Thoughts on my investment Strategy

Also whatever happened to “small but remarkably handsome”.

 

Yeah thanks for rubbing it in guys for those of us looking to buy into stuff now!!
I have though long and hard about direct commercial vs REITs the last few days and have come to the decision of going down the REITs path. The main things that swung it for me was the diversification of income aspect and the ability to buy into a higher class of assets and the passiveness of the investment. Now I need to figure out which ones suit me best and do they present value and still have growth. Not liking my chances for immediate big investments but over time I think it will be ok for me to feed money in and get a good secure return and grow my capital over time.
Thanks for the great info everyone.

 

Agree. QVE is Ex-20 which includes companies that can can in effect still comprise a reasonable component of the larger cap LIC portfolios. Something like MIR, being EX-50 by mandate, is forced to better capture the smaller end of the market. Shame about the NTA premium though.

 

Trouble is the following is what you’re potentially up against. Can you over the long term consistently be in the 20% minority that are able to beat the AReit index?



Being a lazy, set and forget investor if I was interested in listed property I’d be patient and wait till the yield / valuation made sense. This is a concentrated REIT / sector bet as opposed to an entire ASX index ETF hence there’s higher risk involved. ASX at this time, unlike the AReit sector, appears to offer a better risk adjusted yield? But then again I’m your typical know nothing Investor when it comes to selecting direct shares.

Given my always correct crystal ball has been stolen others might like to offer their thoughts?

 

Haha. Yep. Still have to go through listed, unlisted,ETF and which country options. Lets see whats out there.

 

Yes will look at ETF's. Need to know what they consist of and how they are structured to be comfortable.
Good thing about unlisted is they not as prone to market whims, although have their risks.

 

The best

But the greater volatility of listed also creates magnificent buying opportunities at times.

 

Yes indeed.

Also as you are likely eluding to there is huge concentration in the Areit index and significant retail exposure:

Investment Products

A much more well diversified index ETF is Global REITs DJRE. However it’s unhedged so currency is an issue. Unfortunately at this stage there isn’t a hedged global REITs ETF. And again there’s the valuation issue:

https://www.spdrs.com.au/etf/fund/ref_doc/Factsheet_DJRE.pdf

 

Great advice and thanks very much. @Big Al huge thanks for imparting your knowledge in this area. You have helped alot!

@Nodrog I was looking at that ETF as it was mentioned earlier and it caught my eye. I have only briefly looked at it. I was not too fazed with the hedging side as I have a position in a USD denominated bond which will act as a good hedge in that the asset value is pretty stable, so the FX rate is the mover. You can also hedge with currency ETFs depending on how much of the position you want to hedge.
So looking to OS real estate does interest me.
Only thing is I dont like a big retail bias or servos anywhere as I think these are going to suffer LT structural pain and I am not good enough nor interested in picking the winners.

 

I should say looking at any asset based OS interests me and I would not discount them due to FX risk. There are many other risks that I would put way ahead of this as you cannot hedge a dictator suddenly pinching your assets.

 

I was thinking as I was typing, but the order was considered. The logic was supposed to be adding the next biggest impacting allocation.

1. VGS - theoretically could be a one fund portfolio. ASX is around 2% of the world's market. If one has IPs and business here in Australia it is a good hedge. In hindsight, if one was to go for a single fund, VDHG or IWLD may be better. VDHG does all the balancing at only 0.27% MER but it also holds a small amount of cash https://www.vanguardinvestments.com...ct.html#/fundDetail/etf/portId=8221/?overview.

2. VAS - dividend imputation and home country bias make this the next choice. Almost everyone here probably has a large-cap ASX exposure through VAS, STW, IOZ, A200, or LICs such as MLT, AFI, ARG etc. Complements VGS.

3. DJRE - global REITs are a good diversification from equities (and without franking credits): Return Correlations between REITs and the Broad Stock Market by Property Type.

4. VGE - there's a lack of emerging markets in VGS that can be compensated with this ETF. Analysis of VTS+VEU vs VGS : AusFinance

5. VAE - this is only if you believe Asia will grow more during your investment timeframe than the rest of the world, as it overweights Asia. You could do something like PMC for a higher Asian weight (currently, that could change tomorrow) and some proven active management.

6. IJR - global small cap. Possibly before VAE or even VGE. An alternative is VISM but read here for some analysis: Some Considerations For Investing Globally

7. QVE - ASX small caps Case to use ETFs for small-cap exposure. QVE was chosen due to the small caps having too much rubbish, which an index can't filter out. However, in keeping with the index theme maybe you are correct. ETFs could include MVS, ISO, SSO, VSO,

8.VVLU - global value should not be correlated. Alternatives WDMF, WVOL. https://forums.whirlpool.net.au/archive/2720506

The assumption is you are holding an appropriate amount of cash / bonds somewhere else. Some argue to hold your age in bonds but it is too risk averse IMO. It would be a good idea once you are certain you have enough for a comfortable retirement - you've won the game, why play more?

 

Given the banks are a significant portion of the ASX, I'd guess that VAS and VAP are strongly correlated.

 

Likely.

But when you take on concentrated sector bets anything’s possible when the **** hits the fan as happened with AReits during the GFC:

 

So I just received my 6 monthly BT Wrap portfolio performance report. Hit my inbox 1 hour ago. As expected the last 6 months ending 31st Dec were shocking. Every fund expect 1 of the 15 had a negative return in the last 6 months. The 1 was Magellan Global Fund. So as a total -6% for that period. Now looking over the return since commencement which is 31st March 2016 and we have a total portfolio return of 5% P.A.

So if we did an average split of the portfolio being 60% international and 40% OZ how did I go compared to say having gone 60% VGS and 40% VAS. I wont be able to do an exact comparison as the Figures on the index funds for three years are not an exact match period to my portfolio. There is a 3 months difference. I am sure others would be able to work out the difference more accurately.

I would say based on that split indexing would have given me a 7% p.a return compared to my 5%. So 2% over 3 years is 6% miss. Again an estimate being that the value of the investment today was built up over the 3 years I could comfortably say that being in managed funds compared to index funds cost me $100K of potential returns.

 

And I forgot to mention that doesn't include cost of the adviser and platform fees. Combined that ate another .58% P.A from the return. So I gave up .58% p.a to achieve -2% p.a return on what I could have done with indexing.

If I could add a clapping emoji at the end of this post I would have. I think what I achieved deserves a round of applause.

 

Would I be mistaken is thinking you’re unhappy?