Timing the market

MarkCarnage

Deleted_User said:

Note that holding significant conventional bonds at present might not be a good way to preserve real wealth.....or even nominal wealth. 

Agreed but linkers and TIPS guarantee negative returns in real terms. and its a bet  on inflation being higher than expected. So they are not going to preserve your “wealth” either

If you hold them to maturity, yes, though marginal with TIPS, which had positive RY until quite recently. However, in an environment of financial repression particularly of nominal rates, it's quite possible that real yields could go more negative, and inflation higher.....I don't think you can say it's not going to preserve your wealth..... it might not in real terms, but it might too if their asset allocation shifts back to conventionals at the right time....some big shifts in the past. 

Thrugelmir

MarkCarnage said:

Deleted_User said:

Note that holding significant conventional bonds at present might not be a good way to preserve real wealth.....or even nominal wealth. 

Agreed but linkers and TIPS guarantee negative returns in real terms. and its a bet  on inflation being higher than expected. So they are not going to preserve your “wealth” either

but it might too if their asset allocation shifts back to conventionals at the right time....some big shifts in the past. 

Allocation will change before investors are even aware. Then there'll be yet another dissection well after the event. 

MarkCarnage

But Ruffer uses the marketing gimmick and thats bothering me: “Ruffer Investment Company (RICA) aims to preserve wealth and tries not to lose money over any 12 month period”

Why does this bother you? It's a pretty clear statement of intent, but in no way a promise or guarantee? 

What  are they betting against?  They are betting against the market.

As do all active funds. There is an implicit assumption in your comment that investors in these funds want the market beta (which market? Equities, TIPs a 60/40?? ). They don't. 

So I tilt portfolio but its diversified.  They don’t allow for a possibility of being wrong.  What if Tech and US continue with their momentum?  What if Japan continues to suck? They take massive bets against the market. 

They tilt too and are diversified. Wrong against what??? There is again an assumption that investors must want a market beta here. They don't. I genuinely don't understand your line of argument here....

[Deleted User]

MarkCarnage said:

Deleted_User said:

Note that holding significant conventional bonds at present might not be a good way to preserve real wealth.....or even nominal wealth. 

Agreed but linkers and TIPS guarantee negative returns in real terms. and its a bet  on inflation being higher than expected. So they are not going to preserve your “wealth” either

If you hold them to maturity, yes, though marginal with TIPS, which had positive RY until quite recently. However, in an environment of financial repression particularly of nominal rates, it's quite possible that real yields could go more negative, and inflation higher.....I don't think you can say it's not going to preserve your wealth..... it might not in real terms, but it might too if their asset allocation shifts back to conventionals at the right time....some big shifts in the past. 

10-year TIPS pay 1.5%. Inflation is 6% right now.    I think I can say that buying one and holding it will guarantee a loss in real terms. 

[Deleted User]

As do all active funds. There is an implicit assumption in your comment that investors in these funds want the market beta

Yes, but not to this extent.  Allocating just 4% of equities to technology and 35% to Britain while also holding 15% in cash during high inflation environment seems very risky if the objective is “wealth preservation “.  Lots of funds will have 100% UK equity but they don’t bill themselves as “all-in-one”.  This fund does. 

I do think that massive deviations from the market cap and ignoring industry sectors translates to extra risk.  And holding lots of cash in a fund is bad for long term financial health. 

MarkCarnage

Deleted_User said:

MarkCarnage said:

Deleted_User said:

Note that holding significant conventional bonds at present might not be a good way to preserve real wealth.....or even nominal wealth. 

Agreed but linkers and TIPS guarantee negative returns in real terms. and its a bet  on inflation being higher than expected. So they are not going to preserve your “wealth” either

If you hold them to maturity, yes, though marginal with TIPS, which had positive RY until quite recently. However, in an environment of financial repression particularly of nominal rates, it's quite possible that real yields could go more negative, and inflation higher.....I don't think you can say it's not going to preserve your wealth..... it might not in real terms, but it might too if their asset allocation shifts back to conventionals at the right time....some big shifts in the past. 

10-year TIPS pay 1.5%. Inflation is 6% right now.    I think I can say that buying one and holding it will guarantee a loss in real terms. 

Eh? The coupon is indexed with the principal. So the income will be rising at 6% in line with US inflation, and whatever rate inflation rises at between now and maturity. You assume that it is held to maturity to guarantee a loss....which in any event is pretty small. It's part of the inflation hedge in the overall portfolio. If equities grow in real terms over the same period, then overall the fund will probably preserve real wealth. 

[Deleted User]

MarkCarnage said:

Deleted_User said:

MarkCarnage said:

Deleted_User said:

Note that holding significant conventional bonds at present might not be a good way to preserve real wealth.....or even nominal wealth. 

Agreed but linkers and TIPS guarantee negative returns in real terms. and its a bet  on inflation being higher than expected. So they are not going to preserve your “wealth” either

If you hold them to maturity, yes, though marginal with TIPS, which had positive RY until quite recently. However, in an environment of financial repression particularly of nominal rates, it's quite possible that real yields could go more negative, and inflation higher.....I don't think you can say it's not going to preserve your wealth..... it might not in real terms, but it might too if their asset allocation shifts back to conventionals at the right time....some big shifts in the past. 

10-year TIPS pay 1.5%. Inflation is 6% right now.    I think I can say that buying one and holding it will guarantee a loss in real terms. 

Eh? The coupon is indexed with the principal. So the income will be rising at 6% in line with US inflation, and whatever rate inflation rises at between now and maturity. You assume that it is held to maturity to guarantee a loss....which in any event is pretty small. It's part of the inflation hedge in the overall portfolio. If equities grow in real terms over the same period, then overall the fund will probably preserve real wealth. 

Lets put it in simpler terms.  If you buy a TIPS bond today, you are locking in negative yield in real terms.  Here: https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield

Its not small.  -1% annually compounded over 10 years isn’t funny. 

MarkCarnage

Deleted_User said:

MarkCarnage said:

Deleted_User said:

MarkCarnage said:

Deleted_User said:

Note that holding significant conventional bonds at present might not be a good way to preserve real wealth.....or even nominal wealth. 

Agreed but linkers and TIPS guarantee negative returns in real terms. and its a bet  on inflation being higher than expected. So they are not going to preserve your “wealth” either

If you hold them to maturity, yes, though marginal with TIPS, which had positive RY until quite recently. However, in an environment of financial repression particularly of nominal rates, it's quite possible that real yields could go more negative, and inflation higher.....I don't think you can say it's not going to preserve your wealth..... it might not in real terms, but it might too if their asset allocation shifts back to conventionals at the right time....some big shifts in the past. 

10-year TIPS pay 1.5%. Inflation is 6% right now.    I think I can say that buying one and holding it will guarantee a loss in real terms. 

Eh? The coupon is indexed with the principal. So the income will be rising at 6% in line with US inflation, and whatever rate inflation rises at between now and maturity. You assume that it is held to maturity to guarantee a loss....which in any event is pretty small. It's part of the inflation hedge in the overall portfolio. If equities grow in real terms over the same period, then overall the fund will probably preserve real wealth. 

Lets put it in simpler terms.  If you buy a TIPS bond today, you are locking in negative yield in real terms.  Here: https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield

Its not small.  -1% annually compounded over 10 years isn’t funny. 

Not disputing that if you hold to maturity you get a negative real yield of c 1% p.a. 

However, your previous comment appeared to equate an index linked coupon of 1.5% with current inflation of 6%. Which is a tad misleading....

It's a hedge against inflation being higher than expected. The real yields may well become more negative if there is further repression of nominal yields whilst inflation continues to be 'unexpectedly' high....call it insurance if you like with the negative real yield being a premium cost......but if you can sell that insurance in a year's time at a higher premium to someone else....

And as I said, it's one asset in the portfolio, albeit a big one right now. It wasn't big 10 years ago, it probably won't be in 10 years time....

I held a global IL bond portfolio for a while before deciding to let others manage that asset allocation decision for me. 

Thrugelmir

Deleted_User said:

As do all active funds. There is an implicit assumption in your comment that investors in these funds want the market beta

I do think that massive deviations from the market cap and ignoring industry sectors translates to extra risk.  

Majority of indexes are refined to reduce risk and as a consequence aren't weighted purely on market capitlisation. Other factors come into play. SP500 for example uses a free float market weight methodology. 

If it didn't I hate to think what Tesla's share price would be. As index trackers would be forced to increase their holdings considerably. With Musk alone still personally owning 17% of the company. Despite the recent disposal. 

MK62

Deleted_User said:

As do all active funds. There is an implicit assumption in your comment that investors in these funds want the market beta

I do think that massive deviations from the market cap and ignoring industry sectors translates to extra risk.  And holding lots of cash in a fund is bad for long term financial health.

It's one thing saying these things but without explaining why, it's fairly meaningless tbh.

To me, following market cap weightings is fairly pointless unless you simply want to follow the market....in which case just buy an index fund and be done with it. If you wanted to avoid the more volatile sectors of a market, I see nothing wrong with that in itself - you might forego larger gains by doing so, but at the same time avoid larger drops.....pretty much what I'd expect a fund, with the main aim of wealth preservation, to do......I don't see how doing so would necessarily increase risk.

As for holding cash, you are probably right if the cash is held long term - if not, that could be just the fund manager's decision at the time......sometimes zero is a good return, especially if your fund's equity allocation has just taken a big fall.

In the end, I would not expect a "wealth preservation" fund (for want of a better term) to shoot the lights out, but then that's not the main aim......nor would I necessarily expect a positive return at all times (no investment fund can promise that)......I would expect it to be less volatile than "average" though, and would expect lower downside in times of market stress (with the counter expectation of lower upside during good times)......if such funds deliver that, I don't see the problem!