rebalancing / crown ratings

Mistermeaner

Saw the four horseman on the way to work this morning so done little rebalancing of my investments - only 34 so long way to go but heres what i did, would welcome comments and feedback, learning alot here.

Mortgage: diverted 500 of investment money per month into mortgage over payments. Currently 1500 per month against mortgage. Will be mortgage free by 38

Previously 300 per month was going into ss isa vanguard 60, left balance as is but cut monthly to 100

Increased cash isa monthly from 100 to 300

Work dc pension zurich remains at 800 per month but rebalanced balance and future payments from:

60% global equity ex uk
20% uk equity
20% emerging

To:

40% global equity ex uk
10% emerging
20% property
30% long dated gilt

Generally i wanted to reduce my exposure to particularly uk equities but also equities in general.

Any thoughts?


Also question 2 really but how much credence do you knowledgeable people give fund crown ratings? With my work pensiin (choice of 50 funds) i tried to pick only 5 star rated in the sector i wanted - was shocked today to see that my uk equity fund (zurich uk equity 2 ep i think) had dropped from a 5 rating in aug when i picked it to a 2 star today - appreciate uk ftse dropped so the fund followed it down but that shouldnt affect the crown rating should it? Wasnt my whole reason for selling but was part of the influence.

HardCoreProgrammer

Your decision to reduce monthly investments going into stocks and shares while keeping the investment balance unchanged does not make sense.

As you know the market has been falling heavily, so if you believe your investments will come good, it makes sense to increase your monthly investments - this is the chance to buy the fund at a lower cost. If you think share prices have much further to fall, it makes sense to reduce exposure (especially when you have a mortgage to pay off).

Gilts have been going up this month, and they are already at historic highs, so I think it is a bit late buying into them now. Strategic bonds / inflation linked bonds may be a better bet.

Property may be a good investment (I assume that the fund invests in commercial rather than residential property) with the ecomonic recovery - just be aware that property funds may not be easy to liquidate in a downturn.

Mistermeaner

Hi thanks for input, a question to help my understanding

HardCoreProgrammer wrote: »

Your decision to reduce
monthly investments going into stocks and shares while keeping the investment balance unchanged does not make sense.

As you know the market has been falling heavily, so if you believe your investments will come good, it makes sense to increase your monthly investments - this is the chance to buy the fund at a lower cost. If you think share prices have much further to fall, it makes sense to reduce exposure (especially when you have a mortgage to pay off).

.

I understand the principle you are referring to here but im not sure how ive violated it?

Ive sold all mu uk equities in my pension and downsized by global and eu equity exposure.

The only equity balance ive left be is my vanguard fund which as the ls 60 is quite diverse by region and also 40% bond so overall felt like a reasonable balance. Im not totally against equity just wanted a step away as felt equity heavy before.

By swapping around my monthly vanguard and cash amounts was positioning myself to save bit more as cash in the next few months while i feel markets will be a little volatile.

1500 a month ona mortgage feels more than enough so happy to stockpile cash and drip feed the vanguard for now.

Am i missing something?

Linton

ggb1979 wrote: »

Hi thanks for input, a question to help my understanding




I understand the principle you are referring to here but im not sure how ive violated it?

Ive sold all mu uk equities in my pension and downsized by global and eu equity exposure.

The only equity balance ive left be is my vanguard fund which as the ls 60 is quite diverse by region and also 40% bond so overall felt like a reasonable balance. Im not totally against equity just wanted a step away as felt equity heavy before.

By swapping around my monthly vanguard and cash amounts was positioning myself to save bit more as cash in the next few months while i feel markets will be a little volatile.

1500 a month ona mortgage feels more than enough so happy to stockpile cash and drip feed the vanguard for now.

Am i missing something?

Equity prices have dropped by around 10% recently. This happens every year or two, and at some time in the future, perhaps a few weeks, but even big falls recover in a small number of years. So for someone who wants to buy in the long term it is the equivalent of a Summer Sale. What do you do when there is a sale on? Most people would take advantage and buy more of the goods on offer. You are different - you sell at a low price and stop buying!!! Seems bizarre to me.

At 38 you wont be needing your pension for perhaps 25 years. In 25 years whatever is spooking the market now wont matter. Just focus at getting as much high quality equity as possible.

bowlhead99

ggb1979 wrote: »

Also question 2 really but how much credence do you knowledgeable people give fund crown ratings? With my work pensiin (choice of 50 funds) i tried to pick only 5 star rated in the sector i wanted - was shocked today to see that my uk equity fund (zurich uk equity 2 ep i think) had dropped from a 5 rating in aug when i picked it to a 2 star today - appreciate uk ftse dropped so the fund followed it down but that shouldnt affect the crown rating should it? Wasnt my whole reason for selling but was part of the influence.

Fund crown ratings can be interesting but they are not everything. They get made up of a range of factors - performance, volatility etc over 3 years and so from time to time other funds will overtake them and be overtaken by them. Five stars implies top 10% of its peer group, two stars implies it's 51-75th percentiles in its peer group.

It is quite difficult to stay top 10% for a long period of time as you're only reviewing 3 years of data and as we go through up and down cycles, the returns for funds with different strategies in a sector will go up or down in favour. So as the data gets another quarter added on and an old quarter falls off, the positions change quite regularly. There are some excellent funds with high volatility or poor 1-3 year performance that are outstanding over 10 years plus.

As "what goes up must come down", and all funds get their "time in the sun" or "15 minutes of fame" there's an argument for doing the opposite of the fund star ratings and being a contrarian. Surely packing the portfolio with the latest high flyers with 5* ratings is a recipe to be holding funds without 5* ratings in a couple of years time. It is after all, a backwards-looking quantitative measure. Perhaps more useful is the qualitative measures that Morningstar analysts give, the gold, silver, bronze, neutral, negative, which are as much about process and people and price as performance - maybe more forward-looking...

I do look at the star ratings just like I look at the 1-3 year performance graphs, but I also look at 7 year data to see how they coped with the credit crunch and 16 year data to see what they did in the dotcom bubble and the subsequent bubble bursting, enron, 9/11 market drops etc. I wouldn't buy a fund *just* on a star rating, just like I wouldn't buy a fund based on a manager's monthly commentary and his view of the market without checking out the size of his management fee and his short term and long term performance and whether his holdings seem consistent with his stated strategy.

Generally there is a lot of info available on funds these days so it's a bit reckless to choose to not read as much of it as you can. Of course everyone has their own limit of how much they can take before they get bored or go insane or overwhelmed by all the choices. I admit to buying a few funds in the past on sector and general reputation without poring over every detail. But I generally try to make an effort.

This is just as important for pension funds that you simply plan to lock away for a long period and rebalance periodically, as for ISAs which are shorter term and perhaps you look at more actively. If the pension provider doesn't give a lot of info, find the fund at Morningstar or Trustnet and look up all the attributes for the main fund (even if the one through your pension provider is some in-house variant).

Glen_Clark

HardCoreProgrammer wrote: »

with the ecomonic recovery -

What makes you think there has been an 'economic recovery'?

Ryan_Futuristics

I wouldn't avoid the UK

In many ways the UK's the most attractive market in the world right now (with some of the best growth figures among G7 countries, along with attractive valuations - the cyclically adjusted price/earnings ratio is only around 12.5 ... Putting us almost in the cheapest 25% of world markets ... With the rest being countries like Greece and Russia)

Think long-term ... News in the short term sends markets all over the place - and investors overreact to everything ... What we're seeing at the moment is becoming a Buy opportunity - on the other hand the only way to actually lose money in the markets is to sell when they're low (very rarely a good idea)

I'm dubious about investing in property at the moment, with house prices so high and London's housing market slowing ... A recent statistic suggest 61% of homeowners in London are planning to sell in the next year to take profits from what's generally seen as an unsustainable housing bubble (property could see big losses)

I don't think gilts are a very good investment at the moment - bonds are likely to lose value when rates are eventually hiked

Blogs relay very general advice built on experience of past eras ... Sometimes it's just not wise to add certain asset classes ... In my opinion the only two good places for money right now are equities (drip-feeding slowly, over many years, to smooth out market volatility and buy in dips) and cash

Ryan_Futuristics

Glen_Clark wrote: »

What makes you think there has been an 'economic recovery'?

It's hard to assess isn't it

This is why I advocate value investing

http://www.forbes.com/sites/jamescahn/2014/04/07/paradox-of-growth/

The best returns often come from the poorest growth regions

Glen_Clark

Experience has made me deeply suspicious of any statistics bandied about by politcians.
They may have reduced the unemployment count. But many of the new jobs don't pay enough to cover rising rents, let alone any income tax.
Ther only statistic that really matters is the current account deficit, and thats the one they don't talk about because its gone through the roof.

Mistermeaner

Cheers all

On balance i feel happy with my decisions.

My pension pot worth approx 60k was all equity, i sold 50% of these equities in exchange for gilts and property - time will tell if that was right.

Based on advice here i am continuing with monthly equity purchases and have added 2 new funds, i will not be buying gilts monthly but will leave that lump where it is for now.

My vanguard / cash isa monthly ill have a think about - can change this month by month and both are low value anyway. Not shifting any balances between the 2 just considering monthly purchases.

Personnally based on nothing apart from gut i think equities and particularly uk / eu have a long way to fall yet. But admittedly i know nothing and am poorly informed.

kidmugsy

ggb1979 wrote: »

But admittedly i know nothing and am poorly informed.

Never mind; in the short term it's all guesswork. As for the long term, I've found an American guru (2013):

“all of the real stock market returns over the past 111 years can be attributed to just an 18 year period – the great bull market that began in August 1982 and ended in August 2000. Without those years the real, inflation-adjusted return of stocks, without reinvesting dividends, was negative.”


Can it be true? His caveat "without reinvesting dividends" is important, of course, but I repeat: can it be true?