Advice on using a wealth preservation fund

fizio

Hi,
I have 6 figure investments in usual vanguard/global tracker type funds and very happy with that approach. A few months back I acquired 6 figure cash and have been struggling with what to do with it given the state of the markets being so high. I know you can't time the market etc but I just don't feel comfortable making a big purchase right now versus keeping cash to use and as when opportunity arises due to a market correction. I have parked the max in N&SI premium bonds but am feeling that I have to much un-invested cash and don't just want keep waiting to invest and lose potential growth. 
So,  I was listening to a money week podcast and they were discussing a particular fund - troy trojan - and the approach of limiting investment in stocks to get a spread across other assets bonds/gold/etc such that the overall risk is reduced - with the resulting reduction in potential growth. It seemed to be a strategy worth looking at in the current market climate and my high-cash position so I have done some more research into PNL and other similar funds but thought I would ask for comments here.
In parallel, I am continuing to buy my usual trackers in small sums as and when the markets have a bad day..

JohnWinder

We discussed PNL recently. Start half way down the page, or at the top: https://forums.moneysavingexpert.com/discussion/6288547/working-out-equity-allocation/p5

Neruda

Note that not all stock markets are particularly high at the moment. 'Value investing' is a legitimate approach but one that is out of fashion at the moment. You can certainly find funds or ETFs that direct your money into companies and markets that seem to offer good value at the moment: whether that is a good idea is a question for you. FWIW, my main 'value' investment (the Shiller-Cape global value ETF) has grown by about two percent in more than a decade, so far from impressive.

Albermarle

 and the approach of limiting investment in stocks to get a spread across other assets bonds/gold/etc such that the overall risk is reduced - with the resulting reduction in potential growth

Of  course there is nothing special about having a fund with a mix of assets , but the WP funds/investment trusts claim to actively manage them in a way that prioritises protection on the downside.

On the investment trust side , Personal Assets and Capital Gearing are the well known ones . Charges are similar at around 0.6/0.7% and platform charges for IT's are capped at a low level  on some platforms

Interestingly the portfolios of both trusts are remarkably different - PA is very US orientated and CG very UK orientated  

JohnWinder

I think we have to ask what you’re getting for costlier active management compared to the alternative suggestion of more VLS. Consider Troy’s PNL’s objectives carefully (there are two): 'protect and increase (in that order) the value of shareholders' funds per share over the long term‘.

The increase doesn't have to be bigger than negligible to have achieved their objectives. 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 or increased’ as you understand the terms, could they say 20 years is not ‘long term’ and you should stick around?  And lastly, if they fail to meet their objectives, even if the wording had no wriggle room, you alone suffer the consequences while they walk away with all your fees; there are no consequences for them.
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: PNL 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? And which is more expensive?

Michael121

JohnWinder said:

 there are no consequences for them.

 There is consequences for them if insiders are consistently buying. 

JohnWinder

given the state of the markets being so high

Note that not all stock markets are particularly high at the moment

The global stock market spends a lot of its time at an all time high; it's in the nature of rising prices over the longer term, whatever happens in the shorter term. Of course, pockets, like Japan can stand out as having longer periods of no new highs, but that's why we diversify. Here's an overview of US stocks, showing ever repeating highs. A third of the time it has been within 5% of its recent highs: https://earlyretirementnow.com/tag/early-retirement/

The chart is half way down the page, near the bear.

JohnWinder

I know you can't time the market etc but I just don't feel comfortable making a big purchase right now versus keeping cash to use and as when opportunity arises due to a market correction.

It should go without saying that you should only do what you feel comfortable with. This might not add to your comfort, but if you want grist for the mill: Should I wait for market to fall down before I invest 200k?

tebbins

The wealth preservation funds people often talk about would complement and diversify your existing portfolio.
Re: market timing, you're better off going in all at once about 2/3 of the time. If you aren't that confident, you could drip feed over a year or more. Drip feeding over more than 5 years is probably pointless. As and when dips happen you can take advantage and accelerate your drip feeding.
My 2p is, if you're comfortable with having the money that hasn't in premium bonds, in equities, pick areas that aren't overvalued (https://indices.barclays/IM/21/en/indices/static/historic-cape.app).
This thread: https://forums.moneysavingexpert.com/discussion/6295071/is-there-an-efficient-frontier-for-including-smaller-companies-alongside-an-index-fund#latest, has also discussed using small caps to diversify a global equity large/all-cap index fund.

Personally I am overweight on the FTSE 250 as it combines home bias which has been shown to lower volatility to a degree (https://www.google.com/url?sa=t&source=web&rct=j&url=https://static.vgcontent.info/crp/intl/auw/docs/literature/research/role-home-bias-global-asset-allocation-decisions.pdf&ved=2ahUKEwjgxrmo4PHyAhVOTsAKHQUqCxsQFnoECAQQAQ&usg=AOvVaw2t-2VCZF34LF33Xe8AI5c0), lower currency risk as roughly half of revenues are earned domestically, in a relatively cheap market, small(er)-cap (by global standards anyway), a history of very good returns I believe is sustainable for (reasons, not the simplistic "smaller companies grow faster" explanation), and it behaves in a way that is less correlated with UK and global large cap equity indices, than UK and global large-cap equity indices are correlated with each other.

Ceme3000

I think 'wealth preservation' makes for good marketing.   I would feel inclined to have VLS 40 with lower charges if that fits your criteria.

eskbanker

Ceme3000 said:

I think 'wealth preservation' makes for good marketing.   I would feel inclined to have VLS 40 with lower charges if that fits your criteria.

But with the exception of the relatively minor dip in March 2020, market conditions have been benign throughout that five year period - the value of WP funds only really becomes apparent when circumstances take a significant turn for the worse, as that's the scenario that investors in these products will typically be planning for....