Post by Fletchsmile on Sept 23, 2019 16:32:05 GMT 7
Nov 5, 2015 8:19:31 GMT 7 AyG said:
I recently set up a similar-ish portfolio for an elderly lady living in Thailand. She didn't want too much of her assets to be in Thailand, wanted to take 4%/year from income and capital whilst doing an annual rebalancing, and hates paying tax. Here's what I came up with after a lot of thought:Asset class | Allocation | Implementation | |
Thailand Equities | 14% | Fidelity Funds Thailand USD | |
Asia-Pacific Equities | 14% | Schroder Oriental Income (SOI) | |
Developed Markets Equities | 14% | Witan (WTAN) | |
Emerging Markets Equities | 8% | JP Morgan Emerging Markets (JMG) | |
Infrastructure | 7.5% | Utilico Emerging Markets (UEM) | |
Index-linked Bonds | 7.5% | iShares Global Inflation Linked Government Bond (IGIL) | |
Emerging Markets Bonds | 7.5% | iShares J.P. Morgan $ Emerging Markets Bond (IEMB) | |
Conventional Bonds | 7.5% | Henderson Diversified Income (HDIV) | |
Defensive | 19% | 50% Personal Assets (PNL) 50% Ruffer Investment Co. (RICA) |
(The total percentage is 99%, leaving cash to cover fees within the wrapper.)
The Fidelity Funds Thailand is a compromise. At the time I couldn't buy Aberdeen New Thai (ANW) at an acceptable price.
IGIL doesn't pay any income, which isn't ideal, but I couldn't find a suitable, income paying alternative.
The implementation clearly reflects my usual preference for Investment Trusts for equity investments and ETFs for bond investments. (I generally don't believe bond managers add enough to justify their fees.)
The forecast annual natural yield is 2.7%.
I was just looking at this portfolio and whether it would have with hindsight made sense and met for the 5 objectives I set of being simple, from Thailand, providing income, etc etc for my wife
It brings out some of the key pitfalls of being reluctant to build assets in Thailand, to live off in such a context, and sticking to offshore.
1) Available from Thailand?
Result: No. But then again that was clearly stated up front, in this case as unwanted.
2) Simple and manageable - so once set up doesn't need much doing except collect the income and almost anyone could handle it even with very limited knowledge?
Result: No. It actually needs quite a bit of ongoing monitoring and review, such as:
i) It's not a portfolio I'd have been comfortable with a (Thai) partner understanding. It really does need someone with investment expertise to manage it. My biggest worry would be if something happened to the person managing it. It couldn't just be left. There'd be little else to do apart from find someone else to manage or liquidate it.
ii) There's a large amount of exchange rat risk for a Thai/ someone based in Thailand. That wouldn't be well understood by a novice investor either. If looking from a UK retiree perspective it might have been OK, but would have fallen short from a Thai person. So understanding the FX impact and why it hasn't worked is important, not just the currency risk hasn't really been addressed
iii)The actual income yield is low, so it can't be left to just live off the income, and needs regular rebalancing, and active management, not just rebalancing but also occasional corporate action events. 2.7% is a start but not something to just set and leave.
iv) Some of the products need some expertise to understand.
-eg inflation linked bonds. Inflation has gone nowhere and if anything may even be decreasing. Yet returns for IL bonds are about more than just that. I doubt the average investor understands where the returns have actually come from in the last 4 years, given they're not really from inflation. These really aren't a buy and forget about investment and need continual assessment as whether they remain appropriate
- eg investment trusts need a higher understanding than ETFs and unit trusts. In particular, discount v NAV issues. Looking forward as we reach late cycle in the investment cycle if and whenmarkets start to correct the equities in ITs will. Additionally having owned HDIV myself in the past, it can have liquidity issues when trying to buy or sell.
- eg the nature of the investments. While some may offer defensive attributes from a UK perspective. They aren't really defensive from a Thai person's perspective
3) Has a reasonable chance of lasting the course of time, so will grow to offset inflation at least partly, and not need to touch the capital?
Result: Not really met in THB terms which is most important if living off income from it here (see below). Probably met in GBP terms, exceeding UK inflation and not touching capital in GBP terms.
4) Diversified - so covers several asset classes of foreign and local equities and bonds, property, cash reserve all of which generate income
Result: Partially met. It's reasonably well diversified. But it would be more relavnt for someone in the UK. Exposure to local equities and local assets is very low, and the portfolio has suffered for that.
Result: Partially met. It's reasonably well diversified. But it would be more relavnt for someone in the UK. Exposure to local equities and local assets is very low, and the portfolio has suffered for that.
5) Address some of the currency risk that the income will be used in Thailand so some THB exposure is a must.
Result: No. This would probably have been the most worrying aspect for me. The last few years has seen GBP significantly devalue vs THB. Only 14% of the portfolio specifically addresses this risk, and maybe a small part of th EM and global stocks
It also highlights the key issue that significant risks could remain and compromises made by not taking advanatge of in-country local options