Wealth Preservation vs Multi Asset Funds

Prism

tin586 wrote: »

Let’s take Personal Assets Trust (PAT), mentioned by the original poster.

The ongoing charge is 0.91% according to Morningstar and HL. I use those two sources, because I just cannot locate a fact sheet on PAT’s own website.

Its 0.65% management fee + 0.15% to run the trust

Then looking at their holdings, question is what exactly they are doing for their money?

Currently investing in US TIPS and high quality defensive equities by the look of it.

If going for an IT, why would one not prefer Banker’s, say?

Or a tracker ETF or combination of (equity and bond) trackers?

You could do those things but wealth preservation funds are quite different in their goals

JohnWinder

I think we have to ask what you’re getting for costlier active management compared to your alternative suggestion of the passive VLS. Consider Troy’s Personal Assets Trust’s objective carefully: protect and increase (in that order) the value of shareholders' funds per share over the long term‘. Any increase they achieve will have already protected your value, so for ‘(in that order)’ to have any meaning it surely means they’ll have achieved their objective by just protecting you value. Furthermore, we’d like to think ‘protect’ means maintain, but could they claim to have protected your value if it fell by 15% in a crash that dropped the stock market 50%?
And Is the value protection they’ve seeking nominal value or inflation linked value?
In twenty years, if your value is not ‘protected’ as you understand the term, do they say 20 years is not ‘long term’ and you should stick around? And lastly, if they fail to meet their objective, even if the wording had no wriggle room, you alone suffer the consequences while they walk away with all your fees.
VLS on the other hand has an effective guarantee to do what it promises, ie closely track its indices (because it’s easy for the managers to do it and they have a good record of having done it.). But the outcome for your investment is completely unknown as it depends on the market. A beautiful symmetry: PAT offers the outcome you or I might want (maintain inflation protected value), with no guarantee, or penalty for management failing; VLS has an implicit guarantee to give an outcome no one can foresee. Symmetry, except that PAT offers no clear unambiguous outcome, just a mirage of what you or I might actually want - so no clear outcome thus no guarantee is relevant (is that too harsh?).
What to do? Only govt inflation protected bonds can give a guaranteed real asset value maintenance, and then only if the interest rate isn’t negative. I doubt there’s a suitable bond fund but individual bonds would do it.
Another way is to take a bit of a chance with one of the VLS funds; you’re already doing that with PAT and paying .5%/yr extra for the privilege.
First thing to establish is whether the money tied up in this investment will be needed in full at some one specific date, or you just don’t like asset value volatility (if so there might be work-arounds).
Get familiar with the historical volatility of some of the VLS funds as they might meet your needs.
So I’m inclined to answer your question with ‘no’, even not knowing what your needs are.
If anyone suggests PAT would get better returns than VLS40, with the same volatility, because the managers can jump from a VLS40 to a 60 or 20 as markets move, I’d ask for the evidence that this is likely.

bowlhead99

JohnWinder wrote: »

Get familiar with the historical volatility of some of the VLS funds as they might meet your needs.

To get familiar does require a reasonable amount of searching as they did not exist at the time of the two major crashes we've had in the last couple of decades, so you would need to review Vanguard's own back-test reports or create the history yourself by reviewing the results of the major global indexes translated to sterling and rebalanced monthly against a particular set of GBP hedged bond indices.

And note if you use the research that Vanguard created before launching the products in 2011, they have since changed the composition of the products (equity mix was originally 40%:60% UK: ex-UK, but later changed to 25:75 based on perceived customer demand).

When the average lay-person's research is limited to looking at a five year chart on their investment platform's website, it can be a stretch to assume they'll find it easy to 'get familiar' with the volatility of the products from some theoretical reconstruction of historic performance during crashes. Not to mention that the correlation of equity and bond movements may not be the same over the next 30 years as the last.

If anyone suggests PAT would get better returns than VLS40, with the same volatility, because the managers can jump from a VLS40 to a 60 or 20 as markets move, I’d ask for the evidence that this is likely.

I suppose the managers of PAT would say that they do have a reasonable track record of increasing equity allocations when markets are weak and decreasing when they are flying high and fewer 'bargains' present themselves. Causing them to miss the highest highs by positioning to avoid the lowest lows.

Notably one of the long-standing directors behind PAT has mentioned his largest investment trust holding outside PAT is SMT. A different type of exposure. But basically, not a fan of slavishly following an index up and down and taking whatever result it gives you.

Linton

If you want to see an impressive example of the value of Wealth Preservation funds look at Capital Gearing Trust's record over the past 20 years. During that time it has fairly steadily increased in value with a return of 400%. There is no sign of either the .com boom/bust nor the 2008/2009 crashes.


The FTSE World Index with dividends reinvested is showing a return of 250%. Is anyone claiming that VLS40 would have done as well as the world index? I have been looking as other funds which have been around for 20 years. So far, the only one that equals CGT's record is Fidelity Special Situations, though this fund is very much more volatile. None of the funds in the same sector as VLS40 have come anywhere close.



If you want to explore try Trustnet/Tools/Charting.

quirkydeptless

Linton wrote: »

If you want to see an impressive example of the value of Wealth Preservation...

Prepare to face the wrath of the Church of Vanguard, unbeliever!

JohnWinder

Yes, quite relevant. The average investor is at a disadvantage, given the average seems as low as it is; but being well above average doesn’t seem to help always - Woodford the most recent.

Portfoliocharts website I think allows you to sort of emulate VLS variants to see different measures of their volatility historically, and speculate on their future by Monte Carlo. That should be low cost familiarity that helps some people.

The managers of PAT could say they move in and out of assets to gat bargains, but it’s outcomes we eat from, not strategy. The outcome they’re aiming for is very modest (and I’ll-defined, deliberately surely or they’re language skills are questionable), and a suitable alternative at less cost is likely to be an equivalent VLS with acceptable volatility.

Unless you have a gambling streak in you (that didn’t sound like the questioner), slavishly following the index is exactly what you want to do. The only alternative is to try to beat the index which can’t be done, in the aggregate by active investors because they are sharing the market returns; sure, some must ‘win’ but the rest have to ‘lose’ and then subtract the extra costs. So on average active investors must be behind those slavishly following the index. It’s a rare example of getting what you don’t pay for.

JohnWinder

Capital Gearing Trust's record over the past 20 years is good, and some active managers must out-perform all comparable index funds taking similar risks. But the questioner didn’t ask her/his question 20 years ago, so will Capital Gearing Trust out-perform in future? Is it another Woodford? The SPIVA reports suggest the chances are very small.
Depends how much of a gambler you are.

Linton

JohnWinder wrote: »

......

Unless you have a gambling streak in you (that didn’t sound like the questioner), slavishly following the index is exactly what you want to do. The only alternative is to try to beat the index which can’t be done, in the aggregate by active investors because they are sharing the market returns; sure, some must ‘win’ but the rest have to ‘lose’ and then subtract the extra costs. So on average active investors must be behind those slavishly following the index. It’s a rare example of getting what you don’t pay for.

Maximum performance should not be the aim of serious investors. What matters is achieving your objectives at an acceptable risk.



Slavishly following the index only makes sense to me if your objectives correspond to those of the average (by volume) investor. I doubt whether the OPs do. Actually if you believe that you should follow the worlds investment pattern you should have most of your money in derivatives, foreign exchange and bonds. Equity investing is a relatively small %.


Yes, simple cheap trackers are a very good solution for small investors with limited experience and/or time and simple objectives such as retiring in 30 yerars time. But to go further than that and claim that trackers provide an optimal solution for all investors in all circumstances is going much too far.

Moe_The_Bartender

Linton wrote: »

Maximum performance should not be the aim of serious investors. What matters is achieving your objectives at an acceptable risk.

Exactly right. Having got myself into the happy position of having enough to meet my future needs, I switched a large chunk out of growth funds into CGT, PNL and RCP. They're not terribly exciting but they do the job for me.

JohnWinder

Linton, have you put up two straw men in two posts, requiring them be knocked down.
Frstly, I can’t see anyone has even hinted that VLS40 would have done as well as a global equity index; and I didn’t intend to claim index trackers are optimal for everyone in all circumstances, although come to think of it……..
But I do think it’s a bit more of a gamble to be a stock picker than an index tracker, and think it’s only fair to point that out so folk know what they’re up against, and to have the idea knocked down if it’s erroneous. Go for it.

We can’t possibly know what the objectives of the average investors are unless most express them as ‘track some indices’. Do people really write their financial objectives like that?
I imagined they’d write: have enough assets by 2040 to retire on a king’s ransom; or, have enough low volatility assets to afford tertiary education for six years in 2028. The strategy might be to invest in global equities, or buy index linked gilts, or whatever, but they’re not an objective. The fund managers have objectives like ‘match the index’ or ‘beat it by 2%/year’.

And you likely think that too, because you’ve written ‘what matters is achieving your objectives at an acceptable risk’. If your objective was ‘tracking the index’, there’d be almost no risk, because Blackrock, Fidelity, Vangard et al reliably pull it off every year.