think 200 is the realistic floor, and not 190. So if we move on from 2006 to 2016 and are still invested on profitable companies, then it doesn't really matter that we took some money out from annual profits along the way, because there is still another 40 years of annual profits still to go.

So - although it might initially appear to be flawed to use the "price after you took dividends off the table" as your base, and it might also seem unfair to use "price if you left the profits in the business" as your base, the truth is probably somewhere in between. Really, the situation is a little different if we're looking at long term movements of 10 or 20 years (where inflation and cost of capital and opportunity cost comes into it) rather than short term when a company goes ex-div during the quarter but the timescale is really short and so the money paid out has really been "lost" if it's taken off the table.

Pensionsaver_2

@ bowlhead99

Many thanks for your thoughts.

As you suspected, and annoyingly for me, the FL platform only offers a range of restricted funds. I was hoping to go in quite strong on a bunch of oil-related funds, but don't have the option. So it's not a SIPP in the strictest sense, but still gives much more flexibility than a pension fund where the options are already set in stone. It's the one chosen by my employer, so there's not a whole lot I can do on that front.

As such, I don't have access to the Property Portfolio proper, only the feeder fund. Though thanks for your insight, I hadn't appreciated the relevance of the 'feeder' element.

Yes, I did make some major changes following the feedback to my initial enquiry, so my portfolio shouldn't be as 'wildly unbalance' (as one poster put it) as it was! That said, I do take your point re. some of the emerging markets as well as the more established markets outside of the UK, US, and Europe. I will definitely look to bring these into my portfolio.

Thanks for not trashing it too much!

gadgetmind

Pensionsaver wrote: »

the FL platform only offers a range of restricted funds.

It's designed for people who want "a pension" and who generally don't want bells and whistles. The vast majority of FL customers are 100% in the default fund and never go to the web site to check their investments.

FL's incentive to add these features is limited and TBH I'd prefer that they focus on reducing fees as they provide what I need for my Group Personal Pension. If I want to duck and weave, I've got a separate SIPP, ISAs, etc.

Pensionsaver_2

@ gadgetmind


So you have this platform for your work pension also?


Any thoughts on funds that look promising, or ones to avoid? How much 'better' do you think it's possible to do by building a 'bespoke' portfolio rather than choosing one of the defaults?


What do you think of the platform itself? Not the most intuitive or user friendly, I've found. And pretty slow.