Capital Gearing Trust

cogito

seacaitch wrote: »

Top-slice highly successful investment positions that have performed much better than anticipated and have gone way beyond their target allocation? Feels hard to top-slice then, but....

Run your winners and dump your losers makes more sense to me.

seacaitch

cogito wrote: »

Run your winners and dump your losers makes more sense to me.

To be fair, I wrote a fairly nuanced comment about pragmatic rebalancing of highly successful fund holdings back towards target weightings, and in reply you wrote a simplistic trope.

Tell me about the error Vanguard is making when it trims the better performing constituent portfolio funds, such as US Equity these past N years, within its LifeStrategy products so as to raise the lesser performing constituents back to their target weights...

Maybe in a rip-roaring equities bull market they should just let the equity component in, say LS60, swell from 60% to 90%? Or maybe 95%+?

Get their portfolios really concentrated into the things that have worked the best in recent years. What could go amiss?

I purchased Fundsmith Equity in size at launch as I anticipated the strategy would succeed, which it clearly has in spades. Nice, kerrching. As my other investment holdings periodically throw off income, do you think I should be channeling this into Fundsmith Equity so as to "run my winners" and let this fund position come to dominate my portfolio, with a weighting 5 times larger than initially envisaged? Or, further still, begin cutting those well-considered but lesser-performing portfolio constituents so as to channel even more into Fundsmith Equity, such that my entire portfolio effectively becomes Fundsmith Equity?

Get my portfolio totally invested solely in what's done best these past several years. What could go amiss?

Aminatidi

I don't tend to think of lesser performing funds as losers if they're doing what you purchased them to do.
I'd suggest maybe if I'd purchased Woodford instead of Fundsmith I'd consider Woodford a "loser" right now.
If I'd purchased Capital Gearing Trust alongside Fundsmith I hopefully wouldn't consider Capital Gearing Trust a "loser" as I hopefully wouldn't ever have thought I was buying them both to do the same thing.
I'm new to this game and I recently took some profits for the exact reasons seacaitch says, Fundsmith was disappearing off into the distance a little too far ahead for my liking.
It did feel difficult as you think "Hey why am I doing this?".

cogito

seacaitch wrote: »

To be fair, I wrote a fairly nuanced comment about pragmatic rebalancing of highly successful fund holdings back towards target weightings, and in reply you wrote a simplistic trope.

Tell me about the error Vanguard is making when it trims the better performing constituent portfolio funds, such as US Equity these past N years, within its LifeStrategy products so as to raise the lesser performing constituents back to their target weights...

Maybe in a rip-roaring equities bull market they should just let the equity component in, say LS60, swell from 60% to 90%? Or maybe 95%+?

Get their portfolios really concentrated into the things that have worked the best in recent years. What could go amiss?

I purchased Fundsmith Equity in size at launch as I anticipated the strategy would succeed, which it clearly has in spades. Nice, kerrching. As my other investment holdings periodically throw off income, do you think I should be channeling this into Fundsmith Equity so as to "run my winners" and let this fund position come to dominate my portfolio, with a weighting 5 times larger than initially envisaged? Or, further still, begin cutting those well-considered but lesser-performing portfolio constituents so as to channel even more into Fundsmith Equity, such that my entire portfolio effectively becomes Fundsmith Equity?

Get my portfolio totally invested solely in what's done best these past several years. What could go amiss?

No, that isn’t what I meant. I was putting myself in the OP'S shoes as he has to decide what to dispose of to purchase CGT or something similar. Like him, I wouldn’t dispose of Fundsmith or LTGE but if something in my portfolio was underperforming and I didn’t see much upside, I would sell.

MarkCarnage

One other issue to consider here is to what extent the manager's asset allocation strategy does vary over time. For example, if equities fall 40-50%, and the fund only has 20% in equities, and performs relatively well, will the manager increase the equity allocation meaningfully when equities are so much cheaper? Or is the A/A fairly set in stone?

Turning that a different way round, would you as the investor buy into a WP type fund and seek to move to more equity orientated fund if the scenario above unfolds?

One point on some of the comments on the relative performance of some of the trusts mentioned above - the discount to NAV. Ruffer (RICA) moved pretty sharply from a premium to a quite significant discount to NAV last October/November and has stayed there. The NAV has been pretty constant throughout, but the share price has fallen 10%. No clear reason for it as far as I can see. Perhaps a big seller? Personal Assets and some others operate a discount management policy whereby they seek to manage the discount/premium within fairly narrow bounds.

I hold RICA and PNL, bought at different times. One other comment regarding their bond holdings. A fair part of them are very short dated paper, quasi cash really. It's a lot safer for them to hold short dated paper from UK or US government than cash deposits with a bank. Yes there is some duration risk, but not a lot. Not sure I would say that makes them bond bulls, far from it in PNL case I think.

RIT was mentioned too. I don't hold it as I have other purer private asset plays. Its equity content including unlisted is a fair bit higher than the other two mentioned.

Linton

MarkCarnage wrote: »

One other issue to consider here is to what extent the manager's asset allocation strategy does vary over time. For example, if equities fall 40-50%, and the fund only has 20% in equities, and performs relatively well, will the manager increase the equity allocation meaningfully when equities are so much cheaper? Or is the A/A fairly set in stone?

Turning that a different way round, would you as the investor buy into a WP type fund and seek to move to more equity orientated fund if the scenario above unfolds?

One point on some of the comments on the relative performance of some of the trusts mentioned above - the discount to NAV. Ruffer (RICA) moved pretty sharply from a premium to a quite significant discount to NAV last October/November and has stayed there. The NAV has been pretty constant throughout, but the share price has fallen 10%. No clear reason for it as far as I can see. Perhaps a big seller? Personal Assets and some others operate a discount management policy whereby they seek to manage the discount/premium within fairly narrow bounds.

I hold RICA and PNL, bought at different times. One other comment regarding their bond holdings. A fair part of them are very short dated paper, quasi cash really. It's a lot safer for them to hold short dated paper from UK or US government than cash deposits with a bank. Yes there is some duration risk, but not a lot. Not sure I would say that makes them bond bulls, far from it in PNL case I think.

RIT was mentioned too. I don't hold it as I have other purer private asset plays. Its equity content including unlisted is a fair bit higher than the other two mentioned.

Good points....


On the question of asset allocation I would say that one buys into the WP funds for them to provide security in the bad times with around inflation increases in the good ones. They should not be using the investors money to make a larger gain on the side at the cost of higher risk. It is up to the investor to provide the high level allocation. I do this by balancing between my 100% equity growth portfolio and the WP funds. One could make an exception for RIT (RCP) as that does explicitly have a growth objective.



I had not realised that the problems with Ruffer arose from the premium/discount rather than the NAV. Perhaps I will reconsider selling it. On the other hand the whole point of WP funds is to provide protection from market excesses. On that basis a case could be made for only using WP OIEC/UTs or ITs that manage the premium/discount. Wild variations in the price/NAV are incompatible with the objective in buying WP funds.

MarkCarnage

Linton wrote: »

Good points....


On the question of asset allocation I would say that one buys into the WP funds for them to provide security in the bad times with around inflation increases in the good ones. They should not be using the investors money to make a larger gain on the side at the cost of higher risk. It is up to the investor to provide the high level allocation. I do this by balancing between my 100% equity growth portfolio and the WP funds. One could make an exception for RIT (RCP) as that does explicitly have a growth objective.






I had not realised that the problems with Ruffer arose from the premium/discount rather than the NAV. Perhaps I will reconsider selling it. On the other hand the whole point of WP funds is to provide protection from market excesses. On that basis a case could be made for only using WP OIEC/UTs or ITs that manage the premium/discount. Wild variations in the price/NAV are incompatible with the objective in buying WP funds.

Not sure that I agree.... I am quite happy for a manager to have an opportunistic approach within reason to asset allocation provided it sits with their core philosophy and high level objectives.

A contrary view might be to use the swings in the discount/premium to your advantage.....I think very carefully before buying an IT at a premium - is there some unique point about it that warrants doing so, or are there undervalued assets (as used to be the case with Law Deb)?

Aminatidi

Linton wrote: »

I had not realised that the problems with Ruffer arose from the premium/discount rather than the NAV. Perhaps I will reconsider selling it. On the other hand the whole point of WP funds is to provide protection from market excesses. On that basis a case could be made for only using WP OIEC/UTs or ITs that manage the premium/discount. Wild variations in the price/NAV are incompatible with the objective in buying WP funds.

I think the problems with Ruffer started with the NAV and dented confidence in them which then impacted the premium/discount.

I brought into a very small chunk of RICA and very promptly lost around 10%, which doesn't inspire confidence in a "wealth preservation fund".

I get it, you don't buy things like RICA on a couple of months timeframe, but markets don't work that way at the moment, instant punishment seems the way.

seacaitch

Linton wrote: »

On the question of asset allocation I would say that one buys into the WP funds for them to provide security in the bad times with around inflation increases in the good ones. They should not be using the investors money to make a larger gain on the side at the cost of higher risk. It is up to the investor to provide the high level allocation.

This sounds to me like you've maybe not fully appreciated what it "says on the tin" of some of these trusts: they don't have fixed asset allocations but dynamic; their AAs vary in line with the value they see on offer (or conversely the price/valuation risk they perceive).

Hence, high valuations in eg. equities will see them make low allocations, as at present and for years now. But if very obviously low valuations ever arise in an asset class such that they perceive limited downside price risk but very significant upside then I would expect them to significantly raise their exposure. They write about this frequently in their commentaries, such as CG this week; no reason to disbelieve them.

It might not seem like this though because they are extremely demanding on valuation, perhaps crazily so, but they take their commitment to protect the downside (and investors' capital) very seriously.

They are like Buffet's patient baseball batter who'll let the market pitch thousands (or even millions?!) of balls at them before ever deciding to swing. So you might have to wait for a (very) long time to see any big shifts in AA. It'd be interesting to see what they'd do if we we lucky enough to encounter some '87-esque Black Monday episode, ie. whether they'd load up.

seacaitch

Re Ruffer I've never liked their approach of choosing to (semi-)permanently burn through option premiums in order to provide downside protection; IMO any use of options for protection should only be done tactically (if at all), not "permanently" as they used to do/still do, since the performance drag will become huge over time...

And the use of options will be addictive, since a portfolio manager might become afraid of ever lifting the protection they provide just in case that period happens to coincide with a major market setback occurring, such that they then get flack for not preserving people's capital sufficiently.