SIPP question

[BenValue]

I have about 50 high yield shares in my SIPP. I want to reduce this to 4 shares. Which 4 shares, investment trust, unit trusts etc would you choose? I was thinking of possibly merchants trust and city of London as two of them.

[Urbandreamer]

I have about 50 high yield shares in my SIPP. I want to reduce this to 4 shares. Which 4 shares, investment trust, unit trusts etc would you choose? I was thinking of possibly merchants trust and city of London as two of them.

How long is a piece of string?

I have CTY and HFEL (Henderson far east income), but I'm not sure that I'd recommend either.
CTY is far too close to a FTSE 100 tracker, while HFEL has a great yield, but has seen consistent capital destruction.
TRIG (Renewables Infrastructure Group) and MYI (Murray International Trust) may be worth considering. I hold them.
I've done well with RIO (Rio Tinto) and MGNS (Morgan Sindall) over the time I've owned them.
Fairly recently I bought LWDB (Law Debenture Corporation) but it's too soon to say if that was a wise choice.
As about the same time I bought a world tracker, but obviously that is not high yield.

It's difficult for me to make suggestions as I'm not sold on the high yield concept.

Why set a limit of 4 rather than 10, 15 or 30?
Also wouldn't this be better on one of the investment boards? The fact that you hold in a SIPP rather than ISA is pretty irrelevant.

[tjh290633]

I have about 50 high yield shares in my SIPP. I want to reduce this to 4 shares. Which 4 shares, investment trust, unit trusts etc would you choose? I was thinking of possibly merchants trust and city of London as two of them.

50 is probably far too many. Mine is 35 holdings at the moment, all equities but one could go about it by selling the lowest yield 25 and reinvesting in the 25 with the highest yield.

If you want to switch to ITs, you should have a look a Luniversal's B7 and B8 portfolios of ITs.

I would avoid UTs/OEICs/UCITS but your view may be different.

TJH

[moorfield]

I have about 50 high yield shares in my SIPP. I want to reduce this to 4 shares. Which 4 shares, investment trust, unit trusts etc would you choose? I was thinking of possibly merchants trust and city of London as two of them.

If building a small portfolio of (income) ITs I would be minded to select at least five, one from each of the major AIC sector types, for example:

Sector Type |  EPIC     |  Yield % 
            |           |          
Specialist  |    INPP   |   6.5   
Overseas    |    HFEL   |  11.0   
UK          |    HHI    |   6.8   
Debt        |    NCYF   |   8.7   
Property    |    TRY    |   5.0

Additionally these are all "dividend heroes", which I interpret to mean have a track record of and can be reasonably expected to sustain, and preferably grow their dividends in the future. Let the portfolio managers worry about the details.

[tacpot12]

This are the highest yielding ITs that I hold in my retirement portfolio:

City of London
The Mercantile
JP Morgan Claverhouse
Murray International
JP Morgan Global Growth & Income
European Asset Trust
Schroder Oriental Income Trust
Invesco Bond Income Plus Ltd
AXA Framlington Managed Income
Artemis High Income
Henderson High Income Trust
Invesco Perpetual UK Smaller Companies plc

The average return on these has has been about 4.5% in previous years, but looks like it will be 5% for the last 12 months. (I measure the performance from the start of June to the end of May.)

They ITs were selected on the basis of low costs, reasonabably high returns from diversified portfolios (I don't hold any sector ITs).
I've aslo been pleased with the income from the iShares UK Dividend ETF, which has has consistently returned well over 5%. About 10% of my portfolio is invested in this EFT, which has lower costs than the UK-focused ITs.

In the interests of completeness, I will also mention that I also hold these ITs in my retirement portfolio but don't recommend them if your strategy is high income:

Finsbury Income & Growth
Scottish Mortgage
Edinburgh Investment Trust
The North American Income Trust
Balanced Commercial Property Trust

[kempiejon]

I have about 50 high yield shares in my SIPP. I want to reduce this to 4 shares. Which 4 shares, investment trust, unit trusts etc would you choose? I was thinking of possibly merchants trust and city of London as two of them.

If building a small portfolio of (income) ITs I would be minded to select five, one from each of the major AIC sector types, for example:

Sector Type |  EPIC     |  Yield % 
            |           |          
Specialist  |    INPP   |   6.5   
Overseas    |    HFEL   |  11.0   
UK          |    HHI    |   6.8   
Debt        |    NCYF   |   8.7   
Property    |    TRY    |   5.0

Additionally these are all "dividend heroes", which I interpret to mean have a track record of and can be reasonably expected to sustain, and preferably grow their dividends in the future. Let the portfolio managers worry about the details.

I have held CTY and MRCH for ages and have been unimpressed by their lack lustre returns. Which 4 picks will be good I know I don't know and of course poor past performance is no indication of what'll happen in the future. At least Merchants have kept my capital intact while throwing off an income.
For a safe and stable retirement there's more to life than dividends and the 5 hero picks have eroded capital by around 10-40% over 5 years.

If you're looking for market beating returns I know I cannot recommend anything with certainty. The USA has been a good pool to fish in this past decade. I have recently done well with both a Mexico and a developed world ETF, but that's as likely luck as design.

[AndrewInDevon]

Greencoat UK Wind is currently yielding 7.2% and is on an attractive 15% discount as well, which I expect to fall as interest rates fall.

Not sure why you would hold both City and Merchants Trust, they are pretty similar with similar strategies and benchmark, so no diversification benefit.

If you're set on high yield - perhaps because you are of an age - then I also like Royal London Sterling Extra Yield, a corporate bond fund currently yielding 6.7%.

I mostly invest in growth but am developing a small income portfolio so hold Greencoat, Merchants and Royal London Sterling Extra Yield.

[EthicsGradient]

I have about 50 high yield shares in my SIPP. I want to reduce this to 4 shares. Which 4 shares, investment trust, unit trusts etc would you choose? I was thinking of possibly merchants trust and city of London as two of them.

At what stage of investing are you? Is it important that the yield is high because you live off the yield in retirement and don't want to be thinking about what to sell constantly, or are you still building up the SIPP, and you chose 'high yield with reinvesting' for that (in which case, lower yielding assets with better capital growth could be just as convenient)?

[RichardStuart]

Greencoat UK Wind is currently yielding 7.2% and is on an attractive 15% discount as well, which I expect to fall as interest rates fall.

Not sure why you would hold both City and Merchants Trust, they are pretty similar with similar strategies and benchmark, so no diversification benefit.

If you're set on high yield - perhaps because you are of an age - then I also like Royal London Sterling Extra Yield, a corporate bond fund currently yielding 6.7%.

I mostly invest in growth but am developing a small income portfolio so hold Greencoat, Merchants and Royal London Sterling Extra Yield.

I'm not sure a specialised fund like UKW is suitable for a 4 position portfolio. Personally I have 18% of my portfolio in UKW, and a total of 28% in renewable electricity generators generally. But I would hesitate to recommend so much concentration to someone else!

[RichardStuart]

I have about 50 high yield shares in my SIPP. I want to reduce this to 4 shares. Which 4 shares, investment trust, unit trusts etc would you choose? I was thinking of possibly merchants trust and city of London as two of them.

At what stage of investing are you? Is it important that the yield is high because you live off the yield in retirement and don't want to be thinking about what to sell constantly, or are you still building up the SIPP, and you chose 'high yield with reinvesting' for that (in which case, lower yielding assets with better capital growth could be just as convenient)?

Good point. In most cases, how much an IT pays out in dividends is just a matter of its dividend policy, and not based on what returns it made in that year. Two ITs could (in theory) make the same investments, with the same returns, but one chooses to pay out more of its returns as dividends while the other chooses to keep more of the returns and grow the fund more. You could hold the latter, regularly sell some shares for income, and achieve much the same result either way. The advantage of a fund with a higher yield is just that it saves you the hassle of selling shares yourself, if the fund pays out the amount that you would like to take as income.

(There are a small number of ITs that make a point of holding high-yield shares. That's a different kettle of fish. It might suit someone who prefers a high-yield share strategy. Personally, that is my strategy, but having looked at one IT of this sort, I didn't like its choice of shares. For better or worse, I prefer to pick my own shares.)

[SoBo65]

If I had to pick four, it would likely be:

JP Morgan Growth & Income - JGGI
Brunner Investment Trust - BUT
Law Debenture Corp - LWDB
Capital Gearing Trust - CGT

[BenValue]

Thank you very much for all your suggestions. I will have a good think about all the suggestions. I will probably start living off the income of my SIPP in about 3 years time.
I live in Spain and each year I have to declare all my holdings in my SIPP in a horrid form called a modelo 720. My accountant charges about £20 for completing information for each individual holding and that is motivating me to cut back the holdings to a bare minimum.

[the0ni0nking]

Thank you very much for all your suggestions. I will have a good think about all the suggestions. I will probably start living off the income of my SIPP in about 3 years time.
I live in Spain and each year I have to declare all my holdings in my SIPP in a horrid form called a modelo 720. My accountant charges about £20 for completing information for each individual holding and that is motivating me to cut back the holdings to a bare minimum.

There is no reason why you couldn't complete the Modelo720 yourself especially if the only changes in value are due to quantity increases (through DRIP or whatever) as it's simply replicated each year - I presume your accountant/fiscal representative provides you with a copy of it?

Broadly speaking, the Modelo720 is simply a declaration of assets so you should be able to mirror the return but simply updated for values.

As a tight Yorkshire accountant likely to move to Spain within the next couple of years, I'm always loathe to pay someone to do something I can do - unless of course I end up considering either the time value of money makes it acceptable or the risk of misdeclaration and associated fines are too great.

[mc2fool]

In most cases, how much an IT pays out in dividends is just a matter of its dividend policy, and not based on what returns it made in that year. Two ITs could (in theory) make the same investments, with the same returns, but one chooses to pay out more of its returns as dividends while the other chooses to keep more of the returns and grow the fund more.

No, how much an IT pays out in dividends is not just a matter of its dividend policy; it is in fact mostly based on the income it gets from its investments in the year.

ITs are required to distribute as dividends at least 85% of their income. Or, as the legislation puts it, "An investment trust must not retain in respect of an accounting period an amount which is greater than 15% of its income for the accounting period." https://www.legislation.gov.uk/uksi/2011/2999/regulation/19/made

So, "dividend policy" is, in regards to income received, limited to what they choose to do with the up to 15%, and how they use the revenue reserve if they keep some back.

ITs can also convert some of capital reserves into income, to pay out as dividends, but they need special authorisation from the shareholders to pay out dividends from capital.

[EthicsGradient]

Thank you very much for all your suggestions. I will have a good think about all the suggestions. I will probably start living off the income of my SIPP in about 3 years time.
I live in Spain and each year I have to declare all my holdings in my SIPP in a horrid form called a modelo 720. My accountant charges about £20 for completing information for each individual holding and that is motivating me to cut back the holdings to a bare minimum.

It would make a lot of sense for your holdings to be mostly invested outside the UK - a eurozone bias might be justified. JPMorgan European Growth & Income IT has a yield of 4%. Global high yield ITs (or funds) aren't common - Witan IT, at about 2.5%, is about as good as you can get. In funds, Artemis Global Income, M&G Global Dividend, and Vanguard Global Equity Income all have a yield above 3%, and a 5 year annualised return over 9%. Fidelity Global Enhanced Income has a yield of 5.5%, and a 5 year annualised return of 7.8%.

[EthicsGradient]

* Follow-up to post above - not just Witan in Global ITs - I thought I'd done a search on both "Global" and "Global Equity Income", but it turned out I hadn't included the latter after all. JP Morgan Global Growth & Income and Murray International both have decent yield and a higher 5 year total return, too.

In ETFs, Vanguard FTSE All World High Div Yield has a yield of 3.1%, and a 5 year annualised return of 7.7%.

[Moosehoosenew]

Are you a Spanish tax payer or UK?

[the0ni0nking]

Are you a Spanish tax payer or UK?

I don't particularly wish to answer on the OPs behalf, but because he is completing a Modelo 720 it means he's a tax resident in Spain.

Non tax residents are not required to complete that form.

[RichardStuart]

No, how much an IT pays out in dividends is not just a matter of its dividend policy; it is in fact mostly based on the income it gets from its investments in the year.

ITs are required to distribute as dividends at least 85% of their income. Or, as the legislation puts it, "An investment trust must not retain in respect of an accounting period an amount which is greater than 15% of its income for the accounting period."

Thanks for correcting me.

[LucasMorro]

The choice of shares for your SIPP depends on your investment objectives, risk profile and time horizon. If I had to choose only four, I would focus on diversification and pick stocks from different sectors of the economy. For example, you might consider large, stable companies with a long-term track record of success, such as tech giants, pharmaceutical companies, FMCG companies, and the energy sector.