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No Yield Portfolio (NYP)

A helpful place to also put any annual reports etc, of your own portfolios
1nvest
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No Yield Portfolio (NYP)

#404970

Postby 1nvest » April 17th, 2021, 5:36 pm

To              Total Return
5 Apr 2017 19.9%
5 Apr 2018 11.3%
5 Apr 2019 -0.9%
3 Apr 2020 7.3%
1 Apr 2021 28.1%


Third each :

50/50 2MCL (2x FT250 fund)/gold
BRK (Berkshire Hathaway)
Gold

i.e. ... 16.67% 2MCL, 33.3% BRK, 50% gold. Yearly rebalanced (end of fiscal year is a good time for rebalancing as you have the option to rebalance in the old, new or a combination of both according to whatever might be the more tax efficient).

2MCL is a 2x daily FT250 index total return, pays no dividends, nor does BRK (nor does Gold).

£12,300/year capital gains tax allowance ... for a couple doubles to £24,600, so for instance if the value of holdings had doubled you could liquidate £49,200 of holdings and be within your yearly CGT allowance.

Concept of the 50/50 2x stock/gold choice is that half in 2x, half in bonds rebalanced yearly will tend to align to 100% in 1x stock, but where we substitute gold for bonds.

Example using US Data

Outside of ISA/SIPP and dividends/interest might just expand your income tax liabilities. Also taxation risk tends to increase with economic stress. For instance when inflation is 15% and cash deposits are paying 15% in reflection of that, basic rate taxation might rise to 40%, so in net terms that's a -6% yearly real (after inflation) loss. A sequence/handful of such years and ... ouch!

Small (in US scale) more equal weighted like (FT250), combined with large cap weighted (US stock for which BRK is assumed a proxy), and gold is a form of three currencies, £ domestic, US$ primary reserve currency, gold - is a form of global currency (as well as being a proxy for commodities).

Each year one of those holdings will be the worst performer and the diversification dilutes that down, lowers overall portfolio volatility, whilst the overall yearly averages for the combined set tend to still be reasonable/good. And average yearly gains combined with the degree of deviation in those yearly gains is a primary driver of overall annualised (actual) gains. There's a nice calculator towards the bottom of this web page

In a low interest rate era leveraged stock funds are nice due to the low cost of borrowing. When you invest £1 the fund in effect borrows another £1 to buy £2 of stock exposure. If you invest only 50p the fund borrows another 50p to buy £1 of stock exposure, whilst you still have 50p that you might invest in bonds - that could offset the cost the fund pays to have borrowed 50p. You can use that as a means to backtest historic likely results for a 2x fund. I used T-Bill + 2% for the cost of borrowing and historically even under periods of high interest rates/inflation the concept still worked well, where half in 2x, half in gold worked out OK as a proxy for 100% in 1x stock exposure. Had bonds been held instead of gold then in net terms (after taxation) there was a greater tendency for 50/50 2x/bonds to lag 100% in 1x stock.

I like to use Terry's TJH Accumulation HYP as a benchmark and for reference the corresponding respective fiscal yearly total returns from that were

17.3%
-3.2%
9.7%
-23.9%
41.2%

which compounded to a 6% annualised, versus 12.7% annualised for the NYP.

The history of 2MCL is limited as it only became available for retail investors in late 2015.

With NYP you'd typically use a SWR withdrawal/income production approach, i.e. a initial fixed percentage amount of the portfolio drawn at the start of the first year, and that £ amount uplifted by inflation as the amount drawn at the start of subsequent years - so a nice regular inflation adjusted income being produced. A common choice of SWR is 4%. When the surplus portfolio performs OK/well then typically that SWR value tends to become a smaller percentage of the ongoing portfolio value i.e. a initial 4% SWR after a number of years might be just 3% of the portfolio value being drawn.

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Re: No Yield Portfolio (NYP)

#404976

Postby monabri » April 17th, 2021, 5:59 pm

I'd not come across 2MCL("WISDOMTREE FTSE 250 2X DAILY LEVERAGED (2MCL))

https://www.hl.co.uk/shares/shares-sear ... -leveraged

"The objective of this product is to track the FTSE 250 Daily Leveraged RT TR index, the "Index", providing two times the daily performance of the FTSE 250 Net TR index (the "Benchmark"), adjusted to reflect fees and costs inherent to maintaining a leveraged position in stocks.
For example, if the Benchmark rises by 1% over a day, then the ETP will rise by 2%. However if the Benchmark falls by 1% over a day,
then the ETP will fall by 2%. In both cases excluding fees and funding costs. Holding this product for more than one day is likely to result in a return which is different to 2 times the return of the Benchmark over that holding period. This difference, called the ''Compounding Effect'', is caused by the product's daily leverage rebalancing, and is magnified by more leverage and longer holding periods. Compounding may have a positive or negative impact on the product's return, but tends to have a negative impact the higher the volatility of the Benchmark. You may trade this product on various stock exchanges at your own discretion. You may lose the full value of your initial investment,
but you will not lose more than your initial investment."

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Re: No Yield Portfolio (NYP)

#404977

Postby 1nvest » April 17th, 2021, 6:10 pm

One investor might like to lower counter party risk, likes to hold much in physical in-hand assets. In which case they might go down the path of a less extreme Zvi Bodie style (Zvi likes 10% in 10x stock exposure, 90% in 'safe' (inflation bonds), a less tilted version of that is a third in 3x stock, two thirds in gold). Another investor might opt for perhaps a third in large cap, a third in small cap, a third in gold. Yet another investor might prefer to hand their lot over to Buffett to manage (BRK scales cash reserves up/down over time so could be considered as a conglomerate (index fund) comprised of stocks and bonds).

There's a comparison of such here

Personally I like the Buffett choice, but if BRK did ever start paying dividends then I'd likely switch over to the 33/67 3x stock/gold choice. For a UK investor there's a retail 3USL fund for that. With higher volatility funds however you do have to rebalance more frequently than yearly ... and instead rebalance six monthly or even quarterly as the higher volatility can quite quickly see a former 33/67 allocation drift to 25/75 or 45/55 ... whatever and rebalancing is needed to realigh things. Zvi Bodie and his 10/90 in 10x stock/inflation bonds for instance uses Traded Options for the leverage and that requires rebalancing monthly to realign exposure levels.

Years back I used XVI for a while, a short volatility fund that approximated to a 5x leveraged holding (so 20/80 fund/safe to reflect 100% 1x stock). But then that blew up (poorly managed/structured/run). A nice feature with high tilt/leverage is that at high levels such as Zvi's approach, the maximum loss between rebalances is the amount invested in the leveraged holding, in his case 10%. If the 'safe' is gold, then even if the stock market closed/failed you still have 90% of assets in-hand.

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Re: No Yield Portfolio (NYP)

#404982

Postby 1nvest » April 17th, 2021, 6:29 pm

monabri wrote:I'd not come across 2MCL("WISDOMTREE FTSE 250 2X DAILY LEVERAGED (2MCL))...

Thanks for posting that monabri. We've bought and held (but with yearly rebalancing) 2MCL for years now. Over that time they have made trading more awkward, such as asking you to complete a sophisticated investor declaration/test before permitting you to trade - every time you want to trade. Laughably even to sell holdings you already hold in the case of TD (now ii). I did raise that with them a few years back but didn't really get a clear explanation as to why - i.e. I suggested ... OK so what if I want to sell, but fail the 'quiz' and have to wait x days before being permitted to take the test again and lose money as a result of having not been able to have sold when I wanted ... to which their answer was a telephone call to their desk would be the way around that.

Not sure about this year whether its changed at all, as my sons did the yearly rebalancing (as part of me getting old (60 now) has been the transfer of assets and management over to them - before I lose my marbles, or other - such as being more at risk of death by Covid).

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Re: No Yield Portfolio (NYP)

#404988

Postby Dod101 » April 17th, 2021, 7:10 pm

Bloody hell, if you feel in danger of losing your marbles at the age of 60 there is not much hope. Anyway, I do not understand what your proposal is supposed to be achieving. The total returns are OK but not outstanding, and of course choosing Berkshire Hathaway is a bit like putting your faith in City of London IT.

Hmm!

Dod

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Re: No Yield Portfolio (NYP)

#404990

Postby monabri » April 17th, 2021, 7:45 pm

I like posts by 1nvest ( food for thought) ....definitely an alternative approach to investing from the usual portfolio reviews - I wonder what their background was?

As for losing one's marbles at 60, I'd better get my ducks in line in the next 6 months or so! :shock:

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Re: No Yield Portfolio (NYP)

#405076

Postby tjh290633 » April 18th, 2021, 11:16 am

Dod101 wrote:Bloody hell, if you feel in danger of losing your marbles at the age of 60 there is not much hope. Anyway, I do not understand what your proposal is supposed to be achieving. The total returns are OK but not outstanding, and of course choosing Berkshire Hathaway is a bit like putting your faith in City of London IT.

Hmm!

Dod

Not much hope for me then at nearly 88.

TJH

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Re: No Yield Portfolio (NYP)

#405255

Postby absolutezero » April 19th, 2021, 10:23 am

tjh290633 wrote:
Dod101 wrote:Bloody hell, if you feel in danger of losing your marbles at the age of 60 there is not much hope. Anyway, I do not understand what your proposal is supposed to be achieving. The total returns are OK but not outstanding, and of course choosing Berkshire Hathaway is a bit like putting your faith in City of London IT.

Hmm!

Dod

Not much hope for me then at nearly 88.

TJH

No danger of you losing your marbles.
You are sharper than me and I'm only 40.
(Only? I'm starting to feel old!)

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Re: No Yield Portfolio (NYP)

#405383

Postby 1nvest » April 19th, 2021, 2:36 pm

1nvest wrote:Zvi Bodie and his 10/90 in 10x stock/inflation bonds for instance uses Traded Options for the leverage and that requires rebalancing monthly to realign exposure levels.

Actually I think he buys a 1 year at the money call option each month in a rolling 12 rung ladder approach. With Call Options the loss/reward line is a flat line a little below the 0 line (small loss if at expiry the price is the same as the current price at the time of buying the Option) and a upward sloping line the further into positive territory.

Image

I guess that way you're more inclined to have one having been bought at near the years low and where its gains are enough to broadly offset the losers. And where the leverage is such that only 10% of the total portfolio is invested into Traded Options, the remainder 90% is in safe inflation bonds (TIPS/Index Linked Gilts).

When instead you employ a 2x or 3x stock fund that rebalances daily, whilst 50/50 2x/bonds held for a year tends to reflect 100% in 1x, there is the characteristic that declines are attenuated, rises are amplified by the daily compounding from the funds daily rebalancing. If stocks rise 30% a 3x might rise more than 100%, whilst if stocks decline 30% a 3x might decline 80%. i.e. after declines less is invested the next day, after rises more is invested the next day.

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Re: No Yield Portfolio (NYP)

#405394

Postby 1nvest » April 19th, 2021, 2:59 pm

Dod101 wrote:Bloody hell, if you feel in danger of losing your marbles at the age of 60 there is not much hope.

There is a risk that sooner or later I could lose my marbles, hopefully never (however compared to Terry (whose more that 20 years my senior) I often feel that I've already lost (or never had) a whole bag of marbles). Like investing where the time to acquire assets is beforehand - be prepared, rather than scrambling around at/after the event - when its too late. If I postponed the decision until after I'd lost my marbles then I could make a poor decision, perhaps opting to turn it all into physical paper notes and have a bonfire. But then again - some suggest that the Covid vaccines are a potential onset of dementia risk. Maybe in striving to vaccinate the whole to protect a very small number the later finding is mass dementia. Reminds me of the film Idiocracy where a guy who is selected as a guinea pig for a top-secret hibernation program ends up being forgotten and awakens in a incredibly moronic future where after generations of mostly the dumbest having children he's by far the most intelligent person alive.

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Re: No Yield Portfolio (NYP)

#405403

Postby monabri » April 19th, 2021, 3:30 pm

1nvest wrote:
I often feel that I've already lost (or never had) a whole bag of marbles


How do you know that , I'd say you cannot know. You might indeed be "Not Sure" (*) !


(*)That would be a good moniker! :lol:

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Re: No Yield Portfolio (NYP)

#405408

Postby Dod101 » April 19th, 2021, 3:51 pm

1nvest wrote:
Dod101 wrote:Bloody hell, if you feel in danger of losing your marbles at the age of 60 there is not much hope.

There is a risk that sooner or later I could lose my marbles, hopefully never (however compared to Terry (whose more that 20 years my senior) I often feel that I've already lost (or never had) a whole bag of marbles). Like investing where the time to acquire assets is beforehand - be prepared, rather than scrambling around at/after the event - when its too late. If I postponed the decision until after I'd lost my marbles then I could make a poor decision, perhaps opting to turn it all into physical paper notes and have a bonfire. But then again - some suggest that the Covid vaccines are a potential onset of dementia risk. Maybe in striving to vaccinate the whole to protect a very small number the later finding is mass dementia. Reminds me of the film Idiocracy where a guy who is selected as a guinea pig for a top-secret hibernation program ends up being forgotten and awakens in a incredibly moronic future where after generations of mostly the dumbest having children he's by far the most intelligent person alive.


I rather think that it is a matter of keeping your mind and body active and not worrying about things. I am much nearer to Terry's age than yours but seldom think about 'losing my marbles'. OTOH I genuinely do not understand how you are investing and maybe another approach to your concerns would be to simplify your investing. I am about 90% invested in stocks and shares with the balance in a few bond funds and cash. At my age I know what I like and am primarily an income investor but certainly not in the HYP mould. I do keep a close watch on my 30 or so holdings but that is a hobby as much as anything else. I keep it simple.

Dod

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Re: No Yield Portfolio (NYP)

#405418

Postby Charlottesquare » April 19th, 2021, 4:33 pm

Dod101 wrote:Bloody hell, if you feel in danger of losing your marbles at the age of 60 there is not much hope. Anyway, I do not understand what your proposal is supposed to be achieving. The total returns are OK but not outstanding, and of course choosing Berkshire Hathaway is a bit like putting your faith in City of London IT.

Hmm!

Dod


I suspect the catch is you do not notice they are going, I suspect it is not so much losing marbles as not concentrating/missing detail. My late father was generally pretty financially astute , he had spent most of his working life managing other people's money (trust solicitor) and I had left him to running his own savings in retirement, the odd conversation but that was it, it was only by change when he let me see a couple of ISA statements that I spotted that the interest earned was derisory, they had defaulted to 0.1%, he at age 83 had not noticed for two years.

I know my own mental arithmetic/ estimation is not as sharp as it was when I was younger, I am 61, though it still seems to be better than that of my 29 year old son.

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Re: No Yield Portfolio (NYP)

#405422

Postby Dod101 » April 19th, 2021, 4:41 pm

Charlottesquare wrote:
Dod101 wrote:Bloody hell, if you feel in danger of losing your marbles at the age of 60 there is not much hope. Anyway, I do not understand what your proposal is supposed to be achieving. The total returns are OK but not outstanding, and of course choosing Berkshire Hathaway is a bit like putting your faith in City of London IT.

Hmm!

Dod


I suspect the catch is you do not notice they are going, I suspect it is not so much losing marbles as not concentrating/missing detail. My late father was generally pretty financially astute , he had spent most of his working life managing other people's money (trust solicitor) and I had left him to running his own savings in retirement, the odd conversation but that was it, it was only by change when he let me see a couple of ISA statements that I spotted that the interest earned was derisory, they had defaulted to 0.1%, he at age 83 had not noticed for two years.

I know my own mental arithmetic/ estimation is not as sharp as it was when I was younger, I am 61, though it still seems to be better than that of my 29 year old son.


Yes I will accept that deterioration creeps up and none of us really notices it.

Dod

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Re: No Yield Portfolio (NYP)

#405423

Postby TUK020 » April 19th, 2021, 4:44 pm

Dod101 wrote:
Charlottesquare wrote:
Dod101 wrote:Bloody hell, if you feel in danger of losing your marbles at the age of 60 there is not much hope. Anyway, I do not understand what your proposal is supposed to be achieving. The total returns are OK but not outstanding, and of course choosing Berkshire Hathaway is a bit like putting your faith in City of London IT.

Hmm!

Dod


I suspect the catch is you do not notice they are going, I suspect it is not so much losing marbles as not concentrating/missing detail. My late father was generally pretty financially astute , he had spent most of his working life managing other people's money (trust solicitor) and I had left him to running his own savings in retirement, the odd conversation but that was it, it was only by change when he let me see a couple of ISA statements that I spotted that the interest earned was derisory, they had defaulted to 0.1%, he at age 83 had not noticed for two years.

I know my own mental arithmetic/ estimation is not as sharp as it was when I was younger, I am 61, though it still seems to be better than that of my 29 year old son.


Yes I will accept that deterioration creeps up and none of us really notices it.

Dod

Marbles? Oh drat. I thought we were playing tiddlywinks

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Re: No Yield Portfolio (NYP)

#405538

Postby 88V8 » April 20th, 2021, 9:54 am

tjh290633 wrote:Not much hope for me then at nearly 88.

88 seems to have had a fascination for designers of mechanical doohicuses.
Are you going to be a piano, a Land Rover, an anti-aircraft cannon, an Oldsmobile, a tank gun?

This portfolio is certainly different.
Thankyou for posting it.
Keeps the little grey cells active.
Would be interesting to compare it to more conventional approaches over time, the only problem being the problem attaching to all long-term exercises, that by the time its merits or otherwise become apparent, it's too late.

V8

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Re: No Yield Portfolio (NYP)

#405557

Postby tjh290633 » April 20th, 2021, 10:28 am

88V8 wrote:
tjh290633 wrote:Not much hope for me then at nearly 88.

88 seems to have had a fascination for designers of mechanical doohicuses.
Are you going to be a piano, a Land Rover, an anti-aircraft cannon, an Oldsmobile, a tank gun?

I think that I might fertilise a tree.

TJH

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Re: No Yield Portfolio (NYP)

#405564

Postby 1nvest » April 20th, 2021, 10:49 am

88V8 wrote:This portfolio is certainly different.
Thankyou for posting it.
Keeps the little grey cells active.
Would be interesting to compare it to more conventional approaches over time, the only problem being the problem attaching to all long-term exercises, that by the time its merits or otherwise become apparent, it's too late.

Consider a 'conventional' 67/33 stock/reserves blend. Stocks are broadly 1.5x leveraged i.e. debt broadly averages half of book-value. Leverage just broadly scales volatility, not rewards, so accordingly many opt to de-leverage stocks via a 67/33 stock/bond allocation. Bonds broadly provide no gains, so HMRC doesn't even bother with applying capital gains taxation on Gilts given its zero sum nature (broadly it would just cost to implement/maintain such).

Lending to in effect oneself is unproductive. A firm borrows perhaps via issuing corporate bonds, and if a investor matches that by buying bonds as part of their portfolio ... its a overall 0% nominal waste of a 33% allocation, worse in real (after inflation) terms. However blending a low volatility asset such as bonds with a high volatility asset such as stocks does help reduce overall portfolio volatility. Standard deviation in yearly total returns is one way to measure volatility and is commonly associated as being 'risk'. If you instead opted to look at maximum drawdowns then you'll find a high correlation between levels of MaxDD and Stdev (of the order of a 94% correlation). A alternative to blending high and low volatility assets is to have two high volatility assets with ideally totally inverse correlations but where both individually have 0% or better real (after inflation) reward potentials. In short swapping out bonds for gold as the partner to stocks.

Fundamentally the broad outcomes might be comparable. You might opt for 67/33 stock/bonds, or 67/33 stock/gold, or utilise derivatives such as Options/Futures ...etc. to equal reward expectancy effect. So it distils down to which assets you actually prefer, or that might be the more cost/tax efficient. Regular income streams are a tax risk, as typically when economic stress is high so also do taxes of regular income streams tend to rise.

Stock dividends are just a return of capital, no different to selling shares, but where that cash flow is dictated by others - that often doesn't align to what individual investors might have otherwise opted for. Deferring taxes, stocks accumulating, gold that pays no interest, to instead pay out ones own dividends by selling some shares/ounces at times and to amounts that matches a individuals needs is lower risk, especially for those in the accumulation phase where otherwise interest/dividends being paid, taxed and net proceeds reinvested is otherwise just wasteful for the individual (but beneficial to HMRC).

A great combination of assets would be ones that individually halved and doubled repeatedly in real terms but did so with a -1 correlation (totally inverse to each other). 50/50 allocated and rebalanced would see a progression of

Asset A, Asset B, Total
0.5 0.5 1.0
0.25 1.0 1.25
1.25 0.3125 1.5625

type values/gain i.e. up 56.25% after two years despite both assets individually having compounded to 0% gain/loss. Stock and Gold are somewhat along those lines - a element of variable period inverse correlation. As are leveraged ETF's that rebalance internally daily when compounded out. i.e. after a month seeing a 30% decline a 3x might be down less than 3 times that loss due to having invested less after each daily loss. Similarly after a 30% rise a 3x might be up more than 3 times that due to having invested more after each daily gain.

Unfortunately portfoliovisuaizer data is limited, for example to from 2012 for 3x data or 2009 for 2x data. It is relatively easy however to approximate historic values. Half in 2x, half in bonds will over a year tend to compare relatively closely to 100% in 1x. For 3x you need to drop that down to 6 monthly intervals between rebalances. For 5x or even 10x you're looking more at monthly intervals between rebalances.


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