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IT's to trust with your legacy
Captain Slugwash
Posted: 24 December 2017 13:09:59(UTC)
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The recent thread looking for investment advice for a widow has got me thinking about my own demise.

I am still totally in individual equities, but accept that I would probably be better bundling my investments up in 3 to 5 Investment Trusts, and leaving clear instructions in what order to dispose of them, if at all.

So, the question is, if you had to choose, what would be your choice of IT's?

Try to keep it about 3 to 5. Personally I am thinking of 3 low cost large Global IT's, and 1 or 2 Personal Asset (PNL) type IT's.

I await your valued insight :)
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Mr Helpful
Posted: 24 December 2017 15:50:30(UTC)
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Absolutely no way am going to suggest to heirs they reduce to 5 or less positions. Too much might go wrong with an uncomfortably large investment.

Present suggested core (which will change from time to time) includes ITs plus :-

Risk
UK Stocks : SDV, CTY
Global Stocks : VWRL, VHYL, IVPG
Private Equity : III
Commodities : BRCI
Emerging Markets : JEMI

Defensives (sort of)
IBTS : Short-Term US Treasuries
IS15 : Short-Term UK Corps
BLND : Commercial Property (this choice will probably change to wider scope fund).

Not all securities are to be held at equal weight.
Still work in progress.

Thanks for re-raising the issue.
Will be most enlightening to see how others are thinking.
Very willing to revisit the selection in the light of better ideas.
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North Star
Posted: 24 December 2017 17:00:02(UTC)
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My concern advising anyone at the moment are the premiums paid for some of the best IT's when the gearing is taken into account. Some look quite expensive, particularly the higher yielding income trusts.
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Keith Cobby
Posted: 24 December 2017 20:46:33(UTC)
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Mine are:

Scottish Mortgage
Scottish American
F & C
F & C Global Smaller Companies
Bankers
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King Lodos
Posted: 24 December 2017 21:12:27(UTC)
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I'd take Warren Buffett's tack and suggest a Vanguard Global Market tracker. (maybe Vanguard, iShares, BlackRock, if there is any company-specific risk)

If we go back 20 years, there were always no-brainer funds that went wrong .. New management, too much gearing (almost sunk a few in the financial crisis), activist takeovers, fraud – and then there are those that have nothing in common with what they were 20-30 years ago other than a name.

If the upside is a shot at beating the passive benchmark by a few percent, the downside is much more idiosyncratic risk .. It may be that markets get so efficient over the next 10 years (every asset priced to perfection by deep learning and big data), that active funds become expensive dinosaurs .. I'm not predicting that, but it's the difficulty of prediction that makes passive an 'easy' option

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Mickey
Posted: 24 December 2017 22:33:57(UTC)
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Remembering Morningstars assessment that 7 represented the best risk vs reward, my 5+2 would be -

Scottish Mortgage
F & C
Brunner
Edinburgh Worldwide
Finsbury Growth Trust
+
Henderson Smaller Co's
Personal Assets Trust
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JohnW
Posted: 24 December 2017 23:21:32(UTC)
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Five trusts. Firstly I don't have a background in financial matters, I'm very much the enthusiastic amateur, so my thoughts are just that, my thoughts. Not recommendations.

Firstly I would want a "Safe" core holding. I've held CTY for going on 20 years. It was the first IT I ever brought. It wont shoot the lights out but it wont cause you sleepless nights. It's costs are low and although there have been years where it'd not made much apart from the dividends I cant think of any 12 month period where it has actually lost me money! I would make this my largest holding of the five, to give a little stability. 4% of yield plus a bit of capital growth each year is not to be sniffed at

Next a global trust. I consider SMT rather more speculative, likely to perform better than CTY, but may not be quite so reliable. A bit of jam to put on the bread brought by CTY. I'd make this my second biggest holding.

Third would come a European trust. My choice would be HEFT. Reasonably stable and reliable performer

The fourth trust I would want would be to cover Asia, and for that I like SOI

To finish, the smallest holding would be in small companies. HSL would be my choice

I've left Emerging Markets and property out, because with only 5 you have to draw the line somewhere, so I have covered the biggest of the stable markets. I know there is no specific American, but nearly half of SMT is invested in America so it's not ignored. 3, 4 and 5 add a little spice into the mix.

John
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Captain Slugwash
Posted: 25 December 2017 09:56:00(UTC)
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Thanks for the replies. Obviously I am not the only one giving it some thought.

A good spread, and very remiss of me to forget about ETF's and funds. ETFs focusing on dividends and quality have popped up on my radar, particularly VHYL and the iShares Quality range.

Fair comment about a recommended minimum of 7 investment vehicles (I think Keith's preferred number is 8), but I still feel 5 is plenty for a total novice with no interest in learning.
Five is certainly attainable whilst still giving yourself exposure to Govt bonds, property etc.

North Star is on the money about gearing (I would prefer it in single figures), and KL fair to mention management, but hopefully spread amongst 5 IT's etc it should reduce risk somewhat.

As an aside, I do like boring old CTY. I have it in my daughters SIPP & JISA with MYI, and am due to add a 3rd Asian IT in the New Year.

I only started them at the beginning of this year, but with a small initial investment and monthly drips they will have on average returned just over 7% by years end. Not amazing for this year, but as JohnW says...no sleepless nights. It may just be enough to convert me to this IT lark.

No need to remind you of the day, so best wishes to you all, and thanks again for the input.
North Star
Posted: 25 December 2017 12:22:45(UTC)
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My concern over gearing of IT's related to Brunner and I think (from memory) Allianz had loaded it with debt at 13%. That takes some paying for so it not only gearing to worry about but the price they're paying for that debt.
Now that I'm retired and have more time, before buying an IT I'm going to spend a bit more time researching. IT's are the best long term investment but the devil is in the detail.
FRCL have been good for me as a good general Global fund.
JohnW
Posted: 25 December 2017 12:53:24(UTC)
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Many IT's have taken on more debt in recent times to take advantage of the low interest rates. Many using the new borrowings to pay off the old debt which was taken out on far higher interest rates. Yes, definitely look at the debt figure, but also look at the interest figure being paid on that debt.

John (Merry Christmas to all.)
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David Scott
Posted: 29 December 2017 21:29:11(UTC)
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With Benjamin Graham's suggested portfolio mix in mind (50% defensive & 50% equity) I would recommend the following mix of 4x IT's and 4x Funds:

UK income
Miton UK Multi-cap Income 10%
JOHCM UK equity Income 10%

Global
RIT 10%
Newton Global Income 10%

Defensive
TwentyFour Absolute Credit 15%
Personal Assets Trust 20%

Inflation Hedge
TRY 10%
CGT 15%

Approx yield 3%.
Please let me know your thoughts.

Thx.



Antony A
Posted: 17 January 2018 16:14:36(UTC)
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Restricting oneself to five trusts is hard and effectively pushes one towards global trusts, to give the portfolio a chance of having sufficient regional coverage plus the flexibility to change regional allocations, as the trusts adapt to changing market conditions.

I'm also going to assume - as the OP didn't make this clear - that the legacy will not be needed to generate a substantial income for beneficiaries or dependents, or to meet a known capital expenditure, where capital preservation over a fixed timeframe is a priority. I'm assuming the portfolio's aim is long-term growth, held in SIPPs or ISAs; trading will be minimal; any disposals will be occasional and only made to fund large projects like buying a house; and any dividend income is just to cover platform fees and help out with portfolio rebalancing.

With this aim in mind, I would go for:

SMT: these guys have a punchy, persuasively optimistic and continually-updated view of the world economy, followed through by strong stock selection skills that have given excellent returns over many years, with very low levels of charges. They have consistently returned more than 22% p.a. over 1, 3 and 5 years. With SMT, you get US and Chinese consumer/tech, 25% in Europe, and good exposure to very small companies in areas like robotics, heathcare, biotech, and electric cars.

Monks: another Baillie Gifford trust with a much-improved record since a new team took over in 2015. They have a very interesting approach to asset allocation, similar to BG's overall "house style", but sufficiently different so you don't feel like you are duplicating SMT. They have 21% in Emerging Markets, for example. An alternative BG worldwide trust with a good record and more small-cap orientation is Edinburgh Worldwide (EWI).

III: for private equity growth, focused mainly in Europe and the UK. Another trust that has returned more than 22% p.a. over 1, 3 and 5 years. It's on a high premium, so I would drip-feed into this, in the hope of benefiting from some pound-cost averaging. If III's premium is off-putting, two other good global PE trusts are HVPE and SLPE. If private equity isn't your thing, a third global trust with an improving record is Foreign and Colonial.

Smaller allocations would be made to:

RIII: investing globally is of course very sensible, but there are many excellent small-company trusts that focus on the UK and really know their markets, reflected in excellent Alpha and Sharpe scores. Rights and Issues is a small-cap specialist with a terrific long-term track record, up there with SMT and III. It's a bit of a one-man band, who will eventually retire, so an alternative would be THRG or BRSC from BlackRock, or Independent (IIT), run by a former SMT manager and with another great 5-year record (and a discouraging premium at the moment, which will probably fall back).

Lastly, we can't leave out Japan, despite the 7% weighting in Monks. Here there are yet more excellent small- to mid-cap trusts run by Baillie Gifford, such as Shin Nippon (BGS) and Baillie Gifford Japan (BGFD), but these are both sitting on hefty 10%-ish premiums at the moment. If that is hard to swallow, JPM Japanese Smaller Companies is a good alternative.

If I were allowed 10 trusts, rather than 5, I would add:

6. TRG or JESC for European small-caps; or JEO or HEFT for larger-cap, with JEO having a 25% allocation to the UK.

7. JUSC for small-caps in the US. Too many portfolios are underweight the US, so a hefty allocation to this active manager would help redress this. If you must use a tracker, iShares S&P SmallCap 600 ETF (ISP6) tracks the small-cap segment of the US market via a basket of stocks with a median market cap of $1.1 billion. This ETF has beaten the returns of those tracking the Russell 2000 small-cap index over 3 and 5 years, as well as the S&P500.

8. Sirius Real Estate (SRE) for Germany-focused commercial real estate, a great 1, 3 and 5 year track record, and still on a large discount. A UK and Europe-focused alternative is Alpha Real (ARTL).

9. FCSS for small-caps in China.

10. Allianz Tech (ATT). This trust, based in Silicon Valley, is at risk of duplicating the tech in SMT's portfolio, but like its competitor Polar Global Tech, it has an undeniable track record and seems to pay good, close attention to future development potential. Alternatively, if more Asia-Pacific coverage is needed, I would choose a generalist like Schroder Asia-Pacific (SDP) or take a punt on India coming good and go for India Capital Growth, which has returned 20%+ over 1,3 and 5 years.
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King Lodos
Posted: 17 January 2018 16:36:50(UTC)
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One thing I'd always caution with SMT (maybe Baillie Gifford in general at the moment) – despite my top 10 holdings looking very similar to theirs – is the investment thesis could be extremely vulnerable to bubbles.

Like the Bitcoin thread, the line between world-changing innovation and irrational exuberance is difficult to draw – and the fact markets get caught up in one of these, almost every decade, shows it's also a difficult lesson to learn.

Warren Buffett's success – if you're looking for an Efficient Markets explanation – could be put down mostly to avoiding hype .. Because whether the hype's justified or not, it's unlikely to be on much of a discount
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Keith Cobby
Posted: 17 January 2018 16:42:15(UTC)
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One thing BG investment trusts have with Berkshire Hathaway is that, with the exception of Scottish American, they hardly pay out any income.
Jim S
Posted: 17 January 2018 16:51:27(UTC)
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You've had a lot of good advice, my choice would be similar to Antony A's I think

I know you wanted IT advice, maybe because your platform charges less than OEICs. Nevertheless, if it was me, I would still find a way to include Fundsmith Equity in the mix, probably as the core holding. Compare its track record since launch around 8 years ago with anything else you like, plus I think its less volatile than SMT so good as a counterweight.
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dlp6666 on 17/01/2018(UTC)
Captain Slugwash
Posted: 17 January 2018 17:15:56(UTC)
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Lots of good answers, and Anthony A's is certainly comprehensive.
However, I think we are starting to suffer from mission creep.

Remember, the question was for 3 to 5 investment vehicles for the financially unsound. I know 10 is better, but I am asking for your must haves, your top picks :)

I realise I am showing a prejudice against funds, but I do think that to the layman they are probably more confusing than an IT.
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Jim S
Posted: 17 January 2018 17:43:31(UTC)
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4 ITs + Fundsmith core:
Fundsmith 40%
SMT 15%
FCS 15%
FCSS 15%
IEM 15%

5 ITs only:
RCP 30%
SMT 25%
FCS 20%
FCSS 15%
IEM 10%
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Alan Selwood
Posted: 17 January 2018 21:28:02(UTC)
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Jim S;55549 wrote:
4 ITs + Fundsmith core:
Fundsmith 40%
SMT 15%
FCS 15%
FCSS 15%
IEM 15%

5 ITs only:
RCP 30%
SMT 25%
FCS 20%
FCSS 15%
IEM 10%


Yes, I could live with either of those! I do like Fundsmith Equity Fund for the global megacap, non-speculative end of the market.
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Aminatidi on 19/02/2018(UTC)
Antony A
Posted: 18 January 2018 13:30:07(UTC)
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OK, if it has to be just 3 trusts, then:

1) SMT, because it hits so many bases: you get good attention to US tech and China, they're not afraid to change allocations (reducing the US through 2017 and building up to 25% in Europe, for example, while Fundsmith is still 62% in the US), they have a private equity-style approach to small-cap and unlisted tech companies, and they seem to "get" today's Zeitgeist better than most. I don't mind that SMT has some volatility in downturns: they've more than made up for it in the upturns, and volatility is an inevitable part of business life, inevitably opening up opportunities through creative destruction and technological disruption that innovative companies (and SMT, as shareholders riding on their coat tails) then exploit.

2) Monks, because it shares Baillie Gifford's approach to analysis and investment selection, fills in some gaps like emerging markets where SMT is less attentive, and has a nice balance of Growth, Steady Eddies and defensives.

3) FCS, because I like small caps for long-term growth, I have some faith that the UK will get over Brexit (26% of FCS is in the UK, compared to 4-5% in SMT and MNKS), and the trust has a healthy 39% allocation to US small caps.

I don't care about income: dividends are useful to tinker around the edges of a growth portfolio, but money returned to shareholders is mainly money that isn't being invested in future growth of the business, whether for growth via improved market share or new markets, or to invest in the company's internal infrastructure and replace its depreciating assets. If shareholders really need to take money out of their growth portfolio, just sell some shares!
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