#2
It depends on the reason for the market fall.



For example, people looking for yield have bought heavily into dividend-paying stocks because bonds and cash have not been paying them high enough levels of income. This inflates the price of dividend-paying stocks that you find in an equity income fund.



As such, if the reason for the market fall is because of global (especially US) interest rates rising, then it would stand to reason that the dividend paying stocks would have an extra bit further to go. Because, when you can get a percent or more on cash, or even more on a "safe" bond, the lure of a few percent dividend with large risk to capital is relatively less attractive - and the people who piled in, may pile out.



That effect could counter the general rule that companies using their profits to pay ongoing reliable dividends may appear better positioned to navigate a recession or market downturn, compared to those which reinvest their profit cashflows or don't even have any.



So, it is a bit of an unknown. Relying on history put theory to tell you is flawed if the same exact market conditions have not been mirrored in the past, which they haven't.



US Fed rates are likely to tick up a bit later this month, per most market commentators, with maybe a couple more rises by year end. Part of that is priced in, and part of it isn't because it might not happen.



I would not shy away from buying solid reliable dividend payers, just like I would not shy away from buying lots of other company types because we don't know what's around the corner. I am not 80-100% equity like some people though.

#3



It depends on the reason for the market fall.



For example, people looking for yield have bought heavily into dividend-paying stocks because bonds and cash have not been paying them high enough levels of income. This inflates the price of dividend-paying stocks that you find in an equity income fund.



As such, if the reason for the market fall is because of global (especially US) interest rates rising, then it would stand to reason that the dividend paying stocks would have an extra bit further to go. Because, when you can get a percent or more on cash, or even more on a "safe" bond, the lure of a few percent dividend with large risk to capital is relatively less attractive - and the people who piled in, may pile out.



That effect could counter the general rule that companies using their profits to pay ongoing reliable dividends may appear better positioned to navigate a recession or market downturn, compared to those which reinvest their profit cashflows or don't even have any.



So, it is a bit of an unknown. Relying on history put theory to tell you is flawed if the same exact market conditions have not been mirrored in the past, which they haven't.



US Fed rates are likely to tick up a bit later this month, per most market commentators, with maybe a couple more rises by year end. Part of that is priced in, and part of it isn't because it might not happen.



I would not shy away from buying solid reliable dividend payers, just like I would not shy away from buying lots of other company types because we don't know what's around the corner. I am not 80-100% equity like some people though.
Originally posted by bowlhead99


I suppose you could hedge your bets and hold one fund in each of your global and UK allocation -as an example Fundsmith & Artemis Global Income and CF Lindsell Train & Franklin UK Equity Income respectively?

#4
You could do whatever you like.



However, splitting between "global income paying stocks" and "global general stocks" is not really "hedging your bets".



Splitting between "Income payers" and "Growth stocks that don't pay so much" would be hedging your bets. Whereas "global general stocks" already contains both income payers and other stocks that don't pay so much.



Fundsmith for example closely follows the returns of the "consumer defensive" industry sector because he invests in a lot of stuff with that profile. Some of those companies, like some of Lindsell Train's holdings, will pay a relatively high level of dividends and be included in many common "equity income" funds. Some will not. So, if you invest in his "mixed" fund and then you also invest in someone else's equity income fund, then on balance, over half your stocks would be income payers, which doesn't seem like "hedging your bets" if you are unconvinced about the relative merits of income payers.



It is like if you are not sure whether cats or dogs is better, so you want to have a bit of both for your menagerie, so you choose five pets at random from a pet shop and then five more pets at random from a cat shop. On average you will end up with more cats than anything else, so if you weren't sure that buying cats was wise, your technique would not do a very good job of avoiding a high concentration of cats within your ten pets.

#5



You could do whatever you like.



However, splitting between "global income paying stocks" and "global general stocks" is not really "hedging your bets".



Splitting between "Income payers" and "Growth stocks that don't pay so much" would be hedging your bets. Whereas "global general stocks" already contains both income payers and other stocks that don't pay so much.



Fundsmith for example closely follows the returns of the "consumer defensive" industry sector because he invests in a lot of stuff with that profile. Some of those companies, like some of Lindsell Train's holdings, will pay a relatively high level of dividends and be included in many common "equity income" funds. Some will not. So, if you invest in his "mixed" fund and then you also invest in someone else's equity income fund, then on balance, over half your stocks would be income payers, which doesn't seem like "hedging your bets" if you are unconvinced about the relative merits of income payers.



It is like if you are not sure whether cats or dogs is better, so you want to have a bit of both for your menagerie, so you choose five pets at random from a pet shop and then five more pets at random from a cat shop. On average you will end up with more cats than anything else, so if you weren't sure that buying cats was wise, your technique would not do a very good job of avoiding a high concentration of cats within your ten pets.
Originally posted by bowlhead99


In another thread 'DIY or IFA' there was a list of 19 funds in the IFA's portfolio.



In this portfolio there were 3 UK Equity funds - CF Lindsell Train UK Equity, CF Woodford UK Equity Income and HSBC FTSE All Share.



Now I can understand the HSBC FTSE All Share because it would incorporate smaller and mid-cap companies, however, surely as you suggested in your post there will be some crossover in the Lindsell Train Equity and Woodford Equity Income funds?



This is not the first time I have known an IFA suggest both UK Equity and UK Equity Income funds in a portfolio and the same goes for Global funds - so why is that?

#6
All of the investment managers have their own views and ways of doing things. Woodford and Lindsell and Train are all well regarded in the UK equity space.



Yes, Woodford's choices have more of a tilt to income and of course there will be some overlap in their "best ideas". This doesn't mean it's invalid to use both of them at the same time, because there is no one perfect "right answer" known in advance. Indeed, if you hold both funds you would get exposure to all of their best ideas with a little doubling up where something was considered a great investment by both managers. That doesn't sound bad.



Obviously if you buy every single UK active fund in the market and pay management fees for all of them and end up with loads and loads of holdings with no coherent strategy, there is no point paying the fees to get that big hodge podge of funds. Whereas selecting two smart management groups who have two slightly differing approaches is not a bad thing to do - and maybe it took that particular IFA's portfolio to where he wanted it in terms of strategy and target volatility, which was something not shared with us, because the IFA was not there to ask and we are not his customer.



Adding the UK All share is unlikely to be just because it incorporates smaller and mid cap companies. Woodford and LT also use smaller and mid cap. They don't just use the biggest companies they can find. The UK index does have a strong concentration in just a few industries and very much (80%) is in large companies with under 20% in mids and 2% in small. However, as some dirt-cheap (in terms of OCF) filler in the portfolio which already has a lot of non-indexed holdings, it can serve a purpose.



One of the points mentioned several times in that thread which talked about the 19 fund portfolio from the IFA, was that the person who designed it (the IFA) and the person for whom it had been designed (the friend of the OP, who'd probably had it explained to her by her IFA who'd built it with her needs in mind), were not present on the thread.



So, while people on that thread demanded to know "why so many funds! And why might x be used in combination with y??!", the person who had deliberately made those choices and proportions, and the customer who had approved them, were not around to answer. I remember giving various plausible reasons why some of the funds had been selected but commenting that it was merely speculation why those specific funds were used in that specific case. As the IFA has not shown up, we remain in the dark.

#7



All of the investment managers have their own views and ways of doing things. Woodford and Lindsell and Train are all well regarded in the UK equity space.



Yes, Woodford's choices have more of a tilt to income and of course there will be some overlap in their "best ideas". This doesn't mean it's invalid to use both of them at the same time, because there is no one perfect "right answer" known in advance. Indeed, if you hold both funds you would get exposure to all of their best ideas with a little doubling up where something was considered a great investment by both managers. That doesn't sound bad.



Obviously if you buy every single UK active fund in the market and pay management fees for all of them and end up with loads and loads of holdings with no coherent strategy, there is no point paying the fees to get that big hodge podge of funds. Whereas selecting two smart management groups who have two slightly differing approaches is not a bad thing to do - and maybe it took that particular IFA's portfolio to where he wanted it in terms of strategy and target volatility, which was something not shared with us, because the IFA was not there to ask and we are not his customer.



Adding the UK All share is unlikely to be just because it incorporates smaller and mid cap companies. Woodford and LT also use smaller and mid cap. They don't just use the biggest companies they can find. The UK index does have a strong concentration in just a few industries and very much (80%) is in large companies with under 20% in mids and 2% in small. However, as some dirt-cheap (in terms of OCF) filler in the portfolio which already has a lot of non-indexed holdings, it can serve a purpose.



One of the points mentioned several times in that thread which talked about the 19 fund portfolio from the IFA, was that the person who designed it (the IFA) and the person for whom it had been designed (the friend of the OP, who'd probably had it explained to her by her IFA who'd built it with her needs in mind), were not present on the thread.



So, while people on that thread demanded to know "why so many funds! And why might x be used in combination with y??!", the person who had deliberately made those choices and proportions, and the customer who had approved them, were not around to answer. I remember giving various plausible reasons why some of the funds had been selected but commenting that it was merely speculation why those specific funds were used in that specific case. As the IFA has not shown up, we remain in the dark.
Originally posted by bowlhead99


I must have misunderstood you initially because I thought you were saying that it is not a good idea to hold both types of funds because there would be too much crossover.

#8
You asked if income funds would do better in a downturn.



I said it would depend on type of downturn, so quite possibly, not.



You asked if it would be sensible to hedge your bets against a downturn by having some income funds and some general funds.



I said that the general funds already included some high income payers. So if you wanted a real mix of high income and low income you should buy a high income fund and a low income fund, or perhaps just a general fund which includes high income shares and low income shares. Rather than a high income fund and a general fund which already has some high income alongside its low income. Doing the latter you would be left with an Income bias, and would not have met your objective which might have been to eliminate income bias, after being told that income does not necessarily protect against crashes. I don't know what your specific objectives are of course.



So, the answer was that holding those two types of funds would not be a solution to eliminating your bias to income, because one of the funds deliberately aims for income while the other is kinda indifferent. That doesn't mean it's invalid to choose them as your two favourite funds to cover the UK market (with a small amount of international).

Who is online

Users browsing this forum: No registered users and 1 guest

cron