Email of the day on the traditional portfolios and investment trusts
Comment of the Day

September 22 2020

Commentary by Eoin Treacy

Email of the day on the traditional portfolios and investment trusts

I have a couple of questions for Mr. Treacy which I would be most grateful if he could answer:

1) Traditional portfolios have managed risk by allocating % to stocks and bonds. The closer to retirement someone is and presumably more risk averse one allocated proportionally more to bonds. Given that interest rates are at historical lows is this formula still appropriate? Should we look at allocation to gold instead of bonds? Thank you

2) Earlier this year Mr. Treacy shared the performance, dividend yields and length of time these dividend yields have been awarded for key Investment Trusts. I would be grateful (and perhaps other investors as well) if he could share growth performance, dividends and chargers of key ETFs. Thank you.

Eoin Treacy's view

Thank you for these questions which may be of interest to the Collective. The rationale for investing in bonds as a stabilising force in a portfolio is a lot more difficult to justify when interest rates are zero. One comforting factor is the inverse correlation between the assets has been sustained over the last few months.

The big challenge is that in times of stress when the inverse correlation is supposed to function it has not been working out. During the panicky selling February and March, everything declined including gold and bonds.

The measure of a safe haven anchor asset is will be in how well it holds is value over time. That certainly supports the argument for holding gold and not least because the big risk is in the potential decline in the purchasing power of fiat currencies. Diversifying a bond weighting with some gold makes sense to me.

I’ve run into difficulties trying to update my tables for investment trusts because it is incredibly dense and the data is not uniform. I understand that Motley Fool used to have a fully dedicated service to providing that data but it is now defunct. Here is a link to a database of US ETFs. Here is a similar database for UK ETFs but it does require a free login. 

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