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Spring cleaning the portfolio
Chris Howland
Posted: 01 March 2018 22:00:24(UTC)
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Over the years I’ve built up an investment trust portfolio, with the objective of delivering disposable income. Alongside the portfolio I’ve maintained a significant cash position, simply because I didn’t need an income from it.

I recognise that there are too many holdings, this being a simple consequence of opportunism as money to invest became available. Time however doesn’t stand still and I’ve reached the point where I need to re-align the portfolio towards growth.

My current portfolio is as follows (rounded to the nearest 0.5%)

Cash 18%
CMHY 4%
HDIV 5.5%
IPE 4%
NCYF 5%
AAIF 2%
EAT 4%
HFEL 5%
JETI 2.5%
MYI 5%
NAIT 2%
SJG 1%
FCRE 2%
SLI 3%
RGL 2%
BSIF 3%
CYN 3.5%
FPEO 2%
UEM 2.5%
HICL 1%
AIF 3.5%
CTY 9%
HSL 3.5%
MUT 7%


The holdings I’m tempted to keep/increase are:

Cash – I intend to keep about 20%, invested with NS&I @ 2.2%
HDIV – because they are prudent about the way they run the trust
EAT – Smaller European companies, strong yield
HFEL – held this for a long time (confidence thing). Decent yield.
MYI - ditto
SJG – I regret not investing heavily here when I had the chance
SLI – Property, and as good as anything I guess
BSIF – Solar has to be part of the energy infrastructure future
HSL – UK smaller companies

For CTY and MUT, I’m starting to think a mix of say ISF and VMID might be better. Around the same yield and clear index tracking.

That would be ten investments, with all dividends re-invested. At a “gut feel” level, this feels about right, and I’d plan on near to equal weighting initially, as I think I need to diversify away from the UK.

Before I embark on what would be a major re-structuring of the portfolio, I would really appreciate comment from other forum members, constructive or otherwise!

Chris
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satish mittal on 06/03/2018(UTC)
philip gosling
Posted: 01 March 2018 23:05:11(UTC)
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Chris
I did a quick run through on Trustnet and city wire on the funds you want to keep and wonder if you are having such a major rejig - maybe you should start with a clean sheet because some of the funds are not top performers or in top quartile. Maybe it might be worth having a smaller mix of ETFs, Investment Trusts and Unit Trusts but not too many. I like the Vanguard funds fundsmith , Lindsell Train, Scottish Mortgage, Castlefield Fund Partners Ltd Buffetology Inst , Pantheon and Fidelity Special Values with small amount of Templeton Emerging Market. I sold out of several Invesco & Perpetual funds and WPCT.Are you just keeping the best you have whereas perhaps you should start again with a clear aim as to what you want e.g. capital growth as you do not need income and risk and time horizon. Probably have a house , car , job, cash in the bank, premium bonds and emergency money so Global is where the future will in be America, Emerging Markets and even Europe - Uk can give access to Global companies but in America ETFs seem best.
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Mickey on 02/03/2018(UTC), Chris Howland on 02/03/2018(UTC), mcminvest on 06/03/2018(UTC), Naseer Ahmed on 07/03/2018(UTC), sarah b on 07/03/2018(UTC)
Alan Selwood
Posted: 01 March 2018 23:55:07(UTC)
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Have a look at the John Baron portfolios in the Investors Chronicle - next version is due this week or next in the paper copy you can buy in the newsagents. Try the Summer Portfolio/Growth Portfolio for growth-leaning rather than income-leaning.

Or perhaps consider from this list :
Fundsmith for Developed World mega-caps (which are at least liquid if you want to sell!)
Linsell Train Global Equity
Jupiter European Opportunities [JEO]
Scottish Mortgage Trust [SMT]
Baillie Gifford Shin Nippon [BGS]
Baillie Gifford Pacific Horizons [PHI]
BlackRock Smaller Companies [BRSC]
J P Morgan Mid Cap [JMF]
Independent Investment Trust (but hold off until you see it selling at a discount)
Castlefield Buffettology Fund
Slater Growth

Your choice, though!
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Chris Howland on 02/03/2018(UTC), Ivor Grouse on 02/03/2018(UTC), Hilary hames on 06/03/2018(UTC), satish mittal on 06/03/2018(UTC), sarah b on 07/03/2018(UTC), Aminatidi on 22/04/2018(UTC)
Mickey
Posted: 02 March 2018 09:37:05(UTC)
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The OP suggests going down to 10 investments which is how I remember the old Investment Trust magazine editor would limit his portfolio choices, easier to manage than having too many. The JB portfolios (Summer & Autumn) tend to have nearer 20-25 holdings whilst the Spring portfolio is about 14 holdings.

In this case I would definitely get rid or increase the weightings of anything below 5%, that would help me get a clearer view of what I want.
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Keith Cobby on 02/03/2018(UTC), Chris Howland on 02/03/2018(UTC), gillyann on 02/03/2018(UTC)
Keith Cobby
Posted: 02 March 2018 10:10:21(UTC)
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I agree with Mickey, there's no point having holdings below 5%.
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Chris Howland on 02/03/2018(UTC), Mickey on 02/03/2018(UTC)
Chris Howland
Posted: 02 March 2018 12:03:42(UTC)
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Many thanks to those who have offered comments/suggestions thus far. I find it difficult to be objective and dispassionate about the portfolio and sound advice is always welcome.

I'm an IC subscriber, and those who look closely enough may see the faint shadow of the John Baron 'Income' portfolio within my current holdings. Trying to converge on that portfolio's holdings has been quite tricky, for reasons of timing, money and existing holdings that met my objective.

Ten investments are certainly my target, because that brings conviction and conviction demands diligence before you buy. Whilst I have respect for John Baron's portfolios, he doesn't seem to like the number ten very much, hence the need to formulate my own portfolio. I also think he's lost his way with his web-site subscription service clearly in competition with his column for IC; he now withholds information that he used to declare in his column, directing readers instead to his subscription service.

But I digress! Having slept on this, there seem to be a few things to think carefully about:

1 - Ten investments is clear.

2 - Don't trade more than necessary (but temper this with the need to transfer investments from the trading account to the ISA account). The definition of the 'Ten' will dictate how many trades.

3 - Whether to invest in ISF and VMID trackers or stay with Investment Trusts. I think it was Keith Cobby (in a separate thread) who said that he'd sold CTY because it had become a 'closet tracker'. The case for investing in ETF is quite a strong one if you subscribe to this view, much as I have grown to respect CTY and Job Curtis.

Much to think about, particularly the formulation of the 'Ten'...

I'll let those who are interested know how things evolve.

Chris



markus
Posted: 02 March 2018 13:39:59(UTC)
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It's right to review/simplify but I wouldn't overthink the journey to 10.

If markets go through a volatile period, at best sideways movement would income outperform growth?

On the IT vs ETF - don't forget the features you get in an IT that are absent from ETF's - ability to use gearing, income reserves
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Chris Howland on 02/03/2018(UTC)
dyfed
Posted: 02 March 2018 14:22:29(UTC)
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I know that better brains than mine have decided "10 holdings good 11 holdings bad", but you've already bought these funds and paid tax on the purchase, so don't sell them just to get down to some magic number: if you like them, keep them, or at least pick your moment and sell at a high!
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Chris Howland on 02/03/2018(UTC), Sara G on 02/03/2018(UTC), Captain Slugwash on 02/03/2018(UTC), Guest on 02/03/2018(UTC), Gary Millar on 06/03/2018(UTC), General Tapioca on 06/03/2018(UTC), satish mittal on 06/03/2018(UTC), mcminvest on 06/03/2018(UTC), sarah b on 07/03/2018(UTC)
Chris Howland
Posted: 02 March 2018 14:32:06(UTC)
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markus;58085 wrote:

On the IT vs ETF - don't forget the features you get in an IT that are absent from ETF's - ability to use gearing, income reserves


That's a fair point Markus, and one that probably suits my thinking. I tend to prefer IT because there is a well defined 'universe' of just over 300 Trusts (if you exclude non GBP currency Trusts and the VCT) to choose from.

I also prefer the Trusts with assets of over £50m, which further reduces the total number to select from.

Reading around, the consensus seems to be settling on Smaller Companies, Japan and Europe as the most likely areas to perform well over the near future.

King Lodos
Posted: 02 March 2018 16:19:39(UTC)
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There's nothing really wrong with having lots of funds .. Just look at Capital Gearing Trust:

http://www.capitalgearingtrust.com/~/media/Files/C/CGT/documents/CGT%20portfolio%20%2051017.pdf

It's got funds on weightings of 0.012%.

I think the key is to break it down by broad asset class (small-caps, high yield, infrastructure, etc) and make sure your overall 'risk exposures' meet your needs .. Which is certainly something CGT and RCP (who also hold a lot of funds) do.


Mark Yusko said this the other day: "Concentration makes you rich, Diversification keeps you rich. When you are young, that is time to make concentrated bets and if you are fortunate enough to find a great trend, buy with both hands... diversify later."

The problem with diversifying when you're trying to grow wealth as much as possible is it's very hard to outperform .. i.e. it's easier to find one great manager (or stock) than 20.
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Chris Howland on 02/03/2018(UTC), andy on 02/03/2018(UTC), sarah b on 07/03/2018(UTC)
Keith Cobby
Posted: 02 March 2018 18:34:36(UTC)
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I used to hold many more trusts than now. A lot of overlap and ending up with a tracker. The problem today is that the FTSE100 is not much higher than in 1999 so I think you now need greater conviction than during the gently rising market we had from mid 1970s to 1999. Greater conviction requires fewer funds and for these funds to be in areas of growth, and to position your portfolio for total return.
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King Lodos on 02/03/2018(UTC)
Hank Elvis Dobbs (texan)
Posted: 02 March 2018 19:51:12(UTC)
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The problem is the Ftse bears no relationship to what it was in 1999..I mean...just eat!..c'mon
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Chris Howland on 06/03/2018(UTC)
Mickey
Posted: 02 March 2018 21:38:15(UTC)
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CGT and RCP etc hold so many funds because they have a lot more money to spend. You wouldn't want a 0.2% in a portfolio of 50k but in a portfolio of 3 billion it makes more sense.
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Chris Howland on 06/03/2018(UTC)
Fuzzy Beats
Posted: 02 March 2018 21:53:10(UTC)
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Alan Selwood;58068 wrote:
Have a look at the John Baron portfolios in the Investors Chronicle - next version is due this week or next in the paper copy you can buy in the newsagents. Try the Summer Portfolio/Growth Portfolio for growth-leaning rather than income-leaning.

Or perhaps consider from this list :
Fundsmith for Developed World mega-caps (which are at least liquid if you want to sell!)
Linsell Train Global Equity
Jupiter European Opportunities [JEO]
Scottish Mortgage Trust [SMT]
Baillie Gifford Shin Nippon [BGS]
Baillie Gifford Pacific Horizons [PHI]
BlackRock Smaller Companies [BRSC]
J P Morgan Mid Cap [JMF]
Independent Investment Trust (but hold off until you see it selling at a discount)
Castlefield Buffettology Fund
Slater Growth

Your choice, though!


Will be interesting to see how some of these funds which have flourished in a bull market perform in a downturn.

The Buffettology fund is down by over 2% this year to date and close to bottom of its peer group.

Apart from a catastrophic loss with DTY, 19 of the other 30 holdings have recently suffered losses including 25% on PFG.

With ongoing charges an eye watering 1.8%, this has been an expensive start to the year!
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Chris Howland on 06/03/2018(UTC), Narendra Dhariwal on 06/03/2018(UTC), dlp6666 on 07/03/2018(UTC)
King Lodos
Posted: 03 March 2018 02:33:25(UTC)
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Mickey;58113 wrote:
CGT and RCP etc hold so many funds because they have a lot more money to spend. You wouldn't want a 0.2% in a portfolio of 50k but in a portfolio of 3 billion it makes more sense.


It does – and the big endowment portfolios are often run the same – but it also means you average away 99.8% of what sets any fund apart (other than the fees) .. which is often only about 5-10% of the fund anyway.

So what some funds do instead is say: 80% of that is 'beta' (just market exposure) .. So they buy a handful of ETFs – keep costs very low – then just buy active funds that deal pure alpha, for what you'd call an 'alpha overlay' .. Which for us might be things like Highbridge Multi-strategy, and maybe BH Macro if it can get back on track.

Much easier to monitor and manage than keeping track of 100+ funds
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Chris Howland on 06/03/2018(UTC)
mattyboy
Posted: 06 March 2018 16:19:34(UTC)
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I'd like to add an alternative view. As you mention, John Baron's IT portfolios regularly hold 20+ assets, which he sorts into groups such as UK, International, Bonds, Themes. He will hold around 4-6 in each category, all of which I think provides a reasonable degree of diversification within categories and in total.

I'm not commenting upon the individual ITs, but I see nothing wrong with the concept. It's all very well being a conviction investor, but if your retirement income depends upon it, as mine does, I'm happy to see a wider spectrum of investments.

Good luck!
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Chris Howland on 06/03/2018(UTC), Mickey on 06/03/2018(UTC)
Keith Cobby
Posted: 06 March 2018 18:04:24(UTC)
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The way I have basically selected my trusts is to take the AIC sectors that interest me (and for example Flexible, Global High Income, Hedge Funds,Latin America, Sector Specialists etc don't) and then select two from each sector. I haven't calculated exactly, but 400 companies excluding VCTs and my exclusions gives an investing universe of approx 150.
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Chris Howland on 06/03/2018(UTC), Mickey on 06/03/2018(UTC)
King Lodos
Posted: 06 March 2018 18:28:27(UTC)
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mattyboy;58299 wrote:
I'd like to add an alternative view. As you mention, John Baron's IT portfolios regularly hold 20+ assets, which he sorts into groups such as UK, International, Bonds, Themes. He will hold around 4-6 in each category, all of which I think provides a reasonable degree of diversification within categories and in total.

I'm not commenting upon the individual ITs, but I see nothing wrong with the concept. It's all very well being a conviction investor, but if your retirement income depends upon it, as mine does, I'm happy to see a wider spectrum of investments.

Good luck!


I think you can do very well with that kind of portfolio – and there are good arguments for it.

But you can also look at it as: how likely are you to find 20+ funds that outperform? And as with stocks, if you could do that, why would you buy your 20th favourite idea, and not just your top 8?

So I think JB portfolios are a play on leverage (the gearing ITs use) and diversification .. And if you get good results, it's hard to argue with .. But you do pay quite a bit for leverage (I've got bonds issued by investment trusts that are paying me your cost of borrowing), and you do pay quite a bit for management .. And if management isn't really adding value – or it's being diversified away – and if you've got cash, it might be cheaper just to leverage yourself (i.e. simply invest a bit more)
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Chris Howland on 06/03/2018(UTC), mattyboy on 07/03/2018(UTC), sarah b on 07/03/2018(UTC)
Chris Howland
Posted: 06 March 2018 18:38:16(UTC)
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Keith Cobby;58306 wrote:
The way I have basically selected my trusts is to take the AIC sectors that interest me (and for example Flexible, Global High Income, Hedge Funds,Latin America, Sector Specialists etc don't) and then select two from each sector. I haven't calculated exactly, but 400 companies excluding VCTs and my exclusions gives an investing universe of approx 150.


This aligns pretty well with my own historic approach: The bounded universe of investment opportunities is something that I really appreciate. My historic 'filters' also excluded IT with a market cap of less than £50m, and anything yielding less than 2%. The list certainly gets short enough to get your mind around very quickly.

Chris
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Mickey on 06/03/2018(UTC)
Keith Cobby
Posted: 06 March 2018 19:04:23(UTC)
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Chris, I agree with you about sub £50m funds but having done some analysis on my own holdings, total return is almost inversely proportional to yield. My best returns have come from trusts with low yields. Too many managers are compromising their investment decisions by having to generate a specific yield.
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Chris Howland on 06/03/2018(UTC), mcminvest on 06/03/2018(UTC)
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