AyG
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Post by AyG on Feb 24, 2018 10:01:05 GMT 7
I've been doing some more digging regarding Fidelity Asia and it seems their OCF has increased to a whopping 1.71% which could well be a deal breaker for me. In looking for possible alternatives it seems common for many funds to hold around 7% of Tencent - I shall keep digging. If you're looking for something less risky in the Asia space, I'd suggest you have a look at: - Pacific Assets (investment trust, PAC) - Schroder Oriental Income (investment trust, SOI) - Stewart Asia Pacific Leaders
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chiangmai
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Post by chiangmai on Feb 24, 2018 11:29:59 GMT 7
I've been doing some more digging regarding Fidelity Asia and it seems their OCF has increased to a whopping 1.71% which could well be a deal breaker for me. In looking for possible alternatives it seems common for many funds to hold around 7% of Tencent - I shall keep digging. If you're looking for something less risky in the Asia space, I'd suggest you have a look at: - Pacific Assets (investment trust, PAC) - Schroder Oriental Income (investment trust, SOI) - Stewart Asia Pacific Leaders Thanks. I already hold Stewart in my pension portfolio and I did look at Schroder OI this morning, I'll check out PAC.
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chiangmai
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Post by chiangmai on Mar 10, 2018 9:29:05 GMT 7
I'm slightly surprised that Scottish Mortgage and Monks are rated as being such high risk by FE and MS, especially the former which I imagine is down to its 22% investment in China. That said, they are both nicely geographically spread global equities funds with excellent track records and outstanding Fund Managers. Given that they are those things and the FM has the ability to switch between regions at will, the risk rating doesn't seem justified to me by comparison to say Lindsell Train global, or am I missing something.
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AyG
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Post by AyG on Mar 10, 2018 10:22:04 GMT 7
I'm slightly surprised that Scottish Mortgage and Monks are rated as being such high risk by FE and MS, especially the former which I imagine is down to its 22% investment in China. What you refer to as "risk" is in fact historical volatility. Any rating given is simply based upon that statistic, and has nothing to do with what the underlying investments are. Usually it's calculated using the last 3 years' data, and is measured relative to other funds in the same sector. In your particular case, have a look at the following chart. You'll see that Lindsell Train (yellow) has had a much smoother ride (i.e. is less volatile) than Scottish Mortgage (red) or Monks (blue). Attachment Deleted
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chiangmai
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Post by chiangmai on Mar 11, 2018 7:30:03 GMT 7
I'm currently trying to focus on how to put the following into practice more fully because it makes much sense to me:
It is “much more prudent and pragmatic” to hold a mix of strategies, as it is a “tried and tested method of reducing risk”.
I've been focussing on the latter by trying to stick to 60/40 and a good geographic spread but clearly there's a lot more to the game than just those things. Asset mix is one component, high-quality active fund management is a second, mixed-asset (MA) products might be a third (but I've yet to find an MA fund that performs very well to the upside so my jury is still out on this one). Other aspects of this probably include the buy and hold approach that AyG advocated recently and is evident in Fundsmith for example, I suppose higher dividend income could be regarded as another since the consistency of high yielding divi. payments have the potential to span periods of market falls. So the focus is risk reduction using multiple strategies but not at the expense of any substantial cost to returns, over and beyond a standard 60/40 mix, it's all therefore about the combination of funds as well as the individual funds themselves.......sensible or not, doable or not?
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AyG
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Post by AyG on Mar 11, 2018 9:03:36 GMT 7
It is “much more prudent and pragmatic” to hold a mix of strategies, as it is a “tried and tested method of reducing risk”. I've been focussing on the latter by trying to stick to 60/40 and a good geographic spread It's also a tried and tested method of reducing returns. I think there are a few key points to remember: - What we're talking about here is not “risk”, but volatility. - The lowest volatility asset is cash. - If you have a 100% equities portfolio, you can instantly halve the volatility by selling 50% of your equities, giving a 50% equity, 50% cash portfolio. - Historically, equities have given the highest return of any mainstream asset class, whilst cash gives virtually no return whatsoever after accounting for inflation In other words, over the medium to long term there's a simple pay off between return and volatility. If you want to maximise returns, go 100% equities; if you want to minimise volatility stick to cash. Bonds are somewhere between these two extremes, depending upon bond type. If you're not going to need access to capital (e.g. you're saving for retirement or you're just taking the natural income from your portfolio) there's no reason to worry about volatility. Go 100% equities to maximise returns.* One of the (in my opinion dubious) reasons for a 60/40 portfolio is that bonds are sometimes (and it is only sometimes - the correlation has been as high as +0.86 - Source: PIMCO) negatively correlated with equities: when bond prices went up, equity prices went down and vice versa. Of course, this led to portfolios which performed (on average) more poorly than 100% equity ones but sometimes had lower volatility. A perfect diversifier would be one with a correlation to equities of -1.0 and the same return. Such a beast simply doesn't exist, so anything you do is a compromise. * There are a few exceptions to this, e.g. a person within a few years of dying who wanted to leave a legacy which wouldn't be decimated by a market crash.
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chiangmai
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Post by chiangmai on Mar 12, 2018 6:56:08 GMT 7
It is “much more prudent and pragmatic” to hold a mix of strategies, as it is a “tried and tested method of reducing risk”. I've been focussing on the latter by trying to stick to 60/40 and a good geographic spread It's also a tried and tested method of reducing returns. I think there are a few key points to remember: - What we're talking about here is not “risk”, but volatility. - The lowest volatility asset is cash. - If you have a 100% equities portfolio, you can instantly halve the volatility by selling 50% of your equities, giving a 50% equity, 50% cash portfolio. - Historically, equities have given the highest return of any mainstream asset class, whilst cash gives virtually no return whatsoever after accounting for inflation In other words, over the medium to long term there's a simple pay off between return and volatility. If you want to maximise returns, go 100% equities; if you want to minimise volatility stick to cash. Bonds are somewhere between these two extremes, depending upon bond type. If you're not going to need access to capital (e.g. you're saving for retirement or you're just taking the natural income from your portfolio) there's no reason to worry about volatility. Go 100% equities to maximise returns.* One of the (in my opinion dubious) reasons for a 60/40 portfolio is that bonds are sometimes (and it is only sometimes - the correlation has been as high as +0.86 - Source: PIMCO) negatively correlated with equities: when bond prices went up, equity prices went down and vice versa. Of course, this led to portfolios which performed (on average) more poorly than 100% equity ones but sometimes had lower volatility. A perfect diversifier would be one with a correlation to equities of -1.0 and the same return. Such a beast simply doesn't exist, so anything you do is a compromise. * There are a few exceptions to this, e.g. a person within a few years of dying who wanted to leave a legacy which wouldn't be decimated by a market crash. I suppose it depends on your starting point: it's all back to the age issue, younger people can afford to go with 100% equities but people close to or in retirement really shouldn't hence reduced returns from a 60/40 (ish) portfolio is part of the landscape for older people. And we've already had the discussion several times regarding the inclusion of bonds, I'm OK if we don't have it again. So in the context of an older persons holdings, although I think the argument applies to any age group, volatility is risk (but only one of several that exist), it's the risk that the value of a fund may not recover to previous levels within the required timeframe: holding bonds helps reduce portfolio volatility or risk; selecting low volatility funds such as Lindsell Train Global (described earlier) reduces the likelihood of fund volatility or risk (over and above say a Scottish Mortgage); the inclusion of MA funds helps reduce both portfolio and fund volatility or risk; adopting a buy and hold approach of a Fundsmith or Buffetology type fund leaves the portfolio more at the mercy of market or indicies risk; proven Fund Management help reduce risk on all fronts. The elephant in the room for me right now is more about market risk than anything else and there's not much to be done about that. It's a binary decision of either stay in or get out and that's a difficult one to decide, a well-chosen fund may fall and take time to recover but markets can take years to do so and some elements may not at all, that for me is the real risk in this topic. I completely agree when you write that everything you do is a compromise and that I think is at the heart of any risk reduction strategy and MA funds are a perfect example of that, risk and reward go hand in hand. For me, I have to reject outright the concept of 100% equities, it's simply too high of a risk and I wouldn't go there, I might however accept the risk of 100% MA but I might not accept the reward. 75/25 might work, based on the fund selection and 60/40 will work and even allow for some risk-taking on equity fund selection.
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AyG
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Post by AyG on Mar 12, 2018 7:31:47 GMT 7
It's not age that should lead one to reduce volatility, but the need to spend one's capital. If one lives purely upon natural income and doesn't touch the capital then volatility shouldn't be an issue. Since market crashes tend to be very short* an alternative approach is to keep a few years' expenses as cash so one doesn't need to touch one's investments when the market is down. Going 60/40 doesn't actually help when bonds and equities move in the same direction, which they sometimes do. As I mentioned before, the correlation has been as high as +0.86. If one needs to cash in when both equities and bonds are down, then sequence risk can become a serious concern. * Typically 2-3 years. 4½ years in the case of the 1929 crash. See for example: awc2.com/how-fast-markets-recover/ www.nytimes.com/2009/04/26/your-money/stocks-and-bonds/26stra.html
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chiangmai
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Post by chiangmai on Mar 12, 2018 8:21:13 GMT 7
It's not age that should lead one to reduce volatility, but the need to spend one's capital. If one lives purely upon natural income and doesn't touch the capital then volatility shouldn't be an issue. Since market crashes tend to be very short* an alternative approach is to keep a few years' expenses as cash so one doesn't need to touch one's investments when the market is down. Going 60/40 doesn't actually help when bonds and equities move in the same direction, which they sometimes do. As I mentioned before, the correlation has been as high as +0.86. If one needs to cash in when both equities and bonds are down, then sequence risk can become a serious concern. * Typically 2-3 years. 4½ years in the case of the 1929 crash. See for example: awc2.com/how-fast-markets-recover/ www.nytimes.com/2009/04/26/your-money/stocks-and-bonds/26stra.htmlI'm not sure I agree that availability of capital is the key issue and not age. Just because a person has enough money to weather a storm in the financial markets doesn't mean they should have to, not when they can just as easily sail around the edges. And whilst I may be approaching the actuarial limits of my life span that shouldn't mean that financial prudence should terminate early. But I do agree entirely that bond correlation is a significant issue although I'm told that risk can be reduced through proper selection, albeit I'm not 100% certain my selection falls into that category.
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Post by rgs2001uk on Mar 12, 2018 20:54:40 GMT 7
I'm slightly surprised that Scottish Mortgage and Monks are rated as being such high risk by FE and MS, especially the former which I imagine is down to its 22% investment in China. What you refer to as "risk" is in fact historical volatility. Any rating given is simply based upon that statistic, and has nothing to do with what the underlying investments are. Usually it's calculated using the last 3 years' data, and is measured relative to other funds in the same sector. In your particular case, have a look at the following chart. You'll see that Lindsell Train (yellow) has had a much smoother ride (i.e. is less volatile) than Scottish Mortgage (red) or Monks (blue). Thats an excellent little tool for doing comparisons.
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Post by rgs2001uk on Mar 12, 2018 20:58:10 GMT 7
It's not age that should lead one to reduce volatility, but the need to spend one's capital. If one lives purely upon natural income and doesn't touch the capital then volatility shouldn't be an issue. Since market crashes tend to be very short* an alternative approach is to keep a few years' expenses as cash so one doesn't need to touch one's investments when the market is down. Going 60/40 doesn't actually help when bonds and equities move in the same direction, which they sometimes do. As I mentioned before, the correlation has been as high as +0.86. If one needs to cash in when both equities and bonds are down, then sequence risk can become a serious concern. * Typically 2-3 years. 4½ years in the case of the 1929 crash. See for example: awc2.com/how-fast-markets-recover/ www.nytimes.com/2009/04/26/your-money/stocks-and-bonds/26stra.htmlI'm not sure I agree that availability of capital is the key issue and not age. Just because a person has enough money to weather a storm in the financial markets doesn't mean they should have to, not when they can just as easily sail around the edges. And whilst I may be approaching the actuarial limits of my life span that shouldn't mean that financial prudence should terminate early. But I do agree entirely that bond correlation is a significant issue although I'm told that risk can be reduced through proper selection, albeit I'm not 100% certain my selection falls into that category. You can read all the books you want, study all the theory, get into on online discussion groups, at the end of the day, its all meaningless, charts and graphs, ratios, throw them out the window. The bottom line is, what are you comfortable with, at the end of the day, its your money, you are the on who has to sleep at night.
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chiangmai
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Post by chiangmai on Mar 13, 2018 6:42:05 GMT 7
I'm not sure I agree that availability of capital is the key issue and not age. Just because a person has enough money to weather a storm in the financial markets doesn't mean they should have to, not when they can just as easily sail around the edges. And whilst I may be approaching the actuarial limits of my life span that shouldn't mean that financial prudence should terminate early. But I do agree entirely that bond correlation is a significant issue although I'm told that risk can be reduced through proper selection, albeit I'm not 100% certain my selection falls into that category. You can read all the books you want, study all the theory, get into on online discussion groups, at the end of the day, its all meaningless, charts and graphs, ratios, throw them out the window. The bottom line is, what are you comfortable with, at the end of the day, its your money, you are the on who has to sleep at night. Yours is an approach that only the naturally talented and gifted few can adopt, the rest of us mere mortals need all the help we can get. I'm even considering enrolling in a course of study on this very subject, there's a very convincing-sounding Polish gentleman who may be just the job AND I can do all the learning from the comfort and safety of my living room, what can possibly go wrong.
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chiangmai
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Post by chiangmai on Mar 13, 2018 15:19:14 GMT 7
What you refer to as "risk" is in fact historical volatility. Any rating given is simply based upon that statistic, and has nothing to do with what the underlying investments are. Usually it's calculated using the last 3 years' data, and is measured relative to other funds in the same sector. In your particular case, have a look at the following chart. You'll see that Lindsell Train (yellow) has had a much smoother ride (i.e. is less volatile) than Scottish Mortgage (red) or Monks (blue). Thats an excellent little tool for doing comparisons. Who you calling a little tool!
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chiangmai
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Post by chiangmai on Mar 13, 2018 17:04:21 GMT 7
It's not age that should lead one to reduce volatility, but the need to spend one's capital. If one lives purely upon natural income and doesn't touch the capital then volatility shouldn't be an issue. Since market crashes tend to be very short* an alternative approach is to keep a few years' expenses as cash so one doesn't need to touch one's investments when the market is down. Going 60/40 doesn't actually help when bonds and equities move in the same direction, which they sometimes do. As I mentioned before, the correlation has been as high as +0.86. If one needs to cash in when both equities and bonds are down, then sequence risk can become a serious concern. * Typically 2-3 years. 4½ years in the case of the 1929 crash. See for example: awc2.com/how-fast-markets-recover/ www.nytimes.com/2009/04/26/your-money/stocks-and-bonds/26stra.htmlYesterday I wasn't ready to concede on this point, today I am, the catalyst being a 2% fall in GAM Credit which amplified your point by wiping out one third of any profit from my equities for the period!
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AyG
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Post by AyG on Mar 13, 2018 17:15:47 GMT 7
What I think we're beginning to see is the effects of the end of quantitative easing. It's expected that interest rates are going to rise, and that means that bond prices will inevitably fall. However, that's going to affect other higher income investments. I've particularly noticed the effect on infrastructure investment trusts where the premia to NAV, which were at ridiculous values, have fallen back, in some cases (e.g. HICL, John Laing infrastructure) to discounts. I suspect that in time we'll see the effect spread to higher income equities, and pensioners who've stuffed their SIPPs with them will be disappointed.
Let's just hope there aren't too many pensioners who've stuffed their portfolios with 60/40 higher income equities and conventional bonds.
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