Wealth Preservation vs Multi Asset Funds

JohnWinder

Backtracking to Russell, here’s someone’s report of Swenson’s view:
Russell (1000, 2000, & 3000 funds), are notorious for being poorly constructed due to high turnover of companies in these funds. High turnover leads to the inefficiency of funds and excessively high fees. He recommends the indices of the S & P 500 OR Wilshire 5000, as they have a much lower turnover of companies that make up the funds. Russell indices turnover run anywhere from 15.8% to 23.4%, compared with the efficient indices of the S & P 500 and Wilshire 5000, which typically average about 4.3%. The percentage difference has to do with how the different indices manage the companies in the fund. The Russell group of indices assigns companies in July each year, based on the performance of the company. He views this as a flawed approach. Index managers buy new ‘joiners’ and mindlessly sell companies ‘exiting’. With July reconstruction, the arbitrage of activity causes index managers to pay more for purchases and receive less for sales. In contrast, the companies that comprise the S & P 500 and Wilshire 5000 are based on the ebb and flow of companies going out of business. Only then will the managers assign new companies to these indices.

schiff

Vanguard LS

When I do the simple performance chart for the five funds, the result shows a very similar correlation between each. The charts are almost parallel with little or no variation. 100 is always bigger than 80, 60 bigger than 40, and so on. This is for the last five years.

So why go for 20 when 100 gives appreciably better returns? Even if, due to age etc, the recommendation is to go for 20, with maybe a bit in 40?

I find it puzzling - though I guess there's a simple explanation!

eskbanker

schiff wrote: »

Vanguard LS

When I do the simple performance chart for the five funds, the result shows a very similar correlation between each. The charts are almost parallel with little or no variation. 100 is always bigger than 80, 60 bigger than 40, and so on. This is for the last five years.

So why go for 20 when 100 gives appreciably better returns? Even if, due to age etc, the recommendation is to go for 20, with maybe a bit in 40?

I find it puzzling - though I guess there's a simple explanation!

It's a strange interpretation of the chart that lines are 'almost parallel' when they're clearly divergent, which is why VLS100 has grown by nearly 70% over five years while VLS20 is below 30%:



If the point you're trying to make is that they all increase or decrease at the same time (albeit by different amounts) then that's only to be expected, as they're mostly allocated to the same underlying investments but in varying proportions.

The simple explanation as to why not to throw everything at the highest growth one lies in the fact that this is all during mostly positive market performances, dips in 2015 and 2018 being outweighed by the rises in the other years, but when (not if) the markets turn, as they will, then the 100 will fall much further than the 20 - it's not a one-way bet!

This can be seen (to a relatively minor extent) if charting the recent flattish period since the peaks of late July (where, as above, A is VLS20 and E is VLS100):



This effect would be amplified many times over in a proper crash or correction....

schiff

eskbanker wrote: »

It's a strange interpretation of the chart that lines are 'almost parallel' when they're clearly divergent, which is why VLS100 has grown by nearly 70% over five years while VLS20 is below 30%:

If the point you're trying to make is that they all increase or decrease at the same time (albeit by different amounts) then that's only to be expected, as they're mostly allocated to the same underlying investments but in varying proportions.

Thank you!

I didn't put it very clearly; the slopes in the charts sloped equidistantly. As you clarify.

Linton

schiff wrote: »

Vanguard LS

When I do the simple performance chart for the five funds, the result shows a very similar correlation between each. The charts are almost parallel with little or no variation. 100 is always bigger than 80, 60 bigger than 40, and so on. This is for the last five years.

So why go for 20 when 100 gives appreciably better returns? Even if, due to age etc, the recommendation is to go for 20, with maybe a bit in 40?

I find it puzzling - though I guess there's a simple explanation!

The reason is that the past 10 years have provided unusually high investment returns as the world recovered from the 2008 crash. You cannot assume that this will continue, it is certain that it cant. Your 5 year figures, or even 10 year figures do not give a representative picture of how investing normally pans out. You may want to use trustnet.com/charting/tools to see what happened in the past 20 years when on two occasions equity prices dropped by about 40%-50%.


Eventually the 100% equity investments can be expected to recover the ground lost to more cautious ones though as one can see from trustnet graphs that this took 7 years in the fcase of the .com boom/bust. Your investment timescales are limited. You dont want your retirement date, or whatever you were investing for, to be delayed by 5-10 years thanks to bad luck with the timing.

eskbanker

schiff wrote: »

I didn't put it very clearly; the slopes in the charts sloped equidistantly. As you clarify.

At the risk of labouring the point - no, they don't slope equidistantly, the distance varies over time, as can clearly be seen!

Audaxer

Linton wrote: »

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.

It seems quite amazing that CGT with around 36% equities has produced such high returns over 20 years with low volatility. I don't really understand how it can generate returns so much better than a 100% equity world index? As they have such good returns it almost seems a no-brainer to invest in such Wealth Preservation funds rather than a multi asset fund or even a 100% equity world index, as they seem to do much more than just protect your wealth. Am I missing something?

bowlhead99

Audaxer wrote: »

It seems quite amazing that CGT with around 36% equities has produced such high returns over 20 years with low volatility. I don't really understand how it can generate returns so much better than a 100% equity world index?

a) it might have under 40% equities now, but that has not always been the case

b) if you don't lose 40% of your NAV in an equities crash you don't need to wait around for a 70% return to get back to where you were - this gives you a heads start on an equities fund that did

c) a clue is in the name: Gearing allows it to invest more than 100% of its NAV when the mood takes it, which is not something an ungeared fund can do.

d) past performance doesn't guarantee future results, your investment can go down as well as up, etc etc.

JohnWinder

..... and maybe the ‘unlikely to be repeated in our lifetime’ bond rally of the last 20 years, as interest rates fell.

Thrugelmir

Interest rates have trended lower for some 36 years......