. From this site I see that the stock portion ought to be index tracker ETFs. I inadvertantly set mine up with the stock portion being an equal weight between three all stock investment trusts (are they called closed end funds in the US?). However I still have trouble shaking off what drove me to do that. My reasoning was that I thought investment trusts don't need to buy and sell stocks to keep the NAV in line with the share price. They just let the share price float so holders of investment trusts don't end up paying for the costs that an ETF suffers at times of net inflows or outflows. The large developed world index ETFs have behaved well to date but in the 2008 crisis the ishares emerging market ETF totally weirded out in terms of discount/premium to NAV. In the next crises to come, couldn't we see other ETFs behaving in a similar erroneous way? In a stock crash, an investment trust might get a big discount to NAV but wouldn't that benefit a PP rebalance? I'd hate to rebalance into an ETF that had a one day 20% premium to NAV spike. Keeping track of an oscillating primium to NAV in an ETF at a PP rebalance sounds like a nightmare. I also like the fact that investment trusts are almost indestructable. They get big discounts when unpopular but I don't think that is such an issue in a PP unlike ETFs that can end up being wound down. Some investment trust are more than 100 years old. Am I right in believing that whilst investment trusts actually own the shares unencumbered; ETFs gain much of their fees from security lending in exotic rehypothecation schemes and that in the advent of Barclays doing a Lehmans, an ishares ETF would be far more perilous than a BlackRock investment trust? The huge size of the index trackers also gave me concern. They are so big that whenever a company enters or exits an index or issues or buys back shares, an army of front running traders milks the index rebalancing.
The three investment trusts I used were BlackRock Smaller Companies (small cap UK), City of London (dividend UK) and Templeton Emerging Markets. I choose them because they seemed very different from each other so I hoped that whenever irrational exuberance was overvaluing one it would be less likely to be afflicting the others. I find it hard to get my head around how it is thought so bad to seek rebalancing gains between say large and small cap stocks but rebalancing between say gold and LTT is behind so much of the PP benefit. If the efficient market hypothesis made any sense then the PP would not work. The efficient market PP would be an index fund holding a zoo of asset classes with the value of the stock, farmland, fine art, bond etc holdings billowing in line with current investor sentiment.
