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Where to reduce exposure - anticipating a correction

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Wasron
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Re: Where to reduce exposure - anticipating a correction

#173658

Postby Wasron » October 14th, 2018, 11:44 am

richfool wrote:It has tended to reaffirm my preference for income orientated stocks and trusts and to confirm my decision to add alternative asset classes such as infrastructure and property over the last year or so..


If you’re still considering alternative asset classes then now might be a good time to have a look at Lancashire Holdings (LRE). As a catastrophe insurer it has a low correlation to most of the market. With it currently being hurricane season their price has taken a hammering, but bad weather this year usually leads to higher premiums next year. In the years when the weather is more benign the dividends can be large, so the income is lumpy, but holds its own against other more conventional high yield stocks.

Regards

Wasron

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Re: Where to reduce exposure - anticipating a correction

#176957

Postby DiamondEcho » October 29th, 2018, 7:21 pm

Wasron wrote:If you’re still considering alternative asset classes then now might be a good time to have a look at Lancashire Holdings (LRE). As a catastrophe insurer it has a low correlation to most of the market. With it currently being hurricane season their price has taken a hammering, but bad weather this year usually leads to higher premiums next year. In the years when the weather is more benign the dividends can be large, so the income is lumpy, but holds its own against other more conventional high yield stocks. Regards Wasron


I've held LRE for maybe 10 years, but during a period say 1-2 years ago I materially [c80%?] reduced my position, it's performed like a dog from around prior/then and since. Oh, it can be VERY illiquid, so if availble I'd suggest using stop-orders if trading any size at all, as trading 'at market' in size can fly way away for you*. You have to be able to be ready for wildly variable dividends, like 10 cents versus a Dollar in had/good years. It had some really good years say 3-5 years ago, but since then phhh...
I'd love to see someone crank say the average 3, 5, 7 and 10 year capital and divi returns, as I honestly doubt it's outperformed in wider terms.

* I get live and direct pricing/execution on my platform and this is the only LSE stock trade where my order has *immediately* spiked the price well out of my hands.

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Re: Where to reduce exposure - anticipating a correction

#177004

Postby Wasron » October 29th, 2018, 10:47 pm

DiamondEcho wrote:I've held LRE for maybe 10 years, but during a period say 1-2 years ago I materially [c80%?] reduced my position, it's performed like a dog from around prior/then and since. Oh, it can be VERY illiquid, so if availble I'd suggest using stop-orders if trading any size at all, as trading 'at market' in size can fly way away for you*. You have to be able to be ready for wildly variable dividends, like 10 cents versus a Dollar in had/good years. It had some really good years say 3-5 years ago, but since then phhh...
I'd love to see someone crank say the average 3, 5, 7 and 10 year capital and divi returns, as I honestly doubt it's outperformed in wider terms.

* I get live and direct pricing/execution on my platform and this is the only LSE stock trade where my order has *immediately* spiked the price well out of my hands.


I quite agree about recent performance, but the key for me is that it has nothing to do with Trump’s pro-cyclical policies or Brexit. I’m after a portfolio for all seasons that provides a decent income without giving anything up by buying an annuity.

Are you still holding any Berkeley? I held them for several years and remember your comments about them, but lost faith when buybacks ate the divi.

Wasron

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Re: Where to reduce exposure - anticipating a correction

#177268

Postby DiamondEcho » October 30th, 2018, 11:27 pm

Wasron wrote: I’m after a portfolio for all seasons that provides a decent income without giving anything up by buying an annuity

Ok, horses for courses perhaps. But tell me what you calculate the current dividend yield as?

Wasron wrote: Are you still holding any Berkeley? I held them for several years and remember your comments about them, but lost faith when buybacks ate the divi. Wasron

No, and good call BTW :) I just totally lost faith in the family, I mean company; lol, double-entendre. Buybacks paid off the family 'before the rest of us'. I don't see investing in them ever again as I do not like their corporate culture at all. Unexpected, as I really bought their concept/'story' at the beginning.

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Re: Where to reduce exposure - anticipating a correction

#177429

Postby Wasron » October 31st, 2018, 6:05 pm

DiamondEcho wrote:Ok, horses for courses perhaps. But tell me what you calculate the current dividend yield as?


They’re (Lancashire) down as around 2% on my spreadsheet.

TBH I don’t pay that much attention to this, it’s just so that i’m not ‘banking’ any specials for this year within my predicted annual income. I’m not holding them just for the specials though and have a large holding for a single share, so if there was a major decline in the FTSE i’d consider selling up to fill my boots elsewhere, if they proved to be as resilient as they have been in the last month.

Regards, Wasron

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Re: Where to reduce exposure - anticipating a correction

#178082

Postby funduffer » November 4th, 2018, 4:38 pm

richfool wrote:I deliberately increased my global/overseas exposure after the Brexit referendum, though have been upping the UK exposure recently in anticipation of a post Brexit recovery. ;)


Having sold a few things and got yourself into some cash, it might be worth holding onto it for a month or so to see what transpires over Brexit.

I am expecting a market resurgence if there is a half-decent deal, or a short-term collapse if there isn't.

In the latter case there may be bargains to be had, if you are feeling brave.There may also be a further devaluation of the pound in these circumstances, so this would suggest more overseas exposure is beneficial (eg MYI) rather than UK.

I think it could go either way, so I am hanging onto cash for now, at least for the next few weeks.

FD

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Re: Where to reduce exposure - anticipating a correction

#428077

Postby richfool » July 16th, 2021, 1:14 pm

I thought I would resurrect this thread with an update of my holdings. (It took me a long time searching to find the thread as I thought the title of my original topic had included the word "defensive, so I included that in my search criteria, - only to get threads about aircraft carriers (but that's another topic!)

So I am currently thinking, what if there is a market crash, maybe accompanied by increased inflation, (and noting that I am generally a buy and long term hold investor, with an increased emphasis on income, but like to include some growth and plenty of diversity). The question is, - are there any of my IT holdings that I could or should rationalise, reduce, or sell to make my portfolio a bit more defensive, or to reduce its volatility. My current holdings are listed below, (apologies to Dod if I don't remember all their full names). They are listed in size of holding order within each category. My largest 4 holdings are in bold type.:

Global G&I:
JGGI - JP Morgan Global Grth & Inc

SAIN - Scottish American Global G&I
*HINT - Henderson Int Inc

Global Growth:
MNKS - Monks
SMT - Scottish Mortgage
*ATST - Alliance
*MWY - Mid Wynd

Global Multi-Asset:
MATE - JP Morgan Multi-Asset trust

PNL - Personal Assets

UK:

ASEI - Aberdeen Standard Equity Inc
DIG - Dundedin
LWDB - Law Debenture

USA/North America:
MCT - Middlefield Canadian Inc
USA - Baillie Gifford US Equity
BRNA - Blackrock North America

Europe:
JETI - JP Morgan European Inc
EAT - European Assets
BRGE - Blackrock greater Europe

Asia Pacific:

AAIF - Aberdeen Asian Inc
JAGI - JP Morgan Asian Growth & Inc
PHI - Pacific Horizons

Infrastructure:
EGL - Ecofin Global Utilities & Infrastructure
INPP - International Public Partners

Renewables:

SEIT - SDCL Energy Efficiency Tst
GRID - Gresham House Energy (Storage)

REIT's/Property Coys:

PHP - Primary Health Properties
RGL - Regional REIT
SLI - Standard Life Prop Inc
SUPR - Supermarket Inc
WHR - Warehouse REIT

Basic resources/miners/commodities:

POLY - Polymetal (Gold Miner)
BERI - Blackrock Energy resources Inc
BRWM - Blackrock World Mining
CYN - CQS Natural Resources Inc


Those marked with an asterix * are those that I consider could be ripe for rationalisation, - i.e. Alliance or Mid Wynd and HINT.

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Re: Where to reduce exposure - anticipating a correction

#428082

Postby Dod101 » July 16th, 2021, 1:22 pm

That is quite a collection, about 34 I think with pretty everything covered. Would you not be better off with a world tracker? Serious question.
There must be duplication overall as well.

Dod

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Re: Where to reduce exposure - anticipating a correction

#428088

Postby richfool » July 16th, 2021, 1:40 pm

Dod101 wrote:That is quite a collection, about 34 I think with pretty everything covered. Would you not be better off with a world tracker? Serious question.
There must be duplication overall as well.

Dod

Dod, That wasn't the question I asked! ;)

And it would be an expensive exercise to sell all my holdings and buy a world tracker (which would be equity focused), only to, then, in the event of a market crash, track the market down. As oft said, I prefer to hold active funds.

Many of my holdings are intended to be more resilient in the event of market falls and to provide income and growth from diverse asset classes and holdings.

My question was: "The question is, - are there any of my IT holdings that I could or should rationalise, reduce, or sell to make my portfolio a bit more defensive, or to reduce its volatility?"

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Re: Where to reduce exposure - anticipating a correction

#428102

Postby Dod101 » July 16th, 2021, 2:16 pm

richfool wrote:
Dod101 wrote:That is quite a collection, about 34 I think with pretty everything covered. Would you not be better off with a world tracker? Serious question.
There must be duplication overall as well.

Dod

Dod, That wasn't the question I asked! ;)

And it would be an expensive exercise to sell all my holdings and buy a world tracker (which would be equity focused), only to, then, in the event of a market crash, track the market down. As oft said, I prefer to hold active funds.

Many of my holdings are intended to be more resilient in the event of market falls and to provide income and growth from diverse asset classes and holdings.

My question was: "The question is, - are there any of my IT holdings that I could or should rationalise, reduce, or sell to make my portfolio a bit more defensive, or to reduce its volatility?"


It isn't the question you asked but it was the question I asked! You have answered that, thank you. Dundedin is I should imagine actually Dunedin but that is a small point. For me, there are too many holdings but I am sorry to say I cannot answer your question. I wonder if anyone can? After all you have what is normally a quite volatile Scottish Mortgage balanced by a very steady Personal Assets and for that matter a more middle of the road Monks and I guess we could go through all your holdings on that basis, but I am not competent to do that.

Dod

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Re: Where to reduce exposure - anticipating a correction

#428256

Postby billG » July 17th, 2021, 10:18 am

You could look at the risk rating of each individual holding....

1. The Trustnet website has a risk rating for individual trust.
2. The AIC website has a risk rating/shape ratio etc. in the 'daily factsheet' associated with each trust. (curtesy of Morningstar.)
3. You can look at the performance of your holdings during the Pandemic Crash and the Great Financial Crash.

Once you have done that you should have a good idea which areas of your portfolio are most risky. As a rough guide they are probably the ones that have gone up the most.

BillG

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Re: Where to reduce exposure - anticipating a correction

#428292

Postby richfool » July 17th, 2021, 1:59 pm

billG wrote:You could look at the risk rating of each individual holding....

1. The Trustnet website has a risk rating for individual trust.
2. The AIC website has a risk rating/shape ratio etc. in the 'daily factsheet' associated with each trust. (curtesy of Morningstar.)
3. You can look at the performance of your holdings during the Pandemic Crash and the Great Financial Crash.

Once you have done that you should have a good idea which areas of your portfolio are most risky. As a rough guide they are probably the ones that have gone up the most.

BillG

Thanks for that suggestion BillG.

As suggested, I have taken a look though the Trustnet ratings, which was interesting. I had a rough idea of what order my holdings fitted together, and I wasn't too far out. (I had previously checked the risk factor on the KID's).

The main points which arose were that in the global growth sector, where I was particularly focusing my attention, Mid Wynd (87) was a lower risk than Alliance (107). SMT was as expected a much higher risk at 173. Monks, in between at 115.

I was surprised how high ASEI was at 165 and JETI at 143.

The miners I expected to be higher and they fitted together:- BERI - 153. BRWM - 159 and CYN - 187.

USA (192) , PHI (188) and some of the REITs were highest.

When reviewing the holdings of some of the trusts, I noted that PNL, the most cautious trust, holds Microsoft and Alphabet, but not Amazon. Mid Wynd, Alliance and Monks hold all three. But I'm rather clutching at straws there for themes and clues. As a general guide, I conclude the growthiest trusts are likely to be the highest risks in the event of a crash, - e.g. PHI, USA, SMT and CYN.

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Re: Where to reduce exposure - anticipating a correction

#428369

Postby scotia » July 18th, 2021, 2:30 am

richfool wrote:As a general guide, I conclude the growthiest trusts are likely to be the highest risks in the event of a crash, - e.g. PHI, USA, SMT and CYN.

Going back to your starting point, when you felt a correction was likely (September 2018), it might be useful to look at what actually happened. There was a sharp downward correction in March 2020, followed by a substantial rise which was most striking in the growthiest trusts. In spite of the downward correction, In the past 3 years a Vanguard world tracker (VWRL) has increased by 41%, while Scottish Mortgage (SMT) has increased by 141% and the cautious Personal Assets (PNL) has increased by 27%. In general, income ITs fared badly compared to growth or generalist ITs.

So when will the next downward correction occur, and what investment sectors will be most affected? In my opinion, that's entirely guesswork. I keep a reasonable spread of equity investments, and ignore fluctuations.

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Re: Where to reduce exposure - anticipating a correction

#428373

Postby Itsallaguess » July 18th, 2021, 7:46 am

scotia wrote:
There was a sharp downward correction in March 2020, followed by a substantial rise which was most striking in the growthiest trusts.

In spite of the downward correction, In the past 3 years a Vanguard world tracker (VWRL) has increased by 41%, while Scottish Mortgage (SMT) has increased by 141% and the cautious Personal Assets (PNL) has increased by 27%. In general, income IT's fared badly compared to growth or generalist IT's.

So when will the next downward correction occur, and what investment sectors will be most affected? In my opinion, that's entirely guesswork. I keep a reasonable spread of equity investments, and ignore fluctuations.


For those of us who's investing history covers the years since 2000, we've been 'blessed' with three pretty brutal, although relatively short-lived market corrections -

1. Dot-com bubble bursts (2000 to 2003 - FTSE loses 47% over three years before starting to recover)

2. Global Financial Crisis (2007 to 2009 - FTSE loses 45% over 18 months before starting to recover)

3. COVID (2020 to present - FTSE loses 33% over two months before a fairly sharp rebound)


Those three periods give us a good set of 'stress tests' against which we can position our investment strategies and 'downturn coping mechanisms', with a clear ability to then add in additional scenarios or time-scales to give some margin.

For my own stress-tests, and as someone who's primarily focussed on an income-strategy based largely on income-related Investment Trusts, the assumptions might look something like this -

1. Period for coping strategy to manage will be five years (so some margin over the above periods, the longest of which was three years)

2. During that five-year period, portfolio income will drop to 50% of previous levels

3. After 5 years, portfolio income will have returned to previous levels

4. Spending will be required to be 'normal' throughout that five-year period


So on my assumptions, we've basically got 5 years through which we've got to cope with a halving of portfolio-generated income with the above scenario, and that means that there's got to be at least 2.5 years worth of 'normal-level income' that needs to come from somewhere else - that's the 'coping strategy' pot, which for me includes a level of near-cash funding held in Premium Bonds, along with some additional sources of cash or near-cash funding, and I actually currently plan on holding a three-year reserve, although I'm also very concious of the following two points -

1. Most of my income-related Investment Trusts operate a dividend-cover policy of their own, which amounts to some degree of 'double counting' of coping strategies - I see this as a 'good thing' however, as it means that I'm hopefully over-egging my scenario above where I'm assuming a 50% drop in portfolio-generated income for the full five-year period. A 'back pocket benefit' if you like, to my overall coping strategy, and one that's been quite visibly acted out during the recent COVID period, where the vast majority of income-IT's have seen no drop in generated dividend income at this point...

2. The past 18-months of COVID related issues has taught me one great lesson in terms of being able to still have a *relatively* comfortable time, during a period where my actual spending levels have been curtailed quite dramatically, and if I wasn't working at that point and I was reliant on my investment returns, then I am quite happy to accept that there would probably be a relatively quick 'tightening of the belt' in terms of actual spending if my portfolio income were to take a large hit, and so that's given me an additional 'back-pocket benefit' of also knowing that if such a market-dislocation were to occur in the future, I would probably be unlikely to just 'carry on as normal' anyway, from a spending point of view, for some period at least..

It's hopefully clear that the above doesn't take too much account of inflation, which is the elephant in the room at this time of huge monetary expansion, of course, but I'm relatively content that there's some wriggle-room in my coping-strategy margins that will cope with *some* level of higher inflation for moderate periods of time, and for me there comes a point where any real doomsday-scenarios that I'm likely to come up with regarding very long-term or very high inflation (or both!) is likely to be so disruptive to wider sections of society anyway, that they'll hopefully either be curtailed by Government intervention at some level, or else we're likely to be so well into 'guns & beans' territory by then that all the above becomes somewhat academic, and we'll be fighting it out in the Mad Max Thunderdome for supper anyway...

So for me, this is less about re-positioning at portfolio level to cope with some *imaginary* future market-dislocation scenario, and just making sure that outside of the actual portfolio, there's things in place that are hopefully likely to cope with *any* medium-term market-dislocation scenario, and I personally prefer to concentrate on that side of things rather than keep churning a portfolio strategy to fight 'the next imaginary war'...

Cheers,

Itsallaguess

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Re: Where to reduce exposure - anticipating a correction

#428378

Postby GoSeigen » July 18th, 2021, 8:29 am

richfool wrote: The question is, - are there any of my IT holdings that I could or should rationalise, reduce, or sell to make my portfolio a bit more defensive, or to reduce its volatility.


Following your comments to Dod: are you serious??? How can anyone answer this? 34-odd holdings, many in obscure active funds and you haven't even disclosed the allocation to each.

This is a job for you, not for volunteers on a bulletin board.

My only comment is that if you like your IT holdings as they are and it's expensive to rejig them, then why not simply hedge using options or other derivatives? It's cheap and easy.


GS

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Re: Where to reduce exposure - anticipating a correction

#428394

Postby richfool » July 18th, 2021, 9:23 am

In response to IAAG's point, it wasn't intended to be an exercise in protecting dividend income. It was more along the lines of a quick "stress test" to try and ascertain what sectors/trusts are likely to be more at risk in the event of a market crash, against a background of protecting wealth/capital.

During the Covid market crisis I moved some funds away from income to growth trusts and then in January this year, took some of the profits on the growth trusts and moved them back into income trusts and commodities, whilst still maintaining some exposure to the growth trusts.

As a general guide, I tend to think that outright growth trusts (like SMT, MNKS, PHI and USA) would be worst affected and income trusts least affected, though I noted in the Covid falls of March 2020 that HINT, JETI and ASEI fell back significantly.

I don't think I have many obscure holdings, perhaps apart from VOF (Vietnam Opportunities Fund) and maybe CYN (CQS Natural Resources trust), both of which I think would also be more susceptible in a market crash.

I appreciate it would have been helpful to have shown the actual size of each holding, though I as said, as a guide, they were listed in reducing order of size within each sector.

I have been deliberating on whether to sell or reduce: ATST and/or MWY, and possibly CYN. Other possible weaker links, to me, are HINT, ASEI and perhaps JETI.

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Re: Where to reduce exposure - anticipating a correction

#428416

Postby everhopeful » July 18th, 2021, 10:46 am

I agree with GoSeigen. Others cannot really help you with this. All I could suggest is to ask yourself why you bought each trust and then ask yourself if those reasons still apply. If they do keep it if not sell it.
If you do not need the cash the whole idea of selling in anticipation of the next downswing is flawed unless you have suddenly had a major shift in your appetite for risk.

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Re: Where to reduce exposure - anticipating a correction

#428422

Postby Itsallaguess » July 18th, 2021, 10:58 am

richfool wrote:
I have been deliberating on whether to sell or reduce: ATST and/or MWY, and possibly CYN.

Other possible weaker links, to me, are HINT, ASEI and perhaps JETI.


Have you considered that you've perhaps caught a mild dose of 'pickering'?

It's not something that's seen too much in the IT-related sphere, but some people may be more susceptible than others, all the same...

Cheers,

Itsallaguess

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Re: Where to reduce exposure - anticipating a correction

#428439

Postby scotia » July 18th, 2021, 11:48 am

Itsallaguess wrote:For those of us who's investing history covers the years since 2000, we've been 'blessed' with three pretty brutal, although relatively short-lived market corrections -

I have been through all of them (and before). We (myself and the OH) are both in our upper seventies, and are fortunate enough to have adequate income from indexed linked pensions, and a cash reserve for unexpected events. However these would not cover long term nursing home accommodation, should the need arise (as it did with our parents). For that eventuality, we have equity investments (in SIPPs and ISAs), predominantly in ITs and OEICs, which we would run down to pay the nursing home fees. As we built up these investments, we went through the ups and downs which you mentioned, and sometimes it was difficult to persuade ourselves to continue adding contributions into a falling investment market. We made mistakes (particularly in the Dot Com Era), and hopefully learned from them. The main lesson was that we were never able to predict the swings (both ways) in the markets - and consequently a reasonable spread of investments, left alone, was probably the best course of action. OK - I still fiddle around the periphery, but that's quite unnecessary :)

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Re: Where to reduce exposure - anticipating a correction

#428442

Postby Itsallaguess » July 18th, 2021, 12:01 pm

scotia wrote:
Itsallaguess wrote:
For those of us who's investing history covers the years since 2000, we've been 'blessed' with three pretty brutal, although relatively short-lived market corrections -


As we built up these investments, we went through the ups and downs which you mentioned, and sometimes it was difficult to persuade ourselves to continue adding contributions into a falling investment market.

We made mistakes (particularly in the Dot Com Era), and hopefully learned from them. The main lesson was that we were never able to predict the swings (both ways) in the markets - and consequently a reasonable spread of investments, left alone, was probably the best course of action. OK - I still fiddle around the periphery, but that's quite unnecessary


That more or less mirrors my own experiences through those periods as well, although I'm a bit younger and still working currently, but I did particularly want to say that regarding the 'buying into a falling market' process, then certainly for me I can closely relate it to riding a bike, as daft as that might sound, in that once you've almost 'forced' yourself to do it (and I *did* find it difficult to do at any reasonable size initially..), it then almost instantly became a non-issue for me at all from that point, and as part of my own investment processes I do try to maintain at least *some* level of allocated cash available just to cope with any sizeable spikes down.

For me, the above processes definitely help with my goal of generally maintaining holdings that I have in the market at any given time, as I definitely don't want to allow myself to be panicked out, and I think the process of actually *buying* stuff during those fairly regular spikes down does help me a great deal personally with that ambition.

As far as costs go with that inflation-facing and 'non-earning' capital, it's another one of those personal processes that I'm happy to pay a slight cost on in that area, so long as the sub-process continues to help deliver in other important areas in my overall investment strategy...

Cheers,

Itsallaguess


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