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Multi-Region Permanent Portfolio

Index tracking funds and ETFs
ignotus20
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Multi-Region Permanent Portfolio

#339244

Postby ignotus20 » September 9th, 2020, 4:00 pm

I've become quite interested in Harry Browne's Permanent Portfolio concept recently and I am looking to implement this.

One point of concern for a UK-based portfolio is the risk of holding GBP-based assets, especially the cash (or short term bond) component. I thought about possibly adding more diversity into the mix by spreading it across: UK, US, Europe and maybe even China. In this case, I would buy a stock tracker, short and long maturity bond ETFs and physical gold (probably as an ETF also). I'm not sure how easy it would be to get physical gold ETFs in each currency though, especially ones that can be bought and sold through UK retail brokers.

As an alternative, I also considered a single global equivalent using VWRL for stocks and maybe a global bond ETF (not sure which one). The gold ETF would probably have to be in USD.

What are other people's thoughts on either of these strategies? Am I just over-complicating things?

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Re: Multi-Region Permanent Portfolio

#339259

Postby dealtn » September 9th, 2020, 4:31 pm

ignotus20 wrote:What are other people's thoughts on either of these strategies? Am I just over-complicating things?


Can you define what the risks are that you are worried about?

Presumably you are UK based and intend to remain so, in which case your future spending is likely to be in GBP also.

So are you talking about concentration risk, fx risk or something else?

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Re: Multi-Region Permanent Portfolio

#339262

Postby dspp » September 9th, 2020, 4:38 pm

ignotus20 wrote:I've become quite interested in Harry Browne's Permanent Portfolio concept recently and I am looking to implement this.

One point of concern for a UK-based portfolio is the risk of holding GBP-based assets, especially the cash (or short term bond) component. I thought about possibly adding more diversity into the mix by spreading it across: UK, US, Europe and maybe even China. In this case, I would buy a stock tracker, short and long maturity bond ETFs and physical gold (probably as an ETF also). I'm not sure how easy it would be to get physical gold ETFs in each currency though, especially ones that can be bought and sold through UK retail brokers.

As an alternative, I also considered a single global equivalent using VWRL for stocks and maybe a global bond ETF (not sure which one). The gold ETF would probably have to be in USD.

What are other people's thoughts on either of these strategies? Am I just over-complicating things?


I can understand your motivation. If there is any significant non-UK-sourced spend in your lifestyle (e.g. foreign cars, foreign food, foreign energy, foreign holidays, etc) then getting corresponding foreign exposure is attractive.

Personally I use VWRL+VAPX+VERX+VUKE in roughly equal quantities to achieve this. I have yet to choose a suitable bond ETF. Gold really is not something I have studied though some around here are very into recommending it.

regards, dspp

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Re: Multi-Region Permanent Portfolio

#339275

Postby 1nvest » September 9th, 2020, 6:13 pm

I'd advocate holding US stock for the 25% stock holdings. 25% primary reserve currency (US$) invested in US stocks, alongside 25% global currency (gold, that is also a commodity), 50/50 balanced with UK £ exposure (cash and long dated Gilt).

I'd also give consideration to not rebalancing, just buy and hold as-is. That will keep down costs and broadly yields similar overall rewards, but may see greater volatility along the way. In practice you'll naturally rebalance through income streams (cash and gilt interest, stock dividends) along with adding (if still accumulating) or drawing (retirement), and in perhaps moving some funds from outside ISA into ISA ...etc. Just add new money to the laggard, draw from the leader.

VNRG is a good choice of 'stock' holding IMO. Trades in £'s so no currency conversion, is a accumulation ETF so no hassle with dividends, so suitable for inclusion within a ISA. 0.1% expense ratio. I don't personally like Unit Trusts type alternatives where you aren't given a precise price at which you buy or sell.

Held within a brokerage such as iWeb and costs will be relatively low.

For gold ... SGLN is a good choice. Later, after good gains are apparent perhaps consider swapping that out for physical gold, i.e. if the portfolio is up +10% one year, ahead of perhaps 3% inflation, then accept a 2% loss of 'other peoples money' from the portfolio and bear the higher spread costs of buying something like Britannia gold coins.

For the long dated Treasury element, buy a long dated Gilt. Harry advocated buying the longest dated choice available as that gives more volatility that works well within the PP. A 40 year Gilt is reasonable IMO, and after 20 years roll that into another 40 year.

For 'cash', simple high street savings accounts/bonds can suffice. A 5 year ladder of fixed income bonds works well.

Jack Bogle backtested 50/50 stock/bonds non rebalanced for all 20 year periods for years since 1826 and noted that the number of times that non rebalanced yielded more than rebalanced was near the same, just noise of difference. For the years when rebalanced 'won' the degree of outperformance was marginal, of the order 0.5% annualised difference. For years when non rebalanced won, the outperformance was more significant, 2% type difference.

For investing a lump sum the PP is good. Much of Sequence of Returns (SoR) risk is within the early years. If for instance stocks drop a lot shortly after investing a pension lump sum, then that SoR can be critical. The risk tends to decline with time, if for instance stocks have doubled and then drop by a third, that can be much less critical. If you start with a non rebalanced PP then as that tends to have low downside volatility early SoR risk is reduced. As that drifts over time, so you may no longer be holding a pure 25% x 4 PP, but perhaps part PP, part some other assets but where over the holding period those 'other assets' had performed well.

If you're still accumulating the SoR risk isn't really a issue. If stocks drop a third or whatever and you're adding new money (savings), then that's actually a helpful event. Such that the PP is better suited to those in (or nearing) drawdown rather than for those who are still accumulating.

For a Japanese PP investor since 1972 a PP with US stock instead of Japanese stocks ... did broadly better overall. For UK investors at times of low interest rates/inflation that has subsequently seen rising inflation a PP with US stocks broadly did better than holding UK stocks. 50/50 £'s and foreign (25% primary reserve currency US$, 25% global currency (gold)) IMO has a broad overall positive bias element over time, as historically the US$ has tended to relatively decline in gold currency terms, whilst other currencies such as the £ and Yen have tended to decline relative to the US$. But not consistently so, at times the £ has for instance relatively risen compared to the US$ and/or gold. Generally diversification is better than not, as one of the greatest risks is concentration risk. Better to be half right/half wrong, than fully wrong.

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Re: Multi-Region Permanent Portfolio

#339278

Postby 1nvest » September 9th, 2020, 6:35 pm

dspp wrote:I can understand your motivation. If there is any significant non-UK-sourced spend in your lifestyle (e.g. foreign cars, foreign food, foreign energy, foreign holidays, etc) then getting corresponding foreign exposure is attractive

With the US$ being the primary reserve currency that stepped up to take over from gold, most commodities are now priced in US$'s, such as oil - that sources petrol ...etc. Much of the fixtures/furniture in our house are foreign sourced. Food wise and much is also foreign sourced I guess. If you own your own home then you've already sourced a large element of £ based spending. If you're renting or paying down a mortgage then yes you still have a modest/large size £ spending on that front.

The main reason as I see it to hold foreign is to dilute down concentration risk. The PP was a US based concept where their domestic currency is also the primary reserve currency such that just 25% 'foreign currency' (gold) is sufficient. For non-US I personally think that raising 'foreign' to 50% is more appropriate. Similar to Markowitz thought train of regrets if it rose a lot and you weren't in it, or the regrets if it dropped a lot and you were all-in it - that drove him (at least initially) to a 50/50 preference (albeit that he was considering stocks and bonds).

In 2008/9 Iceland, when their Krona nose dived, a Icelandic investor who held gold saw purchase power maintained. As gold however remained more or less the same in Euro's they'd have been equally served by holding Euro notes (or investments sourced from/to Euro's). Similar for had they'd held US$'s. A 100% bet on the £ (UK governments 'competence') is a big bold bet. More so when you actually see those in Parliament :)

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Re: Multi-Region Permanent Portfolio

#339282

Postby 1nvest » September 9th, 2020, 6:51 pm

Newly retired in Jan 2000, where a investor opted for all-stock and a 4% SWR (4% initial amount of portfolio value that was uplifted by inflation each year as the amount drawn in subsequent years), and from a US investors perspective ...

Image

This is the link to that portfolio
Click on the 'Allocation Drift' link in that and you'll see how that non-rebalanced PP's individual assets weightings drifted over those years. Fundamentally 2000 up to around 2011 was a period when gold predominately floated the portfolio. Over other periods it will often be stocks. Change the start year to 1980 for instance and to recent you'd have transitioned from holding a start date PP asset allocation to pretty much be holding a 67/33 stock/long dated treasury asset allocation that over those years had provided a 2.8% annualised real gain after the 4% SWR withdrawals, compared to just a 0.5% annualised real if you'd instead opted to yearly rebalance the PP.

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Re: Multi-Region Permanent Portfolio

#339289

Postby mc2fool » September 9th, 2020, 7:35 pm

ignotus20 wrote:I thought about possibly adding more diversity into the mix by spreading it across: UK, US, Europe and maybe even China. In this case, I would buy a stock tracker, short and long maturity bond ETFs and physical gold (probably as an ETF also). I'm not sure how easy it would be to get physical gold ETFs in each currency though...

Aside from costs, there's no point in getting gold ETFs in different currencies, their value will all be the same in your home currency.

While gold happens to be priced in USD it is not a USD asset, per se, but a global one. The price in GBP or Euros or Yen or whatever is simply the USD price multiplied by the relevant exchange rate. So if you buy a USD, a EUR, and a GBP denominated gold ETF, the value of each in any one of those currencies will be the same (give or take a few basis points, due to costs) at any point in time.

While it doesn't make any difference in terms of returns or diversification, the reason for preferring any particular currency ETF is to avoid broker's exchange fees. E.g. if you have GBP and you buy a USD denominated ETF your broker will probably take around 1.5% for exchange fees, whereas if you buy an equivalent GBP one (like another class of the same ETF) you don't have that cost and the actual exchange rate spread (to USD) of the ETF is likely to be much much lower.

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Re: Multi-Region Permanent Portfolio

#339298

Postby Dod101 » September 9th, 2020, 7:57 pm

dspp wrote:I can understand your motivation. If there is any significant non-UK-sourced spend in your lifestyle (e.g. foreign cars, foreign food, foreign energy, foreign holidays, etc) then getting corresponding foreign exposure is attractive


Pardon? Pretty much all of us living in the UK do that if by 'non UK sourced spend' you mean buying stuff imported from abroad although to me that is not non-UK sourced spend, that is non UK sourced buying, so maybe I am wrong. Buying foreign cars, foreign food etc is actually non UK sourced buying in my book.

I bet that most of us on these Boards also get 'foreign exposure' as you call it, even if we only invest in companies quoted in London. Very few of them do not have 'foreign exposure'. We live in an internationally connected universe unless that is you are self sufficient on an off shore island.

It seems to me that the benefit of buying shares on another exchange is mainly the different styles of management rather than the idea that we are gaining exposure to a foreign currency that we cannot get from our home base.

Dod

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Re: Multi-Region Permanent Portfolio

#339310

Postby 1nvest » September 9th, 2020, 8:41 pm

It seems to me that the benefit of buying shares on another exchange is mainly the different styles of management rather than the idea that we are gaining exposure to a foreign currency that we cannot get from our home base.

Many firms hedge foreign currency risk/exposure. If my target weighting is x% domestic, y% foreign currencies exposure then I'd rather hold stocks listed in a foreign exchange such as US$ invested in US listed stocks, even though I might actually hold that exposure via a ETF listed in London (domiciled in Ireland) and priced in £'s, such as a ETF that tracks the US S&P500 stock index.

Something like 70% of FT100 earnings are sourced from foreign, 50% for the FT250, but as to how much of the expenditure and earnings is hedged or not isn't readily to hand, a reasonable guide is to assume around 66% hedging such that the FT100 is still largely coupled to fluctuations in the £. The FT250 is also something like 20% weighted into Investment Trusts, which in themselves diversify widely, so the FT250 could provide even more unhedged foreign currency exposure than FT100, but finding out the figure is pretty complicated.

From a pure currency perspective, if you held hard £, US$ and gold currencies in around a third weighting each, historically that would have lagged UK inflation by just a modest amount, much less than if all in £'s alone. Invest those notes instead of leaving them stuffed under the bed and even at T-Bill (short term government debt) interest rates you'd pretty much have offset UK inflation. And whilst each is individually volatile, you can selectively choose which of the currencies to spend at any one time, according to whichever was relatively up at that time. In some cases that could make a massive difference, such as that Icelandic example I posted earlier.

Get the currency front right, and what stocks are actually held is then just the usual hit/miss and where a broad range of stocks averages that out.

Priced in gold for instance and at times its taken 70 ounces of gold to buy the average UK house, at other times its taken 700 ounces. Or just over a ounce of gold at times to have bought the Dow, at other times its taken over 40 ounces.

https://www.bullionbypost.co.uk/index/g ... ate-ratio/

https://www.macrotrends.net/1378/dow-to ... ical-chart

The ratio is just indicative of disparity, could be that house prices were low (high) and gold was high (low), or a combination of both. Same for when assets are priced in other currencies such as US$'s or £'s. Fundamentally diversifying across multiple currencies better ensures that you wont be caught out having to pay too many £'s ($'s or ounces of gold) for something when you need that something, at a time when that currency is low, as you have alternative currencies to hand to use instead.

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Re: Multi-Region Permanent Portfolio

#339317

Postby 1nvest » September 9th, 2020, 8:58 pm

mc2fool wrote:the reason for preferring any particular currency ETF is to avoid broker's exchange fees. E.g. if you have GBP and you buy a USD denominated ETF your broker will probably take around 1.5% for exchange fees, whereas if you buy an equivalent GBP one (like another class of the same ETF) you don't have that cost and the actual exchange rate spread (to USD) of the ETF is likely to be much much lower.

I like ii brokerage for its multi-currency support. Deposit £'s, convert some or all to US$'s and then you can buy/sell US$ based stocks/funds and receive US$ dividends having just paid the single currency conversion cost. They just list you holding £x an $y amounts in your account. Just make sure that when you do trade you select to pay (or receive) in whatever of the currencies you hold in your account. Of course you will have to pay a currency conversion cost to at some point swap those $'s back into £'s.

But that's just for standard accounts, a problem is that in ISA accounts you can't hold foreign currencies - the rules just don't permit it, so to buy a ETF that trades and pays dividends in $'s within a ISA and you'll get hit with repeated 1.5% or whatever amounts of the currency conversion costs. Holding funds that trade in £'s and pays dividends in £'s (or otherwise that accumulates them) is usually much more cost efficient inside a ISA.

With iWeb I don't think you can hold foreign currencies in any of their standard (non ISA or SIPP) accounts, so they wack you with a 1.5% currency conversion costs potentially many times if a stock/fund is 'foreign', including dividends.

If you're not careful, you can end up with all sorts of opaque costs mounting up to levels where you might be investing and taking on all of the risk, in order to line other peoples pockets with the rewards. The financial sector is the worlds largest/richest sectors and its highly proficient in milking little bits here-and-there in order to help pay for all the expensive buildings and salaries. Let alone before the taxman gets their finger in that pie.

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Re: Multi-Region Permanent Portfolio

#339318

Postby Adamski » September 9th, 2020, 9:01 pm

I have SGLN as my gold ETF as a diversifier and reduce downside in times of market stress. iShares Physical Gold ETC (GBP). This has gone up 28% this year to date.

1invest you should have a blog, you sure write a lot!

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Re: Multi-Region Permanent Portfolio

#339326

Postby Newroad » September 9th, 2020, 9:56 pm

Hi ignotus20.

In rough terms, I believe I am trying to do what you suggest - a somewhat permanent portfolio with the exception perhaps of some modest re-balancing. However, it's not completely passive.

In short, the architecture of all of our portfolios (mine, my wife's and the ones I have for the kids are)

    Stock/bond split: 60/40 for the adults, 70/30 for the children.
    Passive/active: Within each of the above splits, 50/50.

The specific vehicles are

    Passive Stock: VWRL
    Active Stock: One of ATST, WTAN, FRCL
    Passive Bond: VAGP
    Active Bond: One of IPE, HDIV, CMHY

I'm not worried about FX risk - I'll take the upside or downside of what comes - any kind of additional hegding is a form of insurance (and as I can take the hit, I'd rather "self-insure"). I'm not into gold. I could be talked into carving some of the active stock portion into some form mining, energy or similar Investment Trust holding, but in that direction lies dragons - I would probably end up starting to do even more.

Having settled on this broad approach, I'm being fairly non-committal in a low maintenance way.

Regards, Newroad

PS Like 1nvest, it seems, I do all the above through ii

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Re: Multi-Region Permanent Portfolio

#339343

Postby torata » September 10th, 2020, 12:25 am

Dod101 wrote:
dspp wrote:I can understand your motivation. If there is any significant non-UK-sourced spend in your lifestyle (e.g. foreign cars, foreign food, foreign energy, foreign holidays, etc) then getting corresponding foreign exposure is attractive


Pardon? Pretty much all of us living in the UK do that if by 'non UK sourced spend' you mean buying stuff imported from abroad although to me that is not non-UK sourced spend, that is non UK sourced buying, so maybe I am wrong. Buying foreign cars, foreign food etc is actually non UK sourced buying in my book.

Dod


I don't think that's what dspp is saying. You aren't buying your Hyundai in Won, are you. Or your Audi in Euro.
But if you were living in Korea or Europe, or physically buying there, then that "corresponding foreign exposure is attractive" as dspp says.

torata

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Re: Multi-Region Permanent Portfolio

#339345

Postby Dod101 » September 10th, 2020, 12:42 am

Well I am not trying to be difficult, but maybe dspp can tell us what he is saying. I am fundamentally paying for my Audi in Euros even if I am buying in sterling. Simple straightforward language is always easier to understand than jargon.

Dod

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Re: Multi-Region Permanent Portfolio

#339349

Postby 1nvest » September 10th, 2020, 1:45 am

Long dated Treasury (Gilts) is a big 'no no' for many nowadays. But many of those have been saying the same since 2009 and longer dated gilts have provided good gains since then. That said, recent 40 year Gilts paying 0.7% has more downside than upside potential from here. Some who run PP's maintain to 15% lower, 35% upper weightings before rebalancing. Using that as a lower base, you might prefer 20 year gilts, 15% loading. Shift the other 10% over to the 'cash' side.

As I see it, when inflation does show, perhaps spiking up to 8% or maybe more, longer dated gilts might revert to being priced to 4% yields, which for 40 year maturity gilts might mean a -66% type loss, and if weighted 25% = -17% portfolio wide hit. Which is a big ask for one or more of the other assets to offset that, likely gold, and stocks may also be down. For 20 year Gilts, weighted 15%, the hit is much smaller, of the order -7% portfolio wide. Likely gold gains would more than offset that. i.e. maybe cash still paying 2% or less, long dated gilts repriced to 4% yields, inflation 8%, real yields -6% and gold up quite a bit, maybe +30% or more.

The trick then would be to rebalance from 15% in 20 year Gilts that had dropped even further in weighting into a full 25% allocation to a 40 year gilt paying the higher (4%/whatever) yield.

Many who presently dislike gilts don't understand their convexity or interworkings within the PP. Best not to drop them out altogether as then you're less inclined to add to them as/when they are more attractive.

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Re: Multi-Region Permanent Portfolio

#339393

Postby dspp » September 10th, 2020, 10:20 am

Dod101 wrote:Well I am not trying to be difficult, but maybe dspp can tell us what he is saying. I am fundamentally paying for my Audi in Euros even if I am buying in sterling. Simple straightforward language is always easier to understand than jargon.

Dod


If the UK's economic performance were to remain stable compared with the Rest of World (RoW) then it wouldn't really matter if you bought a index composed of domestic UK equities versus a index of RoW equities.

However if the economic performance of the UK deteriorates compared with RoW, then to the extent that the UK is not an autarky, the UK index (and dividends, so the effect is much the same irrespective of whether one is talking in capital terms or dividend terms) will similarly deteriorate vs the RoW. And correspondingly the real standard of living of the pensioner living on that UK index would also slide. So for example when they bought a coffee (which is not grown in the UK) or some steel (because iron ore is not mined in the UK) or much else it would take a correspondingly greater chunk of their dividends than before.

Now in the particular case of the UK it is true that many of the FTSE-100 constituents are global companies, and so one can argue that they really are RoW companies rather than UK companies. However that is only true to an extent and so by buying the FTSE-100 (say, using VUKE) then one is biasing ones exposure towards the UK economy rather than towards the RoW economy.

The more one thinks ones future lifestyle will comprise things or experiences that will be driven by non-UK price effects, the more one should correspondingly bias ones investment exposure in the same manner. That would - all else being equal - mean that one maintained an invariant lifestyle irrespective of whether the UK or RoW rose or fell. So if say 50% of one's lifestyle were driven by purely UK-pricing then 50% in UK-index, and 50% in RoW index. By doing this one is deliberately NOT taking a position on which economy will do better or worse, one is simply creating a real hedge so that one is indifferent which will do better or worse. In a sense this aspect is a passive move.

If one has a particular view on which economies will outperform the UK then one can go further and bias exposure towards those that one thinks will outperform. And if one is right then in time ones lifestyle will be able to rise compared to ones neighbour who instead chose a purely UK exposure. And if one is wrong then ones lifestyle will deteriorate. In a sense this aspect is an active move.

In my own personal case I de-emphasise VUKE, giving it only 25%, so RoW gets 75% via VWRL, VAPX, VERX. (For simplicity I am ignoring the small amount of VWRL that is in the UK, but if you really want to add it in then it is 4.1%). I do that for three reasons:
1) My lifestyle is relatively exposed to non-UK costs, and likely to remain so for various personal reasons, hence I in any case ought to bias away from a domestic UK exposure on a neutrally hedged basis;
2) I am rather sceptical regarding the short and medium term prospects for the UK versus the RoW, so in that respect I am making an active decision to bias accordingly;
3) Lastly, and it is a completely different matter, I have concerns about many of the companies in the FTSE-100 and their propensity to implode in the context of an index that only has 100 stocks in it, and which is heavily dominated by some individual shares and sectors. That is a completely different matter so please let's not take it into account in this discussion, but I mention it for completeness.

regards, dspp

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Re: Multi-Region Permanent Portfolio

#339406

Postby Dod101 » September 10th, 2020, 10:46 am

Thanks for that dspp. I do not agree with everything you have said. Take my Audi example again. The UK price is made up of lots of components and I suppose the main one is the cost of assembly in Germany. The parts being assembled may or may not all be priced in Euros and even if they are some will be manufactured in lower priced countries than say Germany, including quite probably the UK. Then we have the import costs and finally the selling price in the UK. That is an international agglomeration of costs. Furthermore I only 'foreign spend' on a new car every few years.

So then look at an entirely domestic event which I do almost every week, go shopping for food. I use a nice UK outfit like Tesco but on its shelves is stuff from all round the world. You could analyse almost every spending activity and find that, but no one can match our income, foreign based or otherwise with our expenditure, foreign or otherwise at least for someone living in the UK.

Obviously if you spend half the year living in Europe or have a holiday home in Florida or whatever then you can and probably should try to match your investing activity to that sort of lifestyle and generate Euros and US Dollars

Otherwise the point of a multi region portfolio then becomes simply to gain exposure to other countries' practices and management styles, efficiencies. Simple old fashioned diversification.

Dod

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Re: Multi-Region Permanent Portfolio

#339412

Postby 1nvest » September 10th, 2020, 10:59 am

Dec 2018

Unilever reported foreign exchange translation losses of 4.7 billion in the first half of this year, despite having increased foreign exchange hedges at the end of 2017 to a five-year high of 40% of annual turnover.

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Re: Multi-Region Permanent Portfolio

#339414

Postby Spet0789 » September 10th, 2020, 11:04 am

1nvest wrote:Dec 2018

Unilever reported foreign exchange translation losses of 4.7 billion in the first half of this year, despite having increased foreign exchange hedges at the end of 2017 to a five-year high of 40% of annual turnover.


That's just a unit of account issue (Unilever's unit of account being Euro).

The best way to consider a big multinational trading in different currencies (so like Unilever, not BP) is as a portfolio of businesses... Unilever in the UK earns in GBP, Unilever in Brazil earns in BRL and so on. Then add in the impact of any hedges they do.

Taking the extreme example, Nestle shares are in CHF but only about 5% of their costs and revenues are. Hence, unless they engage in lots of profit hedging back to CHF, Nestle shares are no more a CHF asset then they are say a GBP asset.

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Re: Multi-Region Permanent Portfolio

#339459

Postby dspp » September 10th, 2020, 1:45 pm

Dod101 wrote:Thanks for that dspp. I do not agree with everything you have said. Take my Audi example again. The UK price is made up of lots of components and I suppose the main one is the cost of assembly in Germany. The parts being assembled may or may not all be priced in Euros and even if they are some will be manufactured in lower priced countries than say Germany, including quite probably the UK. Then we have the import costs and finally the selling price in the UK. That is an international agglomeration of costs. Furthermore I only 'foreign spend' on a new car every few years.

So then look at an entirely domestic event which I do almost every week, go shopping for food. I use a nice UK outfit like Tesco but on its shelves is stuff from all round the world. You could analyse almost every spending activity and find that, but no one can match our income, foreign based or otherwise with our expenditure, foreign or otherwise at least for someone living in the UK.

Obviously if you spend half the year living in Europe or have a holiday home in Florida or whatever then you can and probably should try to match your investing activity to that sort of lifestyle and generate Euros and US Dollars

Otherwise the point of a multi region portfolio then becomes simply to gain exposure to other countries' practices and management styles, efficiencies. Simple old fashioned diversification.

Dod


Dod,

Go and take a very serious look at everything in your house and life. On a net basis : the UK imports about 1/3 of its food; the UK imports about 1/3 of its energy (coal, oil, gas, elec); the UK imports about a 1/3 of its cars. The UK economy is very open to international trade, and generally runs in deficit (though the same point would hold true if it was a surplus). Now I have deliberately stripped out all the interposing complexity of forex and services and prices and etc so as to make the relatively simplified point I have made, which is that unless the UK becomes an autarky then there is economic exposure to the RoW. Those complexities may soften, delay, or confuse the linkage, but the underlying point remains the same over lengthy durations of (say, hopefully) someone's retirement. Therefore in order to adopt a 'passive' stance one needs to weigh one's investments accordingly. In the UK the foreign exposure of many of the FTSE-100 companies has given that for many people for a very long time, but one cannot take for granted that it provides an adequate quantum for the future, or an adequate breadth for even the present.

Someone in a large economic bloc, such as the USA, might reasonably form a view that this was less relevant. But the smaller the economic unit the more relevant this factor is likely to be.

regards, dspp


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