Asset Allocation

I personally spread it across a number, Would feel quite content to hold VAS, A200, IOZ and STW, many would think that's nuts, I think if it ensures you stay the course and helps keep you sane then why not.

 

Thanks, very helpful. That's been my thinking, however I've been curious about what I might be missing, and hence missing out on. I also wondered if there was a way to leverage the expertise(?) of large industry funds in selecting alternative assets/ managers. I'm particularly aware that some of the larger global pension funds are now doing their own direct investment in alternatives and have been genuienly curious about how successful or not they have been in generating superior returns and if there is a way for ordinary retail super members to access that directly outside of handing over full asset allocation responsibility. I'm aware that there are others on this forum far more knowledgable than I am so all feedback is welcome.

As before though, I undoubtedly dont need to do anything in this space, but like I think I've seen you write before @Nodrog I have a hungry brain for such thoughts. For me it's also about challanging my status qou and current thinking.

 

Not pension funds, but here’s an example of endowments who invest in alternatives and how that would’ve compared to a simpler approach...

Simple vs. Complex, 2018 Edition

I believe he checks this each year. Only 10 years but interesting nevertheless.

 

That is interesting. Thanks @Snowball. My quick takeaway is lower liquidity (of course), but interestingly probably higher relative risk for the return - which on average doesn’t seem to outperform a 100% listed equities portfolio.

And my guess is that some of the higher risk and any sniff of out performance is due to leverage per the article I attached here Asset Allocation

 

This might help. Endowment pension funds are natorious for investing in Alts including Private Equity / Hedge Funds. Most are trying to emulate the Swensen model:

Simple vs. Complex, 2018 Edition

The Vanguard Endowment Model?

How the Bogle Model Beats the Yale Model

PS: sorry just saw @Snowball ‘s post after I replied.

 

My super is with FSS, their pre mixed options all include 28% allocation to alternatives however you cant choose alternatives if building your own profile.

Over the last 10 years high growth has out performed the 50/50 Vas/vgs equivalent despite having a fee 9× higher.(0.1-0.9%)

No breakdown on how different parts of the portfolio performed nor how they go about pricing lumpy assets (alternatives) in their portfolio. I am assuming the alternatives delivered the outperformance (and higher fee).

 

This is the problem with Super Funds who have higher exposure to unlisted illiquid assets. I’m often skeptical of their valuations and hence their contribution to overall portfolio performance figures.

 

I’d be very cautious drawing long term conclusions from 10-15 years of relative asset class performance...particularly considering the starting point at 10 years. These timeframes are meaningless.

A concern I have is that I believe that a lot of the best investments remain in private market now. There are fewer US listed stocks now than in 1970, in an economy which is 3x.

In short, the way i see it ; if you want alts use industry super and take their cheap active strategies in a package deal. Do your own thing ex super - cheap, low turnover, index based.

 

And it is possible they get it wrong occasionally.

If my memory serves me correctly when Pacific Hydro was bought out by a super fund it was all bells and whistles about how great that would be for the members.*

I have heard it hasn't been too flash of a buy in recent times. I cannot remember which super fund bought it.

*A select few in other words but I made money when they got the shares I held at the time.

 

Thanks @Froxy
I looked up first state super out of interest as 28% seemed pretty high to me. So that 28% is the 'strategic allocation' which when you refer to the actual allocation for say the high growth option looks like this:
Property 7%
Infrastructure & Real Assets 6.3%
Private equity 7.3%
Other alternatives 8.5%
Which I guess seems reasonable. I suppose you could calculate the approximate return on this class as an aggregate by removing the performance of the listed equity and fixed interest, but there doesn't seem much point really.....

 

@Nodrog, @The Falcon , @SatayKing

Thank you all for your responses and thoughts

I agree - I seem to recall a controversy with MTTA Super some years ago.

Yes good point. 40 years would be better but no data would exist I suspect. Even that would miss the 1970s.

After thinking about this further I don't think I want access to the the broad definition of alts as I'm not convinced there's out performance cf listed equities, with the exception of the private equity component, but even that I suspect has increased risk not commensurate with potential reward and maybe just uses leverage to achieve any sniff of out-performance. I'm forming the conclusion it's going to be too hard and I'm better off with other targeted active strategies, including prudent use of leverage, or better still, nothing at all, and stick with my broad based listed index funds....

Another good reminder...

Thank you all for bearing with me....

 

A question - I’m sitting on a significant amount of cash at the moment, waiting to invest into index funds longer-term (VAS 40%/VGS 60% most likely).

At present it’s all in high interest savings accounts. Despite knowing the general wisdom that I should be averaging into these index funds, i cant bring myself to do it given my view that stock markets are likely to be lower at some point in the next 18 months.

I’m considering a small short term investment in Treasuries which I am bullish on over the next year (eg IEF, TLT).

I’m just curious as to what others think I should do?

I’ve already paid off my PPOR. I have a number of IPs and they are all cashflow positive.

 

The Lump Sum vs. Dollar Cost Averaging Decision

 

Thanks that’s helpful. I think I’ll start Dollar Cost Averaging but do a Lump Sum if it moves lower in any meaningful way.

 

Chances are it will have a bit of a run up before a pullback as history has shown, you may still be ahead investing now and riding the wave as apposed to waiting for something that may or may not happen, trick is be invested as soon as you can, for as often as you can and for as long as you can hehe!
My opinion, I'm sure there's data to prove otherwise

 

@ChrisP73 I don't think I've put you off and I hope that is not the case. It was one example of things which can go wrong.

Many of these funds put on a song and dance act with a few jugglers on the side to keep the paying punters happy and rarely have in big bold font the disclaimer "Past performance is no guarantee of future performance."

True of most things to do with investing in my opinion. Can lead to the point of the danger of flinging around the possibility of publishing the top 10 performing super funds. Be fascinating if a bod followed that and the fund tanked then going to the authorities with "You said...". Oh but it was them guys/dolls which did that, we only publish it for info.

And as others have rightly said, you don't get to select what investments the trustees choose. You're reliant on them which is fair enough as that's why you are outsourcing your investment money.

All the best with your decision.

Not in the least but nuts. The approach suits you and that's all there is to it.

 

In the overall scheme of things if a private investor can’t have 7.3% of PE (due to being high risk, high fee, illiquid, nothing decent available to retail investors) is it really going to make much of a difference. If trying to create something similar myself I’d simply round up listed property and infrastructure (low cost, widely diversified index product readily available to retail investors) to a more meaningful allocation of at least 10% each.

 

Yeah whether it’s really any more riskier or not I still feel uncomfortable having most of our wealth with a single Mgr. In the case of Vanguard the likelihood of anything going wrong would appear to be almost non existent. However just one of my behavioural quirks. Instead of adding more almost identical index ETFs though a few older LICs provide the ASX Mgr diversification required for peace of mind. For global other asset classes like property / infrastructure spread Mgr risk.

 

100%! I really think we truely underestimate the importance of emotions and behaviour in regards to investing.

 

How can a super fund hold no cash or bonds?