Calling All UK PP Implementers

[Jake]

Hello fellow UK Permanent Portfolio Implementers!

As I've been working on the typical questions (best index funds, best online brokers, best way to geographically diversify gold etc etc) from a UK perspective, the thought has occurred to me many times "it would be really nice to chat to others who are doing the same thing". Especially as I have realised more than once to myself "wow, doing it that way was really expensive/cumbersome/stupid!".

Would others be interested in sharing experiences and thoughts about investing in the UK? Perhaps we could arrange a Skype call and have a chat? Let me know if you are interested

[stone]

Jake, I guess I'm not doing the proper UK HBPP since I'm  holding "gold" as ETFs (PHGP and SGLN) and have the stock part split equally between three investment trusts (CTY, BRSC, TEM). Worse still, TEM isn't domestic stocks either -it is emerging market stocks -however the London market (eg FTSE100 or UK total stock market) contains a lot of what really are emerging market stocks (Kazhak, Mexican and African miners etc) and those are not in CTY or BRSC. I'm not entirely convinced that I'm sensible holding TEM. I guess I was taken by the way that BRSC and TEM are both very volatile and yet seem to move quite differently from each other and from the LTT and gold. I suppose I'm closer to Kosher with the bonds- I'm holding TR60 which are 50year 4% UK treasury bonds. I'm using x-o as a broker. I guess I ought to be using DMO to hold the bonds. I just wanted something very simple to implement. For me it was a bit of a wrench to move out of cash into anything else and setting up the x-o account was simple and so likely to actually get done. Considering that I've posted so much on here, it is a bit ridiculous that that is a consideration but that's how it is .

[gizmo_rat]

Hey Jake

I guess the quintessential UK PP goes

LTT - Directly held TR60s registered in your name using a personal crest account
STK - Low cost Index fund held with fund supplier
Gold - Sovereigns
STT - Directly held short term gilt ladder, using personal crest account

Things I didn't know when I started

ISA ing up limits you to a nominee account.

FSCA insurance is limited to 50k per person per platform

Participating in a Gilt auction looks to be a pain, I think you have to go through a retail Gilt edged market maker http://www.dmo.gov.uk/index.aspx?page=Gilts/Buysell
No idea if anybody has been bloody minded enough to bother, not sure what it would get you over and above purchase on the secondary market using a personal crest account.

The FSA's pending Retail Distribution Review makes choice of broker a lottery.

How I've ended up doing it

LTT - ISA'ed TR60s , TR46s (also some undated , should have read the small print) 
STK - core holding VVEQ (Vanguard FTSE all share OEIC) , some VUKE (Vanguard FTSE 100 ETF) for convenience
Gold - PHAU and Sovereigns (Don't like PHAU, but don't really like storing gold at the bank either)
STT - ILSC's and savings account (going to move my savings account to a credit union when I can be arsed)

All spread around multiple brokers (XO, Alliance trust and TD Direct) and banks.

Little bit of a bodge really, but the only issues I've had are some undated gilts and it's cost me quite a lot of time moving around brokers as they come up with fee structures discouraging long term buy and hold.

The only thing I'm not totally happy with is using nominee accounts… but I just can't give up the ISA'd gilts and I'm insufficiently motivated to move my other eligible holdings to a personal crest account.

[kev_in_tw]

Hey Jake

How I've ended up doing it

LTT - ISA'ed TR60s , TR46s (also some undated , should have read the small print) 
STK - core holding VVEQ (Vanguard FTSE all share OEIC) , some VUKE (Vanguard FTSE 100 ETF) for convenience
Gold - PHAU and Sovereigns (Don't like PHAU, but don't really like storing gold at the bank either)
STT - ILSC's and savings account (going to move my savings account to a credit union when I can be arsed)

Here's my UK PP.


NameSymbolGain %
ETFS METAL SECURITIES LD ETFS PHYSICAL GOLD £PHGP23.36%
ISHARES II PLC ISHARES FTSE UK ALL STKS GILTIGLT7.81%
DB X-TRACKERS DB X-TRACKERS £ MONEY MKT ETF CAPXGBP1.77%
DB X-TRACKERS DB X-TRACKERS FTSE ALL-SHARE ETFXASX10.05%


I've had this since 19/10/2010. It's +10.76% up since then, i.e. 822 days.

Annualised the return is about 4.64% i.e. ((1.1076^(365/822)-1)*100)

Now look at inflation over the same period

http://www.bbc.co.uk/news/10612209



It looks to me as if inflation is rather close to my annualised return rate, which is not very good news.

Part of the problem with my strategy is that I have a money market tracker and money markets have performed poorly - Quantitative Easing was meant to reduce money market rates and it has clearly worked.

I also worry about IGLT because it is a mix of long and short term gilts when it really should be 100% long dated treasuries.

So the real question is if anyone else's UK PP implementation has done better than this? Anyone care to post growth rates per component for 2011 and 2012 so I can see what I should have got?

I found this page

http://boards.fool.co.uk/MessagePrint.aspx?mid=12717156

Code: Select all

UK PERMANENT PORTFOLIO 1972-2012
Year       Components (change %):                 Results (change %):       Weights (%):                          Rebalance?
           Stocks    Gilts     Cash     Gold      RPI      Nom.    Real     Stocks    Gilts     Cash     Gold

2011         -3.7     28.0      3.9     11.1      4.8      8.7      3.8       25.4     23.8     20.5     30.3     N
2012         12.3      2.7      3.6      2.1      2.7      5.1      2.4       27.1     23.3     20.2     29.4     N

Which is pretty different from the figures I've got.

This is

http://boards.fool.co.uk/MessagePrint.aspx?mid=12716852

Stocks (FT All Share)
Long Dated Treasury (20 year+ Gilt (Tr 4.25% 2040 current holding))
Cash (5 year Gilt ladder)
Gold

So I think this is telling me that I should be the share ETF and the Gold ETF in a personal CREST account and buy the Long Term gilts directly. Also set up a bond ladder for the short term ones.

[gizmo_rat]

Hey Kev

The figures quoted from the Motley fool boards are accurate.

The reason your results are different is your use of IGLT which has a average duration of 9 years, rather than for example the 47 years for the TR60 Gilt. Anything under 20 years or so doesn't have the desired volatility for the PP proper. 

So for example from the quoted figues you missed the big gain in 2011 for the long term gilts.

To realign your portfolio to a PP strategy you'd need to swap out IGLT for a long term gilt e.g. TR60 (then sell it in 27 years for the longest term Gilt available then).

The catch is that all that will do is align your results with a permanent portfolio, which in future may or may not be better compared with what you have now.

A crest account is not going to affect your return, it's just a more direct way to hold the assets. Making effective use of any tax exempt wrapper e.g. ISAs will affect your return, but with a slightly higher risk if, for example, the broker goes up in flames. 

If you are going to set up a Gilt ladder don't forget that a 5 year gilt can be held (to maturity) in an ISA

[kev_in_tw]

Hey Kev

The figures quoted from the Motley fool boards are accurate.

The reason your results are different is your use of IGLT which has a average duration of 9 years, rather than for example the 47 years for the TR60 Gilt. Anything under 20 years or so doesn't have the desired volatility for the PP proper. 

So for example from the quoted figues you missed the big gain in 2011 for the long term gilts.

Thanks for this comment - this is what I suspected but I wasn't 100% sure.

To realign your portfolio to a PP strategy you'd need to swap out IGLT for a long term gilt e.g. TR60 (then sell it in 27 years for the longest term Gilt available then).

The catch is that all that will do is align your results with a permanent portfolio, which in future may or may not be better compared with what you have now.

A crest account is not going to affect your return, it's just a more direct way to hold the assets. Making effective use of any tax exempt wrapper e.g. ISAs will affect your return, but with a slightly higher risk if, for example, the broker goes up in flames. 

I'm more worried about the broker going up in flames. Since I'm not UK resident for tax purposes I'm not worrying about tax right now. My accountants said I could sell any stocks before moving back and then rebuy them to insulate myself from capital gains tax.

If you are going to set up a Gilt ladder don't forget that a 5 year gilt can be held (to maturity) in an ISA

It seems like what I should do is something like this

1) Gold. PHGP or similar. I could use something like BullionVault but to be honest I'm not really sure it is better than an ETF.

2) Stocks XASX.

3) Long bonds. I believe I can buy them directly via Fastrade

I found this one

B54QLM7 TREASURY L60

So it seems like I can buy bonds via Fasttrade. Checking the stock number B54QLM7 it seems like what I'm after

http://www.londonstockexchange.com/down ... BPUKGT.pdf

4) Short bonds. Seems like I should ladder them - I.e. buy 1-5 year Gilt ladder

I also found a list of gilts here

http://www.fixedincomeinvestor.co.uk/x/ ... rt=5#table

So to set up a 5 year bond ladder which ones of these should I buy? Is it just ones with 1,2,3,4 years to maturity and it doesn't matter so much which ones?

Ccy Updated    Issuer                  ISIN            Coupon  Maturity    Life          Price    Yield
GBP 27 Feb 2013 UK Gilt Treasury        GB00B3KJDW09    2.25    7 Mar 2014  1 yr 1 mth    102.065  0.221
GBP 27 Feb 2013 UK Gilt Treasury Stk    GB0031829509    5.0    7 Sep 2014  1 yr 7 mths    107.232  0.229
GBP 27 Feb 2013 UK Gilt Treasury        GB00B4LFZR36    2.75  22 Jan 2015  1 yr 11 mths  104.723  0.254
GBP 27 Feb 2013 UK Gilt Treasury Stk    GB0033280339    4.75    7 Sep 2015  2 yrs 7 mths  111.262  0.262
GBP 27 Feb 2013 UK Gilt Treasury Stk    GB0008881541    8.0    7 Dec 2015  2 yrs 10 mths  121.425  0.24
GBP 27 Feb 2013 UK Gilt Treasury        GB00B3QCG246    2.0    22 Jan 2016  2 yrs 11 mths  104.685  0.373
GBP 27 Feb 2013 UK Gilt Treasury Stk    GB00B0V3WX43    4.0    7 Sep 2016  3 yrs 7 mths  112.395  0.446
GBP 27 Feb 2013 UK Gilt Treasury Stk    GB0008931148    8.75  25 Aug 2017  4 yrs 6 mths  135.558  0.696
GBP 24 Jun 2010 UK Gilt Exchequer Stk  GB0003252318    12.0  12 Dec 2017  4 yrs 10 mths  135.13    1.55
GBP 27 Feb 2013 UK Gilt Treasury Stk    GB00B1VWPC84    5.0    7 Mar 2018  5 yrs 1 mth    120.195  0.878

[Jake]

1) Gold. PHGP or similar. I could use something like BullionVault but to be honest I'm not really sure it is better than an ETF.

There is the geographic diversification thing to consider. If you are in the UK then Switzerland is relatively close and it's easy to buy gold there. Craig has some recommendations in his book about the best way to do it. You mentioned that you are overseas at the moment- Craig also has recommendations for other countries in the book.

[gizmo_rat]

So to set up a 5 year bond ladder which ones of these should I buy? Is it just ones with 1,2,3,4 years to maturity and it doesn't matter so much which ones?

Yep that's it, after 1 year 1/5 of your cash gets dumped into your account and you roll it into a new 5 year rung. The ladder is a compromise that reduces credit and interest rate risk, but gives you some return on safely held cash.

Exactly how you hold your cash is up to your personal circumstances, the only criteria is that it you can get hold of it quickly and that it is held safely. So for example if fine to keep a portion of it under the mattress for getting out of Dodge, if that's what you need to do.

BTW, in case you haven't come across it here's a list of brokers that offer CREST accounts (as at eoy 2011) .

http://crestaccounts.co.uk/