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IT Basket or LifeStrategy Fund

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
floyd3592
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IT Basket or LifeStrategy Fund

#409004

Postby floyd3592 » May 3rd, 2021, 2:36 pm

I have a lumpsum i was thinking of setting up a basket of ITs with. I already have funds invested in 5 ITs (weightings for the total amount I currently have invested in them in brackets), currently wrapped within ISAs: - CTY (35%); HFEL (15%); MIT (22%); EDIN (8%); MUT (20%). I was thinking of using mine and Mrs Floyd’s ISA allowance for this year, together with another lump sum to purchase equally weighted basket of the following ITs: -

Blackrock North American;
Henderson Far East;
HICL Infrastructure;
JPMorgan Claverhouse;
JPMorgan European Income;
Murray International;
Schroder Income Growth; Value & Income Trust

I’ve been looking at this ‘Retirement Ace’ website (https://www.retirementace.co.uk) for a while, which has given me the idea for this particular basket of ITs.

However this blog on the website has given me pause for thought: -https://www.retirementace.co.uk/2021/01/dividends%20beat%20LifeStrategydrawdown.html Basically there’s not much difference between the Vanguard LifeStrategy 60% Equity fund performance and the IT basket. This begs the question is it worth all the hassle of setting up & managing the ITs or should I just go for the Vanguard fund? What are people’s thoughts on this and also the basket of ITs proposed to provide income?

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Re: IT Basket or LifeStrategy Fund

#409077

Postby xeny » May 3rd, 2021, 7:35 pm

The IT portfolio they're comparing is quite a bit more volatile that LS 60. It might be worth comparing LS 80 also.

Note that the article refers to LS hedging foreign currency exposure, that's true I believe only of the bond component. I don't know what the IT in the portfolio do with currency exposure?

I'm surprised LS 60 offers a comparable yield to the IT basket if you're after income (I think it's about 1.22%?), or are you planning to periodically sell some units to generate income from capital growth?

LS presumably has lower management fees, offers greater diversification and is less hassle for you.

You're essentially looking at two questions many feel quite strongly about:

How do you feel about active vs passive funds?

Are you comfortable with total return investing?

tjh290633
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Re: IT Basket or LifeStrategy Fund

#409080

Postby tjh290633 » May 3rd, 2021, 7:50 pm

Moderator Message:
Thread moved from HYP Strategies, as this is a more relevant Board.

TJH

GeoffF100
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Re: IT Basket or LifeStrategy Fund

#409157

Postby GeoffF100 » May 4th, 2021, 7:52 am

LifeStrategy accumulates income. You have to sell some units to raise income. You definitely need to compare like with like as far as volatility is concerned, or compensate for the volatility by calculating the risk adjusted return:

https://www.investopedia.com/terms/r/ri ... Treasuries.

Global trackers have beaten LifeStrategy 100 in recent years, because they contain a lower percentage of the UK market, which has been a perennially bad performer:

viewtopic.php?f=55&p=408808#p408808

Nonetheless, the UK market is now priced as rubbish. and may well be a good buy at that price.

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Re: IT Basket or LifeStrategy Fund

#409167

Postby GeoffF100 » May 4th, 2021, 8:12 am

It is worth adding that buying an Investment Trust makes sense if you have a time machine and can pick a winner, or just want a flutter. If you buy a big basket of them, that will average out the performance. You will be paying much more than you would for a global tracker, with no chance of getting a winner. Costs compound up over time.

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Re: IT Basket or LifeStrategy Fund

#409169

Postby nmdhqbc » May 4th, 2021, 8:17 am

GeoffF100 wrote:LifeStrategy accumulates income. You have to sell some units to raise income.


you can buy them as income or accumulation units. the income units only seems to pay out once a year though.
https://www.vanguardinvestor.co.uk/inve ... ome-shares

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Re: IT Basket or LifeStrategy Fund

#409184

Postby Wuffle » May 4th, 2021, 9:04 am

You have (I assume) chosen just the one wife, and have evidenced thus.
The difference between her and all the other wives you could have chosen is orders of magnitude greater than the differences between a Lifestyle version of average and a diversified IT concoction of average.
Don't sweat it.

W.

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Re: IT Basket or LifeStrategy Fund

#409190

Postby richfool » May 4th, 2021, 9:26 am

Wuffle wrote:You have (I assume) chosen just the one wife, and have evidenced thus.
The difference between her and all the other wives you could have chosen is orders of magnitude greater than the differences between a Lifestyle version of average and a diversified IT concoction of average.
Don't sweat it.

W.

I don't think that's a fair analogy. There would be various practical complications in having more than one wife, whereas in terms of investments, diversification spreads exposure and risk. Even with funds and trusts there is merit in investing in different geographies and sectors to take advantage of investment opportunities as well as spread risk.

Note the old saying about sailors having a wife in every port! ;) :D

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Re: IT Basket or LifeStrategy Fund

#409212

Postby 88V8 » May 4th, 2021, 11:47 am

floyd3592 wrote:...

Blackrock North American; BRNA yield 4% cover 6 months
Henderson Far East; HFEL yield 7% cover 9 months (I hold)
HICL Infrastructure; HICL yield 4.8% no cover
JPMorgan Claverhouse; JCH yield 4.3% cover 15 months (I hold)
JPMorgan European Income; JETI yield 4.5% cover 11 months (I hold)
Murray International; MYI yield 4.5% cover 12 months
Schroder Income Growth; Value & Income Trust SCF yield 4.1% cover 16 months.

I haven't looked how long since they all cut the divi, but SCF (25 years) MYI (16 years) HICL (13 years) HFEL (12 years) all have good records.

I would skip HICL as they have no cover. You might consider ASEI with its 5.9% yield and 11 months cover, uncut for 20 years.

If possible, try to make your purchases when they are at a discount, rather than making all purchases at the same time.

I have no enthusiasm for the Life Strategy, unless you really are not interested in managing your own pot.

Caveat: I am not a TR investor and do not really watch SP growth.

V8

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Re: IT Basket or LifeStrategy Fund

#409223

Postby AleisterCrowley » May 4th, 2021, 12:49 pm

88V8 wrote:I have no enthusiasm for the Life Strategy, unless you really are not interested in managing your own pot.


V8


More to the point, do you think you can consistently beat a passive tracker by managing your own pot?
Although in this case you are managing the allocation of your money to various managers who do it for you, and active funds as a whole don't have a good track record

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Re: IT Basket or LifeStrategy Fund

#409228

Postby stevensfo » May 4th, 2021, 1:07 pm

floyd3592 wrote:I have a lumpsum i was thinking of setting up a basket of ITs with. I already have funds invested in 5 ITs (weightings for the total amount I currently have invested in them in brackets), currently wrapped within ISAs: - CTY (35%); HFEL (15%); MIT (22%); EDIN (8%); MUT (20%). I was thinking of using mine and Mrs Floyd’s ISA allowance for this year, together with another lump sum to purchase equally weighted basket of the following ITs: -

Blackrock North American;
Henderson Far East;
HICL Infrastructure;
JPMorgan Claverhouse;
JPMorgan European Income;
Murray International;
Schroder Income Growth; Value & Income Trust

I’ve been looking at this ‘Retirement Ace’ website (https://www.retirementace.co.uk) for a while, which has given me the idea for this particular basket of ITs.

However this blog on the website has given me pause for thought: -https://www.retirementace.co.uk/2021/01/dividends%20beat%20LifeStrategydrawdown.html Basically there’s not much difference between the Vanguard LifeStrategy 60% Equity fund performance and the IT basket. This begs the question is it worth all the hassle of setting up & managing the ITs or should I just go for the Vanguard fund? What are people’s thoughts on this and also the basket of ITs proposed to provide income?


Basically there’s not much difference between the Vanguard LifeStrategy 60% Equity fund performance and the IT basket.

However, with the collection of ITs, you are adding more diversification and thus, safety. The chances of Vanguard's CEO running off with billions or losing it all on a horse are pretty low, but not not zero. With the ITs, you'll have more fun and, if you wish, can use the occasional 'cheap dealing days' for re-balancing.

Steve

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Re: IT Basket or LifeStrategy Fund

#409238

Postby GeoffF100 » May 4th, 2021, 1:30 pm

stevensfo wrote:The chances of Vanguard's CEO running off with billions or losing it all on a horse are pretty low, but not not zero.

Vanguard's current AUM is $7.1 trillion. There is nowhere for the CEO to go with that sort of money. Vanguard UK is a separate entity. If the Vanguard UK CEO manages to do a runner, the parent company will almost certainly bail Vanguard UK out. You can split your tracker investments between Vanguard and other managers if you are still worried. Do you want a punt on investment trusts, or do you want to go with a simpler option that will most likely to give you a better risk adjusted return?

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Re: IT Basket or LifeStrategy Fund

#409252

Postby GeoffF100 » May 4th, 2021, 2:14 pm

Monevator has just posted a timely article on LifeStrategy:

https://monevator.com/vanguard-lifestrategy/

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Re: IT Basket or LifeStrategy Fund

#409641

Postby AshleyW » May 5th, 2021, 6:48 pm

This is a real chalk and cheese comparison and so much depends upon where one is in the investment cycle - accumulation, near retirement, or deaccumulation. It also depends very much on philosophy - "living off dividends" or "total return", "passive or "active". Both can be valid strategies depending upon one's objectives - in retirement the only way to maximise income is through total return as for maximum income one has to eat into, and perhaps almost exhaust capital. An objective Living Off of Dividends is not to touch capital by selling investments (of course a company by giving you a dividend rather than reinvesting in the business is in effect returning some of your capital to you - there´s no free lunch).

So the first decision to make is what is your strategy. Dividend Income or Total Return. Some of the pros and cons are well covered on RetirementAce. If I were 15 to 20 years away from retirement I would not go the dividend income route. But approaching retirement and maybe during retirement if you don´t need maximum income there is some merit in relying on IT dividends. I am retired and do both but may eventually switch entirely to total return.

My IT income portfolio is similar to that of RetirementAce. I like the fact that companies were chosen on the basis that passed the 2008 stress test and they maintained or increased dividends post-crash. However, one has to accept that the ITs are actively managed (which would rule this approach out for many passive-only investors) and as such are vulnerable to manager mishaps such as with Temple Bar and the Woodford/Barnett Invesco trusts (Perpetual, Keystone, Edinburgh). These are not set-up and forget portfolios and every couple of years I have had to make portfolio changes.

The Vanguard LifeStategy funds are well covered on Monevator and RetirementAce. I can see myself switching to LifeStrategy in later life when I no longer have the mental ability or desire to manage my finances and would resent paying 1% to 2% to a financial advisor. Vanguard is the only platform that I have found where you can specify a monthly income and they will sell investments to produce the cash required. On platforms such as A J Bell you have to do the selling. In the meantime, for my Total Return portfolios I prefer to use ETFs due to the drawbacks of LifeStrategy discussed on Monevator and RetirementAce. I much prefer to know that my bond holdings are in gilts and not corporates and that there is no UK bias and that I have the choice of whether to hedge or not hedge - plus it's cheaper!

(in a previous comment it was noted that HICL had low dividend coverage. This is normal for infrastructure companies which similar to REITs pay out the majority of their income. There was also a comment of surprise about comparable yields of LifeStrategy and the RetirementAce IT income portfolio - in fact, the post compares total return not yield - and if I remember correctly the portfolio has a yield of around 4.5% and LifeStrategy 1.5%.)

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Re: IT Basket or LifeStrategy Fund

#409683

Postby Darka » May 5th, 2021, 10:04 pm

AshleyW wrote:My IT income portfolio is similar to that of RetirementAce. I like the fact that companies were chosen on the basis that passed the 2008 stress test and they maintained or increased dividends post-crash. However, one has to accept that the ITs are actively managed (which would rule this approach out for many passive-only investors) and as such are vulnerable to manager mishaps such as with Temple Bar and the Woodford/Barnett Invesco trusts (Perpetual, Keystone, Edinburgh). These are not set-up and forget portfolios and every couple of years I have had to make portfolio changes.


RetirementAce is new to me so thanks for mentioning that - looks very interesting and worth a read.

I prefer IT's myself and am happy with the results from my portfolio.

regards,

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Re: IT Basket or LifeStrategy Fund

#409723

Postby GeoffF100 » May 6th, 2021, 7:40 am

AshleyW wrote:It also depends very much on philosophy - "living off dividends" or "total return", "passive or "active". Both can be valid strategies depending upon one's objectives - in retirement the only way to maximise income is through total return as for maximum income one has to eat into, and perhaps almost exhaust capital. An objective Living Off of Dividends is not to touch capital by selling investments (of course a company by giving you a dividend rather than reinvesting in the business is in effect returning some of your capital to you - there´s no free lunch).

Vanguard UK offers two income funds, an active fund and a passive fund. Income funds have the disadvantage that they invest only in higher yielding shares, which reduces the diversification. Whole sectors can be missed out. They also potentially incur higher costs as a result of selling shares whose yield has fallen to buy shares whose yield has risen.

Overseas companies usually favour share buy-backs over dividend distributions. They both achieve the same objective of returning money to shareholders, but capital gains are usually taxed more favourably than dividends. (In theory, a buy-back should leave the share price unchanged. When a dividend is paid, the share price should fall by the value of the dividend on the xd date.) Clearly, you can sell the appropriate number of shares to make the effect of a buy-back to be the same as receiving a dividend. Similarly, if a company reinvests in its business, you can sell the appropriate number of shares to make the effect of that reinvestment the same as paying a dividend. More simply, you could just withdraw say 4% of the capital value (with reinvested dividends) each year, if you are not bothered if you fail to receive a fixed index linked income each year.

The main difference between a dividend and a capital gain is tax. If your shares are in an ISA that currently does not matter (except for withholding taxes), but I would not be greatly surprised to see those tax privileges whittled down.

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Re: IT Basket or LifeStrategy Fund

#409868

Postby xeny » May 6th, 2021, 5:40 pm

stevensfo wrote:
Basically there’s not much difference between the Vanguard LifeStrategy 60% Equity fund performance and the IT basket.

However, with the collection of ITs, you are adding more diversification and thus, safety. The chances of Vanguard's CEO running off with billions or losing it all on a horse are pretty low, but not not zero. With the ITs, you'll have more fun and, if you wish, can use the occasional 'cheap dealing days' for re-balancing.

Steve


I think that saying the ITs offers more diversification isn't without caveats - with a basket of ITs, unless you split them across brokers you're at a similar risk of the broker going pop (arguably higher, are any UK brokers as well capitalized as Vanguard?), and you're also vulnerable to any of the ITs having an incident (albeit the latter isn't as all or nothing as Vangaurd vanishing).

Additionally, the actual companies those ITs invest in are likely to be less diversified than the range LifeStrategy offers.

The two approaches offer different levels of diversification in different areas, it isn't all one way.

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Re: IT Basket or LifeStrategy Fund

#409915

Postby hiriskpaul » May 6th, 2021, 8:50 pm

AshleyW wrote:This is a real chalk and cheese comparison and so much depends upon where one is in the investment cycle - accumulation, near retirement, or deaccumulation. It also depends very much on philosophy - "living off dividends" or "total return", "passive or "active". Both can be valid strategies depending upon one's objectives - in retirement the only way to maximise income is through total return as for maximum income one has to eat into, and perhaps almost exhaust capital. An objective Living Off of Dividends is not to touch capital by selling investments (of course a company by giving you a dividend rather than reinvesting in the business is in effect returning some of your capital to you - there´s no free lunch).

Essentially everyone lives off total return in the long run. To increase the natural yield of an IT, management charges may be taken from capital and dividends paid from capital gains, rendering the whole idea of living only off dividends a bit of a nonsense. Even the so-called income reserve account is held in investments and when drawn upon the investments must be sold.

The primary practical difference is that with the IT "natural income" approach, the level of income over time is decided by the fund managers and will rise (or not) according to the long term performance of the chosen ITs. With the TR approach, the level of income has to be decided and managed by the retiree. Some brokers, eg Vanguard, will automatically sell investments to make regular payments, but the amount of the repayment still has to be set by the retiree and varied over time according to some strategy.

ps, just to add my own preference would be for the LifeStrategy fund as this is more likely to give the better long term total return, which in the end is what really matters.

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Re: IT Basket or LifeStrategy Fund

#410388

Postby GeoffF100 » May 8th, 2021, 9:38 pm

Pensioncraft has just posted a video on LifeStrategy:

https://www.youtube.com/watch?v=jrNyl5u93xI

Highly recommended.

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Re: IT Basket or LifeStrategy Fund

#410617

Postby GeoffF100 » May 9th, 2021, 7:38 pm

Interestingly, he tracks LifeStrategy very closely indeed with Vanguard Developed World ex UK and Vanguard FTSE All Share as the only two equity funds. He has not need to include emerging markets. Here are the weights for his cheapo LifeStrategy 60 emulator:

VVDVWE 40%
VVFUSI 16.2%
VIBOND 11%
VIUKGB 20.6%
VIGBBD 12.3%

The cost of this bunch is 0.12% versus 0.22% for LifeStrategy 60. That is a big cost saving, but if you want to rebalance, you have to do it yourself. Actually, I am sceptical. He has fitted past data, and I expect one of the constraints on the fit was that the end result should be correct. I doubt whether the fit would be as good over the next time period. Vanguard Developed World ex UK + VFEM + FTSE All Share + your choice of bonds is probably a better idea.


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