Defensive suggestions. 9 July 2018 at 2:40PM edited 30 November -1 at 1:00AM in Savings & Investments 27 replies 3.2K views

bowlhead99

mollycat wrote: »

@Bowlhead....do you mind if I ask; do you still hold M&G Optimal Income.

Yes, still have it, as do other members of the family. It's not a bad fund IMO.

Would a strategic bond fund be an appropriate way to build a longer term defensive side to a portion of one's portfolio?

Anything that makes money while not being fully correlated with equities is of use when making your portfolio more defensive. If the bonds you use are not 'strategic' but instead of some particular type of your choosing, you have to decide in what proportions to hold them, which can be a headache.

talexuser wrote: »

Maybe I should just get back into Artemis Strategic Assets (gave Littlewood 4 years before selling) because he has been positioned for the inevitable since starting at the expense of performance.

My Mum has that one and I'm happy with his short stance on certain government bonds (she also has Optimal Income, which is long bonds, but I don't see that as contradictory.

A_T

talexuser wrote: »

As usual Bowl has hit the nail. I do of course realise that bonds are included in some funds, and have no commercial property so F&C is on my list. I have to be honest and admit I do not pay enough attention to asset allocation as described many times here. For the first 15 or so years of Peps and Isas just chose the best performing, long term manager record, funds - only sold after giving them a good chance to recover (minimum 3 years plus) and measured them against the nearest comparable tracker I would have chosen in their stead. Totally unscientific but maybe a little like the new "bonkers" strategy of changing to the top every 6 months combined with a Buffet "buy and hold" strategy . But that was my choice if I'm happy to accept a punt, albeit a well researched one.
Went into trackers in the last five or so years because running out of active funds that outperform long term to consider, and needed to start spreading classes around as per advice here.

Gave up on bond funds after a decade or so because felt could wait out any equity crashes without having to sell - I had M&G Optimal Income for many years for example.

So will sit out the next crash without selling, just want to have some 20% fallers rather than all 40% fallers, at the moment defensive about 10% of the total, another fund would make it about 12%, so not outrageously bearish.

I suppose we would all like to have the cake left over as well too if possible. Maybe I should just get back into Artemis Strategic Assets (gave Littlewood 4 years before selling) because he has been positioned for the inevitable since starting at the expense of performance.

why not hold something that is likely to go up when equities crash i.e. UK or US government bonds? look up Lars Kroijer and see what he has to say.

another option is a Harry Browne Permanent Portfolio: 25% Gold, 25% Equities, 25% Long Dated Gilts, 25% Cash. Over long periods of time this portfolio has matched 100% equities but it's hard to stick to as some people are unable to resist tinkering especially during an equity bull market.

bostonerimus

Defensive funds and income ITs etc are nothing magic. They just hold a range of investments that they think will fulfill their strategic objectives and then pay you dividends and there might be some price appreciation too. They might have access to derivatives and private equity etc, but basically you are just buying a managed asset allocation. You can do something similar with a few regular funds (maybe passive, maybe active) and you should be able to save some money.

PS I hate the Harry Browne PP.....too much cash, to much long bonds and too much gold for my liking

A_T

bostonerimus wrote: »

Defensive funds and income ITs etc are nothing magic. They just hold a range of investments that they think will fulfill their strategic objectives and then pay you dividends and there might be some price appreciation too. They might have access to derivatives and private equity etc, but basically you are just buying a managed asset allocation. You can do something similar with a few regular funds (maybe passive, maybe active) and you should be able to save some money.

PS I hate the Harry Browne PP.....too much cash, to much long bonds and too much gold for my liking

historically it holds up as well as a 60/40 - but with much less volatility.

DiggerUK

A_T wrote: »

.......another option is a Harry Browne Permanent Portfolio: 25% Gold, 25% Equities, 25% Long Dated Gilts, 25% Cash.........

Gilts are being hit by debasement, and cash by deflation. If that is your portfolio, what is to stop you rebalancing in to gold and equities. If so, what ratio would you propose.
The liquidity of cash and bonds is instant both in and out, so hardly a perilous "tinkering" to undertake..._

digannio

If you are at all tempted by the defensive absolute/targeted return funds I would be very careful. The sector is packed with underperforming funds failing to get anywhere near their stated targets. If you look at one of the big players, Newton Real Return, you could have earned more in carefully chosen cash accounts over the past five years than its cumulative performance of 12.4%, similarly with another biggie, Invesco Perpetual Global Targeted Returns, if you consider its three-year performance (5.6%). Standard Life's giant Gars fund has a five-year cumulative performance of 5.9%.
Quite a number of the funds seem to offer very little of the upside during a robust rising market but still capture the losses of a falling market. And many are not very easy to understand.

bostonerimus

A_T wrote: »

historically it holds up as well as a 60/40 - but with much less volatility.

A quick look at the 10 year statistics of 60/40 vs PP shows PP hA lower StDev, but the CAGR for US 60/40 is 7.15% and PP is 6.03%...it might be different for the UK. I'd be interested to see the numbers.

What I don't like about PP (or a domestic 60/40) is the lack of global diversity as well as too much cash etc

Prism

What the Harry Browne portfolio tells me is that it's not particularly great during the saving part of your working life but might be a worthwhile consideration later on when you are starting to rely on your savings during retirement. Assuming many of us are saving for long terms goals of course

AnotherJoe

digannio wrote: »

If you are at all tempted by the defensive absolute/targeted return funds I would be very careful. The sector is packed with underperforming funds failing to get anywhere near their stated targets. If you look at one of the big players, Newton Real Return, you could have earned more in carefully chosen cash accounts over the past five years than its cumulative performance of 12.4%, similarly with another biggie, Invesco Perpetual Global Targeted Returns, if you consider its three-year performance (5.6%). Standard Life's giant Gars fund has a five-year cumulative performance of 5.9%.
Quite a number of the funds seem to offer very little of the upside during a robust rising market but still capture the losses of a falling market. And many are not very easy to understand.

I found exactly that with my foray into this type of fund, PAT and Seneca, both down in a mild up market. Not impressed at all.

bowlhead99

AnotherJoe wrote: »

I found exactly that with my foray into this type of fund, PAT and Seneca, both down in a mild up market. Not impressed at all.

PAT has been mentioned on the board a few times before. It's one of my core defensive holdings. Their objective is to "protect and grow (in that order)" your money, which will cause you to miss out potential gains from equities if they're not in the mood to buy them.

Feeling that a lot of potential investee companies are expensive, they are considerably ex- equities at the moment compared to what they hold when feeling more bullish, and some of their bonds or non equities have come off a bit, with increases in interest rates or exchange rate changes. As a result, they have bobbled around the £400- a share level for a year or so, give or take a tenner. So if you're down, you're only mildly down.

It's easy of course to say with hindsight they should have been more bullish or bought into different types of companies, or that you should have bought something different because you wanted more upside. It's probably also clear though, that with the position they've taken and the types of companies they hold, if equities had crashed 60% or some specialist markets 80%, an investment in PAT would have looked like a smarter thing to have bought.

It's not like they are sneakily changing their strategy to something you don't want while keeping you in the dark about it . On their website, you can go back through the last eighty quarterly newsletters to see their attitudes and commentary of the time. Some are a little off piste but they are generally well written and quite insightful, especially compared to certain OEICs that just give you a list of top 10 holdings and a paragraph of text telling what you already know happened, if you're lucky.