Wealth Preservation Funds - Do you use them? Current Views?

ChilliBob

I've been toying with wealth preservation funds for my unsheltered funds for a little while now. I'm coming close to fully investing my sheltered capital so this is pretty close on the horizon really.

In light of performance in Q1 2020 and current performance, what are people's views on these funds? Do you use these at all? If so, which?

The usual suspects being

Trojan
Ruffer
RIT Capital Partners
Personal Assets Trust
Capital Gearing Trust / CG Absolute return.

Due to the low (but hopefully low volatility!) returns the Inv Trust idea with the stamp duty of 0.5% is a bit of an irritation, so OEICs are preferred, although I know this is often an IT focused area really. 

Aside from these conventional WP funds what do people make of the GBP cautious lower fee stuff like MyMap3, BMO Sustainable etc? Charting for example MyMap3 against HSBC FTSE All World and CG Absolute Return MyMap3 dipped less in Feb/March and until recently has been above CGAR. 

I guess the alternative is to not bother and just watch whilst the portfolio takes a nose dive if you're 100% global equities tracker/high conviction growth funds etc... which if for the long time might be okay... but not sure I could stomach it or not

JohnWinder

Now wait a second, you've bundled 'indexing' with 'equities' and 'active' with bonds/equities. You're wondering whether an active fund of bonds and less in stocks is a better choice for you than your alternative of and an equity only index fund? Really, is that a like for like comparison that any of us should be agonising over?

Wouldn't it make sense to choose an appropriate (for our circumstances) stocks/bonds/cash mix, and then separately decide whether low cost index funds (global equity, and government bonds), or higher cost active funds were the ones we'd choose.

I know, government bond yields are low, even negative, so you can replace some or all with corporate bonds as CG Absolute return fund does; but that's simply taking more risk with bonds than government bonds only, and reducing their equity holding to match, so you might as well just have more equities with the safer bonds as it'll cost less. The old wise heads say investing is simple: equity fund(s) for returns, and with it risk; bond fund(s) for risk reduction. Mix as suits you. What's hard is sticking to your choice for 50 years.  CG Absolute return fund is 5 years old. 50% of US funds close within 8 years, I think is the figure. How long will it last?

Finally, there seems no reason to think recent returns including Q1 or current returns have any predictive value for the future; or what is the reason? And to nit-pick, are there any 'current' returns? All up to date calculated returns are based on past and current prices; I suppose that makes them 'current' returns even if the data extends back 20 years up to today.

CG Absolute return fund is 5 years old. 50% of US funds close within 8 years, I think is the figure. How long will it last?

ChilliBob

Essentially my intended structure for an unshelterd pot is basically a ratio of global tracker to something else to cushion the risk. At the moment bonds don't seem attractive, so I was considering WP funds. Essentially using the knowledge of a manager to take decisions on the right mix of bonds, their mix, gold etc.

CG AR might be new, however, the Trust variant has been around since 1984, I believe some of the others also have a long track record 

JohnWinder

ChilliBob said:

CG AR might be new, however, the Trust variant has been around since 1984, I believe some of the others also have a long track record 

Sorry, I missed it was that well established.

I suppose if we put all this in perspective, there being not a lot riding on it, it matters little. It only counts in the unsheltered part for you, and then it's only part of that. But the elements I can see over-ride any 'good feeling' we might sense from having a knowledgeable manager make some of the tough decisions for us.

Your aim is to add something to a global (equity) tracker to cushion risk, then one option is CG AR with 27% in equities (less diversified than your tracker); and the fund had an annual average charge of close to 1%/year, when a bond fund could cost one eighth of that. CG AR seems to miss out on both counts there.

Perhaps the real estate in the CG AR fund will help. It's 8.7% of this fund which is a modest percent of your unsheltered holdings which is some percent of your whole portfolio. It couldn't have much impact surely. And there's 14% as cash; we can manage our own cash holdings for less than 0.96%/year.

It's all an interesting exercise for a discussion group, but I don't think it needs to concern anyone with a good enough simple portfolio.

Linton

ChilliBob said:

Essentially my intended structure for an unshelterd pot is basically a ratio of global tracker to something else to cushion the risk. At the moment bonds don't seem attractive, so I was considering WP funds. Essentially using the knowledge of a manager to take decisions on the right mix of bonds, their mix, gold etc.

CG AR might be new, however, the Trust variant has been around since 1984, I believe some of the others also have a long track record 

I do not hold anything "to cushion the risk".  There is not room, given one's allocations must add up to 100%, to waste some of the valuable % on padding.

Every investment should have an explicit positive objective.  My WP portfolio has the objective of matching inflation over the medium term.  Simply holding safe government bonds does not do the job, especially with current valuations.  Managing a mixture of different assets to achieve the objective is beyond my capabilities and so I am happy to pay a manager who has a similar objective and a convincing track record in a wide range of economic conditions to do it for me.

ChilliBob

I think that's just a discussion on phrasing tbh. If ts pretty clear thay say CG or PNL are less risky than a Global Tracker.

More CG =Lower risk portfolio, essentially. However you phrase or ot describe it the result is the same. 

The explicit positive objective would be similar to yours above, keeping up with inflation, ideally with some return above, accepting volatility, but not too much.

It seems you follow the WP route too as opposed to homebrewing it yourself.

I'm sure I read on the great invest off thread someone had ditched one of the well known WP funds recently in favour for one of the others. I also know there have been questions over Ruffer's bitcoin position, but I believe very recently this has been reduced. 

I'd love to hear your views on this area as regards specific vehicles. 

Albermarle

Managing a mixture of different assets to achieve the objective is beyond my capabilities and so I am happy to pay a manager who has a similar objective and a convincing track record in a wide range of economic conditions to do it for me.

This is also why I invest in them .

Due to the low (but hopefully low volatility!) returns the Inv Trust idea with the stamp duty of 0.5% is a bit of an irritation, so OEICs are preferred, 

Over the long term for a buy and hold investor the one off 0.5% is not important. 
However for the IT's ,using a platform with a capped platform charge for exchange traded products can keep ongoing costs down .

ChilliBob

Albermarle said:

Managing a mixture of different assets to achieve the objective is beyond my capabilities and so I am happy to pay a manager who has a similar objective and a convincing track record in a wide range of economic conditions to do it for me.

This is also why I invest in them .

Due to the low (but hopefully low volatility!) returns the Inv Trust idea with the stamp duty of 0.5% is a bit of an irritation, so OEICs are preferred, 

Over the long term for a buy and hold investor the one off 0.5% is not important. 
However for the IT's ,using a platform with a capped platform charge for exchange traded products can keep ongoing costs down .

I guess regarding ITs and stamp its just if I were to put say  100k into one and its only getting say 2% return then that 0.5% takes a while to break even! I get the point it's short in the grand scheme of things!

It's odd, I'm happy to pay it for something spicy like EWI etc, but I feel WP should be cheaper, but that's clearly irrational so I'm trying hard not to listen to thay part of myself! 

Linton

ChilliBob said:

I think that's just a discussion on phrasing tbh. If ts pretty clear thay say CG or PNL are less risky than a Global Tracker.

More CG =Lower risk portfolio, essentially. However you phrase or ot describe it the result is the same. 

The explicit positive objective would be similar to yours above, keeping up with inflation, ideally with some return above, accepting volatility, but not too much.

It seems you follow the WP route too as opposed to homebrewing it yourself.

I'm sure I read on the great invest off thread someone had ditched one of the well known WP funds recently in favour for one of the others. I also know there have been questions over Ruffer's bitcoin position, but I believe very recently this has been reduced. 

I'd love to hear your views on this area as regards specific vehicles. 

It it more than phrasing.  Risk aversion can be regarded as a character defect and the resulting risk mitigation is driven by touchy-feely factors. The downside of that is that it is difficult to specify what % of non equity one should use.  I believe one needs to think more precisely than "lower risk" as there are so many risks which need to be counterbalanced.

So what risks are you wanting to avoid?  The most worrying concern with my equity investments is that a 50% crash in the markets will invalidate my plans.  One could reduce the likelihood of a 50% crash by putting in an arbitrary amount of minimal return padding.  But that padding achieves nothing else.

However one can take a more positive approach by  accepting that a 50% crash in equity will happen at some time but push out the timeframe for when it would matter.  For me 10 years WP + 5 years cash is more than enough npot to be a worry, but the key point is that it can be quantified. Tackling the problem in a way that ensures equity volatility does not matter means one can then go for higher risk/return from one's equity investments.

As regards ditching some WP funds recently, that was me.  RCP went after the Covid crash when it fell in a similar way to equity.  Investments with equity's volatility belong in the growth portfolio, not the Wealth Preservation one.  Ruffer went because of its long history of relatively low performance without the compensation of lower volatility. But in the past 6 months both Ruffer and RCP have increased by over 20% and more than the FTSE World Index.    Nice to have but not what one wants from a Wealth Preservation fund.

Albermarle

ChilliBob said:

Albermarle said:

Managing a mixture of different assets to achieve the objective is beyond my capabilities and so I am happy to pay a manager who has a similar objective and a convincing track record in a wide range of economic conditions to do it for me.

This is also why I invest in them .

Due to the low (but hopefully low volatility!) returns the Inv Trust idea with the stamp duty of 0.5% is a bit of an irritation, so OEICs are preferred, 

Over the long term for a buy and hold investor the one off 0.5% is not important. 
However for the IT's ,using a platform with a capped platform charge for exchange traded products can keep ongoing costs down .

I guess regarding ITs and stamp its just if I were to put say  100k into one and its only getting say 2% return then that 0.5% takes a while to break even! I get the point it's short in the grand scheme of things!

It's odd, I'm happy to pay it for something spicy like EWI etc, but I feel WP should be cheaper, but that's clearly irrational so I'm trying hard not to listen to thay part of myself! 

A better comparison for the WP funds , would be a multi asset fund with about 30/40% equity . So something like Mymap3 , HSBC global strategy balanced , VLS 40 etc . Then you have to decide whether the extra 0.4/ 0.5% ongoing charge was worth it for the WP funds/IT's
Or you can hedge you bets and have a couple of multi asset fund(s) and a couple of WP funds/IT's.

ChilliBob

Thanks, I thought it was you but I couldn't be sure, I'd had a couple of beers when I was reading!

What risks am I wanting to avoid? I guess loosing a substantial percentage, like say 50% as you say.

Essentially my planning is along the lines of I'm nearly 40, I may not work again (the plan will assume I won't, for simplicity). I'm fortunate enough to have enough cash to cover my lifestyle.

So, one may think wp alone is enough, however, I have enough capital that I could arguably put most of it at risk of dropping say 30% and probably have enough. If I don't *need* to take this risk to t get to some magic fire number, should I take this risk? 

My decision is somewhere in the middle, take the risk to grow more capital, should I need it due to bad calculations, massively unexpected things, or to pass on to my son etc. But, don't be 100% risk on as I reckon I'd get a bit stressed if a pot that's everything dropped by 50%!

Obviously cash will form a substantial chunk of my portfolio, to both cover day to day and for opportune investing