Restructuring a Portfolio

[chrisw]

Hi all!

Long time reader, seldom poster here and I need some advice from the experienced.

For some years I have been investing in the New Zealand and Australian sharemarkets. I have a margin account with the ASB, but have kept the percentage of lending low over the last couple of years (<20%). My return over the last 7 or so years has been pretty average - after inflation I think I am ahead, but not by much.

For every winner, such as Briscoes and Corporate Express, there have been considerable losers like Provenco and Kingfish (initially good, but then I bought a lot more at $1.35 - ouch).

Anyway, during this time I have paid for advice from Wise Planning here in Christchurch and subsequently IRG in Auckland. While I always found Wise Planning good, what prompted me to leave was their insistence that my portfolio be managed through the Aegis (?) system at a cost of about 1% per annum in addition to fees. It annoyed me as I couldn't see why I wanted to pay hundreds of dollars a year to essentially make the life of my advisor easier.

With IRG I had a particularly bad experience. I switched across to them in 2007 and no matter what the market was doing the advice I received was to maintain no cash position - i.e. 100% in shares. Against my better judgement I initially went along with this. Within a few months I picked up on the folly of this idea and dropped them, but not before losing a considerable capital value. What annoyed me the most though was that they have a "minimum $100k" rule. After the value of my portfolio dropped below this in early 2008, they claimed I had to pay extra fees because of it! Definitely all care, no responsibility types.

My current portfolio net of lending is valued at approximately $150k with a high cash position of approximately $40k (in USD, EUR & NZD). In addition to this, I also have some property and unit trusts (KiwiSaver, Superannuation, etc) that provide exposure to different sectors including international shares.

The catalyst for this e-mail is that recently, one of my winners (CPX) has become a takeover target from its majority shareholder and so I will end up with about AUD 25k on hand that I simply have no idea what to do with.

Essentially, I feel I am almost starting from scratch with this portfolio and would like to work with someone to reallocate and get everything back on track. I am not a trader (just don't have time to keep on top of everything), but have an interest in the story of a company, like to see a competent management team and believe that a history of a consistently high ROE is eventually rewarded by the sharemarket (it can take a while though and sometimes not worth waiting). I am still young (<35), consider the sharemarket a long-term investment and don't have any immediate need for the cash, so I am happy to take a bit more risk.

Current portfolio is made up of the following:
Briscoes $10320 8.66%
Caltex $11679 9.81%
Corporate Express $25189 21.15%
Freightways $9674 8.12%
Kingfish $26505 22.25%
Metcash $6339 5.32%
QBE Insurance $26084 21.90%
S&P 500 Spyder $3313 2.78% (SPY was bought as a tracker in 2001 and down 47% since!)

Can anyone recommend a reliable advisor that is happy with being paid upfront to help or make some recommendations on what I should consider doing with this portfolio?

Thanks in advance for any help?

Cheers, Chris W.

[Steve]

I do know that some portfolio advisors are now starting to charge an hourly rate instead of a %value fee in order to be seen in the new 'transparency' niche.

Pity about your experience with IRG - unfortunately IRG = Brent King = Barge Pole based on his track record going back to the early 90's.

[Snoopy]

I have paid for advice from Wise Planning here in Christchurch and subsequently IRG in Auckland. While I always found Wise Planning good, what prompted me to leave was their insistence that my portfolio be managed through the Aegis (?) system at a cost of about 1% per annum in addition to fees. It annoyed me as I couldn't see why I wanted to pay hundreds of dollars a year to essentially make the life of my advisor easier.

Reducing the number of clips on your investment ticket is always a good strategy.

My current portfolio net of lending is valued at approximately $150k with a high cash position of approximately $40k (in USD, EUR & NZD). In addition to this, I also have some property and unit trusts (KiwiSaver, Superannuation, etc) that provide exposure to different sectors including international shares.

For every winner, such as Briscoes and Corporate Express, there have been considerable losers like Provenco and Kingfish (initially good, but then I bought a lot more at $1.35 - ouch).

The catalyst for this e-mail is that recently, one of my winners (CPX) has become a takeover target from its majority shareholder and so I will end up with about AUD 25k on hand that I simply have no idea what to do with.

I have an interest in the story of a company, like to see a competent management team and believe that a history of a consistently high ROE is eventually rewarded by the sharemarket (it can take a while though and sometimes not worth waiting). I am still young (<35), consider the sharemarket a long-term investment and don't have any immediate need for the cash, so I am happy to take a bit more risk.

Current portfolio is made up of the following:
Briscoes $10320 8.66%
Caltex $11679 9.81%
Corporate Express $25189 21.15%
Freightways $9674 8.12%
Kingfish $26505 22.25%
Metcash $6339 5.32%
QBE Insurance $26084 21.90%
S&P 500 Spyder $3313 2.78% (SPY was bought as a tracker in 2001 and down 47% since!)

I know it is almost standard industry practice when a dissatisfied portfolio investor appears on your doorstep to slag the previous advisor, make up all sorts of wild claims as to how you can do better and try to pinch the business from the old manager. But actually, and this is probably not the news you want to hear, I think your current advisors have left you in not a bad position.

You have mainly NZ and Oz shares with some US exposure through that S&P 500 tracker account.

Now in 2001 the $NZ/$US exchange rate was $1NZ to $US0.42 (approximately), whereas today $1NZ is worth around $US0.70. So based on the exchange rate changes only you are US28c worse off for every dollar you invested back then, a 44% loss of value. Given we have had a bad market period from the peak of the dot.com boom through to now, with little change in the value of the underlying index, this S&P500 fund has done its job for you. Not with the result you hoped for, obviously. But then again when you made the investment you didn’t know the credit crunch would come and the US dollar would slump. This may sound counterintuitive, but I would take advantage of the favourable exchange rate and somewhat moribund US market to buy more of this S&P500 tracker fund.

Metcash is an investment in the food sector IIRC, a good place to be in uncertain times, and you have only got a relatively small holding. So why not top your Metcash holding up? With a couple of investment strokes, there is your Corporate Express cash reinvested.

I hear your slagging of Kingfish. But actually if you want a growth orientated NZ fund that will look for the emerging companies you are probably in the right place.

With IRG I had a particularly bad experience. I switched across to them in 2007 and no matter what the market was doing the advice I received was to maintain no cash position - i.e. 100% in shares. Against my better judgement I initially went along with this. Within a few months I picked up on the folly of this idea and dropped them, but not before losing a considerable capital value.

You don’t find too many investment advisors recommending disinvestment options. I agree that it pays to always have some cash on hand to take advantage of those unexpected investment opportunities.

I have a margin account with the ASB, but have kept the percentage of lending low over the last couple of years (<20%). My return over the last 7 or so years has been pretty average - after inflation I think I am ahead, but not by much.

I think that over this somewhat exceptional seven-year period you might find a return ‘ahead of inflation’ is in the ballpark of what you might expect, even from a ‘good’ advisor. I know some advisors recommend lightly gearing your portfolio. But once every twenty years or so, or once in the last 7 years, such a strategy can backfire on your quickly. Gearing exposes you to a market timing risk that is not there with an ungeared portfolio.

What did the NZX 50 do over that seven year investment period you speak about?

Can anyone recommend a reliable advisor that is happy with being paid upfront to help or make some recommendations on what I should consider doing with this portfolio?

Isn't this what a full service broker does? Don't you just pay the buying and selling commissions, without the upfront fees?

SNOOPY

discl. No connection with Wise Planning or IRG!

[JBmurc]

Too bad you didn't follow the Materials,Energy,Infrastructure sectors an Sharetraders who did I have of one did very well over the the years not ever year but 2 out of 3
2009/2010 has been one of the best -as of today I'm up 136% from 31th march 09

[Snoopy]

Too bad you didn't follow the Materials,Energy,Infrastructure sectors an Sharetraders who did I have of one did very well over the the years not ever year but 2 out of 3
2009/2010 has been one of the best -as of today I'm up 136% from 31th march 09

You are right JBMurc, raw materials and infrastructure are sectors that are not in Chrisw's portfolio. You could argue that energy is in there via Caltex. However, just because a sector has done well over the last few years doesn't mean it will do well over the next few.

Over the global history of investment over the last 100 years 'materials' has generally been one of the worst performers. Perhaps the last few years have been a 'catch up'? I don't know which way materials prices are going to go. No doubt some will continue to do well. But if I was a betting person I would think that materials will not outperform other sectors going out into the future. And as a broad sector I would go far as to suggest that underperformance is likely. My own choice of investment in this sector is BHP. That is because I don't consider myself a 'mining expert', BHP are well diversified both in commodity and geographic terms and IMO their track record of what commodities to be in over time is second to none. However, it never seems to get really cheap.

I consider myself underinvested in infrastructure. Over the last couple of years I have been looking for opportunities. There are lots of good infrastructure companies out there, but in my opinion most of these are more than fully priced. I am leaning towards another significant bite of Telecom considering it has been beaten to death, but I am in no hurry to activate those choppers yet.

SNOOPY

discl: hold TEL, TLS, LPC, BHP

[OldRider]

chrisw: It sounds to me that you don't have the time/desire to manage your portfolio yourself. No problem with this, I find myself getting to be the same now,
the effort of managing a portfolio gets to be a tedious, boring use of time and in the retirement years of life there are things to do that interest me more.

I am restructuring our investments at the moment, winding up our investment company, merging a couple of trusts, and reducing the number of
companies owned, moving into a few listed investment companies, just retaining direct ownership in a few large companies eg: BHP, WBC, QBE

I have used Lic's for other than Australasian shares for many years now and have been happy with the returns, management costs for the larger
investment companies are quite low round 1%. Perhaps it would be a good idea to think along these lines, if you want direct ownership using a
a full service broker as Snoopy suggests is worth considering.

All up for me though, much less time is required, little brokerage, little recording of dividends and other changes, significantly lower accountancy charges

[percy]

I can recommend three people who should give you excellent advice in christchurch.
Stephen Montgomery,Aspiring Assett Management. He had a first class record for ACC share portfolio.
My Broker,Derek Howarth at Craig Investment Partners ph 353 5917,
A friend of mine has had excellent advice from Barry Johnstone at Macquarries.

Who ever put you into Metcash was no fool.
as snoopy pointed out your advisor has left you in not too bad a position.

[JBmurc]

chrisw: It sounds to me that you don't have the time/desire to manage your portfolio yourself. No problem with this, I find myself getting to be the same now,
the effort of managing a portfolio gets to be a tedious, boring use of time and in the retirement years of life there are things to do that interest me more.

I am restructuring our investments at the moment, winding up our investment company, merging a couple of trusts, and reducing the number of
companies owned, moving into a few listed investment companies, just retaining direct ownership in a few large companies eg: BHP, WBC, QBE

I have used Lic's for other than Australasian shares for many years now and have been happy with the returns, management costs for the larger
investment companies are quite low round 1%. Perhaps it would be a good idea to think along these lines, if you want direct ownership using a
a full service broker as Snoopy suggests is worth considering.

All up for me though, much less time is required, little brokerage, little recording of dividends and other changes, significantly lower accountancy charges

-Yeah I agree it can be very tedious some days I'll spend far to many hours in front of the laptop reading & listen yet when your make a 12month gross indirect & direct profit of 1.34mill NZD from shares an currency moves it makes it all worth while only wish all the profit was mine

As for what sectors will perform in the past present an future I personal don't have any interest or belief going forward in the retail,property,teleco's sectors ---I'm 50/50 an would take a small investment if I found the right share in the bio-tech,health sectors but my fav has been over the last 8yrs is Energy,Materials,Infrastructure,Engineering -- I've returned a average growth of over 50%pa in the time.. (do remember it not just the sector but more so the company you invest in)

--Timing is everthing---

[JBmurc]

Mate, I have sad arse stories why Im not ahead to. Brought more CFE today. Sod it mate , all takes time. Karlos hot tip(Scored from JBmurc), buy CFE, if you win big time, thank me by buying me a Superfast Holden

If you want super fast Kalos those F6's with a few mods are super quick no non- turbo or superchanged V8 would keep up.