RIT & Capital Gearing as Defensives?

A_T

Personally I think there is an element of snake oil about these "wealth preservation" trusts. Preserving one's wealth is certainly a nice idea but they don't seem to do anything that a much cheaper simple diversified portfolio of bond and equity index trackers doesn't.

Linton

A_T wrote: »

Personally I think there is an element of snake oil about these "wealth preservation" trusts. Preserving one's wealth is certainly a nice idea but they don't seem to do anything that a much cheaper simple diversified portfolio of bond and equity index trackers doesn't.

Is your opinion based on any data?

I suggest you use trustnet's charting facilities to investigate the performance of Ruffer Investment Company against any other fund of your choice during the period.

As an extreme test compare Ruffer with the FTSE World Index from 2005 to now. In the 2008/2009 crash the World Index fell 40-50%. Ruffer didnt fall at all. The world index only overtook Ruffer in 2015 some 6-7 years after the crash. That is what one would hope to get from a WP fund.

Unfortunately I cant find any balanced equity/bond funds that were around during the same time period. Perhaps you can come up with some suggestions? What % bonds would you think appropriate as a comparison?

rathernot

And that's similar to the backtesting I did.

It doesn't prove how things will hold up in the future but if the apocalypse strikes a LifeStrategy 20 as an example will always be a LifeStrategy 20 jut because they don't have the option to change allocations from bonds to gold or cash or whatever they feel best suits the situation.

Linton

More data.

Suppose you had invested in a FTSE World Tracker, Ruffer, and a Global Bond fund at the start of 2007 around the high before the crash...

1) The tracker would have fallen significantly during the crash, the other two funds didnt fall at all
2) The tracker with dividends re-invested would have overtaken the bond fund around September 2013
3) The tracker would have overtaken Ruffer in early 2017
4) Now the % returns are:
- FTSE World 170%
- Ruffer 140%
- Global Bond fund 75%

Well at least the Bond fund would be cheaper and you wouldnt have to worry about "snake oil".

A_T

Linton wrote: »

More data.

Suppose you had invested in a FTSE World Tracker, Ruffer, and a Global Bond fund at the start of 2007 around the high before the crash...

1) The tracker would have fallen significantly during the crash, the other two funds didnt fall at all
2) The tracker with dividends re-invested would have overtaken the bond fund around September 2013
3) The tracker would have overtaken Ruffer in early 2017
4) Now the % returns are:
- FTSE World 170%
- Ruffer 140%
- Global Bond fund 75%

Well at least the Bond fund would be cheaper and you wouldnt have to worry about "snake oil".

We're not investing in 2007 - we're investing now.


Ruffer has had a few big dips in the last decade - wealth wasn't preserved very well in those instances. During that time it's been outperformed by VLS 20 - which would have done a much better job of preserving one's wealth.

AnotherJoe

Just for clarity for Ruffer are we looking at "RICA" ?
http://www.hl.co.uk/shares/shares-search-results/r/ruffer-investment-co-ld-red-ptg-pref-share

Audaxer

Linton wrote: »

Is your opinion based on any data?

I suggest you use trustnet's charting facilities to investigate the performance of Ruffer Investment Company against any other fund of your choice during the period.

As an extreme test compare Ruffer with the FTSE World Index from 2005 to now. In the 2008/2009 crash the World Index fell 40-50%. Ruffer didnt fall at all. The world index only overtook Ruffer in 2015 some 6-7 years after the crash. That is what one would hope to get from a WP fund.

Looking at Trustnet, although Ruffer didn't fall in 2008/2009 and has had good returns, it looks a lot more volatile than Trojan O or Jupiter Strategic Bond, as these funds rise in more of a straight line,

Unfortunately I cant find any balanced equity/bond funds that were around during the same time period. Perhaps you can come up with some suggestions? What % bonds would you think appropriate as a comparison?

I think Baillie Gifford Managed B is a good example as it's an active multi asset fund with about 75% equities that has been around for about 30 years. Looking at it on Trustnet from 2005 to date, it is just ahead of RIT for returns, and well ahead of both Ruffer and Troy O for that 13 year period. While it's not a WP fund it doesn't look any more volatile than RIT or Ruffer.

rathernot

I think the difficulty with these things is you can only ever go off past performance to try to judge what might happen in the future surely?

If I look at RCP and CGT both have, since inception, averaged 11% annual returns.

That's through good years and bad and since 1973 for CGT and since 1988 for RCP.

Neither are options you'd use to double your money overnight or short term but if you're looking at a 20 year option both appear pretty "safe" options if you wanted to come out the other end with more than you went in with and more than you'd get in the bank.

Rollinghome

I hold a large lump of RCP and a much smaller bit of PNL, about 5% of PF in total. I also held RICA for a while. I prefer to think of them as diversifiers rather than as "wealth preservation" investments even though that is the objective. I also hold a similar percentage (six figures) in NS&I IL bonds and the same again in P2P investments for the same reason.

The problem I have with thinking of them as wealth preservers is the exact circumstances of the next investment tumble are unpredictable so I can't be sure that any particular fund or trust will get it right and might do anything but preserve wealth. I do know that sufficient diversification should preserve something, so that's what I aim for. Worth remembering that RCP can be quite highly geared and has no aggressive discount control so isn't typical of a wealth preservation fund; perhaps better thought of as a long-term wealth accumulator.

The reason I don't now hold RICA or much of PNL is that I don't relish paying enormous management fees to have my investment held in cash for extended periods. I want managers to work for their money. Last time I looked, RICA was holding 11% of investors' money as cash and charging them 1.11% to do it. I can hold my own cash and likely get a much better rate for it than they can - for free. PNL may be thought an expensive way to hold large amounts of gold too.

I'm also no fan of "absolute return" funds. Anyone who wants that degree of safety other than for short periods is likely to be as well keeping their money in a decent savings account and saving the fees.

My hair's grey and I'm pretty ancient so a not overly heroic approach is appropriate I'm told: should there be an almighty crash I may not be around to enjoy the recovery. If I were as young as I assume the OP to be, depending on the exact circumstance and need to maintain capital, I'd be taking a far more aggressive approach, ready to accept the knock-backs and ride out the waves: but we all have different levels of comfort.

rathernot

Yes I'm a little unsure about the term wealth preservations, all I'm thinking is that for whatever set of reasons they appear to be seen as a safe bet over a long term.

Rollinghome mind if I ask what your RCP lump is as a percentage? That's where I'm debating at the moment.

As for young, I'm late 30's and fortunate enough to have a fair chunk in savings which are earning nothing so my plan is to move some into a S&S ISA and max it out as I go forward.

I've already got 50% of this years allowance in Lindsell Train and Fundsmith so that's the pure equities piece taken care of.

There seems to be an argument that with so much cash in the bank that is the defensive piece but even if I max my ISA out there will still be all that cash in the bank left if that makes sense.