Review and criticise my Managed Fund Portfolio Super Fund

I have heard that funds which outperform one year rarely can repeat it.

 

I only checked the first one, the performance on your spreadsheet is significantly different to the colonial website.

If you know what's going to outperform then pick the single best one. If you are a mug like me and throwing darts then the odds stack up worse and worse over time.

 

The 5yr/7yr % returns that I found for Perpetual direct vs through FirstChoice:
Direct PER0551AU 7.99/11.00
FC FSF0235AU 6.00/8.92
FC: FSF0458AU 6.70/9.65

I don't know if these are rolling returns (it says to 30/4/2018) or FY returns, but either way you are looking at an extra 2% p.a. fee for using FC which I'm guessing you didn't know about ...

 

I'm almost certain that a portfolio of 50% VGS / 50% VAS balanced yearly would beat that managed fund portfolio over a 20 year period, because of reduced fees.

Regarding diversification, there is more benefit from diversifying across markets and instruments than over different fund managers.

 

Interestingly, Perpetual Industry Share performances are different for Direct Perpetual and FirstChoice platform. I do not know where your sources, but I found it is better performance with FC (7.39% 5 years and 10.34% 7 years on FC website) whereas 6.48% and 7.13% on Perpetual website.

Where do you find extra 2% pa fee for using FC?
BTW, I do not use Wrap account. I am with FirstChoice Wholesale Personal Super.

 

Thanks for feedback.

I just try to justify my decision and listen to your criticise to make a better decision. So, I would like to open a debate as follows:

And the fund which underperforms one year can rarely repeat, too.

Let say the ASX S&P average in 30 years is 9%, and the managed fund under-performs against its ASX S&P 200, 2% below, then %7 p.a. in 30 years. However, because it have 50% gear. The net return is 11% (after less borrowing cost). So, at the end, there is still 3% more. Does it sound reasonable?

 

The returns are multiplied with a gearing strategy. Positive & negative. I don't think you have an understanding of the volatility of these funds.

Have a read of Tread warily with geared share funds - SmartCompany

In particular:

However, Lipman advises investors who are thinking about using geared share trusts for the first time to be cautious in their approach. Perhaps invest your capital sum progressively in two or three lots, rather than all at once, and ensure the funds represent a “very small component” of an overall investment portfolio that is adequately diversified between the main investment sectors of shares, property, bonds and cash.

These funds should not make up a dominating part of your portfolio, according to Lipman. And David Rolleston of UBS Wealth Management echoes Lipman’s views about the desirability for an adequately diversified portfolio with geared share funds making up a very small proportion, if any, of such a portfolio.

Rolleston comments: “I would be more cautious about using these products today than 12 months ago given that the market is not seen as being undervalued.”​

 

Ah yes, I've had a couple of experiences with geared funds, neither of them particularly fruitful.

The first time was in my twenties, using an instalment gearing plan to gear into a few managed funds. This was around the time of 9/11 and the tech wreck. The outcome of my investing wasn't terrible, particularly as I had put the money in over time, but after a few years of basically going sideways I gave up, sold out and used the funds for a deposit on my first property.

The second time was worse. In my thirties, I decided to allocate most of my super to Colonial's Geared Share Fund. You think the GFC was bad, you should have seen what it did to a portfolio balance in a geared share fund!

It's easy to talk about staying the course now, but that was a brutal time. Fortunately I didn't switch my super out at the bottom of the market, largely I think because the results were so bad that I just ignored my super account for many years, as if it didn't exist. Switched to a more conservative option years later.

I thought I'd done my research both times I tinkered with gearing, but I didn't truly appreciate the risks in anything other than a theoretical sense.

My point is that no matter how many times you read, or people tell you, that gearing magnifies losses as well as gains, you never really absorb that bit. All you can think of is the leveraged gains stretching off into the future forever, telling yourself you'll hold on during the dips without appreciating what a large correction looks like.

Plus, gearing often ensures that you have no cash and/or nerve at precisely the time when the bargains are to be had and fortunes to be made!

Just my ignorant 2c worth.

Not advice.

 

Trying to remember how the fella expressed it - long time since the class was held - but it goes along the lines of When extrapolating data (or projected returns/whatever) what is the most accurate extrapolated point? Answer: That which is closest to the data set and even that can turn out to be incorrect.

People may interpret that however they wish.

Curious why you are selecting various funds rather than simply selecting a Super Fund, chosing one of it's investment make up and leave it up to them.

As for gearing read up on Storm Financial. Most of them would have been creamed even if they hadn't double geared. Bad stuff can debt be.

 

How about CFS's RealIndex Funds? I reckon that their total fees are about 0.8%-0.9%pa (incl administration fee). Their fees are not too high. I do not want to buy Vanguard Index shares from AustralianSuper or other industry super funds because if I sell shares I have to pay CGT. As CFS Super Fund is a master trust fund, I do not have pay CGT when I roll over to other funds or roll over to SMSF in the future. I plan to set up SMSF to buy properties in 5 years later and I want to be flexible.

 

We've discussed investor psychology and the difficulties of overcoming the urge to sell during a drop in the market. If you leverage into equities then that fall will be magnified and in the case of a margin loan one may be forced to sell. If someone has the money to cover a margin call, then why would they need the margin loan in the first place?

My humble and naive view is that no-one should leverage into shares until they've lost money in the market and withstood the urges to sell. Only then should someone consider leverage. The most appropriate quote I know is: "Everybody has a plan until they get punched in the mouth."

Mike Tyson explains one of his most famous quotes

The final kicker is understanding the long tail, which is simply "just because it hasn't happened before doesn't mean it can't". This implies any leverage into shares should be very conservative. This also applies to SWR and other things we discuss - history may be 3.5% but a 2% scenario is not impossible.

Not licensed to give advice.

 

Not bad that Acadian fund. We’re doing much higher returns than those returns but we’re only open to s708s.

 

Only open to people sophisticated clients eh?

Your doing much higher returns than a geared equities fund? Without gearing whatsoever?

Please add a bit of context and expand on your claims of 60% returns (in another thread) and outperforming geared equity.

Keep in mind right now you are communicating to retail consumers and not hiding behind your "sophisticated" shield. So full disclosure adviser sir or kindly go and ...

There were stories in the royal commission of "sophisticated" investors being pumped and dumped by macquarie.. who sold the family farm and then had macquarie private pump and dump their money through spec mining stocks.

Do you have a viable model for outperforming a geared equities fund in a bull market? Or are you doing a dodgy like our friends at Macquarie?

Macquarie Private Wealth accused of 'pumping and dumping' Cleveland Mining stock

 

So I did around 80% 2016, audited
70% around 2017 (subject to audit)
So far this year the fund is up circa 30% in 4 months, no gearing, only half the capital invested also

I don’t have an articulate business model per se. I’m a value guy, bottom up analysis, ideally with near term catalyst. I’m personally invested, don’t really mind if people invest, because I’m happy to compound my own money.

I am not hiding behind sophisticated investor shield - it is a legal requirement. I have no intention of taking retail money because I can’t any way... This is a discussion forum and I made an observation about returns that’s all, so full disclosure about what? I’m not soliciting investments from retail guys

 

Can anyone expand on this? No CGT - how is that possible?

 

It is a master trust. We do not transfer the ownership of the asset. We just rollver the fund to a different super fund. Therefore, no CGT is applied.

More info at http://www.wealthtrac.com.au/Assets/61/1/L6344_0812_Wealthtrac_Wrap_FlyerWEB.pdf

and Taxation of rollover super benefits

 

But is there really no CGT?

Or - there is CGT but it is built into (hidden in) the unit price?

 

yes, that's right. No CGT when roll over but CGT has been paid if underlying investment are sold by super fund.