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Great at attack, but poor in defence
Don Revie
Posted: 06 January 2018 20:05:54(UTC)
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A bit of history

For some years I suspected that my pensions were performing poorly. Two years ago I decided something had to change.

My ‘team’ of funds had been built up over time via DC pensions with conventional pension companies. Overall performance was lacklustre and held back by high fees.

What my team needed was a new manager, and despite my lack of experience, that new manager was to be ME!

On the attack

As a new manager, with a low value squad, I sold everything and started to build up a new team of funds and investment trusts across a couple of SIPPs.

I had nothing to lose, so my new strategy was to go on the attack. Building a new team was time-consuming, but there was so much advice available in the press and investing sites that my team was soon full of superstars. My current squad is:

First XI:
SMT
Lindsell Train Global Equity
Man GLG Continental European Growth
FCSS
BGS
WWH
Artemis Global Income
CFP SDL UK Buffetology
Chelverton UK Equity Growth
Old Mutual UK Mid-Cap
SLI Global Smaller Companies

On the subs bench:
Ardevora Global Equity
BRFI
Franklin India
Stewart Investors Asia Pacific Leaders

So my team was geographically diverse, with players from every corner of the planet, and geared for growth. And guess what? We started WINNING!

For the last two seasons, 2016 and 2017, we’ve won silverware. The squad is now worth 50% more than two years ago. We’re not yet in the Premier League, but our future is looking much brighter than it was two years ago.

Time for a reality check

In reality, I’m not a superstar portfolio manager. I just did my research and got lucky in favourable pitch conditions. If the wind had been blowing in the other direction (which let’s face it could happen at any time), the outcome would have been very different. The problem I now face is that I have no goalkeeper and nobody in defence. Every player in the team wants to be the centre-forward.

Building a defence

Over Christmas 2017, I took the decision to lock in some gains of the last two years by selling off 25% of my existing squad. My main aim is still solid growth, but I also need to ensure we don't have a bad patch and get relegated back to the 3rd or 4th Division. I now have the money to buy a good goalkeeper and a solid back four, but I’m struggling with who to choose.

There doesn’t appear to be anywhere near as much advice out there as there was for building the current growth-focussed squad. Or perhaps it’s just that there is a lot less consensus. Or maybe I’m looking in the wrong place. I don’t understand whether I should I buy bonds (inflation risk), absolute return (performing poorly), property, or leave it all just sitting in my SIPP as cash? The latter is an option, but inflation could shrivel my gains.

So please pundits, I’m open to suggestions. Are there any good goalkeepers and superstar defensive funds and ITs out there to provide a bit of balance?

I have 15 years before I can hang up my boots and go to live in Monaco!
10 users thanked Don Revie for this post.
john brace on 08/01/2018(UTC), foxy ron on 08/01/2018(UTC), Vince. on 08/01/2018(UTC), AJW on 08/01/2018(UTC), Luca Brasi on 08/01/2018(UTC), Mickey on 08/01/2018(UTC), lee wood on 08/01/2018(UTC), Tim D on 08/01/2018(UTC), Gary Millar on 09/01/2018(UTC), dlp6666 on 09/01/2018(UTC)
jeffian
Posted: 08 January 2018 11:50:57(UTC)
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I'm not a footie fan so can't keep up the analogy, I'm afraid, and this may not be a very helpful response anyway but isn't the point of going with managed funds that these star managers make those decisions for you?
2 users thanked jeffian for this post.
lee wood on 08/01/2018(UTC), Don Revie on 08/01/2018(UTC)
Jim Thompson
Posted: 08 January 2018 11:58:12(UTC)
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Well done for taking control of your financial future Don.

Do you need a goalkeeper? If so perhaps Personal Assets.

If you need more spread of assets, how about a property IT,e.g. FCPT or TRY.


4 users thanked Jim Thompson for this post.
Don Revie on 08/01/2018(UTC), dlp6666 on 09/01/2018(UTC), Mike L on 09/01/2018(UTC), Bellabeck on 09/01/2018(UTC)
Jim S
Posted: 08 January 2018 12:50:19(UTC)
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For a quality midfielder who can switch effectively between attach and defense, RCP is well regarded 'mixed' IT, not cheap but good footie brain (has defensives and one you should be able to leave alone for managers to manage risk).
CLDN is similar but discount means it might be better value for money player to buy at the moment. I read encouraging things about it improving recently, can't recall where though.
A bargain midfielder at the moment might be NRI, recent good form, prefers going forward but can defend at a pinch, good discount & diversification (but mainly equities)

Hawkesmoor Vanbrugh and GAM Star Credit opportunities are both decent defenders who can contribute a bit to the game even when your team is attacking.

Something like Tritax Big Box as wingback maybe

Maybe you could consider Gold ETF for goalie or reserve goalie, to keep as a fixed percent of your portfolio and rebalance annually so it stays similar %
3 users thanked Jim S for this post.
Guest on 08/01/2018(UTC), Don Revie on 08/01/2018(UTC), dlp6666 on 09/01/2018(UTC)
King Lodos
Posted: 08 January 2018 13:05:44(UTC)
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It makes a lot of sense to take some risk off the table as you get closer to needing the money.

Do it at a set rate, with a sensible destination – certainly don't let market gains compel you to withdraw faster (as, if we get the best market returns in history for the next 15 years, you'll be choosing to sit them out .. a common mistake .. many great investors chose to sit out the 90s).

You could move assets over to a Vanguard Target Retirement fund .. You could also hold more defensive stocks (like LT Global and Fundsmith) and less leveraged ITs like SMT.

Really it all comes down to: Stocks, Bonds and Cash .. and Bonds aren't looking great value these days .. You can see Warren Buffett's asset allocation here:

https://www.gurufocus.com/profile/Warren+Buffett

He holds a lot of cash .. Ultimately cash (and to an extent gold) is your only insurance policy .. Defensive funds can still make blunders, and do charge .. I love GAM Star Credit Opportunities (it gives me a large bond allocation that's kept up with stocks) – but it's very hard to say how risky it might be .. It's certainly not as safe as gov bonds
3 users thanked King Lodos for this post.
Don Revie on 08/01/2018(UTC), dlp6666 on 09/01/2018(UTC), Mike L on 09/01/2018(UTC)
Mickey
Posted: 08 January 2018 13:52:03(UTC)
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Well done on your performance. It seems you are short of a sub :-)

Perhaps RIT Capital Partners or Personal Assets Trust would be worth looking into for defensive cover. I would also keep in mind your cash allocation in case you need stadium repairs or to fund a new signing in the event of injury.
1 user thanked Mickey for this post.
Don Revie on 08/01/2018(UTC)
Johann P
Posted: 08 January 2018 16:35:44(UTC)
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Enjoying the football analogy and this forum, very informative.
Would be grateful of another reading tip or two from King Lodos or anyone really, half way through “The Art of Execution”, really good, not even necessarily from an investment perspective!
3 users thanked Johann P for this post.
Luca Brasi on 08/01/2018(UTC), Don Revie on 08/01/2018(UTC), dlp6666 on 09/01/2018(UTC)
S Nanda
Posted: 08 January 2018 16:36:51(UTC)
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Looking at your current portfolio FGT will do the job
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Don Revie on 08/01/2018(UTC)
Amateur hour
Posted: 08 January 2018 16:57:03(UTC)
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Derisking in this market is certainly tricky - largely because bonds, especially gilts, look like such poor value.

FWIW I’ve been switching some cash from aggressive long only equity IT options into mixed asset ITs and funds - things like ADIG and Kames Diversified income. I’ve also been buying the various ‘maximiser’ type products from Schroder and others. They sell calls - which drives high dividends, but which means these funds will miss out on most of the gains from indexes from here. But, should markets fall, they shouldn’t crash as hard as ordinary equity funds - and will continue to pay chunky dividends.

I’ve also bought a bit more UK commercial property - because things like RGL and AEWU don’t half promise big divis, in the 7-8 percent range. They just seems a bit too cheap to me. I’ve also bought a bit more infrastructure: PIGT has a chunky yield, so I’ve had a dibble there.

No idea if this strategy will help stabilise my returns - but time will tell.... Should make it clear that this is just a change of emphasis - I believe that the likes of CTY, MYI et al should remain as cornerstones for my PF.
4 users thanked Amateur hour for this post.
Don Revie on 08/01/2018(UTC), dlp6666 on 09/01/2018(UTC), Chris Howland on 09/01/2018(UTC), Mike L on 09/01/2018(UTC)
andy
Posted: 08 January 2018 17:25:06(UTC)
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Perhaps not as a defender or a goalkeeper but SIGT might work as a midfielder (if I have my football analogies quite right).

When people talk about PNL - I normally think of RICA to go with it - so perhaps that sits at the back.
2 users thanked andy for this post.
Don Revie on 08/01/2018(UTC), dlp6666 on 09/01/2018(UTC)
Gadge
Posted: 08 January 2018 18:07:01(UTC)
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Capital Gearing Trust is well worth a look.

CGA invest in other Investment Trusts by playing the discount value game plus bonds/gilts and have a sound track record over many years.

See link
http://m.citywire.co.uk/...al-preservation/a994110

I also think Murray International could fit well into your current squad.

Gadge
1 user thanked Gadge for this post.
Don Revie on 08/01/2018(UTC)
Law Man
Posted: 08 January 2018 18:28:22(UTC)
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You do not mention 2 critical things:

(1) your investment period - your age and so period to retirement. If you are aged 60, and so near the end of your new investment time, be more cautious;

(2) your attitude to risk;

(3) how much you need at retirement, and how much more you need to gain between now and then.

If you are near the end of the season, and in third place in the table, be defensive.

For choice of 'defenders', avoid long duration bonds at present. Consider wealth preservation funds as others have suggested. Be wary of absolute return funds.
2 users thanked Law Man for this post.
Don Revie on 08/01/2018(UTC), dlp6666 on 09/01/2018(UTC)
paul armstrong
Posted: 08 January 2018 19:02:52(UTC)
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Bear in mind that investment trust discounts can be expected to widen in a shaken market so they may do worse than open ended stuff.
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Don Revie on 08/01/2018(UTC)
S_M
Posted: 08 January 2018 19:19:26(UTC)
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I would suggest Gold for one half of your Central Defence, the Libertarians will pile in when cryptocurrencies finally collapse. Possibly combined with a good strategic Bond fund, although the "experts" think they are overvalued.
1 user thanked S_M for this post.
Don Revie on 08/01/2018(UTC)
Tony Drew
Posted: 08 January 2018 20:36:15(UTC)
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I retired about 20 years ago with a good company pension and a portfolio generated over the previous 20 years. As my pension is enough to live on I have kept my portfolio wholly in equities. High risk yes but since retirement it has doubled. Lucky yes but close attention to the market also helps with world class defenders and great attackers.
Burford
3 users thanked Tony Drew for this post.
Mickey on 08/01/2018(UTC), Don Revie on 08/01/2018(UTC), Guest on 09/01/2018(UTC)
S_M
Posted: 08 January 2018 20:52:13(UTC)
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.
Pensioner
Posted: 08 January 2018 20:53:26(UTC)
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For defence try FRCL, 150 yrs old this month. Pays 4 divis a year (one of the first IT's) to do so, which is reinvested. The power of compound interest. Invests in about 500 companies across 30 countries and managed by Paul Niven. The IT comes under the investment wing of The Bank of Montreal (largest bank in Canada). Over 30 yrs, of ownership, it has had its up and downs, but under current management is doing very well. Price today 659/660p, record high.
Another defensive OEIC:FUNDSMITH (Do your research). Launched 1/11/2010 at £1, today's price "T" class 367.59 held in and ISA direct, and with my broker in class "I", today 370.22p, again a record high to date.
I note you have cash after selling some stock. CASH is King so hold a good reserve. With 15 yrs before hanging up you boots, and I personally have gone on much longer. You could with relative youth invest a lump some, but the safest and most defensive strategy, at my age and even if you are, a young person is to DRIP FEED money into the market.
As more of an ex rugby player and fan. My attack for FUN is through China,India,Japan and other emerging markets.
Good Luck
2 users thanked Pensioner for this post.
Don Revie on 08/01/2018(UTC), dlp6666 on 09/01/2018(UTC)
Jon Brierley
Posted: 08 January 2018 22:01:56(UTC)
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From Jon B

If you have 15 years to go don't worry about defence!

I'm still all attack and I'm 68. Last year, my assets grew 28%.

The fact you're in equities means you are an optimist. There will probably be another big stock market drop in the next 15 years. Last time in 2008, 50% of my portfolios (A) were sold down on stop loses and put on deposit at 6% or index linked guilts and the rest (B) were left untouched. It took 2years for portfolio B to catch up with portfolio A Meanwhile portfolio B ticked over nicely and finally they all came together to now!

All this assumes an active investment approach to cut losers and stay with winners. I keep in touch with the accounts and metrics for all investments and act accordingly whether portfolio A or B.
2 users thanked Jon Brierley for this post.
Don Revie on 08/01/2018(UTC), Mickey on 09/01/2018(UTC)
King Lodos
Posted: 08 January 2018 23:13:45(UTC)
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A good principle in downturns can be to calculate the earnings yield of stocks.

So if you'd got out of stocks going into the financial crisis, great idea to buy bonds – say at 5-6%.

But as stocks fall, check the earnings yields ( 1 / PE Ratio ) .. In the financial crisis, the PE of the US market got down to 12 or 13, which gave you an 8% earnings yield .. If that's more than you're getting on bonds, that's when you should start selling bonds and buying stocks .. I often mention the Japanese market crash (20 years, 80% from 1990) – but stock valuations were much higher then .. Calculating earnings yields would've kept you out of Japanese stocks for the next two decades (right move .. and a lot easier than trying to use technical analysis to time when to get back into Japan)
2 users thanked King Lodos for this post.
Mr Helpful on 09/01/2018(UTC), Guest on 09/01/2018(UTC)
DJLW
Posted: 09 January 2018 00:16:25(UTC)
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My team has just reduced Latin American exposure and I am hoping my German manager can rebalance effectively this month.

YNIA
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