Investors looking for direction and inspiration should look no further than John Baron’s Portfolios


#1

John Baron crams a lot in to his day, he’s an MP and member of the influential Foreign Affairs Select Committee, he is married with teenage daughters,
[See the full post at: Investors looking for direction and inspiration should look no further than John Baron’s Portfolios]


#2

Interesting selection of trusts. Performance looks good for the portfolios that have been around for longer but I’ve never heard of John Baron before. Anyone else heard of him or use his portfolios?

Wouldn’t it be easier if you produced his portfolios on here because the one thing I thought when I was looking at his site is it lacks a bit of colour and styling. The font is too small too.


#3

@dice2dice, the Autumn portfolio equates to the Income portfolio in Investors Chronicle, not the Winter one.

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I think that the Winter portfolio carries greater risk of volatility and potential for drawdown than might be expected, and hoped for. Excluding the ETFs, the bond funds are substabtially invested in sub-investment grade debt and this type of debt has a greater correlation with equities than does investment grade debt.

Although Henderson Diversified Income has a high allocation to secured loans, this debt is still below investment grade - making them ‘safer’ than high-yield bonds, but not necessarily safer than investment-grade bonds.

There is also the perennial issue of investment trusts being listed equity themselves. This does tend to negate some of the diversification benefits of the underlying assets (It’s a similar issue for property holdings).

The inclusion of IP Enhanced Income carries additional risks. It is highly geared (33% at time or writing (source: the AIC), maximum of 50%) and the nature of gearing does add in further risks of its own. The trust did get hammered in both the 2008/9 credit crisis and in the 2000/3 Dotcom crash. Unless there is a specific need for the higher level of income at the outset then I think that this is a fund that is best ignored by the majority of investors.

Similar goes for the holding of the income shares in M&G High Income. The data on the AIC’s web-site does give the impression that there are sufficient assets for these to be redeemed in full. However, this is based upon the current amount of net assets that are attributable to the ZDPs (being 99.39p per share) and not to their final entitlement in March 2017 (122.83p per share). If the trust’s assets remaind static between now and the redemption date then the assets to which the incomes shares would be entitled is only in the region of 45p per share - lower than both the current bid and offer prices of the shares, being 57p and 59p respectively. For NAV to reach 57p requires growth in total assets of around 3%p.a. compound, and 3.5%p.a. to get the to offer price. Whilst such a level of growth is feasible, the fact that redemption date is fixed does make the trust’s assets sensitive to any market falls prior to then. (Note: to get from 45p tp 57p in just under two-and-a-half years might appear to require a rate of growth that is greater than just 3%p.a., but what needs to be remembered is that all of the assets in the trust will be growing, but the proportion to which the ZDPs are entitled is fixed, and the income shares will get the excess above that entitlement and up to 70p above that level. What this does demonstrate is the high level of gearing that the zeroes bring to the income shares. But what gearing can magnify on the way up, so can it diminish at an accelerated rate on the way down.

 

The split between bonds and equities ought to take into consideration the 28% allocation to bonds in Shires Income, and the 12% in Murray International. And ‘bond’ funds sometimes allocate to equities too (around 5% in the case of HDIV).

 

If the intent is diversification by asset type then my preference for bonds is either direct holdings or OEICs. In both cases the price and the NAV are the same to the investor, whereas they can diverge from each other in the case of investment trusts, and the prices of ITs can be affected by moves in equities markets irrispective of the assets that they hold. Saying all that, I currently have holdings in NCYF, CMHY and HDIV - but no bond OEICs. Make of that whatever you will…! :stuck_out_tongue:


#4

The other particular issue with MGHI that I forgot to mention was: what happens after the income shares are redeemed in 2017?

There are no guarantees that a similar type of trust will be available as a rollover option. Therefore, the level of income being generated now is probaby going to have to fall at that time. So if the intention is for a level of sustainability of income combined with a low level of tinkering of holdings then there might be a case for re-thinking MGHI’s inclusion in the portfolio.

 

Also forgot to mention that there is currently 1.25p per share of revenue reserve available to the income share class, and that this has been excluded from the calculations in the previous post - quite deliberate because it could be paid out before the end of the term.


#5

I’ve just taken a quick look at the portfolios on his website and Investors Chronicle. I’ve never looked them before and I haven’t looked at them as in depth as our @arkwelder has (isn’t he a love) but in principle I think these are great for new investors and experienced ones because you can learn from them, or compare your portfolio against them.

The website itself could do with some improvement and I agree it would benefit from being hosted on this site or on the Investors Chronicle site.

As for the Bond allocation Ark, if you are looking at the income portfolio then I read something in the blurb about income being its focus and not capital growth. It’s designed for people collecting their pension. Risk to capital may be acceptable to these sorts of investors as long as the income is delivered.


#6

I find it very useful to be able to compare my holdings with someone else’s and I think John Baron is making a genuine effort to help ordinary folk as they say in the article above.

I hope he doesn’t switch to UKIP though as Andrew Neil suggested at the Weekend!

Incidentally, on Motley Fool website www.fool.co.uk forums there are some very helpful fools (I’m not being rude, that’s how they are described) who share their portfolios too.

I’d recommend having a look at Luniversal’s portfolios. Unfortunately it’s not easy to search through the forums but if you look at his profile it’ll take you to a link.

It might a good idea for this website to encourage members who care to share their portfolios here to do so. Maybe you could organise how they’re presented better too.


#7

Thanks for pointing out the error @ArkWelder. Duly noted and updated.


#8

Hi @CityGirl. There may have been a bit of confusion due to the reference in this article to the Investors Chronicle Income portfolio , which @dice2dice has now corrected (thanks!). It was described as Winter, but should have said Autumn, as it now does.

 

As such, my rant was directed solely at the Winter portfolio which does state “… the objective is to protect as best we can past gains…”, and from the Rationale page “…as time passes, it is wise to increase the bond exposure to help diversify the portfolio. I see bonds as a counterweight to equities – when one rises, the other usually falls.”

Whilst it is true that the prices of investment grade bonds usually move the opposite to equities prices, it is not so true of high-yield bonds (a.k.a. junk, or sub-investment grade). These bonds are rated below investment grade because the risks of the companies going bust is perceived to be greater. Therefore, their fortunes are tied more closely to how well economies are doing rather than to interest rate and inflation rate expectations. So their price movements are more correlated with equities - so they don’t provide a counterweight to equities, as per the Rationale statement, certainly not to the same degree as do investment grade bonds.

Over the two market falls of 2000/3 and 2008/9 IPE has a maximum drawdown approaching 80% on a total return basis. Not my idea of something that is trying to protect gains! And those falls were in synch with equities.

The issue, for me, with MGHI is the immoveability of the redemption date and the level of gearing, the combination of the two increasing the possibility of losses should markets tank shortly before redemption. Combine this trust with IPE and I see an inconsistency with the objective of trying to give some protection to capital. As ever, though, just my opinion!

 

The only observation that I have to make about the other portfolios is that Perpetual Income & Growth is in the Spring and Autumn portfolios, but not the Summer. I would have thought sensible to include it in the middle one too so that a natural progression between the seasons can be followed.


#9

The performance across his portfolios is pretty good. I’m pushing 40 but I’m not sure if I’m supposed to transition to a new portfolio when I reach 40 or maybe I have a little while longer.

John Baron Portfolios


#10

I bought this book a couple of months ago, though must declare I haven’t got round to reading it yet.

His choice of holdings are interesting and I do like that he not only updates them frequently but declares his trades. And all for no other reason than the greater good it seems.

On the points made by Ark Welder, surely the fact that he’s selected number of different funds provides diversification to help protect against individual losses.


#11

If you’re responding to people on here and want their reply @jeffrey you need to write it like I wrote your name which is like Twitter with the @ symbol. So Ark Welder is @arkwelder.

It’s a bit of a pain to find someone’s name coz you have to click through to their profile.

My name is @steelman and if you use my handle I get an email informing me.

Unfortunately you cant really change it which is annoying because my screen name as it were, is Mark Steel which is also my real name. Be good if they would change that.

 


#12

@jeffrey, whilst several funds might help to protect against an individual loss, they will not necessarily protect against a collective loss - and that is what can happen when markets fall as a whole. And if the types of bonds being held are correlated with equities, then holding them will not help to protect from falls either.

 

Two graphs:

These demonstrate the effects of a high level of gearing on a fund that is correlated with equities. There have been some changes to the investment mandate over the years, but the potential still exists for this fund to suffer large falls when equities markets fall. Not much in the way of diversification, and not much in the way protecting capital either.

I will reiterate that, for me, this specific fund is for those who need a boost to their immediate income, but not for those whose interest is in trying to preserve their capital - and that is one of the stated objectives of the Winter portfolio.

Have a read about the type of gearing being employed in this fund in the annual report, and specifically of the risks of this type of gearing. If the prospective investor is comfortable with these, then an investment could be considered.