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30% portfolio allocation, Fundsmith or..?
King Lodos
Posted: 16 February 2018 17:15:37(UTC)
#96

Joined: 05/01/2016(UTC)
Posts: 2,296

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Aminatidi;57312 wrote:
King Lodos;57297 wrote:
Aminatidi;57290 wrote:
Not quite sure what happened there but I've found all the advice and info useful.

I won't lie, I still don't see how even 3-4% compares with 1% in the bank but it's obvious that 1% on a 3% return is a bigger deal than 1% on a 10% return.

Something I asked on another thread but when it comes to defensives and the likes of Trojan how might I judge this against something like RIT Capital Partners?

I keep reading how it's "defensive" but if I look at what it did in 2008 it tanked but did recover quickly, I think?

I find myself in a bit of a dilemma where right now I have 50/50 Fundsmith/LT Global, I fully take the point that going too defensive so early may not be a good use of cash in the bank, but RIT has good returns and generally "legacy families" of millionaires and billionaires have access to tools that people like me don't so it seems like something worth considering?


I've held RIT for a long while, and often recommended it as the single best play on active management (funds that seek to employ a lot of smart people, and give you exposure to alternative assets).

Again though, I find myself in a dilemma .. As valuations across most asset classes are high, and future returns are likely to be low, fees become a much larger slice of the pie .. Over the past 12 months, I think RIT's pretty flat on its return, yet it's charged something around a 4% fee.

If we're in a 4-5% future, the fee is almost the entire return .. And when I see defensive funds that have done nothing over a year or two, when you can get a very safe 2.2% from NS&I, it's not only a fee hurdle they have to clear in the future, they're actually playing catch-up to savings .. And of course in the past they've sometimes been really good capital preservers in crashes – but then: so has cash .. It's not something I've made my mind up on yet – but RIT is a 3-5% holding for me .. I wouldn't put a third of my savings into something with difficult questions hanging over it .. And if the aim is capital preservation, I think *then* it makes sense to diversify a lot – you could hold 15 defensive funds, and drop underperformers quite brutally


Remember though I can't put NS&I in an ISA so there's tax on that return so it's not a true 2.2%.

I can see RIT has had a crap 12 months but isn't that a case of looking short term when I should be looking long term?

I guess this is where I'm confused because you're suggesting it's got "difficult questions hanging over it" when all I see as a novice is a steady 11% average annual return and it's billed as "defensive".

That's hard to reconcile with how it's coming across as if it's little better than cash in the bank so I'm genuinely confused as well as the 4% fees?

Oh and fair point on a third of savings, keep in mind right now it's a third or quarter (or whatever) of the annual ISA allowance as it drips through.

Feels like I'm missing something... :)


It's one of these ongoing debates: the value of active management.

People tend to be very religious about it – one way or the other – no doubt because investing involves uncertainty.

My explanation for how RIT works is that it uses diversification and leverage .. And if you combine diversification (the same return for less risk) with leverage (a higher return for higher risk) you can achieve higher long-term returns without having to do anything skilful – which is ideal .. Because betting on skill is like betting on a snooker player.

The question today is: is there enough of an edge in active management (as every strategy tends to degrade over time), or value in diversifying, to continue to achieve higher quality returns after those hefty fees?

It's something you'd need to decide for yourself .. My biggest recommendation would be to avoid all sources of unnecessary uncertainty



philip gosling
Posted: 17 February 2018 10:29:59(UTC)
#95

Joined: 06/01/2013(UTC)
Posts: 40

Thanks: 20 times
Was thanked: 37 time(s) in 20 post(s)
Don't forget everyone gets £1000 Tax free interest from banks etc so a couple get £2000 (basic taxpayers - half that for higher rate tax payers) you can put £90000+ in NSI without paying tax on 2.2%



Aminatidi;57312 wrote:
King Lodos;57297 wrote:
Aminatidi;57290 wrote:
Not quite sure what happened there but I've found all the advice and info useful.

I won't lie, I still don't see how even 3-4% compares with 1% in the bank but it's obvious that 1% on a 3% return is a bigger deal than 1% on a 10% return.

Something I asked on another thread but when it comes to defensives and the likes of Trojan how might I judge this against something like RIT Capital Partners?

I keep reading how it's "defensive" but if I look at what it did in 2008 it tanked but did recover quickly, I think?

I find myself in a bit of a dilemma where right now I have 50/50 Fundsmith/LT Global, I fully take the point that going too defensive so early may not be a good use of cash in the bank, but RIT has good returns and generally "legacy families" of millionaires and billionaires have access to tools that people like me don't so it seems like something worth considering?


I've held RIT for a long while, and often recommended it as the single best play on active management (funds that seek to employ a lot of smart people, and give you exposure to alternative assets).

Again though, I find myself in a dilemma .. As valuations across most asset classes are high, and future returns are likely to be low, fees become a much larger slice of the pie .. Over the past 12 months, I think RIT's pretty flat on its return, yet it's charged something around a 4% fee.

If we're in a 4-5% future, the fee is almost the entire return .. And when I see defensive funds that have done nothing over a year or two, when you can get a very safe 2.2% from NS&I, it's not only a fee hurdle they have to clear in the future, they're actually playing catch-up to savings .. And of course in the past they've sometimes been really good capital preservers in crashes – but then: so has cash .. It's not something I've made my mind up on yet – but RIT is a 3-5% holding for me .. I wouldn't put a third of my savings into something with difficult questions hanging over it .. And if the aim is capital preservation, I think *then* it makes sense to diversify a lot – you could hold 15 defensive funds, and drop underperformers quite brutally


Remember though I can't put NS&I in an ISA so there's tax on that return so it's not a true 2.2%.

I can see RIT has had a crap 12 months but isn't that a case of looking short term when I should be looking long term?

I guess this is where I'm confused because you're suggesting it's got "difficult questions hanging over it" when all I see as a novice is a steady 11% average annual return and it's billed as "defensive".

That's hard to reconcile with how it's coming across as if it's little better than cash in the bank so I'm genuinely confused as well as the 4% fees?

Oh and fair point on a third of savings, keep in mind right now it's a third or quarter (or whatever) of the annual ISA allowance as it drips through.

Feels like I'm missing something... :)
1 user thanked philip gosling for this post.
King Lodos on 17/02/2018(UTC)
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