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Index or wealth preservation for investments over unknown period of time?

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  • aroominyork
    aroominyork Posts: 3,292 Forumite
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    edited 1 November 2021 at 7:53PM

    You couldn't duplicate, but could perhaps achieve a reasonably close fit, using a risk-adjusted multi-asset funds and some linkers. I cannot, however, substantiate that view with evidence.

    l ran some calcs for 2012-19 using CGT's asset allocation from here. I went year by year (using a ruler and poor eyesight) to estimate equities, linkers and others. I compared performance using VLS100 (overweight UK) as a comparison for equities; UK index linked sector for the linkers; global mixed bonds for others. All taken from Trustnet. Rough and ready, but I think a reasonable basis of comparison.
    CGT returned just over 40%; my composite funds returned 60%.
    Conclusion: wealth preservation funds charge you for buying linkers. You can do better.
  • masonic
    masonic Posts: 27,001 Forumite
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    Where listed, the coupons suggest that almost all of the US, Swedish and UK bonds are linkers. It's not the most informative holdings list I've ever seen, but I think you have to take it on trust that the asset allocation shown is correct.
    Yes, I picked a few of the ones listed as "US Treasury" at random and cross-referenced against a list of issued bonds and they are in fact TIPS. For example "USA Treasury 1.0% 2048" matches "United States Treasury 30-Year TIPS 1.000% Feb 15, 2048" and "USA Treasury 3.625% 2028" matches "United States Treasury 30-Year TIPS 3.625% Apr 15, 2028". They don't make it easy for us!
  • masonic
    masonic Posts: 27,001 Forumite
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    edited 1 November 2021 at 7:43PM

    You couldn't duplicate, but could perhaps achieve a reasonably close fit, using a risk-adjusted multi-asset funds and some linkers. I cannot, however, substantiate that view with evidence.
    l ran some calcs for 2012-19 using CGT's asset allocation from here. I went year by year (using a ruler and poor eyesight) to estimate equities, linkers and others. I compared performance using VLS100 (overweight UK) as a comparison for equities; UK index linked secor for the linkers; global mixed bonds for others. All taken from Trustnet. Rough and ready, but I think a reasonable basis of comparison.
    CGT returned just over 40%; my composite funds returned 60%.
    Conclusion: wealth preservation funds charge you for buying linkers. You can do better.
    Presumably within equities they are invested in more defensive shares and missed out on much of the high growth there (the equities in isolation should be underperforming a global tracker in a bull market, even with UK bias factored in). On the index linked side, presuming they have favoured US TIPS for a while, then there is a big performance hit there too vs UK index linked:
  • Prism
    Prism Posts: 3,847 Forumite
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    Remember that the equity part is not really global equity as we know it. Half of it is property
  • aroominyork
    aroominyork Posts: 3,292 Forumite
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    All agreed, masonic. With a bit of hindsight we all would have lumped into UK linkers.
  • Aminatidi
    Aminatidi Posts: 579 Forumite
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    You couldn't duplicate, but could perhaps achieve a reasonably close fit, using a risk-adjusted multi-asset funds and some linkers. I cannot, however, substantiate that view with evidence.

    l ran some calcs for 2012-19 using CGT's asset allocation from here. I went year by year (using a ruler and poor eyesight) to estimate equities, linkers and others. I compared performance using VLS100 (overweight UK) as a comparison for equities; UK index linked sector for the linkers; global mixed bonds for others. All taken from Trustnet. Rough and ready, but I think a reasonable basis of comparison.
    CGT returned just over 40%; my composite funds returned 60%.
    Conclusion: wealth preservation funds charge you for buying linkers. You can do better.
    Worth remembering that their asset allocation is not static which is perhaps part of what you're paying them for.

    How confident are you that you can do that with someone else's money?

    I have 20% in CGT so I'm arguably biased but they let me sleep very well at night.

    I'd also consider Personal Asset Trust though the rest of my "preserver" money is in Ruffer but that's the one I keep a much closer eye on.

    With almost any multi-asset fund you can duplicate it and save a few bps on fees I guess the question you've got to ask yourself is do you think you can do better in the future as it's very easy to say what would have worked with the benefits of hindsight.


  • Linton
    Linton Posts: 18,130 Forumite
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    edited 1 November 2021 at 9:57PM
    Apart from serious doubts as to whether the aroominyork portfolio bears much a of relationship to CGT's, I dont quite understand the logic of running a test of a fund that is intended to minimise losses in the bad times when the test period is during one of the longest bull runs in history when both equities and safe bonds soared.

    The purpose of a wealth reservation fund is not to maximise gains at such a time - if that is what you want go for 100% equity.  

    All agreed, masonic. With a bit of hindsight we all would have lumped into UK linkers.
    Why?  The purpose of WP is defensive - tortoise vs hare.  UK inflation linked bonds rose much higher than US inflation linked bonds and will therefore fall further when interest rates rise.  Clearly that is why CGT is using US inflation linkers.

  • aroominyork
    aroominyork Posts: 3,292 Forumite
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    edited 2 November 2021 at 6:28AM

    Certainly this is a shortish period of time (seven years) during a bull market, but during the three weakest years (FY14, FY16, F18) CGT did not outperform the composite funds. Yes it’s retrospective, but that is all we have to judge a fund’s potential. Is my analysis scientific? No. Does it raise some valid points to question CGT’s reputation? Perhaps.

  • masonic
    masonic Posts: 27,001 Forumite
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    edited 2 November 2021 at 8:27AM

    Certainly this is a shortish period of time (seven years) during a bull market, but during the three weakest years (FY14, FY16, F18) CGT did not outperform the composite funds. Yes it’s retrospective, but that is all we have to judge a fund’s potential. Is my analysis scientific? No. Does it raise some valid points to question CGT’s reputation? Perhaps.

    I don't think it can be used to question the fund's reputation, unless you misunderstand the fund. It's generally positioned to mitigate risks that have not been at play in the last decade. Its earlier performance against major stockmarket crashes was better for the most part. It remained well ahead for over a decade after the dotcom crash, and the composite indices caught up with it after about 7 years following the start of the gfc and would have ended up performing more or less on a par at the end of those 10 years. The pandemic crash was a bit different because the recovery was so fast.
    If you held since Jan 1995 (start of Trustnet data) you'd be quids in, but it did give away a lot of ground post-2015 as it wasn't really suited to recent market conditions where high growth equities really soared.
  • aroominyork
    aroominyork Posts: 3,292 Forumite
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    I don’t contest any of that, masonic. I am not questioning the objectives of the fund or whether the asset mix is right to achieve those objectives; I do not have the experience to do that. What I looked at was whether, over a few years, the fund selection would outperform index funds in the approximate asset mix that CGT was using.





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