Funds for a stockmarket downturn/crash

tranquility1

kuratowski said:

tranquility1 said:

Owning your own property, plus...

Equities 60%
Gold 10%
Silver 5%
Cash 20% 
Crypto 5%

Think you are missing a few essential asset classes there, I see no mention of whisky, fine wine, BTL, classic Lego sets or holiday chalets, all of which have been touted on here from time-to-time

There's an obvious argument that bonds have limited potential for further growth.  However, personally I still think they have a role to play as a volatility dampener.

Each to their own on bonds. 

I'd also say 20% cash is probably too much for me. I'd go:

60% equities
20% gold

5% silver

5% crypto
10% cash

grumiofoundation

tranquility1 said:

kuratowski said:

tranquility1 said:

Owning your own property, plus...

Equities 60%
Gold 10%
Silver 5%
Cash 20% 
Crypto 5%

Think you are missing a few essential asset classes there, I see no mention of whisky, fine wine, BTL, classic Lego sets or holiday chalets, all of which have been touted on here from time-to-time

There's an obvious argument that bonds have limited potential for further growth.  However, personally I still think they have a role to play as a volatility dampener.

Each to their own on bonds. 

I'd also say 20% cash is probably too much for me. I'd go:

60% equities
20% gold

5% silver

5% crypto
10% cash

So you have already abandoned your own multi-asset ‘fund’. You haven’t included “owning your own property”, % of gold and cans* changed as well. 

You probably won’t make it as a fund manger if you change the assets allocations so often! 

* edit - should be cash. Although cans could be very useful if society breaks down depending on what is in them. 

Stargunner

tranquility1 said

That's only 4 asset classes - equities, bonds (both of which perform the same way in reality), property and cash (both of which are a very small % of this fund).

I don't think this should be thought of as a "multi asset fund", personally. In a crash that fund will come down just as any other fund will do.

I know that it will come down in a crash which is why I am looking at defensive funds 

I also own my own house, maxed out on premium bonds, Have cash and own gold and silver jewellery.,

Msybe I could diversify a bit more by buying a couple of dogs and start to breed them, because the returns on those are currently unbelievable.

Alexland

kuratowski said:

classic Lego sets

According to my spreadsheets 0.3% of our net worth is now in classic Lego sets. I'm not joking we have all sorts of 4.5v, 9v, 12v train sets, monorails, space ships/stations, pirate ships/islands and castles. Lots of fun with our kids trying to source obscure vintage parts on Bricklink. The collection is now worth more than either of our cars. A good currency for bartering with during the next zombie apocalypse. Give me food and I'll give you the set you always wanted for Christmas....

Anyway on a more serious note I have no problem with a small proportion in gold as it's almost the opposite of bonds in that gold has capital growth but no income and bonds have income and no capital growth (unless you count the pulling forward of future income into valuations due to low rates).

tranquility1

eskbanker said:

tranquility1 said:

eskbanker said:

tranquility1 said:

That's only 4 asset classes - equities, bonds (both of which perform the same way in reality), property and cash (both of which are a very small % of this fund).

I don't think this should be thought of as a "multi asset fund", personally. In a crash that fund will come down just as any other fund will do.

What's your definition of a multi-asset fund, and what examples of it are available?

For example:

Owning your own property, plus...

Equities 60%
Gold 10%
Silver 5%
Cash 20% 
Crypto 5%

That's an example of a multi-asset portfolio with significantly broader diversification than most (all?) multi-asset funds available, so, while you've attempted to answer your interpretation of the example question (without suggesting that it's actually available as a fund), you've evaded the question about definition, i.e. what is it that actually defines a multi-asset fund in your opinion?

A multi asset portfolio (or fund) would include genuinely diversified components which perform differently in good/bad times. 

Equities and bonds don't do that in reality. 

And I also think that investors today have only really known reducing interest rates, growing equities, and cheap money. But just because that's been the case for the past 40 years it doesn't mean those times will continue. We are in unchartered territory and there are good reasons to think defensively.

eskbanker

tranquility1 said:

A multi asset portfolio (or fund) would include genuinely diversified components which perform differently in good/bad times. 

Equities and bonds don't do that in reality.

Ah right, so you feel that, because you believe that equities and bonds are correlated, they effectively constitute a single asset class?  So how many otherwise different classes need to be included and in what sort of proportions, in order to satisfy your unilateral definition?  Are there any available funds that fit your definition?

westy22

jamesd said:

If using that Lindsell Train global fund you might not want the B version with 0.65% OCF and only 150k total invested. The D with 0.50% OCF has £200 million in it. Both are income units.

As far as I am aware, you can only buy the D version from Hargreaves Lansdown exclusively. 
Anyway, the £150k and £200m you mention are the Minimum Investment levels - not the total amount invested in the fund which is in excess of £9 billion!

tranquility1

eskbanker said:

tranquility1 said:

A multi asset portfolio (or fund) would include genuinely diversified components which perform differently in good/bad times. 

Equities and bonds don't do that in reality.

Ah right, so you feel that, because you believe that equities and bonds are correlated, they effectively constitute a single asset class?  So how many otherwise different classes need to be included and in what sort of proportions, in order to satisfy your unilateral definition?  Are there any available funds that fit your definition?

No, I don't think equities and bonds are a single asset class. I just don't think they are the level of diversification which they are perceived as providing.

I've already outlined (two versions) of the portfolio I suggest offers greater true diversification. eg:

60% equities (I like VWRP)
20% gold

5% silver
5% crypto
10% cash

I haven't looked for such a fund, but I'd guess this is a DIY portfolio only. And especially so since I believe that it's important of possible to hold the metals yourself.

kuratowski

tranquility1 said:

No, I don't think equities and bonds are a single asset class. I just don't think they are the level of diversification which they are perceived as providing.

Although the correlations between equities and bonds aren't as negative today as they once were, that doesn't completely negate their benefits as a diversifer.  The correlation doesn't have to be negative to provide diversification, it just has to be less than 1.

Rising interest rates don't negate this effect either: between 1940-1980, US interest rates rose from 2.5% to 15%, but over this period bond volatility was still far below equity volatility, and a portfolio of 50:50 US equities/US bonds experienced roughly half as much volatility as the pure equity portfolio.  Figures from https://www.pragcap.com/bonds-still-diversify-rates-rise/.  Admittedly these numbers are US focused, but they do illustrate the underlying mathematics of diversification, even at a challenging time for bonds.

tebbins

kuratowski said:

tranquility1 said:

No, I don't think equities and bonds are a single asset class. I just don't think they are the level of diversification which they are perceived as providing.

Although the correlations between equities and bonds aren't as negative today as they once were, that doesn't completely negate their benefits as a diversifer.  The correlation doesn't have to be negative to provide diversification, it just has to be less than 1.

Rising interest rates don't negate this effect either: between 1940-1980, US interest rates rose from 2.5% to 15%, but over this period bond volatility was still far below equity volatility, and a portfolio of 50:50 US equities/US bonds experienced roughly half as much volatility as the pure equity portfolio.  Figures from https://www.pragcap.com/bonds-still-diversify-rates-rise/.  Admittedly these numbers are US focused, but they do illustrate the underlying mathematics of diversification, even at a challenging time for bonds.

Worked out using total return data in the Barclays Equity Gilts Study, mostly accurate give or take a few technicalities.

1940-1980 the UK equity/gilts correlation was r=+0.63, more recently from 1990-2020 (I could have picked 1980 but the fall in interest rates has been more of a 90s thing to illustrate what happens with falling rates) was r=+0.12, so the correllation is actually weaker, i.e. they have been a better diversifier recently than over that earlier period. The idea of a negative correlation only really holds true in crash years (gilts fell -7.2% in 2013 while equity rallied +20.5%) when the two classes have inverse returns, apart from 1994 when UK equity fell -5.9% and gilts fell -11.3%.

A 50:50 portfolio (with annual rebalancing back to 50:50) had a volatility of 0.198 from 1940-1980 (using stdev.p), compared with 0.302 for 100% equity and 0.129 for 100% gilts. The 100% equity portfolio averaged an 11.2% return, the 50:50 portfolio averaged 8.1%, gilts averaged 3.9% (geomatric averages). 100% equity averaged a 0.37 risk/return ratio, 50:50 0.41, 100% gilts 0.30. So your points re: US volatility and risk-adjusted return broadly hold true for the UK.

For 1990-2020 UK equity averaged 7.25%, gilts 8.02%, a 50:50 portfolio 8.01% (I checked a few times and this is somehow correct...), volatilities of 15.17%, 9.27% and 9.36% respectively, and risk return ratios of 0.478, 0.865, and 0.856 respectively.