My portfolio. Does this look ok?

Great site thanks. A few familiar names. But some of these Boutiques are not known to most investors. It’s very kind of you to share this information. And thanks for perservering. You must feel like a lone voice amongst the crowd here at times.

I do still believe in actives particularly in the mid / Small Cap space. I’ll repost the SPIVA table here again. It was to highlight that the great majority of active Mgrs outperformed the index in the mid / Small sectors of the market.



Other than MIR / QVE I’ve taken the lazy approach with a spread of active Mgrs by investing in FGX (fund of funds). It’s unlikely to do as well as some of the funds you’ve suggested but for a set and forget approach it’s not too bad. And through this charity focused LIC you get access to these funds much cheaper than going direct:



My concern about having these Boutiques as a Core holding for Frank is that they require more knowledge and monitoring. Key person risk can be a concern. Some tend to be more growth than income focused. Hence Frank may have to realise capital to achieve his income requirements.

But these Boutique Mgrs you’ve kindly shared with us could serve as wonderful satellites around a Core of an Index ETF / Large Cap LICs.

This thread has certainly been a treat with posters like yourself sharing some excellent resources and information.

Please keep posting.

 

@Nodrog thanks mate.

My money is where my mouth is. I'm a big believer in certain boutique funds, so I hope they pop up on other people's radars too!

I reckon even 10% of a portfolio for someone who mainly prefers LICs would be a nice growth component for additional income in the future.

 

Speaking of income is there much in the way of distributions from the funds you invest in? CG which often is the largest component of the distribution does create some tax issues for certain investors. But in say the Super environment, especially a tax free Super pension, CGT is not an issue.

If Frank or others newer to investing are interested in a Core / Satellite approach but unsure what it is the following picture might help. The core could be an index ETF and / or older style LIC(s) for market like returns and the satellites being Boutique Funds, that @pwnitat0r has suggested, which offer the potential for outperformance:

 

Castlereagh Equity I invested money in 2014, getting 1 share for every $1 invested.

Dividends received: 1.68cps for 2015, 6.28cps for 2016, both fully franked (and both paid in FY17).

NAV at the end of November 2017 was $1.48.

EGP Capital I am having trouble finding the dividend history for... I think the last dividend for FY2017 was 10cps fully franked with a NTA of $1.9544 after paying the dividend at the end of May 2017.

If/when I find the dividend history for EGP Capital I'll post it.

As I just reinvest all dividends I don't pay much attention to it.

 

@Nodrog appreciate the questions and you are certainly no 'mug amateur' sir!

Let me start by saying I am reluctant to do this when Frank has already seen 2 advisers who have probably teased out the issues I am about to talk about and I don't want to be perceived as trying to override or be critical of their ideas, I'm sure they have good reasons for what they recommended, the only thing they don't have is the ability to defend themselves on here from unintentionally incompetent opinions.

Frank has received an overwhelming amount of information and I really don't wish to bore the poor bloke to tears with more of this stuff, a fair bit has been covered quite well in the thread.

Won't be mentioning any product and none of this is advice but couple of comments on strengths/weaknesses. I have not had time to read every post I apologies if some of this is a repeat or if I have missed things. Also for me there are still too many unknowns to give a comprehensive answer but happy to make a few general comments for you Frank.

General information only, no advice

Summary

@Frank Manno you are nearing retirement and from what I gather married and have children. Main goals are:


1. Preserve capital

2. Invest for income and growth

3. Generate 85k p/a in retirement tax efficiently (requires $1,700,000 total in today's $)

4. Keep it fairly simple and low cost

5. Preserve a legacy for the children

6. Initially one goal was an income goal of 40k p/a leading up to retirement but this goal has been dropped in favour of building the retirement picture, good decision IMO (no advice) if that 40k is not really needed now.

Question is what is the ideal path to meet all of the criteria Frank has mentioned. As I have mentioned I would need far more info to give a full answer, however....boils down to a simple way to preserve and grow the capital through to retirement either taking some managed and sensible risk OR playing a more tactical approach and locking in a range of expected returns potentially using a capital preservation strategy (that still allows for upside in good times!) to satisfy Frank's somewhat self admittedly nervous view of markets. That's the first thing, plus IMO it's important to position the exercise strategically to maximise tax efficient income via pension account income streaming from the point of retirement forward.

Furthermore, given your obvious concern for passing on the legacy to children, an estate plan needs to be properly established (if not already) to protect the capital assets for the children (suggest looking at testamentary trusts ASAP, there are big issues potentially at stake here!). Also if any of the money does end up in Super you need to look at the implications for estate planning of that also - nominated beneficiaries and type of nomination your fund offers.

Strategically this is far more than just an investment, it is a retirement planning exercise that needs to deliver a steady tax efficient income stream result when that magic day comes and not result in an overcomplicated mess that is stressful to manage and gives the accountant a heart attack once a year, plus deliver a legacy to your future generation. Most important strategic point IMO is that Super contributions (or SMSF) should be maximised for tax efficiency before investing the remainder of funds outside Super environment.

One of the other issues that has become apparent is whether Frank does in fact have the 'coconuts' to stomach a 'high growth' portfolio with the expected fluctuations in value? Only Frank can truthfully answer this one.

Some of the specific questions I would need a lot more details on to enable an ideal retirement strategy are:

1. Frank has mentioned he has 'no super', but does this mean no super account at all? Where does his SGC go currently (if there is any) or are there no contributions being made? Why reluctance to use Super when it is the best way to maximise income benefits and you can have exactly the same investment arrangements under a more efficient structure?

2. Self-employed or employee? Is there a saleable business asset for the future? May offer another avenue to maximise Super. Potentially could take advantage of 2 further strategies if there is a saleable business asset, lifetime CGT exemption rule on sale of an active business providing proceeds of the sale are contributed to a complying Super fund, also potential to use a business related SMSF strategy to acquire property inside an SMSF.

3. Does your wife work at all and does she have any super/SGC etc? All kinds of implications for efficiency, maximising income streams in retirement and estate planning in relation to this.

4. Will any one off 'lump sums' or income at all from the new invested money be required? (I gather this is a 'no' for now).

5. How important is the 'capital preservation' angle to Frank over the years leading up to retirement? This is a key question around psychology as Frank will need to acknowledge that a traditional growth or high growth (mainly equities) portfolio WILL fluctuate and at some point after starting it will quite likely be worth less than when it started, but of course over the long term is likely to produce the intended results. Other choice might be a capital preservation strategy, will outline a couple of about ways to achieve this shortly that still allow for market upside if things go well over the coming years.


Investment portfolio

I do not wish to pass comment on the specific recommendations from the other advisers because I simply don't know their brief and what the basis for their ideas is. Much more emphasis needs to go on the importance of using Super efficiently for the structure rather than getting brain drain studying every potential fund manager - the future performance of any fund is unknown and dependent on the market itself to a large degree, where as strategic income tax savings, cash flow planning going forward, and capital preservation can be controlled.

In terms of investing in an equities based portfolio (and BTW this may not be the best approach if capital preservation is the main goal), general preference in a situation like this would be simplicity, low cost and efficiency of ongoing transaction and management costs (multi-manager is by FAR the best approach for this, the incremental ongoing transaction and management cost savings are huge in comparison to a blend of DIY retail MF's, LIC's, stocks, etc, basically beats cost efficiency hands down of anything where you will need to keep up your own research and keep periodically replacing things yourself, plus pay the accountant a fortune to wade through the paperwork mess each year). I do not have time to explain all the implications of these differences now, suggest take a look at Russell's presentations on incremental benefits of using a multi-manager and why multi-manager portfolios are so much more cost efficient than any other retail choice. BTW Russell are a super-large worldwide fund management group, Buffet and Gates both have some money with them. It's not just about the visible costs either!!! No advice and Russell only mentioned for education they offer, not a product recommendation.

Most likely I would look towards a single multi-manager portfolio as a core. There are many, many advantages to the simplicity of this structure with a single multi-manager fund but also this structure retains the diversification benefits of many specialist management styles, worldwide exposure etc without the added costs and headaches.

Then if the coconuts are up to it satellites may be added to this core targeting specific performance goals etc. Leverage is also a possible approach for enhanced returns but most likely inappropriate in this case so we are left with taking a little more risk for a little more reward and riding on the back of skilled stick pickers. Many different ways to construct this based on client preferences and it is not my intention to ramble about specific products and specific stocks here.


Capital preservation strategy

Two main ways to execute this. Both will have a cost naturally however the benefit is locking in some insurance against any downside of markets. Personally, with the markets in the position they are at present I would see this as an ideal pre-retirement strategy at this stage (no advice) as it offers limited to no downside and index equivalent returns if markets go well on the upside.

Simple way is to use a product that provides this capital guarantee as a feature. There are plenty out there, and the cost is normally circa 1% to implement the guarantee (of course the fund managers need to place put options to protect the portfolio). These type of products do reduce performance a touch of course but the security can be worth it for SANF.

Another different approach is to custom build your capital guarantee strategy by using most of your capital (say 1.35M to invest in to treasury bonds and fixed interest deposits to lock in a guaranteed return of X% - say we aim to return $1.55M by the end of the term) and then use the remainder of the funds to take a call options over indexes, either a single option can be purchased or multiple over different indexes.

What does this approach achieve? Locking in full capital preservation plus a small gain as a minimum return if equities markets fall, plus if the equities indexes chosen do rise over the coming years the call option will produce the same kind of gains a fully invested portfolio would have achieved. In effect the risk has been managed far more effectively than simply throwing the capital in to the magic beanstalk maker and hoping it performs.

What ever you decide Frank I encourage you to manage your risks well, you have essentially as others have pointed out already 'won the game' so no need to be too aggressive going forward despite all the well intentioned portfolio recommendations to maximise growth etc they may in fact be outside your risk profile comfort zone and cause distress if markets were to suddenly turn nasty, only you can decide this. Good luck!

No advice

 

@Nodrog, down the bottom of this post is the dividend history for EGP

Update No. 296 – 31/05/17 - EGP Capital

 

@Alex Straker that was an extraordinary post. It’s a rare privilege to have a professional advisor of such a high caliber share this type of valuable information on a public forum.

Thank you so much.

 

Thank you. You must be happy with that. And looks like you are fortunate you got it while you could. Look forward to reading more material on the site.

My reading list is increasing by the day.

 

I am a pretty new investor in EGP, I just scraped in before they soft closed for my SMSF and my personal name. I consider myself very lucky.. now the goal is to get as much in as I can before they hard close!

Castlereagh Equity (CE) is still a very well kept secret at this point in time IMO - my investment has been tracking along at around 14% p.a after fees. Once EGP is hard closed, all my funds will be funneled into CE before they inevitably hard close.

I started reading EGP Capital's blog from the very beginning a few days ago as well, great reading.

 

@pwnitat0r Appreciate your research, you are indeed uncovering some good specific managers. On the flipside capital can be exposed to wild swings if markets turn down, naturally important to be aware of this risk. Early adoption of good stock pickers is generally a good thing if done carefully as I'm sure you are aware most outperformance tends to come early on in a funds life until scale is too large to be nimble enough or the key manager moves on. SMA's are also a superior arrangement to unit based funds if the goal is purely targeting combination of performance plus maximising ownership benefits. Some of the more decent SMA's make the managed funds look like little kids still learning, but as always it's all about accepting the risk of a more concentrated portfolio.

 

I think I recall seeing a mention of both these in an article in AFR during the last six months or so. But if you blinked you would have missed their mention.

To be honest in more recent times our investing has been mostly focused on diversifying away from the ASX top 20 segment of the market. So this sort of discussion is very interesting to me.

@Alex Straker has given me something quite extraordinary to look at so I’m going to devote some time to that also now that I’m finally seeing an end to a crap load of scanning historical records in an endeavour to go as paperless as possible. After some overindulgence during the Xmas period I think my head is finally in a state to do this material justice.

What an extraordinary thread that this has turned out to be. Thank you @Frank Manno for starting it. I know you’re confused but gee I’m learning a lot also. Thank you all.

 

The rabbit hole gets deeper from here my friend, looking forward to our next discussion on 'that thing'

Happy New Year to all!!

 

Here is the link, albeit paywall.. copying/pasting into a google news search and clicking on the link through google news will bring it up though

The mavericks disrupting funds management titans

I'm sure Peter from CE would be more than happy to have a chat, both Tony fron EGP and Peter were more than happy to talk to me before I invested.

 

Fantastic, thanks. Yes that was the article I saw.

 

Apart from an overall plan covering all aspects of investing, risk management, Estate planning etc the product research is enlightening. I was surprised at the relatively low fee for the various Russell fund of funds products given some of the exceptional Mgrs involved.

Thanks again.

 

Welcome, BTW there are other multi-managers well worth a look too.

 

Great chart, equal leg gives US strength through to 2030 from here then?.........hopefully should drag the laggard Aust. market along for the ride.

 

The fund managers I invest with don't define volatility as risk. They define risk as permanent loss of capital.

They see volatility as the opportunity to pick up good businesses below instrisnic value... just as they see volatility as an opportunity to sell a business above intrinsic value. Graham's Mr. Market rings as true today as it did when first written.

Also, they (and me) would love a market correction or GFC-style crash, it would hopefully mean the opportunity to pick up wonderful businesses at a discounted price. When Woolworths has your favourite food on special, the rational thing to do is buy a few as you know you're going to consume it. Given a scenario that extreme probably isn't too likely, they do expect their outperformance to come mainly when the market declines as they are holding businesses acquired very cheaply with plenty of cash on that balance sheets.

One of the fund managers also has 90%+ of their net worth invested in the funds, so their interests are very much aligned with mine.

 

Yep understand all that and we talk the same language here. Have no doubt that approach is good for you and me, but the point mentioning volatility was in relation to whether Frank could stomach a strong downturn.

 

So in effect, it's taken the market 10 years to get back to where it was the day before the GFC? And then in another few years another 10%-20% which will then take another 5 years to recover?

With swings like that I'm trying to get my head around Peter Thornhill's dislike for the residential property market as an investment vehicle. In his book I'm sure he was referring to Australia in general rather than Sydney or Melbourne..

I'm in Sydney, I don't think corrections like this have ever happened in the property market here, at my stage in life where I wan to retire in 8-10 years I need income not growth from property, so property is out of the question for me..

I don't want to turn this conversation to property but it's just interesting to note..


-Frank