Wealth Preservation Funds/IT's

bowlhead99

bostonerimus wrote: »

Not really, I just like to know what I own. ITs can go off in all sorts of directions.

To be fair, it's pretty rare for them to go off in a direction they didn't tell you about in advance, or for them not to discuss those directions in their published reports, or fail to disclose them in their financial statements.

StellaN

bigadaj wrote: »

So that isn't really 100% equities I'd have said.

Agreed. The point I was trying to make is that if you have a good cash buffer then instead of holding bonds you can invest in 100% equities as long as you can suffer the consequences of a downturn over a period of time.

MonroeM

Instead of holding these wealth preservation IT's you may want to consider a fixed income alternative such as Invesco Perpetual Enhanced Income (IPE) which is a global high income IT.

This is also fairly low risk but has a good yield of 6.25%. Over the past 10 years it has achieved similar results/performance figures as the 4 wealth preservation IT's that have been mentioned?

ColdIron

I wouldn't call IPE low risk. Compare it with PNL 9 to 10 years ago during the GFC. From Oct '07 to Oct '08 it took a near 70% hit compared to the 10% to 20% comparative blip of PNL. With my wealth preservation hat on I would be very pleased that one of these funds did what I wanted it to do but spitting feathers at the other and it's complete failure to meet that objective. IPE's objective is to provide a high level of income not primarily to preserve capital. It achieves this in its investment choices and a fairly high level of gearing which increases risk and can (and often does) magnify losses. PNL's objective is explicitly to protect and increase (in that order) the value of shareholders’ funds and employs no gearing. I have IPE in my mildly high yield unwrapped portfolio but I don't kid myself that it's a low risk holding or hold out much hope in the way of capital gains. Horses for courses

bostonerimus

bowlhead99 wrote: »

To be fair, it's pretty rare for them to go off in a direction they didn't tell you about in advance, or for them not to discuss those directions in their published reports, or fail to disclose them in their financial statements.

Yes that is fair and I agree. It's easy enough to see the amount of borrowing done by the fund and they will state the use of things like swaps and other derivatives or return of capital in the dividends. As a passive investor such techniques are kryptonite to me.

bowlhead99

ColdIron wrote: »

I wouldn't call IPE low risk. Compare it with PNL 9 to 10 years ago during the GFC. From Oct '07 to Oct '08 it took a near 70% hit compared to the 10% to 20% comparative blip of PNL. With my wealth preservation hat on I would be very pleased that one of these funds did what I wanted it to do but spitting feathers at the other and it's complete failure to meet that objective.

I agree Coldiron. IPE is basically single sector - a high yield bond fund - which means it will be likely to perform quite differently in a crash to a multi-asset defensive fund. HY bonds can have similar characteristics to equities during market downturns. It does have about 20% investment grade bonds on the basis that it can fund them with cheap debt as part of its gearing policy. Its gearing has been over 50% some years, so not one for 'widows and orphans' looking for a safe ride.

However, even with the boost from gearing of about 15-30% over the last few years, you have to go back to 2013 to find a year where they actually had more net income than they paid out in dividends. 2015, 16 and 17 they are simply maintaining the 5p level of dividend payouts even though they are not bringing that much money in as interest income yield from their assets, it's being taken from capital.

Which might seem fine and dandy when you get a capital boost due to over half your bond holdings being in a foreign currency at the time that sterling devalues, or when the bonds increase in value due to continuing low global interest rates in the market's search for scarcer and scarcer yield. However, in an environment where rates rise, QE reverses, GBP strengthens and equities crash, a geared bond fund investing internationally at the high yield end of the market will have a Very Bad Time (tm). And if you paid a 3-4% premium for it and it moves to (say) a mild 10%-12% discount in a crash... that's another 15% decline in the market value of your shareholding, on top of the underlying decline of net assets.

I wouldn't call that a capital preservation IT at all. It is simply an IT that has done well in a period of rising equity and bond markets over a long bull market since it last tanked by 70%.

bostonerimus

MonroeM wrote: »

Instead of holding these wealth preservation IT's you may want to consider a fixed income alternative such as Invesco Perpetual Enhanced Income (IPE) which is a global high income IT.

This is also fairly low risk but has a good yield of 6.25%. Over the past 10 years it has achieved similar results/performance figures as the 4 wealth preservation IT's that have been mentioned?

IPE has only 191 issues in it's portfolio, a third of them are below investment grade and it uses significant gearing. I would not call it low risk.

atush

Audaxer wrote: »

Some people would think that way, but I think a lot of sensible investors with £100k in equities and £100k in cash would think a 50% equity crash was a good time to invest at least some of their £100k cash in cheap equities, or at least not sell at a loss.

Indeed ..............

atush

PS why is there no Thank you option available on this thread?

Linton

atush wrote: »

PS why is there no Thank you option available on this thread?

Because it is a 1.5 year old old thread you have responded to. It would seem that the option to thank disappears after a period of time, which is very sensible.