Portfolio Allocation: Critique Welcome

bostonerimus

DairyQueen wrote: »

I know that some people consider investing a chore but I have discovered that I enjoy actively managing money. It's one of the things that I would choose to do in retirement. I just need to make sure that I don't allow this interest to morph into an expensive and risky hobby.

The last part of your post gives the main reason for my "lazy portfolio". I also enjoy investing, but I think that most active investors actually do more harm than good. To successfully manage a "sliced and diced" portfolio you need to be on top of things and IMHO be lucky. If you are just doing a sector weighted strategy and say emphasizing small cap over a long period then you can add a bit of that in another tracker and hold for the long term. I haven't done anything with my portfolio in the last 3 years other than reinvested dividends and deposited money from a part time job.

Malthusian

Audaxer wrote: »

But RIT Capital Partners currently has a 6.52% premium, averaging 5.92% for the last 12 months. Just wondering, how would an IT reduce its discount anyway - would it not have to raise it's NAV? If so, how would it do that?

If its NAV increased then other things being equal the discount as a % would stay the same, or if its share price didn't move the discount % would increase.

To reduce the discount it would need to address whatever reason the market has for not valuing the investment trust as much as the sum of its parts - e.g. if the market isn't confident in the skills of the management, it needs to deliver better results or replace the management.

As IanSt says, a more likely measure (less drastic than firing the management and more within its control than hoping for improved performance) would be buying its own shares.

I have a couple of investment trusts but generally prefer OEICs because the movement of the discount/premium is an additional risk for which I don't see an expectation of greater return.

bostonerimus

IanSt wrote: »

My worry would be that you would be hit by a double whammy of falling market prices and the discount going from a premium to a negative. But no-one knows 100%, but it is something that keeps me way from those investment trusts that I feel have maybe had the benefit of QE.

ITs have been doing great over the last few years in a rising market with low borrowing costs. I also worry that in an economic contraction with higher interest rates they could see some nasty losses from price declines and drops in premiums and that would be very bad early on in a retirement income plan.

bostonerimus

TheTracker wrote: »

And if you do, then rather than a whole world tracker you might want to buy a UK tracker, an ex-UK tracker, and bonds.

I like this. You can set the UK tracker at the level you'd like, you might want to overweight the UK a bit. For the bonds I'd probably use something like VLS20 as it's a low cost way of getting a broad range of bonds.......and Vanguard doesn't do VLS0......

Such a portfolio isn't going to light the world on fire, you might not get as much of the Indian consumer driven economic expansion because you didn't over weight an India fund. But it will keep things relatively simple so you can keep to a strategy and also keep your blood pressure low.

Audaxer

OldMusicGuy wrote: »

I do, but they are all multi asset funds so I don't regard them as "just 3 funds". I do not want to overcomplicate things, pay high fees and my investment goals are modest (2 to 3% net return will do me fine). I have a large DC pot spread across these three funds.

Hi OldMusicGuy, as I also like multi-assets funds I'm interested to know which 3 funds you hold if you don't mind me asking? As you have a large DC pot, presumably you have no qualms about investing over £50k in the one fund?

Audaxer

bostonerimus wrote: »

ITs have been doing great over the last few years in a rising market with low borrowing costs. I also worry that in an economic contraction with higher interest rates they could see some nasty losses from price declines and drops in premiums and that would be very bad early on in a retirement income plan.

Lots on investors seem to have retirement portfolios with income-generating ITs that have a record of decades of increasing dividends. So if they are just being held for the income it shouldn't be a concern if there is a falling market. However I am a bit wary of ITs as they are shares and not covered by FSCS, but I can see the attraction of them so am a bit tempted to include some in my portfolio.

bostonerimus

Audaxer wrote: »

Lots on investors seem to have retirement portfolios with income-generating ITs that have a record of decades of increasing dividends. So if they are just being held for the income it shouldn't be a concern if there is a falling market. However I am a bit wary of ITs as they are shares and not covered by FSCS, but I can see the attraction of them so am a bit tempted to include some in my portfolio.

There are lots of companies that have a strong record of paying good dividends and there are open ended funds that specialize in dividend stocks if that's what you want. The old ideal is to live off dividends and it's great if you can do that as you should be insulated from price fluctuations.....until it gets so bad that the dividend is cut. Many ITs have strong records, but they do come with some risks that you don't find in open ended funds and often come with steep fees. As with anything it's important to understand how the returns are produced and the associated risks. It will be interesting to see how post pension reform retirees deal with the next 20% or higher correction when their pension accounts drop in value.

bigadaj

bostonerimus wrote: »

There are lots of companies that have a strong record of paying good dividends and there are open ended funds that specialize in dividend stocks if that's what you want. The old ideal is to live off dividends and it's great if you can do that as you should be insulated from price fluctuations.....until it gets so bad that the dividend is cut. Many ITs have strong records, but they do come with some risks that you don't find in open ended funds and often come with steep fees. As with anything it's important to understand how the returns are produced and the associated risks. It will be interesting to see how post pension reform retirees deal with the next 20% or higher correction when their pension accounts drop in value.

But an issue with income funds is that trackers have a very poor record, it's one of the areas that passives underperform actives, a bit like large cap us is a very difficult area for active fund managers.

bostonerimus

bigadaj wrote: »

But an issue with income funds is that trackers have a very poor record, it's one of the areas that passives underperform actives, a bit like large cap us is a very difficult area for active fund managers.

This is an interesting analysis of active vs passive in global bonds.....be aware of possible bias in the messenger :-)

Link Here

Audaxer

bigadaj wrote: »

But an issue with income funds is that trackers have a very poor record, it's one of the areas that passives underperform actives, a bit like large cap us is a very difficult area for active fund managers.

That's true. I like passives, especially within multi asset funds, but I've also got an income portfolio of active funds as they are better for income. However if you had held a VLS60 or similar for the last 5 years, you could have taken at least 4% income each year by selling some capital, and still have had good capital growth. Not sure which would produce better total returns in the long term.