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Inv Strategy for a low growth or recession scenario

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
richfool
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Inv Strategy for a low growth or recession scenario

#262603

Postby richfool » November 6th, 2019, 3:44 pm

Noted that we normally look for suitable investments to protect against rising inflation, what would be the suggestions for investments (IT's) to protect against, or capitalise on, a period of low growth or an extended recession, with low interest rates?

I am thinking in the context of IT's, which I mainly invest in. Surely the likes of Personal Assets and CGT are more suited to protecting against inflation, as opposed to a recession or deflation.

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Re: Inv Strategy for a low growth or recession scenario

#262951

Postby Hariseldon58 » November 8th, 2019, 9:20 am

I don’t believe that any Investment Trusts are completely frozen in their style, they will react to circumstances.

You are looking to either market time or (indirectly) pick stocks to suit an investment supposition for future events, I've had some luck in that previously with Investment Trusts.

The problem is that after 30 years I’ve come to realise that Luck played a major part and a diverse passive portfolio is now my core investment, with a nod to Global High Yield, Value, Small and Quality. These tilts are more to protect any collective madness, Tech Bubble, Japan Bubble by having part of the portfolio pushed towards fundamentals.

It’s good fun trying to get ahead but over time something like Foreign and Colonial has done really well..... my first purchases were at the adjusted price of 70p and now £7 plus throw in the dividends, with global ETF’s costing 12 basis points, they are a compelling long term investment.

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Re: Inv Strategy for a low growth or recession scenario

#262990

Postby fca2019 » November 8th, 2019, 12:06 pm

I don't know about ITs specifically. But I've read that in the "lost decade" an investment strategy of regular investment (pound cost averaging) of blended funds with mix of equity:bonds, together with dividends reinvested, can still offer decent returns even in a flat market.

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Re: Inv Strategy for a low growth or recession scenario

#263017

Postby richfool » November 8th, 2019, 2:33 pm

Well I note that posters often look to defensive trusts like PNL for their holdings of US TIPS and inflation protected Government securities, to provide protection against high inflation and high interest rates. Thus my question, - what about in the event of a recession and very low interest rates.

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Re: Inv Strategy for a low growth or recession scenario

#263078

Postby Walkeia » November 8th, 2019, 7:11 pm

The green energy trusts are well positioned here. RPI uplifts, long term contracts which mimic fixed income returns. It's one of the reasons I think they're doing so well at the moment.

In a similar vain there's a fair few REITs out there with decent chunks of the portfolio linked to RPI. BBOX and RESI I know have inflation links and will benefit from low interest rates long term.

I've been worrying about this exact thing for about 18 months and have approx a third global equities, REITS, and other trusts such as infra. I'm actually thinking next year of buying a block of farmland despite prices having already risen a lot to protect from a stagflation worry.

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Re: Inv Strategy for a low growth or recession scenario

#263123

Postby Wasron » November 8th, 2019, 10:18 pm

richfool wrote:Well I note that posters often look to defensive trusts like PNL for their holdings of US TIPS and inflation protected Government securities, to provide protection against high inflation and high interest rates. Thus my question, - what about in the event of a recession and very low interest rates.


If I was to pick one of my holdings it would be GCP Student Living (DIGS) as a recession-proof holding (also a REIT). It’s London-centric student accommodation is mainly populated by international students. London will always be desirable to rich kids from around the world.

Wasron

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Re: Inv Strategy for a low growth or recession scenario

#263135

Postby JoyofBricks8 » November 8th, 2019, 11:53 pm

I think the best defence in bad times is access to cash to cover daily living expenses and ironclad confidence in your holdings. Buy good companies, and avoid getting shaken from the tree by adverse general conditions. The risk of disaster is much more scary if one holds indebted drek like Carillion or Aston Martin Lagonda.

A cash-rich company with a wide moat and strong margins will on balance be ok provided one can stomach the maximum drawdown. A portfolio of them should prosper ultimately. The trick is to find a way to pay the living expenses and maintain sufficient optimism to tough out the pain.

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Re: Inv Strategy for a low growth or recession scenario

#263150

Postby richfool » November 9th, 2019, 8:45 am

Walkeia and Wasron, I have a (an IT) portfolio which embraces a broad range of asset classes and geographies and specifically includes: REIT's, infrastructure, renewable energy and some gold.

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Re: Inv Strategy for a low growth or recession scenario

#263242

Postby richfool » November 9th, 2019, 3:48 pm

I must admit that whilst I like the idea of PNL (Personal Assets) and CGT (Capital Gearing Trust) for their mixed asset holdings and defensive positioning and particularly their holdings of US TIPS, I do however resent having to pay a premium to invest in them and then only receive a dividend yield of 1.33% or 0.5% respectively, whilst they may or may not be preserving my wealth!

So whilst I do hold some PNL shares, I have invested a lot more into MATE (JP Morgan Multi-Asset trust), which gives me a spread of asset classes along with a dividend yield of 4%, all for a discount of currently just over 4% (it was a lot higher). Though whilst MATE holds some Government stocks I don't think it holds any US TIPS. Then, as mentioned in the previous post, I also then supplement these (and my broad based IT equity holdings), with REIT's, infrastructure trusts, renewable energy and some gold.

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Re: Inv Strategy for a low growth or recession scenario

#422938

Postby 1nvest » June 27th, 2021, 6:53 pm

fca2019 wrote:I don't know about ITs specifically. But I've read that in the "lost decade" an investment strategy of regular investment (pound cost averaging) of blended funds with mix of equity:bonds, together with dividends reinvested, can still offer decent returns even in a flat market.

Just stumbled across this old thread and thought I'd link in this just for reference

Image

Japan's "lost decade" is subjective to if you limited yourself to 'domestic' stocks that had done fantastic in the prior decade. A broader set of stocks was more progressive/good.

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Re: Inv Strategy for a low growth or recession scenario

#423022

Postby Wuffle » June 28th, 2021, 7:48 am

richfool,

I have noted you being dissatisfied with HINT amongst your extensive IT collection in the past.
A bit of froth coming off the global economy might suit its solid constituents, having underperformed through the exuberant phase.
Currently (along with FCIT I note) on quite a generous discount. More than MATE at the moment but different animals.

The overarching question of what to do in a recessionary, low return world is easy for me.
Just stay employed, but I am a relative youngster.

W.

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Re: Inv Strategy for a low growth or recession scenario

#423079

Postby GoSeigen » June 28th, 2021, 10:28 am

richfool wrote:Noted that we normally look for suitable investments to protect against rising inflation, what would be the suggestions for investments (IT's) to protect against, or capitalise on, a period of low growth or an extended recession, with low interest rates?

I am thinking in the context of IT's, which I mainly invest in. Surely the likes of Personal Assets and CGT are more suited to protecting against inflation, as opposed to a recession or deflation.


Gilts, corporate bonds, fixed interest cash deposits. Shares would be better avoided except as a hedge/special situations.

GS

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Re: Inv Strategy for a low growth or recession scenario

#423154

Postby Gan020 » June 28th, 2021, 2:11 pm

I have been grappling with this for a year.

Options as suggested are cash, gilts, corporate bonds, RPI linked investments.

The challenge I face is the price of these is significantly higher than they were a year ago (or the yield is lower if you prefer). I keep wondering if I should be selling them as using long term norms as the basis for valuation they are all overvalued. Only I am really struggling to see where to put the money instead as equities look overvalued to me as well and some return is better than no return on my corporate bonds.

It is clear to me that others are thinking the same way as me as the returns on short maturity corporate bonds are particuarly poor.


I am guessing/hoping/praying that the money printing will come to an end by around December 2021 and after that yields on corporate bonds will very slowly trend back to the long term norm.

I can't say I'm very comfortable with my guessing/hoping/praying strategy.

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Re: Inv Strategy for a low growth or recession scenario

#423824

Postby SteadyAim » June 30th, 2021, 7:57 pm

The UK market looks reasonably priced to me (e.g. divi yield well above gilt rates), so I hope it will do fine in the medium term, although I assume it will dip for a while when a recession comes. Holding some cash gives the psychological advantage of having something to do if/when prices drop - I currently have maybe 10% in cash, and might increase that, particularly if any of my holdings does well. (Unlikely!)

So a mixture of FTSE 250, FTSE 100 and cash seems like a good enough choice to me at the moment.

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Re: Inv Strategy for a low growth or recession scenario

#425233

Postby 1nvest » July 6th, 2021, 1:25 pm

PNL (IT) equal weighted with BRK-B (stock : US stock conglomerate) and SGLN (ETF : gold) applying a 2.4% SWR to that is a reasonable choice IMO. Very safe.

PNL held solely in a ii account and PNL pay the ii fees/costs.

Each month, a week or so before the end of the month, login to wherever the most highly valued holding is and sell shares to the amount of the (monthly proportioned) SWR value. At the end of month login again and transfer the T+3 sale proceeds into your regular/linked bank/spending account.

PNL primary focus is on wealth preservation. Easier than running a bond/gilt fund/ladder. It also has the flexibility to in effect invest/do whatever it considers appropriate to potentially preserve wealth/capital. Could at times move all-in on stocks, in which case the above portfolio shifts to being 66% stock. Could conceptually go all into gold in which case the above shifts to being 66% gold. BRK also maintains cash reserves that at times can rise to be quite high as of more recent, or be relatively low. Gold combined 50/50 with stock is a barbell of two extremes, that combines to a central somewhat bond-like-bullet.

And a easy enough portfolio for disinterested partner/heirs to manage if/when you pass. Tax reporting is simplified as neither BRK nor SGLN pay any dividends/interest. If you dislike BRK then opt for CSP1 instead (US S&P500 tracker).

Running backtest simulations using 200 years+ of actual data (US, UK, Japan) and 2.4% was identified as being a PWR, perpetual withdrawal rate. In the average case there were real gains in addition to that, typically 2%, i.e. portfolio value on average grew by 2% real (after inflation and) after having drawn the 2.4% SWR, so was inclined to leave more in inflation adjusted terms than the start date portfolio value.

SWR provide a regular inflation adjusted income. If still accumulating then reinvest those dividends into perhaps a world stock index fund such that you cost averaged into more shares over time which if across a period of poor stock performance may do relatively well.

Counting PNL as 'bond', that's £ PNL, $ BRK, global currency gold currency diversification across bond, stock, commodity assets. History indicates that yielded acceptable rewards with reasonable low downside risks. Since 2000 for instance and the two negative nominal years were only marginally negative, the largest/worst of which was -2,7%. Whilst having provided a 9% annualised return 2000 to 2019 inclusive. I restricted the history to 2000 as that was when I.T's such as PNL could issue new shares or buy back shares in order to keep their share price more aligned to NAV. Prior to that there could be periods of (very) wide deviations between the two.



2.4% SWR = initial 2.4% of the start date portfolio value drawn as income in the first year. In subsequent years increase the prior years SW value £££ amount by inflation as the amount drawn as income in that year. Which provides a regular inflation adjusted income stream.

Can be tax efficient. If for instance you were coming up to age 60, due to receive a 9K/year state pension from age 67 and had £625K invested in the above, along with having put £63K aside as a £9K/year bridge (drawdown) to the state pension then that yields a £24K/year combined income (£2K/month) and where that £24K might be more like a net wage (comparable to perhaps a £36K/year gross wage).


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