Disinvestment strategy

[DAF]

I have an inherited portfolio of shares and bonds (approx $600k) that I want to sell down to use for other purposes.

I'm looking for some professional advice on a liquidation strategy - anyone have any recommendations for a good broker/adviser?

Many thanks for your help.

[percy]

I have an inherited portfolio of shares and bonds (approx $600k) that I want to sell down to use for other purposes.

I'm looking for some professional advice on a liquidation strategy - anyone have any recommendations for a good broker/adviser?

Many thanks for your help.

Where are you based.?

[Joshuatree]

Simplest effective least risky way could be to sell a chosen number (eg 3000) every 3 days, week or fortnight or month etc so you average out, not selling at a top or a bottom taking into account pay dates for divs which may vary the quantity to sell ie cum or ex div depending on your situ..

[peat]

if you don't want equity risk/reward you should sell out at least half pretty quickly I reckon. and then phase selling the second half out more slowly.
If you did it too slowly - say you were selling 5% per month over 20 months you'd be pretty gutted if there a big fall during the next six months. And given the last quarter of 2018 that is now very much an increased possibility.
Also going for broad stroke action such as selling half, you dont need to pay a broker for their input , you can do it online for low fees. I personally dont think full liquidation requires an overly complex strategy. obviously dont sell them all on one day and dont move the price around if a holding is quite large wrt daily volume. Try to sell into rising markets (eg now cf October-Dec) with limit prices on every sell order.

[Baa_Baa]

If we can assume you know nothing about what you've inherited or how to manage it, get a broker like Craigs to liquidate your equities and bonds at the best price possible as quickly as possible. Do it and move on with your life.

[DAF]

Where are you based.?

Wellington

[DAF]

Simplest effective least risky way could be to sell a chosen number (eg 3000) every 3 days, week or fortnight or month etc so you average out, not selling at a top or a bottom taking into account pay dates for divs which may vary the quantity to sell ie cum or ex div depending on your situ..

Thanks, Joshuatree - presume what you're suggesting is for each and every holding?


if you don't want equity risk/reward you should sell out at least half pretty quickly I reckon. and then phase selling the second half out more slowly.
If you did it too slowly - say you were selling 5% per month over 20 months you'd be pretty gutted if there a big fall during the next six months. And given the last quarter of 2018 that is now very much an increased possibility.
Also going for broad stroke action such as selling half, you dont need to pay a broker for their input , you can do it online for low fees. I personally dont think full liquidation requires an overly complex strategy. obviously dont sell them all on one day and dont move the price around if a holding is quite large wrt daily volume. Try to sell into rising markets (eg now cf October-Dec) with limit prices on every sell order.

Thanks, Peat. Am I right in thinking you're suggesting something similar to Joshuatree, just with a big sell off immediately?
Interesting you're both suggesting across the board selling rather than picking holding by holding...good food for thought.

[DAF]

If we can assume you know nothing about what you've inherited or how to manage it, get a broker like Craigs to liquidate your equities and bonds at the best price possible as quickly as possible. Do it and move on with your life.

Wouldn't say I know nothing, but certainly not feeling confident enough to stock pick or get timing right. What value-add should I expect to get from Craigs?

[777]

To keep brokerage to a minimum you should use the online providers Direct Brokerage or ASB Securities and make sure the minimum sale is $15,000. That is with DB but may be slightly different with ASB with a different brokerage minimum. I have not used a full fee broker for 20 plus years so do not know what their rates are now but every 1% extra you pay is $6000 less in your hand.

[Snoopy]

I have an inherited portfolio of shares and bonds (approx $600k) that I want to sell down to use for other purposes.

I'm looking for some professional advice on a liquidation strategy - anyone have any recommendations for a good broker/adviser?

Many thanks for your help.

Hi DAF,

First my condolences for your loss, as I assume that being left that much it must be from a close relative. $600k is a substantial amount of money to deal with. I would have to ask the question do you really want to use it all for other purposes? If those 'other purposes' include paying off debts, including the house mortgage then I would say go for it. But $600k, or even $300k can be invested to provide a significant ongoing income, particularly if invested in the NZ sharemarket. If you are not comfortable with investing in the sharemarket yourself , you could get it professionally managed in a 'share market fund'.

Brokers tend to favour a higher allocation to bonds in a balanced investment portfolio as you get older. If you are a younger generation to the person that left you the money, I would suggest liquidating the bond portfolio first. Many people do not appreciate that you can lose substantial capital on listed bonds. With interest rates low they are barely any less risky than shares at the moment IMO.

SNOOPY

[DAF]

Hi DAF,

First my condolences for your loss, as I assume that being left that much it must be from a close relative. $600k is a substantial amount of money to deal with. I would have to ask the question do you really want to use it all for other purposes? If those 'other purposes' include paying off debts, including the house mortgage then I would say go for it. But $600k, or even $300k can be invested to provide a significant ongoing income, particularly if invested in the NZ sharemarket. If you are not comfortable with investing in the sharemarket yourself , you could get it professionally managed in a 'share market fund'.

Brokers tend to favour a higher allocation to bonds in a balanced investment portfolio as you get older. If you are a younger generation to the person that left you the money, I would suggest liquidating the bond portfolio first. Many people do not appreciate that you can lose substantial capital on listed bonds. With interest rates low they are barely any less risky than shares at the moment IMO.

SNOOPY

Thanks, Snoopy. While the loss is some time ago now, I am thankful every day for how my father provided for my brother and me.
The 'other purposes' do include managed funds. I was deliberately vague as I wanted to focus responses on the point about how to get advice on selling down rather than getting into a debate about the pros and cons of managed vs dyi investing!

My key question now about brokers is can I expect them to develop a strategy of what to sell and when or will they leave those decisions to me and just clip the ticket for transactions that I could conduct myself?

[Snoopy]

Thanks, Snoopy. While the loss is some time ago now, I am thankful every day for how my father provided for my brother and me.
The 'other purposes' do include managed funds. I was deliberately vague as I wanted to focus responses on the point about how to get advice on selling down rather than getting into a debate about the pros and cons of managed vs dyi investing!


DAF, I believe some managed funds can take shares as direct payment for fund units, or at least they did in the past. I can't tell you which ones though! Thus you can avoid any share brokerage by not having to sell any individual shares you don't want in the first place.



My key question now about brokers is can I expect them to develop a strategy of what to sell and when or will they leave those decisions to me and just clip the ticket for transactions that I could conduct myself?


Full service brokers I know have a two tier management system available. One tier being 'advice' based on their own research but letting you do all the final buying and selling decisions. The second is a tier where they basically do all the buying and selling decisions for you. Generally you will pay less for the former and more for the latter.

I have never asked a broker for a sell strategy. When I got left some shares in a will, I simply got hold of some share transfer forms and transferred them into my own name with no share broker charge. The lawyers got their pound of flesh overseeing the process though! I wouldn't want to tar all brokers with the same brush. Yet IME brokers are fairly conservative and wouldn't want to be seen as losing you money. So the natural reaction would be to 'sell the lot' and be done with it. It would be a fairly sophisticated client that asked for a 'sell down strategy'.

You would probably have to approach the broker first and make it clear that by using a 'sell down strategy' you realise that you could end up with less money than if you sold everything right now. (You could of course end up with more money, but that probably wouldn't bother you!). The whole point of a 'sell down strategy' is not to time the market, to reduce the gamble of the snapshot price you might get by selling everything on one day. Personally I think a sell down strategy is really sensible. Despite what I said in a previous post about the risks of holding bonds, you will probably find that if your father was getting on in years, your father's broker would have put him into short dated bonds anyway. So it might save brokerage to just let the bonds mature and claim the money at that point.

As to the selling of shares, most brokers have their own favourites that they think might do well over the next year or two. So if I was a broker I would probably recommend you keep those as a starting point, if they were in your father's portfolio, and sell the others later. But if your father owned some shares outside of the NZX50 the broker might not even research those. So they would probably get sold whether they were any good or not. I am mentioning this not because I think this is necessarily a bad strategy. But you should probably be aware what biases a broker might have.

If you didn't want to obviously try to 'time the market', and it is really hard to pick the peaks without hindsight, the best strategy might be to split all the individual shareholdings into three lots and sell 1/3 now, 1/3 in six months time and the last third in a year's time. Note this down in your diary so that you actually do it! If the market takes a dip in six months time you might be tempted to hold on and wait for a recovery. But remember the market might take an even bigger dip six months out from that. So if you choose a sell down strategy it is very important that you stick to the strategy. Otherwise the averaging effect you are trying to achieve will be lost. There is normally a minimum sized share parcel that is economical to trade, so this 'three way split' might or might not be practical in your case.

SNOOPY

[stoploss]

Wouldn't say I know nothing, but certainly not feeling confident enough to stock pick or get timing right. What value-add should I expect to get from Craigs?

Are the shares in your name so you can execute the trades ? If they are in an estate name & probate is through from experience might be easier to get a broker to load up the portfolio . Then you decide with them when and what to execute.
I could put you in contact with a broker that would likely do this at a discount as they would be one off trades .
PM me if you want me to make that introduction .
Cheers S/L

[peat]

The 'other purposes' do include managed funds.
...
My key question now about brokers is can I expect them to develop a strategy of what to sell and when or will they leave those decisions to me and just clip the ticket for transactions that I could conduct myself?

It may even be that with a little bit of effort you can begin to understand how your holdings compare to a portfolio and create quite a reasonable one with relative efficiency. depending on what the holdings are.
But if no particular interest then yes sell 2/3 now, 1/3 managed funds now. I say this ratio because despite a bad quarter equities still aren't cheap historically and its not a time to be over weighted with risk from equities or low yielding bonds though you still have some. Retain one third cash from the sales to add to the managed fund over time (quite a long time) and in particular if prices fall.

[Snoopy]

But if no particular interest then yes sell 2/3 now, 1/3 managed funds now. I say this ratio because despite a bad quarter equities still aren't cheap historically and its not a time to be over weighted with risk from equities or low yielding bonds though you still have some. Retain one third cash from the sales to add to the managed fund over time (quite a long time) and in particular if prices fall.


Selling shares to buy into a managed fund is really selling one kind of equities to buy into another (or bonds to buy another if a bond fund). DAF opened this thread to discuss a disinvestment strategy for a share and bond portfolio. But if DAF is taking individual shares and bonds and putting those into managed funds (for some of the capital at least) then this isn't rally disinvestment. It is redistributing assets and externalizing management of those assets.

On rethinking this overnight, perhaps splitting what assets you have into 'three equal boxes' (for example) and doing the disinvestment in stages is not so important? Where a disinvestment strategy is more important is when you are taking assets from one asset class and reinvesting into another. In that case the values of the investment class you are taking assets from and the value of the asset class you are moving assets to are not correlated. So timing is important, and spreading the transactions over a time period, to avoid distortion by a single market peak or trough, makes sense.

Leaving the disinvestment question aside, the net meaning behind your post Peat, is that equities are not cheap historically so you should not be overexposed to them, with either individual shares or funds. But aren't the high share markets really just a product of low interest rates? And while share markets and bonds will undoubtedly suffer losses should interest rates rise, there are powerful government forces out there not wanting economies to be derailed. IMO these overvalued markets and low interest rates could persist for years. And while I agree with you that having some cash on hand to take advantage of market opportunities is a good idea, having 1/3 of all your assets in cash, earning virtually no return, might be taking things too far?

SNOOPY

[DAF]

DAF opened this thread to discuss a disinvestment strategy for a share and bond portfolio.

Actually I opened this in this thread to discuss where to get advice on a disinvestment strategy, rather than the strategy itself!

Having said that, I appreciate all the comments...given me plenty of material to take into a discussion with an adviser when I find one.

[peat]

Selling shares to buy into a managed fund is really selling one kind of equities to buy into another (or bonds to buy another if a bond fund). DAF opened this thread to discuss a disinvestment strategy for a share and bond portfolio. But if DAF is taking individual shares and bonds and putting those into managed funds (for some of the capital at least) then this isn't rally disinvestment. It is redistributing assets and externalizing management of those assets.

On rethinking this overnight, perhaps splitting what assets you have into 'three equal boxes' (for example) and doing the disinvestment in stages is not so important? Where a disinvestment strategy is more important is when you are taking assets from one asset class and reinvesting into another. In that case the values of the investment class you are taking assets from and the value of the asset class you are moving assets to are not correlated. So timing is important, and spreading the transactions over a time period, to avoid distortion by a single market peak or trough, makes sense.

Leaving the disinvestment question aside, the net meaning behind your post Peat, is that equities are not cheap historically so you should not be overexposed to them, with either individual shares or funds. But aren't the high share markets really just a product of low interest rates? And while share markets and bonds will undoubtedly suffer losses should interest rates rise, there are powerful government forces out there not wanting economies to be derailed. IMO these overvalued markets and low interest rates could persist for years. And while I agree with you that having some cash on hand to take advantage of market opportunities is a good idea, having 1/3 of all your assets in cash, earning virtually no return, might be taking things too far?

SNOOPY

I agree that it now appears DAF is not dis-investing quite so much as we previously thought and hence I increased the sell proportion to 2/3 knowing that half of that (1/3) would be going straight back into equities (mutual fund,EFT etc) But I couldnt find out who would take the shares and swap for units. That of course would be efficient from a commission point of view. So I think we agree on that Snoopy.

But I am comfortable with my asset allocation perspective (1/3 in cash or S/T TD's) which you however are surprised at. I'm sure we can agree to disagree - I accept that I have a conservative view on liquid assets. Interest rates are low but with a little bit of jiggery around the 2-3 months duration 3% can be achieved so its not 'virtually no return' as you say.

Of course to do this exercise properly would require a risk assessment of the Original Poster and consideration taken of the outcome of that. That's what a paid financial advisor would do, and then provide personalised advice accordingly.

[Snoopy]

But I couldnt find out who would take the shares and swap for units. That of course would be efficient from a commission point of view. So I think we agree on that Snoopy.


I have racked my brain to try and remember who it was that was taking shares for units. The example was some time ago. It would obviously be an 'open ended fund' and probably, a fund that did enough trading to get a good deal on transactions in bulk. It may have been with Doug in the "Money Managers" days, or AMP? But of course in those days, commissions tended to be higher. So accepting shares as payment would still have left plenty of margin for the operator, if they wished to sell them!



But I am comfortable with my asset allocation perspective (1/3 in cash or S/T TD's) which you however are surprised at. I'm sure we can agree to disagree - I accept that I have a conservative view on liquid assets. Interest rates are low but with a little bit of jiggery around the 2-3 months duration 3% can be achieved so its not 'virtually no return' as you say.


2-3 months is certainly short term, but 'cash' I take to mean 'on call'. I think about 2.5% is the best you might get for 'cash'. But I don't think a provider that offered 2.5% would have an 'A' in their credit rating! But yes I accept putting some money away for 2-3 months might be sensible while you 'buy time'.

SNOOPY