All Star Manager Portfolio

munk

Im still not 100 percent sure of the Risk element of the Corporate bonds/high yield Bonds and Global Bonds.

Has anyone and idea how I could compare the risk of each bond against say the risk of a UK EQUITY FUND ?

The usual way to assess past risk is to look at the standard deviation (SD) of the fund. SD is a measure of how much a fund's return has deviated from the average/mean return over a given period. Morningstar uses a 3yr SD so as long as the fund's you're interested in have at least a 3yr history then you can see what their SD is.

I don't know if you already know about SD, if you do then saying a lot more here is probably a waste! Best thing is to read about it somewhere like on wikipedia or better still on http://inacademy.com. The key points are that a fund's returns will have spent 68% of their time within +/-1 SD of it's average mean over a given period and 95% of the time within +-2 SD. Have a look here for some examples/explanation on morningstar. Here's the entry for standard deviation on wikipedia. Inacademy.com doesn't have much on SD apart from a small glossary entry, but it's worth checking that site out anyway if you have time

Regardless, SD is the measure you want to be looking at to assess the (past) riskiness or volatility of a fund. You can see the SD on morningstar's 'risk & rating(?)' page for each fund, or on trustnet's fund pages just look at the top right corner for the volatility measure (though note volatility on trustnet is measured differently, it's something called RiskGrade IIRC). On Bestinvest's fund pages you can see the volatility on the 'performance' tab for each fund (if it has a long enough history).

meester

munk wrote: »

The usual way to assess past risk is to look at the standard deviation (SD) of the fund. SD is a measure of how much a fund's return has deviated from the average/mean return over a given period. Morningstar uses a 3yr SD so as long as the fund's you're interested in have at least a 3yr history then you can see what their SD is.

In terms of the risk of the fund relative to the sector, you want the beta. A beta of greater than 1 indicates that the fund is more volatile/risky than the sector, and less than 1 is greather than the sector. A higher beta will on average mean higher returns but in the short run can translate into greater losses. The Sharpe Ratio reflects the extent to which the excess return on the investment is justifiable in terms of its volatility. A positive Sharpe Ratio means that the risk-adjusted return is positive.

The standard deviation measures the mean volatility of an investment - it is an absolute measure of risk, whereas the above are relative.

jamesd

FATHEROFTWO, like MrMicawber I get my US exposure from a global fund. Worth noting that the benchmark globabl growth is I think 45% US while the Neptune fund goes way outside that and might usefully be considered an emerging markets fund rather than benchmark global growth. Not that it's a bad fund - just worth pondering if a global growth fund closer to the benchmark might fill several roles in one and reduce your fund count. Artemis Global Growth for example is generally in the 25-45% North America range.

FATHEROFTWO_2

Thanks JamesD.

My reason for choosing individual Funds in each sector IE 2 US Funds was In my criteria I picked Managers who are long standing with a high city rating.

My thoughts on individual Funds for the US is also that from a practical point of view one or 2 fund managers couldnt possibly know everything about all sectors in the world at all times hence why I chose funds with
"LOCAL KNOWLEDGE".

maybee that is the wrong way to think but I was just using a common sense point of view as I have a limited knowledge in this kind of finance but Im keen to learn and find it fascinating .

However I can see where you are coming from.

Im being swayed toward Geffens fund ie Neptune Global growth and am looking at Artemis Global as well as a few others.
I will have to see how the risk is spread world wide.

I definately wont be picking an individual Fund in a high risk area like China but will spread the risk using a pacific fund.

I think the US market is a mature one and a single fund instead of 2 with the right manager might be worth considering along with a global fund that includes the shorfall in the US sector allocated portfolio.
My thought are the same in Europe.

Im going to study the Bond sector as I dont fully understand it.

From a laymans point of view I understand the Risk of say
Invesco perp equity high income but using this as a fixed point in laymans terms how does Gilts,corporate bonds and high yield bonds compare to Invesco perp high income.

I know that Gilts are uk government issued bonds and are almost risk free.

I know that corporate bonds are securitised debt owed by large FTSE/250 cap companies.

High yield bonds are I believe graded debt that is ABOVE junk and I believe is reasonably safe but carries a slight risk of default but the bond contains many Bonds to diversify the risk is this the correct view ?

However I dont know in laymans terms how to compare the risk with say Invesco as above.

Any thoughts anyone ?

jamesd

Gilts, corporate bonds and high yield bonds (mostly) will be lower risk than Invesco Perpetual High Income. Gilts being about the safest option there is. High yield varies but junk isn't uncommon - depends on the specific fund. Usual rule is the higher the yield, the greater the risk. And with a credit crunch the risk of corporate bonds of all types is higher than it has been over the last few years. It's quite likely that some companies are going to go bankrupt and fail to pay up. A fund isn't likely to have more than a few percent in each bond so it'll mean reduced income and value by a small percentage each time it happens.

If I recall correctly, Artemis High Income is about 50% junk bonds plus quite a bit in equities. That seems to show in its volatility.

meester

MrMicawber wrote: »

Somebody above liked funds of funds and someone didn't. Yes the charges can be higher but on the other hand you are paying for expertise. Like so much of this it is a personal thing. I reckon they can be great for starting a new portfolio and also as core holdings for a developed portfolio - just my opinion. I think the Jupiter Merling Growth Fund has a total expense ratio of 2.53% which might be a little high

It's more than high, it's shocking. 1.5% AMC, plus all the costs of trading, dilution ratios, and then the same again for all the underlying funds that they hold. Total costs will certainly top 5%.

FATHEROFTWO_2

dunstonh wrote: »

Remember that bond funds are not all the same level of risk and that picking bond funds can be one where you focus on current yield rather than past performance. This can mean that funds that have had poor recent performance are the more desirable ones.... subject to their risk level.

.

Thanks Dunstonh.
I have been researching the bond market and bearing in mind what you said I had look at the Trustnet site under corporate Bonds clicked to show the highest yield and it showed
No 1 INSIGHT UK CORP LONG MATURITY P as having a yield of 7.29 percent
No 2 BAILLIE GIFF INV GRADE BOND B as having a yield of 6.7 percent

way down the list at
No48 INVESCO PERP CORP BOND as having a yield of 5.08 percent

For example INSIGHT UK has 3 bonds listed on the corporate search for morningstar.One is listed as 4 star and 2 are listed as 2 stars Im not too sure which one it is

but

INVESCO CORPORATE BOND is listed as a 5 star.

Thsis doesnt seem to tally especially if its the 2 star.

Relating to your earlier answer as above would I be better buying the INSIGHTUK CORP BOND due to the high Yield
and secondly is this yield fixed for the term that you hold the BOND FUND
IE Guaranteed to get 7.29 percent return per year.
I appreciate that the value of my initial investment in the fund could go up or down but would the YIELD for my investment stay the same.

Just trying to get this sorted out in my head first.
I appreciate your answer can not be looked upon as advice but comments

Thanks for your help so far

MrMicawber_2

Regarding meesters reaction to a TER of 2.53% being shocking. I thought that the TER represented ALL charges. It seems from the reply above that this is not the case, and that a TER of 2.53% will really be 5%+, so how do you find out what the full charges are?

meester

MrMicawber wrote: »

Regarding meesters reaction to a TER of 2.53% being shocking. I thought that the TER represented ALL charges. It seems from the reply above that this is not the case, and that a TER of 2.53% will really be 5%+, so how do you find out what the full charges are?

It includes all charges, but does not include all COSTS.

Out of a TER of 2.53%, the costs are 1.17% management fee + 1.36% other costs. The 1.17% is less than the quoted 1.5% due to their high holding of Jupiter Funds, on which they don't make a charge.

The 1.36% will include trustee costs amounting to about 0.1%. So they are paying about 1.26% on their funds. This is what you would pay with HL.

What isn't mentioned is the cost of dealing at their size: bid/offer spreads on UTs and ITs, dilution levies on OEICs, and also the portfolio turnover costs of the underlying funds. Some emerging markets funds have 400% PTRs, which represent costs of about 4% PA.

meester

FATHEROFTWO wrote: »

Thanks Dunstonh.
I have been researching the bond market and bearing in mind what you said I had look at the Trustnet site under corporate Bonds clicked to show the highest yield and it showed
No 1 INSIGHT UK CORP LONG MATURITY P as having a yield of 7.29 percent
No 2 BAILLIE GIFF INV GRADE BOND B as having a yield of 6.7 percent

way down the list at
No48 INVESCO PERP CORP BOND as having a yield of 5.08 percent

For example INSIGHT UK has 3 bonds listed on the corporate search for morningstar.One is listed as 4 star and 2 are listed as 2 stars Im not too sure which one it is

but

INVESCO CORPORATE BOND is listed as a 5 star.

Thsis doesnt seem to tally especially if its the 2 star.

Relating to your earlier answer as above would I be better buying the INSIGHTUK CORP BOND due to the high Yield
and secondly is this yield fixed for the term that you hold the BOND FUND
IE Guaranteed to get 7.29 percent return per year.
I appreciate that the value of my initial investment in the fund could go up or down but would the YIELD for my investment stay the same.

Just trying to get this sorted out in my head first.
I appreciate your answer can not be looked upon as advice but comments

Thanks for your help so far

That fund is an institutional fund, designed for pension funds.

generally, if the value of bonds goes up, yield will fall.

This reflects the fact that if the government issues a bond today for £1 with 5.5% yield. This will pay £1.055 in 1 year's time.

Suddenly the Bank of England cuts rates by 2%. A new £1 bond would only pay £1.035.

Yet, I already own a bond, that cost me £1, that will pay £1.055 in a year's time.

So if I sell my bond, I want about £1.02 for it. My bond is worth more.

Yield is also affected by default risk - if the bond issuers start defaulting, you lose your bond and yield plunges. If default risk is perceived to be high, the bond price will fall to reflect that risk. Every bond is priced to reflect the inherent risk of default. E.g., a 30-year-bond issued by Tesco is predicated on Tesco surviving 30 years. The price of that bond (and its initial yield) is reflected by that credit risk, which is non-zero, and also the yield curve, effectively long-term return on cash.