Bottled out - taken my gains

[DoubleSix]

PhilboSE said:

Hoho.

You want to know what my last IFA had me in? £2M in SL Gars, the biggest dogst fund ever. A global absolute return fund targetting cash+5% annually, so over the last 3 years it should be up at least 15% right? So what is it doing 5% down over 3 years (not counting the tax also paid on dividends), when it should be growing in "all market conditions"? These highly paid active fund managers with all their clever strategies have been getting it mostly wrong for the last 3 years. My IFA said (2 years ago) "I have faith, stay in, I believe in this fund"!

I've been though 2 IFAs since I've been investing. Under their advice, my portfolio miserably underperformed. If there was any thought process behind their strategies, they could never explain it. Since "going solo", I've dramatically outperformed their returns, in similar market conditions.

The only absolute aspect of an absolute return fund is the cost. Clearly, not a satisfactory approach.

Hope things continue to improve for you.

[Croutons]

Shnozz said:

Rather than the usual b1tchfight that seems to come with every PH thread these days, any more thoughts from those wiser/in the industry on how the market is looking at the minute? I've listed the reasons why I see trouble imminently but the markets don't seem to show any sign of concern at the minute and futures markets all look like they are not anticipating much change, if any at all.

Election? Brexit? House price wobbles? All on the horizon but seems to just be business as normal.

I am neither wiser nor in the industry, however, I am fairly sure my SIPP is looking toppy thanks largely to a US bias and our crap exchange rate.

However, I have a lengthy timeframe for this, buy monthly (into other funds) so am not overly worried. I am expecting a 3- 5% pullback, but mass carnage? Don't see it. And if I lose this year's +10- 20% in gross gain (fund dependent) I've still had +20% in free tax at source (ie not counted in that 10- 20%) plus a rebate through my tax return too. Thanks Government!

Chances of an election? Who cares? Tories are fighting each other, but why would they give up the hot seat when they get 5 years, especially this side of Brexit? Quiet Corby would love it, but there's no guarantee he'd get in. House prices? Tax is hurting the >925k market, which hurts tax revenue, but Gov doesn't care when Carney can print another 750bn without asking. The public sector pay cap has gone, so average joes are getting more pounds in their pockets. Brexit will sort itself out.

I suppose when you think these are relevant topics right now, which 3 topics were relevant 2 years ago, what happened, and did we all lose our shirts? If you can't remember, well....

[sidicks]

PhilboSE said:

You want to know what my last IFA had me in? £2M in SL Gars, the biggest dogst fund ever. A global absolute return fund targetting cash+5% annually, so over the last 3 years it should be up at least 15% right?

Wrong! You’ve obviously not read the prospectus where it talks about return targets over a medium to long time horizon?

Certainly performance has been disappointing in the short term, but this has been a market which has favoured market beta over alpha and with low market dispersion, alpha strategies have inevitably struggled.

PhilboSE said:

So what is it doing 5% down over 3 years (not counting the tax also paid on dividends), when it should be growing in "all market conditions"?
These highly paid active fund managers with all their clever strategies have been getting it mostly wrong for the last 3 years. My IFA said (2 years ago) "I have faith, stay in, I believe in this fund"!

I've been though 2 IFAs since I've been investing. Under their advice, my portfolio miserably underperformed. If there was any thought process behind their strategies, they could never explain it. Since "going solo", I've dramatically outperformed their returns, in similar market conditions.

You’ve outperformed their returns by taking much more market risk (and volatility) in an environment that was conducive to market bets.

You are comparing apples and pears!

[sidicks]

xeny said:

Given the no of funds and their breadth, why not throw it all in VWRL and save wear and tear on brain cells?

It'd be a very financially sensible (albeit potentially mentally painful) comparison to see if you're getting any Alpha out of this approach, or simply paying a bunch of fees. ALAI in particular, ugh.

Indeed, that would be my concern, paying a lot for alpha which never materialises as each manager’s active views cancel out the others.

[red_slr]

sidicks said:

You’ve outperformed their returns by taking much more market risk (and volatility) in an environment that was conducive to market bets.

You are comparing apples and pears!

Depends on the client though, IMHO. This client clearly more happy with returns in the now rather than in the future. Perhaps that's what their investment advisors should have identified. I keep telling my IFA I will quit work latest 50 but maybe as soon as 45. He just laughs at me. As such he now gets to play with about 30% of my money, the rest is invested elsewhere as he just does not understand my requirements as he does not identify with them. Its all about personal choice IFAs should see that but often, IME they don't.

[sidicks]

red_slr said:

Depends on the client though, IMHO.

Of course, if a client is happy to take market exposure and can afford the volatility then they should be investing in equity markets, not absolute return funds.
I have no idea what risk tolerance or other conversation the OP had with his advisor.

The point still stands that comparing the performance of an absolute return strategy with a higher risk beta strategy is meaningless, particularly over a relatively short investment horizon which has massively favoured beta funds.

[PhilboSE]

sidicks said:

PhilboSE said:

You want to know what my last IFA had me in? £2M in SL Gars, the biggest dogst fund ever. A global absolute return fund targetting cash+5% annually, so over the last 3 years it should be up at least 15% right?

Wrong! You’ve obviously not read the prospectus where it talks about return targets over a medium to long time horizon?

Certainly performance has been disappointing in the short term, but this has been a market which has favoured market beta over alpha and with low market dispersion, alpha strategies have inevitably struggled.

Yes, I read their prospectus before getting in. Target is cash+5% (gross of fees) annually over any rolling 3 year period. Which is why I took the 3 year analysis; over that period, according to THEIR prospectus, they were targetting +15% (because the 6 month LIBOR rate is basically the same as their fees. Instead, the fund value has been in a pretty much straight line down. As investors will have paid tax on dividends through this period, the actual performance is worse - maybe around -7%.

sidicks said:

PhilboSE said:

So what is it doing 5% down over 3 years (not counting the tax also paid on dividends), when it should be growing in "all market conditions"?
These highly paid active fund managers with all their clever strategies have been getting it mostly wrong for the last 3 years. My IFA said (2 years ago) "I have faith, stay in, I believe in this fund"!

I've been though 2 IFAs since I've been investing. Under their advice, my portfolio miserably underperformed. If there was any thought process behind their strategies, they could never explain it. Since "going solo", I've dramatically outperformed their returns, in similar market conditions.

You’ve outperformed their returns by taking much more market risk (and volatility) in an environment that was conducive to market bets.

You are comparing apples and pears!

Sorry, I wasn't being clear; this and other IFA had us in other mainstream equity funds as well; it's the performance of those I was comparing. GARS was supposed to be the mainstay of the portfolio to give us a steady 5% return and then we were encouraged to be a bit more spicy in other areas; losing 50% (£250k) in Latin America over 5 years was a particular highlight.

Are you saying that GARS is a fund worth being in? It still has £20bn invested (even after £10Bn of outflows), so someone out there thinks so...

[xeny]

PhilboSE said:

Are you saying that GARS is a fund worth being in? It still has £20bn invested (even after £10Bn of outflows), so someone out there thinks so...

never underestimate the power of inertia.

[PhilboSE]

sidicks said:

red_slr said:

Depends on the client though, IMHO.

Of course, if a client is happy to take market exposure and can afford the volatility then they should be investing in equity markets, not absolute return funds.
I have no idea what risk tolerance or other conversation the OP had with his advisor.

The point still stands that comparing the performance of an absolute return strategy with a higher risk beta strategy is meaningless, particularly over a relatively short investment horizon which has massively favoured beta funds.

We came out as medium risk. Don't get too carried away on the comparison of absolute returns vs pure equities, I wasn't making that comparison though I'll accept that a lack of detail in my response didn't make that clear. I didn't see much value in describing every nuance of my portfolios over the last 10 years. The thread was originally intended to take assess market sentiments, but it's been derailed to critique my investment choices. I don't claim to be the Sage of Omaha, I am happy to pay a variety of fund managers ~1% for them to do their research and pick funds they think will do well and hold these for a period.

[sidicks]

PhilboSE said:

Sorry, I wasn't being clear; this and other IFA had us in other mainstream equity funds as well; it's the performance of those I was comparing. GARS was supposed to be the mainstay of the portfolio to give us a steady 5% return and then we were encouraged to be a bit more spicy in other areas; losing 50% (£250k) in Latin America over 5 years was a particular highlight.

Are you saying that GARS is a fund worth being in? It still has £20bn invested (even after £10Bn of outflows), so someone out there thinks so...

For long term growth with low volatility I think the GARS fund will do OK. It is still a very big fund, which gives them some advantages and some disadvantages.

Personally, if I wanted a diversified growth strategy i’d Be looking for something that can blend alpha and beta and actively changes the mix from time to time in light of prevailing market conditions.
If you don’t care about volatility then with a long investment horizon I’d focus on market beta across multiple equity markets.

[PhilboSE]

sidicks said:

xeny said:

Given the no of funds and their breadth, why not throw it all in VWRL and save wear and tear on brain cells?

It'd be a very financially sensible (albeit potentially mentally painful) comparison to see if you're getting any Alpha out of this approach, or simply paying a bunch of fees. ALAI in particular, ugh.

Indeed, that would be my concern, paying a lot for alpha which never materialises as each manager’s active views cancel out the others.

Yes, I've been in Vanguard funds before and might do the groundwork to assess performance of VWRL.

I'm not sure that each manager's active views cancel out the others to any great extent. There might be a bit of that, but in essence each manager is picking funds *they* think will do better than others. Some will be right, some will be wrong. I hope that the good fund managers will get it right more than wrong.

Let's say you wanted to invest £1M in UK equities. Do you put it all with one manager, or spread it amongst a few? Let's assume that fees will be about the same for all funds, so neither strategy costs the investor more money. The single manager risk is that their position is bad, then you're exposed. The multi manager risk is that there will be some winners and some losers. They might cancel out to an extent, and you might get less good returns than a single manager, but you might also get smaller losses.

I chose a variety of funds with slightly different outlooks; large fund, large company bias in some and small fund sizes investing in smaller companies for others. I don't know which approach will be best in the future, so I spread the risk and hope that the experts win more than they lose and overall I come out ahead.

Why not just go for a Vanguard index? I have done in the past and may do again. My previous strategy was to go for fund managers who are paid to pick the higher performing stocks. Obviously they have to perform 1% better than the index in order to cover their fees. I'm still analysing the cost/benefit of this. The trouble with something like VWRL is that is non-discriminate, by rigidly tracking several indices as an investor you will be exposed to markets that you might not favour.

Since January, VWRL is up around 4%. Over the same period I got just over 8% after fees. I'm not saying I'm an investment genius, I think I got lucky and that's partly why I took my gains (and partly because of the volatility I was seeing). I'm very much still learning, so any pointers/advice I'm willing to research. Sniping at my amateur strategies isn't particularly constructive, nor particularly well received, as the "professionals" who have managed my affairs to date have not done well.

[PhilboSE]

MisterJD said:

Why would you take your investment advice from IFAs and not an investment professional?

Tell me more about these investment professionals. I've had discussions with Brewin Dolphin about having them manage my portfolio, but I wasn't convinced by their approach (nor fee structure) - is this the kind of organisation you mean?

[sidicks]

PhilboSE said:

Yes, I've been in Vanguard funds before and might do the groundwork to assess performance of VWRL.

I'm not sure that each manager's active views cancel out the others to any great extent. There might be a bit of that, but in essence each manager is picking funds *they* think will do better than others. Some will be right, some will be wrong. I hope that the good fund managers will get it right more than wrong.

Let's say you wanted to invest £1M in UK equities. Do you put it all with one manager, or spread it amongst a few? Let's assume that fees will be about the same for all funds, so neither strategy costs the investor more money. The single manager risk is that their position is bad, then you're exposed. The multi manager risk is that there will be some winners and some losers. They might cancel out to an extent, and you might get less good returns than a single manager, but you might also get smaller losses.

I chose a variety of funds with slightly different outlooks; large fund, large company bias in some and small fund sizes investing in smaller companies for others. I don't know which approach will be best in the future, so I spread the risk and hope that the experts win more than they lose and overall I come out ahead.

If you are comfortable that there isn’t too much overlap then that’s fine - I’ve not analysed your holdings in detail, I just noticed a number of funds that appeared to invest in broadly similar areas. I think there is an online tool that can help assess the overlap between different funds, which may be interesting for you?

I think that if there is more overlap then being able to outperform, sufficiently to offset the fee drag is much harder.

PhilboSE said:

Why not just go for a Vanguard index? I have done in the past and may do again. My previous strategy was to go for fund managers who are paid to pick the higher performing stocks. Obviously they have to perform 1% better than the index in order to cover their fees. I'm still analysing the cost/benefit of this. The trouble with something like VWRL is that is non-discriminate, by rigidly tracking several indices as an investor you will be exposed to markets that you might not favour.

Since January, VWRL is up around 4%. Over the same period I got just over 8% after fees. I'm not saying I'm an investment genius, I think I got lucky and that's partly why I took my gains (and partly because of the volatility I was seeing). I'm very much still learning, so any pointers/advice I'm willing to research.

PhilboSE said:

Sniping at my amateur strategies isn't particularly constructive, nor particularly well received, as the "professionals" who have managed my affairs to date have not done well.

The point is to ensure that you compare apples and apples, nothing more than that.

[bitchstewie]

PhilboSE said:

Let's say you wanted to invest £1M in UK equities. Do you put it all with one manager, or spread it amongst a few?

You know the argument, put it with 30 fund managers and you've probably bought the market but @ a lot more in fees than a tracker.

Again with the caveat I'm just a gimp who's read some books, apparently if you look at stock returns statistically you don't reduce/diversify risk by much at all once you go over and above a certain number of holdings, and that number is "only" around a dozen.

Even a "concentrated" fund like Fundsmith or Lindsell Train will be in 30 or so individual holdings.

I can buy into the diversity being important i.e. don't put money in 30 tobacco companies, but I do struggle with what safety holding 30 funds so let's say 1000 holdings gives you over holding say 3 funds and 100 holdings?

I'd also add at some point FSCS limits probably come into things.

[SS2.]

PhilboSE said:

All fairly mainstream, I'm not looking for spectacular growth. Reasonably evenly spread across the following. I rebalanced the portfolio in January this year so they all started from the same point more or less. They were all up when I sold apart from India which was down 16%.

Interesting thread.

I have a SIPP which has less than half the number of funds in your portfolio, although most of mine are on your list. I've also had my finger on the trigger, wondering what way the markets will go.

Agree about Jupiter India - that's been a complete dog for me, too. It's the only one which has lost over the past 12 months, with all of the other funds showing 10% to 27% gains over the same period.

[sidicks]

SS2. said:

Interesting thread.

I have a SIPP which has less than half the number of funds in your portfolio, although most of mine are on your list. I've also had my finger on the trigger, wondering what way the markets will go.

Agree about Jupiter India - that's been a complete dog for me, too. It's the only one which has lost over the past 12 months, with all of the other funds showing 10% to 27% gains over the same period.

What has been the performance of the benchmark?

[Armitage.Shanks]

I'm staying in as I can't think where else I'd put my money to chase a few extra quid and hassle I probably don't need. I've rode the storms before and up until earlier this year didn't buy into the market since 1999 and hold all since then which has done OK.

Portfolio is circa 30% equities (80% ISA wrapped), 40% cashing holding, 30% property (excluding main).

Luckily on a final salary index linked pension and at some point in the future I'll probably draw down on investments in future as needed but having just taken the pension with some part-time work not sure when that will be.

[NRS]

red_slr said:

Depends on the client though, IMHO. This client clearly more happy with returns in the now rather than in the future. Perhaps that's what their investment advisors should have identified. I keep telling my IFA I will quit work latest 50 but maybe as soon as 45. He just laughs at me. As such he now gets to play with about 30% of my money, the rest is invested elsewhere as he just does not understand my requirements as he does not identify with them. Its all about personal choice IFAs should see that but often, IME they don't.

In this case would you not get a new IFA that does agree with you?

[DoubleSix]

NRS said:

In this case would you not get a new IFA that does agree with you?

Ha ha brilliant... a career in Westminster beckons!

[NRS]

I do what I can,

Shnozz said:

Rather than the usual b1tchfight that seems to come with every PH thread these days, any more thoughts from those wiser/in the industry on how the market is looking at the minute? I've listed the reasons why I see trouble imminently but the markets don't seem to show any sign of concern at the minute and futures markets all look like they are not anticipating much change, if any at all.

Election? Brexit? House price wobbles? All on the horizon but seems to just be business as normal.

I read an article which probably sums this up quite nicely. Things look so bad in so many places that the sell and go away option is "too obvious", and therefore it's probably the wrong one to do - at least for now. Bit like Trump was going to kill the market if elected etc. We're getting close to coming out of the correction on several indexes now too, which is likely to be positive for the next little while I'd guess.