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  • FIRST POST
    • username12345678
    • By username12345678 12th Jan 18, 5:55 PM
    • 215Posts
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    username12345678
    Concentration of risk in Wealth Preservation
    • #1
    • 12th Jan 18, 5:55 PM
    Concentration of risk in Wealth Preservation 12th Jan 18 at 5:55 PM
    Hi All,

    I've been putting together different asset allocations with limiting draw downs as a primary (but not sole) aim.

    One option was a 50/50 growth/wealth preservation with the latter selected for diversification and volatility over the last decade.

    The 8 funds/IT's I initially whittled my selections down to contains 4 Ruffer offerings.

    RICA and Ruffer Total Return are very similar in composition roughly 50/50 in equities vs global index linked bonds + cash.

    The other 2 are Ruffer Equity & General and Ruffer European which seem to be offering a degree of overlap in ratios (equities 70%, bonds/cash 30%) but with the obvious geographical tilts.

    If you were to put together:

    RICA
    Ruffer Equity & General
    Ruffer European

    Looking through the rear view mirror their performance is excellent during market stress with a still acceptable degree of capture of the upsides. However, my concern is that there might be a risk of whatever processes they use in their equity selections delivering similar types of composition risk across all 3 funds/IT.

    A reasonable assumption or no?
Page 1
    • IanSt
    • By IanSt 13th Jan 18, 11:33 AM
    • 260 Posts
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    IanSt
    • #2
    • 13th Jan 18, 11:33 AM
    • #2
    • 13th Jan 18, 11:33 AM
    I'd say that there's a definite possibility of the type of risk you are worried about.

    That's one of the reasons why I personally keep a big chunk of my investments in simple tracker funds and diversify any managed funds across different providers to try to minimise any 'group think'.
    • Linton
    • By Linton 13th Jan 18, 11:50 AM
    • 9,395 Posts
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    Linton
    • #3
    • 13th Jan 18, 11:50 AM
    • #3
    • 13th Jan 18, 11:50 AM
    Many thanks for bringing the Ruffer Equity and European funds to my attention. WP is an important part of my investment strategy. The Ruffer IT is often mentioned in WP discussions but the OEICs aren't. Yet their performance during both the tech crash and the 2008/2009 crash was remarkably good, much better than the average for their sector (40%-85% mixed investment). They have the advantages over the IT fund in lower volatility as there is no market variation between NAV and price and the absence of stamp duty.

    Both funds show very similar performance though their equity holdings (around 70%) are quite different. Currently both have around 60% in cash with 30% shorted. Neither hold any bonds at the moment, which is pleasing. So clearly they are employing some sort of financial engineering approach which I dont understand. But it has been very successful in meeting its objective over nearly 20 years.

    So of the 3 listed after a bit more research I would go for a significant holding in the Equity & General fund but look elsewhere for the rest of the portfolio. Perhaps something a bit higher risk/return to complete the equity 50% and something rather more ordinary and cautious for the rest of the WP 50%.
    • Deneb
    • By Deneb 13th Jan 18, 1:16 PM
    • 309 Posts
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    Deneb
    • #4
    • 13th Jan 18, 1:16 PM
    • #4
    • 13th Jan 18, 1:16 PM
    Many thanks for bringing the Ruffer Equity and European funds to my attention. WP is an important part of my investment strategy. The Ruffer IT is often mentioned in WP discussions but the OEICs aren't. Yet their performance during both the tech crash and the 2008/2009 crash was remarkably good, much better than the average for their sector (40%-85% mixed investment). They have the advantages over the IT fund in lower volatility as there is no market variation between NAV and price and the absence of stamp duty.
    Originally posted by Linton
    I have also been looking towards moving part of my portfolio into WP and am more attracted to OEICs within my SIPP as I intend to draw down from this over the next few years, moving the assets into my ISA without attracting the dealing charges that selling and repurchasing ITs would involve.

    I was also unaware of the Ruffer OEICs. However, having just done a bit of searching across the three platforms I am on, it appears that HL are the only one offering either of them, but both attract a 1% initial charge which makes the lack of stamp duty and NAV not quite so clear cut and would still leave me with dealing charges in the selling and repurchasing involved in moving out of the pension wrapper.

    So far, I have already switched some of my SIPP into Troy Trojan O and am thinking of adding CGT IT in my ISA.
    • jamei305
    • By jamei305 14th Jan 18, 8:56 AM
    • 339 Posts
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    jamei305
    • #5
    • 14th Jan 18, 8:56 AM
    • #5
    • 14th Jan 18, 8:56 AM
    Bestinvest carry Equity & General albeit with a 0.5% initial fee.

    Doing well during a downturn 10 years ago whilst giving decent growth afterwards doesn't of course mean it will do well in the next downturn. If its strategy is different from other funds in this sector it just might be an outlier on the downside during the next crash.
    • planteria
    • By planteria 14th Jan 18, 10:17 AM
    • 5,001 Posts
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    planteria
    • #6
    • 14th Jan 18, 10:17 AM
    • #6
    • 14th Jan 18, 10:17 AM
    interesting thread.. i'm not at wealth preservation stage, but i like the thought processes above.

    i haven't invested with Ruffer, but an experienced and cautious colleague of mine is comfortable with significant funds managed by them. he has told me about them and their approach. they have certainly gone against the herd, and been creative.
    • Audaxer
    • By Audaxer 14th Jan 18, 10:41 AM
    • 1,082 Posts
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    Audaxer
    • #7
    • 14th Jan 18, 10:41 AM
    • #7
    • 14th Jan 18, 10:41 AM
    I like the look of the Ruffer Equity and General fund. The only downside seems to be the initial charge of 1% and OCF of 1.28%.

    The other thing I noticed is that the Defensive part of the equity is low at 11.42% with the Sensitive part high at 62.56%. I would have thought it would be the other way round in Wealth Preservation fund?
    • Linton
    • By Linton 14th Jan 18, 12:02 PM
    • 9,395 Posts
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    Linton
    • #8
    • 14th Jan 18, 12:02 PM
    • #8
    • 14th Jan 18, 12:02 PM
    Bestinvest carry Equity & General albeit with a 0.5% initial fee.

    Doing well during a downturn 10 years ago whilst giving decent growth afterwards doesn't of course mean it will do well in the next downturn. If its strategy is different from other funds in this sector it just might be an outlier on the downside during the next crash.
    Originally posted by jamei305
    It isnt just a single event 10 years ago. Ruffer Equity & General also had half the fall of the FTSE World index during the 2002 Tech crash. If you had invested in the fund at the height of the Tech Boom you would still be just ahead of the World Index. It has continuously shown a very low volatility. The fund has one of the lowest Trustnet Risk Scores in its sector - around 122nd out of 133 with a performance over 10 years of 5th out of 60.
    • bostonerimus
    • By bostonerimus 14th Jan 18, 3:41 PM
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    bostonerimus
    • #9
    • 14th Jan 18, 3:41 PM
    • #9
    • 14th Jan 18, 3:41 PM
    Wealth Preservation in retirement is just risk, tax and spending management and as such isn't much different from what you should have been doing all your life. The capital gains, interest, dividends and maybe some capital that you allowed to accumulate while working are now going to be spent. You can approach this in numerous ways, but one approach is to basically stick with your pre-retirement allocation (as I assume it's worked for you so far) and maybe add a larger cash/short term bond allocation. This doesn't need to be complicated.
    Misanthrope in search of similar for mutual loathing
    • Audaxer
    • By Audaxer 14th Jan 18, 4:42 PM
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    Audaxer
    Wealth Preservation in retirement is just risk, tax and spending management and as such isn't much different from what you should have been doing all your life. The capital gains, interest, dividends and maybe some capital that you allowed to accumulate while working are now going to be spent. You can approach this in numerous ways, but one approach is to basically stick with your pre-retirement allocation (as I assume it's worked for you so far) and maybe add a larger cash/short term bond allocation. This doesn't need to be complicated.
    Originally posted by bostonerimus
    If you are moving lump sums from Cash ISAs to investments with say a 60:40 equity/bond allocation to generate better returns, I don't see a problem in putting some of the cash savings into Wealth Preservation funds in anticipation of a possible equity crash in the next few years. They would just be a sort of buffer between keeping too much in cash savings and the 60:40 investment portfolio, to lessen the drop in your overall wealth if/when the next crash comes.
    • bostonerimus
    • By bostonerimus 14th Jan 18, 7:18 PM
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    bostonerimus
    If you are moving lump sums from Cash ISAs to investments with say a 60:40 equity/bond allocation to generate better returns, I don't see a problem in putting some of the cash savings into Wealth Preservation funds in anticipation of a possible equity crash in the next few years. They would just be a sort of buffer between keeping too much in cash savings and the 60:40 investment portfolio, to lessen the drop in your overall wealth if/when the next crash comes.
    Originally posted by Audaxer
    You're just talking about asset allocation. Wealth Preservation sounds like a marketing term just to describe a conservative multi-asset fund.....although at almost 60% equities RICA would take a hit if equities crashed particularly in the UK and Japan with it's weighting.
    Last edited by bostonerimus; 14-01-2018 at 7:22 PM.
    Misanthrope in search of similar for mutual loathing
    • Audaxer
    • By Audaxer 14th Jan 18, 7:39 PM
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    • 636 Thanks
    Audaxer
    You're just talking about asset allocation. Wealth Preservation sounds like a marketing term just to describe a conservative multi-asset fund.....although at almost 60% equities RICA would take a hit if equities crashed particularly in the UK and Japan with it's weighting.
    Originally posted by bostonerimus
    The funds I would consider in this category would be funds with a long history of low volatility that had a very low drop in value during the crash in 2008. So it's making a conscious decision to put part of your wealth in a lower risk category than your main investments, but a bit higher risk than cash. Then if markets do crash in the next few years you could make another conscious decision to sell all or some of these investments and buy some higher risk funds that have fallen more in value.
    • ColdIron
    • By ColdIron 14th Jan 18, 7:48 PM
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    ColdIron
    although at almost 60% equities RICA would take a hit if equities crashed particularly in the UK and Japan with it's weighting.
    Originally posted by bostonerimus
    Odd that it didn't do this during the 2008/09 GFC which most would agree was a testing time. In contrast it performed spectacularly well and I can think of few equals. You've chosen the wrong example
    • bostonerimus
    • By bostonerimus 14th Jan 18, 8:00 PM
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    bostonerimus
    Odd that it didn't do this during the 2008/09 GFC which most would agree was a testing time. In contrast it performed spectacularly well and I can think of few equals. You've chosen the wrong example
    Originally posted by ColdIron
    Who knows what it's allocation was back in 2008. I'm just advising that people look under the bonnet a bit. I imagine that as an IT the managers have a lot of latitude to change the allocation, let's hope they do as well in the next down turn.
    Last edited by bostonerimus; 14-01-2018 at 8:09 PM.
    Misanthrope in search of similar for mutual loathing
    • bostonerimus
    • By bostonerimus 14th Jan 18, 8:05 PM
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    bostonerimus
    The funds I would consider in this category would be funds with a long history of low volatility that had a very low drop in value during the crash in 2008. So it's making a conscious decision to put part of your wealth in a lower risk category than your main investments, but a bit higher risk than cash. Then if markets do crash in the next few years you could make another conscious decision to sell all or some of these investments and buy some higher risk funds that have fallen more in value.
    Originally posted by Audaxer
    As long as the asset allocation is right for your goals across your entire portfolio then you are managing things well. You can use a multi-asset fund described as Wealth Preservation like RICA or you can do it by simply adjusting the asset allocation in your existing portfolio. In ether case make sure you know the asset allocation.
    Last edited by bostonerimus; 14-01-2018 at 8:07 PM.
    Misanthrope in search of similar for mutual loathing
    • Morphoton
    • By Morphoton 14th Jan 18, 8:18 PM
    • 83 Posts
    • 70 Thanks
    Morphoton
    With regard to the Ruffer IT (RICA), I have occasionally looked at this over the last few years.
    They seem to hold a large % of index-linked bonds (UK & US), typically 30-50%.
    Index-linked bonds have done very well over the past few years. For example my own holding of the 0.625% UK IL 2042 bond (T42A) has gone from 104p in Sep 2010 to 218p now but this has resulted in it having a real yield of ~minus 1.6% now. US TIPS when priced in pounds have showed similar gains. They still have a real positive yield but at only ~0.5% (10 year TIPS).
    These price increases must have helped the performance of RICA but IMO I cannot see this rate of increase being maintained over the next 8+ years given such low real yields that you would be starting with now.
    In any case, if one agrees with the strategy used, you could simply hold index-linked bond ETFs or individual index-linked bonds themselves, which could probably be done at lower cost alongside an equity portfolio.
    • jamei305
    • By jamei305 15th Jan 18, 9:04 AM
    • 339 Posts
    • 396 Thanks
    jamei305
    As long as the asset allocation is right for your goals across your entire portfolio then you are managing things well. You can use a multi-asset fund described as Wealth Preservation like RICA or you can do it by simply adjusting the asset allocation in your existing portfolio. In ether case make sure you know the asset allocation.
    Originally posted by bostonerimus
    As you are someone who is very fond of passive investing, I would appreciate your view on how you'd find funds that would avoid big losses in a downturn but still have growth potential if you thought bonds were too risky/overpriced? A lot of these 'wealth preservation' funds hold certain defensive stocks. I suppose you might find go for a consumer staples or infrastructure index tracker fund?
    • bostonerimus
    • By bostonerimus 15th Jan 18, 5:13 PM
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    bostonerimus
    As you are someone who is very fond of passive investing, I would appreciate your view on how you'd find funds that would avoid big losses in a downturn but still have growth potential if you thought bonds were too risky/overpriced? A lot of these 'wealth preservation' funds hold certain defensive stocks. I suppose you might find go for a consumer staples or infrastructure index tracker fund?
    Originally posted by jamei305
    I'm invested for the long haul and I don't worry about down turns....... much. I stick with broad equity and bond indexes and have rebalanced through the ups and downs of the last 30 years. If you wanted to be a bit defensive you could emphasize dividend stocks/funds, shorten the duration of your bond funds or add some index linked gilts, but I don't bother.
    Last edited by bostonerimus; 15-01-2018 at 5:29 PM.
    Misanthrope in search of similar for mutual loathing
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