Pension recovery performance 2020

itwasntme001

Prism said:

itwasntme001 said:

Prism said:

Like it or not investment risk is measured by volatility rather than some abstract concepts like being overweight a sector, being different from the index, high conviction of few holdings or manager risk. Based on that and the ability to put together a portfolio of funds based on reducing that volatility by blending the right combinations of sectors you can indeed create an allocation which can boost the chance of returns while also reducing risk. 

How someone attempts to do that is up to them. It is exactly what I try and do with my fund selections and allocations between funds - and it seems to work. For example Trustnet tells me that my SIPP has a risk score of 71 which is much lower than the score of some of the individual funds I hold while the performance has been better than single funds of a similar risk level. I have taken a lower level of risk and got higher returns, at least historically. I have no reason to believe that this is all going to fall apart for some reason just because how could it possibly continue forever. 

If us DIY investors do this, risk based multi asset funds like HSBC Global Strategy do this why do we presume that IFAs aren't doing this. Isn't this an important role of asset allocation. 

Risk is not just volatility, and yes it is also all those other things you call "abstract".  Just because you can't measure it quantitatively, doesn't mean its not a risk.  But it also doesn't mean you "have" to manage these risks.  You do you.

Whilst you may have suffered lower drawdowns compared to your benchmark, that is no predictor of future drawdowns.  Ask yourself why you hold funds that only have been around for the last 10-15 years?  Why don't you hold a single fund with more than 20 years of history?

It's because styles go out of fashion because the macro environment changes.  No matter how good a fund mamager is, they are only ever good as the environment enables them to be.

I agree that they are in fact risks however since they are not measurable and partly because of that nobody agrees on what level or risk they are then I see little point using them as any sort of comparison. Some would claim that holding just 10 selected diverse stocks is as low risk as required - others would rather hold several thousand in a tracker. Who is right? If anyone is going to claim that somebody who gets better returns must be taking more risk then they will need to try prove that somehow - with some stats or ratios. The whole investment model uses volatility for comparison. Is there another statistical measurable one that we are missing?

I shouldn't have said they were not measureable.  Of course they can be measured, pretty much anything can.  It is just that volaility is an obvious way to measure stock market risk, but it does not capture all risks.

Volatility is inherantly unstable.  It will change over time for any given stock or fund as things change.  Volatility is not a constant throughout time.  So measuring it over a small period is meaningless.  That is why I asked why you hold funds that have only existed no mroe than 15 years.  These funds have only ever experienced one environment of low interest rates, inflation and growth.

Prism

Deleted_User said:

It’s different when a professional provides misleading information on what is “moderate” and throws meaningless numbers over a period less than a year all the while promoting high cost options. Or badmouths less risky diversified plain vanilla funds.  Then  it becomes bad investment advice. 

Why is a portfolio with a great  YTD return misleading when referred to as moderate. They are not that closely related. My wife has her pension in a multi asset classed as moderately adventurous, or risk level 5. Thats the same as VLS 80. It has roughly 70% - 75% equities. Performance is over 30% YTD.

I can't see anything out of the ordinary in Dunstonh's figures.

[Deleted User]

“ Is there another statistical measurable one that we are missing?”

Yes, its called “common sense”.  An index can fall... Let’s say 70%. A bit extreme but easy. We should all be prepared for that.  Several of the high flying funds mentioned above have most their holdings in US and Chinese Tech. That’s very cool but I would assume a fund like that could drop by a factor of 10 and it wouldn’t even require an economic crash.  And it could be a much longer trend then for the index following a crash. The fund may never recover. High flying funds go out of business all the time. 

Say the governments figure out how to properly tax big Tech and impose tough regulations.  Say the new administration pursues big tech under the anti-monopoly law.  Say Tesla cant ever turn a meaningful profit. Musk is kinda erratic, what if he tweets something against transvestites and it turns out they were the only ones buying Teslas? These kinds of things can reverse recent trends. And they will. And nobody is going to rescue Tesla. Not a bank. Nobody cares. 

We’ve had a very long trend of value underperforming growth resulting in a very large relative premium on growth stocks. These trends tend to reverse themselves, often with a bang.
And when that happens, many will quit investing altogether and move into cash or real estate. And thats going to lead to a permanent damage to their portfolios. We’ve seen it all before.

Prism

itwasntme001 said:

Prism said:

itwasntme001 said:

Prism said:

Like it or not investment risk is measured by volatility rather than some abstract concepts like being overweight a sector, being different from the index, high conviction of few holdings or manager risk. Based on that and the ability to put together a portfolio of funds based on reducing that volatility by blending the right combinations of sectors you can indeed create an allocation which can boost the chance of returns while also reducing risk. 

How someone attempts to do that is up to them. It is exactly what I try and do with my fund selections and allocations between funds - and it seems to work. For example Trustnet tells me that my SIPP has a risk score of 71 which is much lower than the score of some of the individual funds I hold while the performance has been better than single funds of a similar risk level. I have taken a lower level of risk and got higher returns, at least historically. I have no reason to believe that this is all going to fall apart for some reason just because how could it possibly continue forever. 

If us DIY investors do this, risk based multi asset funds like HSBC Global Strategy do this why do we presume that IFAs aren't doing this. Isn't this an important role of asset allocation. 

Risk is not just volatility, and yes it is also all those other things you call "abstract".  Just because you can't measure it quantitatively, doesn't mean its not a risk.  But it also doesn't mean you "have" to manage these risks.  You do you.

Whilst you may have suffered lower drawdowns compared to your benchmark, that is no predictor of future drawdowns.  Ask yourself why you hold funds that only have been around for the last 10-15 years?  Why don't you hold a single fund with more than 20 years of history?

It's because styles go out of fashion because the macro environment changes.  No matter how good a fund mamager is, they are only ever good as the environment enables them to be.

I agree that they are in fact risks however since they are not measurable and partly because of that nobody agrees on what level or risk they are then I see little point using them as any sort of comparison. Some would claim that holding just 10 selected diverse stocks is as low risk as required - others would rather hold several thousand in a tracker. Who is right? If anyone is going to claim that somebody who gets better returns must be taking more risk then they will need to try prove that somehow - with some stats or ratios. The whole investment model uses volatility for comparison. Is there another statistical measurable one that we are missing?

I shouldn't have said they were not measureable.  Of course they can be measured, pretty much anything can.  It is just that volaility is an obvious way to measure stock market risk, but it does not capture all risks.

Volatility is inherantly unstable.  It will change over time for any given stock or fund as things change.  Volatility is not a constant throughout time.  So measuring it over a small period is meaningless.  That is why I asked why you hold funds that have only existed no mroe than 15 years.  These funds have only ever experienced one environment of low interest rates, inflation and growth.

So how do you measure active manager risk? Or single company failure risk? How do you put a figure on the added risk of over weighting the tech index by lets say 5%?

It is true that I have held funds that perform well in the current environment. If the environment changes then I might change funds. I don't except the managers will. I'm not sure what the point is.

MarkCarnage

Prism said:

Like it or not investment risk is measured by volatility rather than some abstract concepts like being overweight a sector, being different from the index, high conviction of few holdings or manager risk. Based on that and the ability to put together a portfolio of funds based on reducing that volatility by blending the right combinations of sectors you can indeed create an allocation which can boost the chance of returns while also reducing risk. 

How someone attempts to do that is up to them. It is exactly what I try and do with my fund selections and allocations between funds - and it seems to work. For example Trustnet tells me that my SIPP has a risk score of 71 which is much lower than the score of some of the individual funds I hold while the performance has been better than single funds of a similar risk level. I have taken a lower level of risk and got higher returns, at least historically. I have no reason to believe that this is all going to fall apart for some reason just because how could it possibly continue forever. 

If us DIY investors do this, risk based multi asset funds like HSBC Global Strategy do this why do we presume that IFAs aren't doing this. Isn't this an important role of asset allocation. 

By some, and I don't really. I tend to think of it as sustained or permanent significant or total loss of capital. Yes, that could equal  a 'volatility' measure if I was measuring it over a specific, usually relatively short, time period, but it usually doesn't. It ties in with the mistaken belief that an investor has 'suffered a loss' if a holding has fallen in value. They have suffered a loss if they crystallise that fall in value by selling. Which many do, thereby offering  opportunity for others. To the extent that your time horizon is finite and relatively short, and your tolerance of nominal monetary loss is low, then yes, many if not all equity funds are 'high risk'. 2008/9 proved that many 'diversified' or 'low risk' funds were too by that definition. 
When you talk about 'risk based' multi asset funds, do you define these as risk allocators or asset allocators? 

MarkCarnage

Prism said:

Deleted_User said:

It’s different when a professional provides misleading information on what is “moderate” and throws meaningless numbers over a period less than a year all the while promoting high cost options. Or badmouths less risky diversified plain vanilla funds.  Then  it becomes bad investment advice. 

Why is a portfolio with a great  YTD return misleading when referred to as moderate. They are not that closely related. My wife has her pension in a multi asset classed as moderately adventurous, or risk level 5. Thats the same as VLS 80. It has roughly 70% - 75% equities. Performance is over 30% YTD.

I can't see anything out of the ordinary in Dunstonh's figures.

I tend to agree.
For several years, many large DB pension schemes saw their liabilities increase faster than their assets. Why was this? It wasn't really longevity....it was because real yields were falling like a stone. Many of these funds had significant weightings in equities and other so called 'risk' assets, however, their deficits still widened. The reason was that their liabilities are essentially measured with reference to long duration index linked gilts, which outperformed every significant mainstream asset class for a considerable period. Unless the liabilities were pretty fully hedged, the deficits widened.....now of course, with RPI being redefined as CPI, some of them find they are probably over hedged, and their hedge asset value has fallen a bit too.
My point is that in this case the so called 'risk free' asset actually outperformed 'risky' assets for a considerable period and delivered returns that some on here would say can't be achieved in a 'low risk' portfolio. It comes back to how you define risk....long dated linkers can actually be very 'risky' in terms of absolute volatility if real yields start swinging upwards again they will be. However, if your liabilities, and hence your performance objective is measured against them, then they are not. Index linked sovereign bonds provide the only real inflation hedge though, and hence will mitigate that risk, even if a negative real yield now is the insurance premium you pay for it. That's why many of the WP funds hold sovereign IL debt and gold in size at present. 

Prism

MarkCarnage said:

Prism said:

Like it or not investment risk is measured by volatility rather than some abstract concepts like being overweight a sector, being different from the index, high conviction of few holdings or manager risk. Based on that and the ability to put together a portfolio of funds based on reducing that volatility by blending the right combinations of sectors you can indeed create an allocation which can boost the chance of returns while also reducing risk. 

How someone attempts to do that is up to them. It is exactly what I try and do with my fund selections and allocations between funds - and it seems to work. For example Trustnet tells me that my SIPP has a risk score of 71 which is much lower than the score of some of the individual funds I hold while the performance has been better than single funds of a similar risk level. I have taken a lower level of risk and got higher returns, at least historically. I have no reason to believe that this is all going to fall apart for some reason just because how could it possibly continue forever. 

If us DIY investors do this, risk based multi asset funds like HSBC Global Strategy do this why do we presume that IFAs aren't doing this. Isn't this an important role of asset allocation. 

By some, and I don't really. I tend to think of it as sustained or permanent significant or total loss of capital. Yes, that could equal  a 'volatility' measure if I was measuring it over a specific, usually relatively short, time period, but it usually doesn't. It ties in with the mistaken belief that an investor has 'suffered a loss' if a holding has fallen in value. They have suffered a loss if they crystallise that fall in value by selling. Which many do, thereby offering  opportunity for others. To the extent that your time horizon is finite and relatively short, and your tolerance of nominal monetary loss is low, then yes, many if not all equity funds are 'high risk'. 2008/9 proved that many 'diversified' or 'low risk' funds were too by that definition. 
When you talk about 'risk based' multi asset funds, do you define these as risk allocators or asset allocators? 

I do agree that volatility is a pretty naff measure of total risk however it is pretty much the only one we can put a number on and therefore compare between two portfolios. We could say that portfolio 1 was riskier than portfolio 2 because it was more volatile over the same time period. It would be very subjective to say that actually portfolio 2 is riskier than portfolio 1 because it has a higher chance of permanent loss of capital. Very hard to predict and although there are tell tale signs (poor old Woodford) it is difficult to really put a probability on it ahead of time.

Linton

Deleted_User said:

“ Is there another statistical measurable one that we are missing?”

Yes, its called “common sense”.  An index can fall... Let’s say 70%. A bit extreme but easy. We should all be prepared for that.  Several of the high flying funds mentioned above have most their holdings in US and Chinese Tech. That’s very cool but I would assume a fund like that could drop by a factor of 10 and it wouldn’t even require an economic crash.  And it could be a much longer trend then for the index following a crash. The fund may never recover. High flying funds go out of business all the time. 

Say the governments figure out how to properly tax big Tech and impose tough regulations.  Say the new administration pursues big tech under the anti-monopoly law.  Say Tesla cant ever turn a meaningful profit. Musk is kinda erratic, what if he tweets something against transvestites and it turns out they were the only ones buying Teslas? These kinds of things can reverse recent trends. And they will. And nobody is going to rescue Tesla. Not a bank. Nobody cares. 

We’ve had a very long trend of value underperforming growth resulting in a very large relative premium on growth stocks. These trends tend to reverse themselves, often with a bang.
And when that happens, many will quit investing altogether and move into cash or real estate. And thats going to lead to a permanent damage to their portfolios. We’ve seen it all before.

Do the high flying funds have most of their holdings in US and Chinese Tech?  Perhaps you could give some examples. Morningstar tells me that SMT, perhaps the most widely discussed fund in this area is 58% consumer cyclical.  So yes high risk but on the basis of low sector diversification, not because most of its investments are high risk that could collapse.  Looking at morningstar sectors SMT has less than half the % Tech of the S&P 500.  Are you worried about investing in a US tracker?  If you think (like me) that Tesla is wildly over-hyped are you happy that based on current figures it will be about 1.6% of the S&P500?  Interestingly while the main indexes are buying Tesla, fund manager Baillie Gifford has been selling.

Much  depends on how you define Tech.  Is Amazon Tech or more sensibly classified as a large retailer? What abut Netflix?  Is that Tech?  I would now question whether Microsoft is really high risk Tech being based on steady income from probably every large conpany throughout the world. 

The situation is very different to the Tech Boom/Bust 20 years ago.  At that time over enthusiasm drove the markets and their indexes into LaLa Land when small non-profitable companies were raised to dizzying heights.  Now the technological revolution brought about by advances in electronics is mainstream.

itwasntme001

Prism said:

MarkCarnage said:

Prism said:

Like it or not investment risk is measured by volatility rather than some abstract concepts like being overweight a sector, being different from the index, high conviction of few holdings or manager risk. Based on that and the ability to put together a portfolio of funds based on reducing that volatility by blending the right combinations of sectors you can indeed create an allocation which can boost the chance of returns while also reducing risk. 

How someone attempts to do that is up to them. It is exactly what I try and do with my fund selections and allocations between funds - and it seems to work. For example Trustnet tells me that my SIPP has a risk score of 71 which is much lower than the score of some of the individual funds I hold while the performance has been better than single funds of a similar risk level. I have taken a lower level of risk and got higher returns, at least historically. I have no reason to believe that this is all going to fall apart for some reason just because how could it possibly continue forever. 

If us DIY investors do this, risk based multi asset funds like HSBC Global Strategy do this why do we presume that IFAs aren't doing this. Isn't this an important role of asset allocation. 

By some, and I don't really. I tend to think of it as sustained or permanent significant or total loss of capital. Yes, that could equal  a 'volatility' measure if I was measuring it over a specific, usually relatively short, time period, but it usually doesn't. It ties in with the mistaken belief that an investor has 'suffered a loss' if a holding has fallen in value. They have suffered a loss if they crystallise that fall in value by selling. Which many do, thereby offering  opportunity for others. To the extent that your time horizon is finite and relatively short, and your tolerance of nominal monetary loss is low, then yes, many if not all equity funds are 'high risk'. 2008/9 proved that many 'diversified' or 'low risk' funds were too by that definition. 
When you talk about 'risk based' multi asset funds, do you define these as risk allocators or asset allocators? 

I do agree that volatility is a pretty naff measure of total risk however it is pretty much the only one we can put a number on and therefore compare between two portfolios. We could say that portfolio 1 was riskier than portfolio 2 because it was more volatile over the same time period. It would be very subjective to say that actually portfolio 2 is riskier than portfolio 1 because it has a higher chance of permanent loss of capital. Very hard to predict and although there are tell tale signs (poor old Woodford) it is difficult to really put a probability on it ahead of time.

You can put a number on manager risk for example - number of active managers who have outperformed their benchmark over a number of economic and market cycles, compared to the total number of active managers (failed AND otherwise).

I am sure there are ways to put a number on other risks.

itwasntme001

On the argument that 30 or so stocks are enough for diversification - well statistically that is the case that the portfolio volatility is not much different for a portfolio of 30 stocks compared to a portfolio of 3k stocks (although I do question whether or not the historical data used to calculate vol goes far back enough to capture a variety of economic environments).  But this analysis fails to measure how returns are captured between the 2 baskets.  And that can, over the long term, be detrimental to a 30 stock portfolio as there is an increasing chance over time to miss out completely on a few stocks that do tend to historically produce outsized gains.

A fund like SMT has had huge volatility at times compared to a fund like fundsmith.  SMT have been around for a number of economic cycles whereas fundsmith only really 1.  SMT holds a lot more holdings than fundsmith does, but it has higher volatility.  Using volatility as a measure to constrain your investment choices can be problematic.