AIM UK

[ls7550]

As anyone who uses a rebalancing based style (such as AIM) knows, the cash (or Bond) reserves generally act as a drag. Countering that however the rebalance benefits generally uplift the stock value return.

The way I personally address the cash-drag effect is to :

1. Split the total fund into STOCK and BOND parts using vWave (Bond side = vWave cash indicated value).

2. Split the STOCK side into a number of individual AIM accounts, initially all near equal in capital values and each assigned their own cash reserve. I use LD-AIM on these in order to maintain an acceptable minimum trade size versus trading cost ratio. The stock I personally prefer to AIM here are good quality, large household name companies with acceptable fundamentals (debt ratio etc.), selected from a diverse range of sectors (diversity) and that pay above average dividend yield.

3. For the BOND side I again (Classic) AIM even higher yielding stock (or whatever is paying a good income and has potential for level/growing price potential).

4. Whilst each individual AIM has its own cash reserve in practice I pool all of those cash reserves and trade those funds using a Managed Future style that primarily focusses on downside loss limitation and which generally averages 50% stock exposure, 50% cash exposure and provides a 8% average return.

Collectively the overall account averages around 80% stock exposure, generally utilises stocks throughout, holding Value type stocks (which generally outperform over the longer term) whilst using a combination of Hedge Fund (AIM) and Managed Futures styles.

As vWave is somewhat akin to an AIM of the market wide Index, in effect this structure benefits from AIM rebalance benefits at the top level (vWave), on the single AIM Bond side (Classic AIM) and within each of the individual Stock side AIM accounts (multiple LD-AIM's). In addition to this I also rebalance between Stock AIM's, previously using a simple once yearly rebalance style, but more recently using target based rebalancing (when any one stock reaches 1.5 times that of the median stock value then 20% of that stock is sold off in order to fund the purchase of another stock (or uplift a relatively under-performing existing stock holding)).

My personal experiences are such that this style with its multiple rebalancing benefits over time counters cash-drag (and more). Yet a further benefit is that the overall account encounters lower volatility than that of the market Index and as such generally value-adds compound benefits over time.