Bottled out - taken my gains

[PhilboSE]

After a few weeks of dithering, I've lost my bottle this morning and sold all my equity fund holdings. They took a big hit a couple of weeks ago (halved my gains for the year) but have somehow crept back up until last night they had their highest valuation. Put in instructions to sell this am. My funds were highly diversified in sectors and geographies, but my experience of dips is that markets truly are global, sneeze in one location and the whole world catches a cold.

I just feel that a significant correction is around the corner - nothing but bad news about Brexit, global trade wars, unstable government, sterling & yuan taking a hammering, QE being phased out...and yet UK and US markets are very close to all time highs. Last time I felt like this was just before Greece bailout crisis and my (ex) IFA insisted I stayed in - one week later all my holdings were -15% or worse. That was painful when my instincts were to cash out, and then get back in at a lower price.

Even the bond fund managers are telling people not to invest in them, I might dabble in a bit of gold for the first time ever, and I even looked at the NS&I rates this morning! Will be happy to get back into equities when I feel like there's better growth opportunities about.

How's everyone else's sentiments on the markets at the moment? I know the old "time in the market better than timing the market" adage but I've failed to have the courage of my convictions before, and regretted it.

[PhilboSE]

Simpo Two said:

PhilboSE said:

After a few weeks of dithering, I've lost my bottle this morning and sold all my equity fund holdings.

CGT liability or not enough for that to be a factor? (or in ISA?)

Crystallised gains of £135k since January, so a CGT liability to come - I don't mind that though; paying CGT reminds me that I've come out ahead. Not in an ISA, I haven't touched my ISAs or SIPP, partly because it took a while to put all my other sell instructions in, and partly because I lacked the balls, and partly because I figure I'll be leaving those alone long enough to ride out any storms.

Yes I do understand the inconsistency of my position; if I'm sure there's a correction coming then I should get out of the ISAs and SIPP as will and buy back in cheaper...I should grow a pair.

[PhilboSE]

To answer a few questions...

Total invested for those gains was just under £1.65M. I have maxed out my ISA contributions for many years but obviously have far less than the above in the ISA wrapper, so my exposure to a correction is far greater in investments than the ISAs. Though I think I’ll sell the ISAs next week as well.

In order to fund our lifestyle we like to release cash from our investments yearly (we usually have far more invested but have released a chunk for a property acquisition) and usually the cash we release comes from gains. So there’s always CGT to pay each year on the cash we release.

We’e been through a few cycles (2008, 2013) where the valuation of our funds took a massive hit, and if I’d had had the courage of my convictions we’d have got out earlier and bought back in lower.

I generally stay in the markets but they are very volatile at the moment. Last week the markets rose on the pound weakening, but if we have a hard brexit then we won’t be able to sell our cheap goods abroad. Are we really at the peak of market optimism for future returns - I keep asking myself why the markets are so high?

Right now, to me, it looks like markets can’t go much higher but they could go a lot lower. I don’t get much income from our investments so it’s the capital valuation that is of interest to me. This feels like a relative peak so I’m happy to crystallise gains now in the hope that I’m selling high. Maybe markets will go higher and I’ll miss out, but I’m willing to take that chance to offset the risk of them going lower.

Remember that the people who advocate staying in the markets (fund managers and IFAs) have something to gain by you staying in! They are not independent and their crystal balls are no better than mine.

Generally speaking I believe in staying in the markets rather than trying to trade on the dips, but I could have avoided million pound losses in past corrections (if I’d acted on my instincts) and this time I’ve decided to protect my gains for now.

[PhilboSE]

DoubleSix said:

It’s all very well making statements like professionals want you to stay invested (not true btw; clients panicing and selling against advice is always lucrative - they’ll inevitably be back).

But in reality if you’re going to call the market you need to do so with some metrics. I’ve heard nothing beyond ‘gut feel’ in the comments so far. Citing the fact that the FTSE is at highs is a terrible basis for calling a sell.

For example:

CAPE ratio for FTSE 100 hit 32 during the dot bubble and plunged to 8 during the banking crisis.

It now sits around it’s long term average of 16 indicating the index is somewhere around fair value.

This is just one metric and i and other professionals use many to make judgements (I gave another on the previous page).

Listening to the press whip up fear over brexit, trump or whatever the couilles du jour may be is likely to lead to errors where investment is concerned.

What did CAPE tell you just before the banking crisis in 2008 and Greek debt problem in 2013?

[PhilboSE]

sidicks said:

PhilboSE said:

What did CAPE tell you just before the banking crisis in 2008 and Greek debt problem in 2013?

I think that his point was that genuine investors (as opposed to amateur speculators) use a range of metrics to assess valuations and manage exposures, not just one.

I'd like to think of myself as an amateur investor, rather than a speculator. Although seeing as I do it for a living (my own), perhaps that makes me a professional investor...

In any event, I'm not disregarding metrics on investment strategies. However what a simple metric can't help you predict is a sudden change in market sentiments. How many investors were told to get out of the markets just before the most recent devaluations? In the very early days post Lehmann I'd seen some big losses and wanted to bail. My IFA told me that would be selling low and a classic "amateur speculator" mistake - I stayed in the markets and saw my losses triple. When it's your own loss it makes it a lot more personal compared with when you're investing someone else's money!

Part of what I'm saying is that there's always a disjunct between the inherent value of equities, and market sentiment. Part of the issue is that markets are so volatile these days, probably driven by automated trading algorithms. We often see dips of 1.5% in a day followed by a gain of another 1.5% almost the next day. I wonder what actually changed in the underlying nature of the businesses in those 24 hours - answer: nothing.

However when the corrections come, they come hard and fast it seems. I've been investing for nearly 30 years, all but the last couple of years following the advice of "professionals", sometimes against my better instincts. Not once have I ever been advised to get out of the markets, and yet I've lived (and lost significant money) through many market crashes.

[PhilboSE]

Croutons said:

You haven't mentioned what you were invested in?

I wasn't going to be so crass as to ask how much (which you have confirmed anyway) was in to get any return, but I'd still be interested to know where you had it.

FWIW, many of the funds touted in the Finance Forum have done +10-15% in the last 6 months (depending on your exact timing of course), eg Lindsell Train, Fundsmith etc, but I wondered how many eggs you split that sort of sum in to and if individual shares or funds.

My OP tried to make the thread about market sentiment rather than the numbers, but the thread was getting derailed into debate about the size and vehicles so I thought it best to knock that on the head.

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%.

Fundsmith Equity I
Stewart Investors Asia Pacific Leaders A
JPM Europe Dynamic (ex UK) C
Artemis Income (Class I)
Jupiter Income (Class Z)
Marlborough Multi Cap Income (Class P)
Threadneedle UK Equity Income (Class Z)
CF Lindsell Train UK Equity (Class D)
Franklin UK Mid Cap A
Rathbone Income (Class S)
River & Mercantile UK Dynamic Equity A
TM Sanditon UK F
Lindsell Train Global Equity (Class D)
Newton Global Income (Class U)
Baring Europe Select I
FP Crux European Special Situations I
Threadneedle European Select Z
TM Sanditon Europe F
JPM Emerging Markets B
Jupiter Asian Income I
Legg Mason IF Royce US Smaller Companies (X)
Aberdeen Latin American Equity (Class I)
Jupiter India (Class X)
Schroder Small Cap Discovery (Class Z)
Man GLG Japan CoreAlpha (Professional)
Schroder Tokyo (H)

[PhilboSE]

sidicks said:

That’s an awful lot of different funds, with potentially significant overlap in some areas.

I don't know which sectors are going to see growth, so I divided the pot amongst US, UK, Euro and Asia based funds (not equal amounts - I put more into the US, which worked out well).

I also don't know which fund managers are going to be better than others going forwards, so I split each main sector pot amongst some highly rated funds in those sectors.

This explains the overlap, which I'm happy with. Unless anyone can tell me which fund in a sector is going to perform best in the future, I'll spread the risk.

sidicks said:

Aren’t you worried about paying multiple managers for active outperformance where there is a significant risk that this active positions could be offsetting each other?

Investing in a single fund in each sector has the risk that the fund manager has a bad year...each manager is investing in equities which they think will do well, hopefully across the spread they get it more right than wrong,

[PhilboSE]

DoubleSix said:

Perhaps the sort of portfolio you might expect to see where someone has had advice for 28 years, then fired the adviser (because it's easy peasy right?) and begun adding funds over the last two years without making the appropriate disposals. Before moving to cash on gut feel.

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.

[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...

[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.

[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?