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JA1976
Posted: 19 October 2017 08:47:19(UTC)
#1

Joined: 19/10/2017(UTC)
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Hi All,

Firstly, apologies for the long post. I have been wanting to consolidate my old workplace pensions for a while now and have finally done so by opening a SIPP with Hargreaves Lansdown. The value of the transfer is around £115k and I will be investing in Investment Trusts, and possibly some ETF's, in order to take advantage of both the low cost (HL charge 0.45% but cap this at £200 for IT's and ETF's - a charge of 0.17% on £115k) and far better returns than standard funds.

I am coming up for 41 and have been using a figure of 65 for retirement age, although this isn't set in stone. Given I have around 25 years left, I have a long investment horizon which means I am more adventurous with my risk appetite.

I also have a workplace pension with my current employer that I am keeping as is. It's with Fidelity and is currently around £25k (this is invested in one of their Timewise retirement funds which invests in a range of asset classes and regions, although is currently 40% in US stocks). The combined monthly contribution to that between myself and my employer is £1,000 a month. This will remain in place and I have no immediate plans to add any further funds to my SIPP. I want to grow that £115k over the next 25 years as much as possible and then take advantage of the drawdown facility whilst probably buying an annuity with my Fidelity pension (I don't envision moving jobs again, but you never know what the future holds). Ideally, I would like a combined pension of £40k upon retirement and I would also probably look to take the 25% tax free lump sum from my SIPP as well - although this isn't definite.

So, I have been researching some IT's and have a list of 50 or so - most of which I assume you are all well aware of. I am looking to construct a portfolio of between 10-15 holdings with a minimum of 5% per holding, so need to whittle this down.

I think it's prudent to take a diversified approach, so will be looking to have IT's that cover the UK, Europe, Far East, NA and Global as well as some that invest in property, biotech and infrastructure given my long term view.

Those that stand out to me are SMT, FCS, 3IN, TRY, TRG, RCP, WPCT, HSL, HFEL and ATT. I have read that some people have a low cost tracker in their portfolio as a benchmark (either a FTSE AW or S&P500 ETF), so am wondering if anyone on here also adopts that strategy?

Also, what are people's views on buying IT's at a premium? Is it a definite no-no, or does it depend entirely on the amount of premium and IT performance? 3IN, for example, is currently trading at nearly a 20% premium which is hard to justify inclusion for me.

My transfer is in the process of going through and so I suspect I'll be ready to start investing within the next 2 weeks.

Many thanks for and help (and making it to the end...)
1 user thanked JA1976 for this post.
Tim D on 19/10/2017(UTC)
Blue S
Posted: 19 October 2017 11:13:33(UTC)
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Joined: 13/06/2017(UTC)
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I have been using a similar strategy in my SIPP for the past 10 years or so and over 20 years in an ISA.
I do have a strong bias to smaller companies / emerging markets / value / income - which is why I have gone down the active approach of using ITs for my equities.
For the record I use BGS, SST, IGC, BRFI, BRWM, BRLA, JRS, JUSC, TRG, TRY, SCF, ASL, DIVI, however if you speak to different investors you will get different favourites.
The main thing to review is - do you want strong bias to something or other ? as if not, you may just reproduce a global tracker but at slightly higher cost.

With regard to your question about purchasing at a premium, I fortunately never have had to do so. I think the most expensive I have bought at is at par. I would be OK buying up to a premium of 5% but no higher and have made this my rule. Even as a long term holder like me who plans to hold "forever", apart from threshold rebalancing occasionally, you have to remember that sometime in the next 20 years or so the discounts will go out to 20% so the higher the premium you buy at the bigger the drop. Rebalancing does tend to help more with ITs as the ones you tend to sell tend to be at a lower discount /higher premium and the ones you buy are at a higher discount.

I have not used ITs for fixed interest and for this I hold individual UK gilts and the ETF ITPS. I also hold the ETF SGLN for physical gold.
3 users thanked Blue S for this post.
Micawber on 19/10/2017(UTC), Tim D on 19/10/2017(UTC), JA1976 on 19/10/2017(UTC)
JA1976
Posted: 19 October 2017 12:17:53(UTC)
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Thanks Blue. My bias would be similar to yours. Smaller companies and emerging markets for the growth potential over 20 years. Also interested in Biotech and Infrastructure for the same reasons.

In terms of rebalancing, how often do you do this, what (if anything) is your trigger and what exactly do you end up doing?
markus
Posted: 19 October 2017 14:07:31(UTC)
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I'm trying to balance out stupidity/emotion on my side by running up to half the portfolio in Vanguard Lifestrategy fund...so an active/passive hybrid approach.

The remainder split across core IT holding's & then smaller chunks in property IT's; smaller co's; emerging mkts; commodities.


in terms of rebalancing I stole the approach used on monevator.com

Larry Swedroe’s 5/25 rule
An even more subtle approach. Asset classes with a target allocation of 20% or more: rebalance when it moves by 5% versus the entire portfolio. Asset classes with a target allocation below 20%: rebalance when they drift by 25% in proportion to their target allocation.
3 users thanked markus for this post.
JA1976 on 19/10/2017(UTC), Guest on 19/10/2017(UTC), Tim D on 19/10/2017(UTC)
JA1976
Posted: 19 October 2017 14:14:32(UTC)
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markus;52137 wrote:

in terms of rebalancing I stole the approach used on monevator.com

Larry Swedroe’s 5/25 rule
An even more subtle approach. Asset classes with a target allocation of 20% or more: rebalance when it moves by 5% versus the entire portfolio. Asset classes with a target allocation below 20%: rebalance when they drift by 25% in proportion to their target allocation.



Thanks Marcus - that's a very useful tip.
Blue S
Posted: 19 October 2017 14:15:41(UTC)
#6

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With regard to rebalancing I generally follow Larry Swedroe's 5/25 rule as detailed here:
http://monevator.com/threshold-rebalancing/
All the ITs listed above plus SGLN I hold between 4 and 10%. So for example if the target is 4% I buy more when the % goes below 3% and sell if it goes above 5% i. e. +/-25% to bring the % back to 4%. Given the size of my SIPP 1% is around 4-5k so gives a meaningful deal size with regard to costs.
Only the fixed interest at ~30% do I use the +/-5% for the threshold ( i. e.25-35%)
I do have a "cash float" from dividends of a few % to avoid the problem of 1 IT needing to be bought and no cash available as I am not contributing more cash to the SIPP due to the LTA.
I tend to review monthly to see if anything needs to be bought/sold, although if there is a major crash or significant movement I will do an ad hoc review.
I have avoided biotech as I work in the sector so it is to diversify away from my human capital, I also know lots of the potential problems !! For infrastructure I worry too much with regard to negative government interference. This is another reason for going for smaller companies as they tend to be more off the radar for governments.
1 user thanked Blue S for this post.
JA1976 on 19/10/2017(UTC)
JA1976
Posted: 19 October 2017 14:21:44(UTC)
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Thanks Blue. So you rebalance on an ad hoc basis rather than annually or semi annually? I guess theoretically (although extremely unlikely) you could go years without rebalancing if your weightings all stay within their parameters?

It makes sense - no point rebalancing just for the sake of it.
Blue S
Posted: 19 October 2017 14:51:48(UTC)
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Quote:
Thanks Blue. So you rebalance on an ad hoc basis rather than annually or semi annually? I guess theoretically (although extremely unlikely) you could go years without rebalancing if your weightings all stay within their parameters?

It makes sense - no point rebalancing just for the sake of it.


Yes it is ad hoc and only when needed. Whilst in theory it could be a long time between rebalancing I have reviewed the no of trades I have done over the past 12 months and it is 9, although two of these was to covert ANII to IGC at the same % target. So that is 7 net trades or about 1 trade every 2 months.
I had been watching IGC for a while as it is biased to small companies but was always put off by its high costs. When the costs of IGC became just "high" rather than "too high" I decided to change ! plus at the time the discount was >20% although it has narrowed now.
markus
Posted: 19 October 2017 15:22:47(UTC)
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JA1976;52140 wrote:
Thanks Blue. So you rebalance on an ad hoc basis rather than annually or semi annually? I guess theoretically (although extremely unlikely) you could go years without rebalancing if your weightings all stay within their parameters?

It makes sense - no point rebalancing just for the sake of it.


pragmatic ad hoc rebalancing for me..

I'm still trying to accumulate & reorganise my portfolio...currently in the position where 2 holdings have flagged time for rebalance but holding off given new funds still to go in and existing cash to be invested.
Mr Helpful
Posted: 19 October 2017 15:33:26(UTC)
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Some haphazard points :-

Seem to have already sorted out some useful ITs.
These are mostly on the 'Trailblazers' (Aggressive) side of the portfolio.
Not much mention (3IN excl) yet of 'Defensives', Bonds, Cash or Other (or might have missed mention?).

The rebalancing suggestions will work very well.
Personally spring into action or thinking when positions have drifted by 10% since last transaction.
However an undervalued security position, if IMHO still undervalued after a 10% gain, is unlikely to be reduced.
An overvalued security position is likely to be acted upon promptly rather than let the opportunity slip away. Momentum investors may demur.

Low Cost Tracker : VWRL (Global Stocks) useful benchmark.

The premium on 3IN does indeed seem a bit OTT, but we nevertheless still hold, forever top-slicing as the price rises.
Fundamentals and Technicals suggest the price could fall back to a slightly less expensive entry point? But this is of course surmising, so only a possibility and far from a certainty.
1 user thanked Mr Helpful for this post.
JA1976 on 19/10/2017(UTC)
JA1976
Posted: 19 October 2017 15:38:16(UTC)
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[quote=Mr Helpful;52144]Some haphazard points :-

Seem to have already sorted out some useful ITs.
These are all on the 'Trailblazers' (Aggressive) side of the portfolio.
No mention yet of 'Defensives', Bonds, Cash or Other (or might have missed mention?).

quote]

You're right, I haven't listed any IT's that would be considered more defensive. Are there any you would recommend? Whilst I am keen for strong growth performance, and have a 20 odd year horizon, I am not going to be foolish. I would be keeping a small cash weighting, which I neglected to mention.
Mr Helpful
Posted: 20 October 2017 07:01:53(UTC)
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JA1976;52145 wrote:

You're right, I haven't listed any IT's that would be considered more defensive. Are there any you would recommend? Whilst I am keen for strong growth performance, and have a 20 odd year horizon, I am not going to be foolish. I would be keeping a small cash weighting, which I neglected to mention.


The defensive area raises far more problems than the Trailblazers.
There are no easy certain answers, so be sure to research thoroughly and be comfortable with final selection.

Among ITs PNL is considered quite defensive.
See portfolio at the end of link :-
http://www.fundslibrary....er=hl_website_documents

We favour a more DIY direct approach, but some of the Asset Classes have unreliable or wayward correlation performances as Stocks slump, just when they are needed most.
Cash : Steady but yield sub-inflation
Short-Term Gilt ETFs : ditto
Short-Term Corporates ETF e.g. IS15 : introduces credit risk but yield almost matches inflation
Short-Term US Treasuries ETFs : Currency risk. But only if some exposure to the world's major currency is considered useful insurance? (Exercise care as currency volatility is wild and unpredictable).
Real Estate : Boosts the overall yield of the defensives but at the cost of uncertainty around correlation
Renewable Energy : ditto
Infrastructure such as 3IN : ditto

Avoiding for now mid to long term/duration debt, where rising interest rates would impact most.
Gold ETFs favoured by some.

Will be extremely interested in other views concerning defensive allocations.
3 users thanked Mr Helpful for this post.
Joe Allpress on 20/10/2017(UTC), Guest on 20/10/2017(UTC), Tim D on 22/10/2017(UTC)
Joe Allpress
Posted: 20 October 2017 07:58:22(UTC)
#13

Joined: 20/10/2017(UTC)
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Mr Helpful;52152 wrote:
JA1976;52145 wrote:

You're right, I haven't listed any IT's that would be considered more defensive. Are there any you would recommend? Whilst I am keen for strong growth performance, and have a 20 odd year horizon, I am not going to be foolish. I would be keeping a small cash weighting, which I neglected to mention.


The defensive area raises far more problems than the Trailblazers.
There are no easy certain answers, so be sure to research thoroughly and be comfortable with final selection.

Among ITs PNL is considered quite defensive.
See portfolio at the end of link :-
http://www.fundslibrary....er=hl_website_documents

We favour a more DIY direct approach, but some of the Asset Classes have unreliable or wayward correlation performances as Stocks slump, just when they are needed most.
Cash : Steady but yield sub-inflation
Short-Term Gilt ETFs : ditto
Short-Term Corporates ETF e.g. IS15 : introduces credit risk but yield almost matches inflation
Short-Term US Treasuries ETFs : Currency risk. But only if some exposure to the world's major currency is considered useful insurance? (Exercise care as currency volatility is wild and unpredictable).
Real Estate : Boosts the overall yield of the defensives but at the cost of uncertainty around correlation
Renewable Energy : ditto
Infrastructure such as 3IN : ditto

Avoiding for now mid to long term/duration debt, where rising interest rates would impact most.
Gold ETFs favoured by some.

Will be extremely interested in other views concerning defensive allocations.



Many thanks again. Some interesting points there. A gold ETF has been on my radar, so I may look to utilise that.

RCP and RICA are considered defensive by some (RICA actually returned 28% in 2008) and are both in my pool of trusts to choose from. RICA currently has 8 of its top 10 holdings in gilts, treasuries or gold.
Alastair Kendall
Posted: 20 October 2017 09:55:55(UTC)
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With reference to "other views concerning defensive allocations".....

RICA, PNL, RCP and a gold ETF
Dennis .
Posted: 22 October 2017 09:48:50(UTC)
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I have been investing for nearly 50 years and have seen all this stuff about rebalancing, smart beta etc etc so many times. I have also always been intrigued by the IT versus OIEC Funds debate which seems to start with the presumption that ITs will always outperform OIECs (not true). I have also seen the Emerging Markets story about every decade and seen how people invest in Funds of Funds which generally incur high charges.
I have built up an ISA investment portfolio of nearly £600k (separate from my DB pensions) by not doing any of this but by following a simple buy and hold strategy. I currently have about 60% in Fundsmith (my best investment over the last 5 years) and a few special situations funds (eg Marlborough and Standard Life Smaller companies) as well as shares like National Grid which doesn't send people bills so if off the political radar.
My message Don't over-analyse what is basically a chaotic system and look for good companies that can grow steadily without too much risk. Don't bother with emerging markets unless you have been there and seen for yourself what the business environment is like.
4 users thanked Dennis . for this post.
Captain Slugwash on 22/10/2017(UTC), Tim D on 22/10/2017(UTC), Mickey on 22/10/2017(UTC), john brace on 26/10/2017(UTC)
TJL
Posted: 22 October 2017 10:10:19(UTC)
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I agree, don't over analyse.
A Swann
Posted: 22 October 2017 19:26:06(UTC)
#17

Joined: 11/07/2013(UTC)
Posts: 5

Totally agree with your diversified approach
When selecting a fund in a particular sector I always choose one in the top quartile over 1,3 and 5 years compared to other funds in that sector and Morningstars benchmark.
I rebalance by selling any underperforming funds every 6 months and reinvesting using CAPE analysis to decide on sector weightings.
I used to ignore premiums on ITs but have recently started to sell those with excessive premiums or indeed buying new ones
Other factors I use to choose between top quartile funds would be yield, Morningstar star ratings, fees and bid offer spreads. I am invested roughly 50/50 in Oeics and IT's not by design but using the above approach and the fact that there are more Oiecs available than IT's. I also own individual Uk equities and often use the cheeky approach of looking at a top funds portfolio and choosing to buy equities direct from this list, thus avoiding any fees.of course this begs the question on when to sell and I wouldn't recommend this until you have a fully diversified portfolio and some 'spare cash'


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