Defensive funds - any suggestions

pt1188

I have a portfolio consisting of largely UK large caps (70%), European funds(8%), US (7%) Japan (5%) Emerging markets (4%) and bonds (6%). These are in a mixture of UK funds / OIEC's and Vanguard LS funds.
I am looking to invest a further 30k in the coming months and have been reading about a likely crash in global markets so I am looking for a home for this money in defensive funds that can weather the storm during turbulent times ahead.
My investment time frame is for the next 10 years when I will drawdown some of my investments as I fully retire.
Thanks.

Ryan_Futuristics

For my money - and on long-term track-record - Woodford Equity Income and Murray International

Also, as high dividend payers, you get a nice safety blanket of income even when capital takes a hit (which makes it less tempting to make the schoolboy error of selling)

pt1188

Thanks Ryan - I've already got 10k in Woodford fund would a further 30k be putting too many eggs in one basket? I take it Murray International invests globally?

Ryan_Futuristics

Is Woodford already a large proportion of your allocation to UK large caps?

One thing I'd say is commentators are always predicting the next crash ... They've been doing it through this whole post-2009 bull market ... *Generally* crashes only tend to come along during periods of irrational exuberance, greed and optimism ... And I wouldn't call the current climate jubilant ... Even the US, which is overvalued, doesn't look quite dangerously so

I think a shock, like a Greek exit, or a major escalation in Russia, could trigger a lot of volatility - and that's why I favour defensive funds as core holdings

Personally I'd be quite happy to have all my UK allocation with Woodford (there is always a risk having all your eggs in one basket, but he's one of the few people who always seems to talk sense, and tends to hold a very cautious view) ... If I was redoing my portfolio from scratch, I might have 80% Woodford (the new fund too - launching April) and 20% split between low-cost FTSE 100 and FTSE 250 trackers

Murray is very globally diversified, and can have quite rocky short-term performance - but tends to hold and grow value very consistently over long periods ... And they'd say that being globally diversified is one of the best way to reduce risks in a crash - they've got quite equal weighting to very different global markets (10% US, 10% UK, very even between developed and developing markets)

Perhaps your 70% allocation to UK is a little on the high side ... I do think the UK's about as safe as you get at the moment, but perhaps I'd build up foreign equities more now?

I also think P2P lending (I use Funding Circle and RateSetter) is a very good way to diversify and shelter capital from market movements now ... There are certain unknowns - so I try not to go over 10-15% in P2P lending myself - but it looks like P2P could be a very good alternative investment ... Woodford's considering investing directly now ... I'd just treat it with some caution, and diversify and spread risk as much as possible ... I get 6% with RateSetter and 7.3 (although at the moment it's over 10, as I've not had bad debts yet) with Funding Circle

Large caps, dividend payers, pharmaceuticals/biotech (but avoid overvalued/overbought), perhaps infrastructure (and cash or equivalents) are generally safer havens through uncertainty

EdGasket

If you think a crash is that likely then why not just keep the £30K as cash? More defensive funds might be Global property, gold, index-linked gilts, and a plethora of absolute return funds but you can't really say for sure what will be defensive without knowing the nature of the problem you are trying to be defensive about. e.g. If it is hyperinflation then gold would be very good but if it is deflation then it wouldn't.

ColdIron

Bonds, sovereign and corporate, are traditionally used to mitigate volatility and an obvious way for you might be to use one of the Vanguard Lifestrategy funds with a higher allocation to fixed income. Something else you might consider is a fund that specialises in wealth preservation such as Troy Trojan. Gives you some exposure to gold and commodities as well as equities and bonds and has a reasonable diversity by industry sector and geography. Just a suggestion

pt1188

Is Woodford already a large proportion of your allocation to UK large caps?

It represents less than 10% at the moment so I guess there's scope for more into this and his forthcoming fund
Will also have a look at Murray International as well as Troy Trojan
I am already holding a reasonable amount in cash for rainy day fund but haven't dipped my toes into P2P funding although I will seriously consider it.
Thanks for all your suggestions

Chris75

ColdIron wrote: »

Bonds, sovereign and corporate, are traditionally used to mitigate volatility and an obvious way for you might be to use one of the Vanguard Lifestrategy funds with a higher allocation to fixed income.............. Just a suggestion

If you foresee a crash in equities you might like to think about the problems of bonds. Given that the only direction for interest rates is up it is easy to put forward a case for bond prices to fall. I am expecting that to happen.

pt1188

Perhaps I should re-post the question on what your views are on whether a crash is likely to happen. There is a certainly no shortage of gloom merchants whenever you read the financial pages and it makes me jittery. As I've said my investment time frame is 10 years so I don't have the luxury of time to ride out the storm.

Ryan_Futuristics

EdGasket wrote: »

If you think a crash is that likely then why not just keep the £30K as cash? More defensive funds might be Global property, gold, index-linked gilts, and a plethora of absolute return funds but you can't really say for sure what will be defensive without knowing the nature of the problem you are trying to be defensive about. e.g. If it is hyperinflation then gold would be very good but if it is deflation then it wouldn't.

ColdIron wrote: »

Bonds, sovereign and corporate, are traditionally used to mitigate volatility and an obvious way for you might be to use one of the Vanguard Lifestrategy funds with a higher allocation to fixed income. Something else you might consider is a fund that specialises in wealth preservation such as Troy Trojan. Gives you some exposure to gold and commodities as well as equities and bonds and has a reasonable diversity by industry sector and geography. Just a suggestion

As Chris75 says, bonds might not be the safe havens they have been in the past coming out of such a low rates environment

There's a good chart somewhere showing how the diversification benefits of bonds evaporate as interest rates go down ... and some very pessimistic views from institutional investors on how well 60:40 portfolios might do

Also you've got to be careful with property, as the unprecedented levels of QE we've had may have inflated prices into bubble territory ... Certainly for many: cash is king at the moment ... And P2P lending may be a good way to make your cash work

ChopperST

@ Ryan

One thing we agree on is P2P as a bond/defensive alternative. However you won't be getting 6% from Ratesetter unless you are either a non tax payer or are not declaring your income to her magistracy's finest?

I don't see how an equity fund could be seen as defensive? Its a high risk fund and is detailed as so on the key investor information booklet.