New IT Portfolio Wanted...

[OLTB]

Morning all

I have a lump sum that I wish to designate to an IT portfolio - I have an existing HYP and thought this would be a good alternative to bring an element of 'balance' and diversification away from a share-only portfolio.

I have no experience of setting up a reasonably balanced IT portfolio so was thinking of following John Baron's advice in IC - I subscribe already. I was thinking of allocating the assets in line with his Income Portfolio and re-investing dividends as I see fit but before I do, was wondering if anybody else used any other 'ready-made' solutions?

Thanks, OLTB.

[tjh290633]

Well, there are the two Baskets, defined by Luniversal on TMF, which were B7 and B8 respectively. One (B8) had a higher yield to start with, the other a lower yield but more growth prospects. The Baskets and their source are:

B8
City of London (CTY)
Dunedin Income Growth (DIG)
Edinburgh (EDIN)
Invesco Income Growth (IVI)
Merchants (MRCH)
Murray Income (MUT)
Schroder Income Growth (SCF)
Temple Bar (TMPL)

and

B7
Bankers (BNKR)
F&C Capital and Income (FCI)
JPM Claverhouse (JCH)
Lowland (LWI)
Mercantile (MRC)
Murray International (MYI)
Perpetual Income & Growth (PLI)

http://boards.fool.co.uk/the-baskets-ar ... 07381.aspx

Hope that helps.

TJH

[mc2fool]

Well, firstly, ITs are shares and themselves mostly (although not all) hold shares.

I think you need to decide what the purpose and goal of your IT portfolio is. E.g. if you buy, say, City of London (CTY) you are more or less buying a HYP-like portfolio, http://www.theaic.co.uk/companydata/335/portfolio, which doesn't add much in the way of share diversification, although does diversify "manager risk" (i.e. you!), which has some value.

OTOH you may consider the purpose of your IT portfolio is to diversify into things that you can't so easily do yourself, e.g. non-UK stocks (esp. non-developed) or other asset classes.

So, first decide the purpose and, either way, whatever solutions you look at check out their holdings to find out how it fits with your existing investments. Both Morningstar and Trustnet have "x-ray" tools that let you see, across a portfolio of ITs, how much, say, RDSB you hold, along with overall regional breakdowns.

[Jon46]

Morning all

I have a lump sum that I wish to designate to an IT portfolio - I have an existing HYP and thought this would be a good alternative to bring an element of 'balance' and diversification away from a share-only portfolio.

I have no experience of setting up a reasonably balanced IT portfolio so was thinking of following John Baron's advice in IC - I subscribe already. I was thinking of allocating the assets in line with his Income Portfolio and re-investing dividends as I see fit but before I do, was wondering if anybody else used any other 'ready-made' solutions?

Thanks, OLTB.

Following JB's portfolios could be done, it might be a lot easier by subscribing to his web site, rather than the IC, where he reports less frequently, does not give his full analysis of 'why', and might not continue doing so, however subscribing to both might not be cost effective. When following any tipster, in particular if he is any good, best imho to let prices settle after his trades, as market reaction will come back to you most of the time with a little patience.

There might be another problem with following JB to the letter, in that some of his re balances can be for small percentages, where for a small value portfolio it would not be cost effective. He will trade to respond to world events, for example he has responded to the brexit/trump events by changing tack a bit.

Lastly, if you already have a HYP, and have many years building the pot, I would go for his more growth oriented portfolios as a nice complement. We have made better returns by investing across the globe, market cap, yield spectrum than by just FTSE350 HY, over decades small percentage differences become large amounts. We do both still.

It could give you a start until you develop your own view of things and get to know ITs, which imho is not time wasted. ITs do have structural advantages.



Best of luck

Jon

PS We read JB's stuff in the IC, and looked at his web site before he put it behind a pay wall, but having been at this game for so long we (my wife in the case of ITs) do our own thing, but we do hold a few of his. Our returns are similar, but of course his are over a relatively short period, our are over a very long time.

[OLTB]

Thanks all for your posts so far.

The reason for the ITs would be for asset and geographical diversification more than anything else and it may be daft, but the reason that an income portfolio attracts is that any dividend paid (this would sit inside a SIPP by the way) would seem like a 'pension contribution' and I can then choose where to allocate the proceeds. If I choose a growth bias then I'm less able to control the flow of income (which might be a good thing!).

The B7 and B8 portfolios look a good option and I'm just a bit concerned that a few of them seem to replicate the same holdings whereas I'm trying to diversify more.

Thanks again, OLTB.

[Dod1010]

I do not know how many ITs you are looking at but for diversification from my HYP, I hold

RIT Capital Partners, Multi manager and a lot of stuff I could never source myself. Excellent track record
Scottish Mortgage. A lot of overseas shares in China and high tech stuff in the US. Also quite a number of unquoted shares. Great track record
Caledonia Investments. More UK oriented but again with quite a lot of stuff I could not/do not hold. I also like the big holding of the Cayzer family.
Finsbury Income and Growth. Nick Train is the manager with an excellent record. High quality shares held for the long term
Murray International. I like the manager Bruce Stout and he has as the name implies international exposure with quite a lot in emerging markets.

I hold others but they are more UK oriented and will to some extent probably replicate your HYP holdings.

Apart from Caledonia, the others are often at a premium to NAV so try to wait and buy at no more than par and preferably at a discount.

HTH.

Dod

[Lootman]

if you buy, say, City of London (CTY) you are more or less buying a HYP-like portfolio, http://www.theaic.co.uk/companydata/335/portfolio, which doesn't add much in the way of share diversification, although does diversify "manager risk" (i.e. you!), which has some value.

OTOH you may consider the purpose of your IT portfolio is to diversify into things that you can't so easily do yourself, e.g. non-UK stocks (esp. non-developed) or other asset classes.

Yes, I don't understand why people would buy an IT that effectively duplicates the usual suspect UK large-cap shares that they already hold UNLESS they are selling those shares to simplify the management of their investments. If you are keeping the Shell's and Glaxo's of this world then it's surely better to venture into areas like smaller companies, growth or foreign shares. Or gain specific exposure to sectors not well represented in the UK like largecap US biotech and info tech, or agricultural and industrial companies. Or some of the IT names that Dod is talking about, plus Personal Assets, Ruffer etc.

I also think what you are calling "manager risk" is minimal. A few smaller ITs have gone to the wayside over the years but the major ITs seem to endure well. Or get wound down closer to NAV. I haven't seen ITs lead to a total loss situation except for during the split capital meltdown, which was surely a special case.

As for Luni's idea of buying 7 or 8 ITs that do essentially the same thing, I think you're really just buying an expensive index fund, such is the overlap and duplication of the underlying holdings. If you're buying ITs, make each one contribute something unique and special. Imagine you are trying to make the case to a tough audience what each prospective purchase gives you that is different from what you already have.

[OLTB]

Apart from Caledonia, the others are often at a premium to NAV so try to wait and buy at no more than par and preferably at a discount.

Thanks Dod - I'm not experienced in the discount/premium world but understand that a lot of the pricing is down to the numbers of buyers/sellers of the shares in the marketplace as well as whether the particular sector of the IT is in favour. This is a bit of a departure for me as I have always assumed that the value of an asset is reflected in the share price of that asset and will fluctuate accordingly. I don't understand how an asset such as an IT can be worth more or less than the assets it holds - surely the actual value (even if many people think that particular sector is on the rise/fall) should be reflected in the price at any one time? Is it something to be overly concerned about or over time do these normally balance out. Do you only buy when NAV is at a discount?

If you're buying ITs, make each one contribute something unique and special. Imagine you are trying to make the case to a tough audience what each prospective purchase gives you that is different from what you already have.

Thanks Lootman - yes, that's exactly what I'm trying to do - I see my HYP as my core UK company based large cap exposure and the ITs would be used to access the international / smaller UK companies / fixed interest / green energy etc. classes just to add that important diversification element. Different income streams and assets that are not correlated directly with the UK markets - although I think that the major markets pretty much follow each other in most cases.

Thanks, OLTB

[Lootman]

Thanks Lootman - yes, that's exactly what I'm trying to do - I see my HYP as my core UK company based large cap exposure and the ITs would be used to access the international / smaller UK companies / fixed interest / green energy etc. classes just to add that important diversification element. Different income streams and assets that are not correlated directly with the UK markets - although I think that the major markets pretty much follow each other in most cases.

I'm not aware of ITs that cover fixed income/interest securities like bonds. Apparently it is inefficient for tax purposes for ITs to be used that way. I'd suggest an ETF as the best vehicle for debt instruments.

The major markets do correlate to varying extents but there are a couple of trends I have noticed. Emerging markets tend to react the most to up and down swings, whereas the US market is often the most resilient during down markets, in particular the mid and small cap shares that are more focused on the US domestic economy.

Also, the US dollar usually does well when markets are volatile, so you can get a boost from that. As an example, there were about two US dollars to the pound before the 2007-2009 financial crisis. The low for the S&P 500 at that time was (ominously) 666. It is now about 2,200 so it has more than trebled since that low. But the pound has gone from $2.00 to $1.25 during the same time period, meaning the return since the 2009 low for a sterling-based investor has been in excess of a five-fold increase.

No guarantees, of course, but I think every investor should have a good wodge of his portfolio in the US market. JP Morgan American has been a very solid performer for me. There's also the Vanguard US ETF (symbol VUSA) for a more passive approach.

[OLTB]

I'm not aware of ITs that cover fixed income/interest securities like bonds. Apparently it is inefficient for tax purposes for ITs to be used that way. I'd suggest an ETF as the best vehicle for debt instruments.

Thanks Lootman - as an example, current recommendations are IPE, NCYF and CMHY in the fixed interest sector. Not too sure if they're ITs or ETFs though.

Cheers, OLTB.

[ermintrade]

I wanted to run an IT income portfolio, to go along with my shares growth portfolio. Below is what I came up with. It is based on John Baron's dividend and winter portfolios, but it has some differences.
It is intentionally very diversified. Some things to note: there are three high yield bond funds. There is only one overtly UK shares IT (Merchants) because of my BREXIT concerns. I have included a Japan fund and a US fund because I regard those areas as most likely to do well in the medium term. This is a live portfolio.

Bluefield Solar Income Fund Limited

CC Japan Income & Growth Trust

CQS New City High Yield Fund Limite...(NCYF)

City Merchants High Yield Trust

City Natural Resources High Yield T...(CYN)

F&C Private Equity Trust

HICL Infrastructure Company Ltd

Henderson Diversified Income Ltd.

Henderson Far East Income Ltd.

Merchants Trust

Murray International Trust

North American Income Trust (The)

Standard Life Investments Property ...(SLI)

Utilico Emerging Markets Ltd (DI)

Regards
Ermintrade

[tramrider]

If you want some diversity away from UK large cap companies, here are a few high yield style ITs etc. that are worth investigating, mostly using the AIC website, e.g.

http://www.theaic.co.uk/companydata/BZET0

TIDM   Name                       F Yield
BRCI   BlackRock Commodities       5.8%
EAT    European Assets Trust       7.7%
HFEL   Henderson Far East Income   5.7%
HSTN   Hansteen Holdings REIT      5.1%
MYI    Murray International        4.0%
P2P    P2P Global Investments      8.1%
PEY    Princess Private Equity     5.9%
RDI    Redefine International      8.8%
SOI    Schroder Oriental Inc       5.6%

Tramrider

[mc2fool]

The reason for the ITs would be for asset and geographical diversification more than anything else

Well, ok, but you're unlikely to find a ready-made ex-UK-shares portfolio. Certainly the John Baron portfolios and the B7/8 will have a large degree of overlap with your UK share holdings, in broad asset type & geography if not in exact holdings.

But is there a specific reason you are looking particularly for an IT portfolio for your asset and geographical diversification? How about OEICs and ETFs? For example, on the equities side you could geographically counterbalance your UK shares simply with a wodge of the Vanguard FTSE Developed World ex-U.K. Equity Index Fund (an OEIC tracker), and a smattering of an emerging markets ETF.

But that's leaping ahead, and I think in saying you want an IT portfolio you are putting the cart before the horse. Start off by figuring out, at least broadly, what and how much asset and geographical diversification you want. Having got that then you can then go looking (or ask) for the best vehicles to fulfill that, be they ITs, OEICs, or ETFs.

[77ss]

The reason for the ITs would be for asset and geographical diversification more than anything else and it may be daft, but the reason that an income portfolio attracts is that any dividend paid (this would sit inside a SIPP by the way) would seem like a 'pension contribution' and I can then choose where to allocate the proceeds.

A few years back, I Iooked at the large 'income' ITs and decided that there was just too much duplication with my existing HYP. No point!

I followed your asset and geographical diversification approach, with the objective of complementing my HYP. The three vehicles I have so far chosen (I shall choose more as opportunity permits) gave me diversification into the sub FT350 universe (Henderson Smaller Companies), extra exposure to the FT250 universe (an FT250 tracker) and global exposure to health companies (Worldwide Health Trust).

None of them are high yielders, with these holdings I am going for capital security and growth. I frankly don't comprehend your point about dividends - if its all going to sit in a SIPP what does it matter - capital gain is just as good as dividend income. Reallocation of the 'proceeds' from capital gains will incur a dealing fee for selling but surely this is trivial.

So far so good, with XIRRs (and this is definitely a total return approach) of 10.5%, 9.5% and 23%.

[Chloe]

Since you already subscribe to IC, you will have noted that JB 'often' trades. When I looked nearly 3 years ago and scanned most of the back issues dealing with his portfolios, it seemed like hardly a month went by without him taking profits and reinvesting (etc.). In the 3 or 4 years it had existed (I would have been looking at his growth portfolio in particular, I think) all but one of the original ITs had been replaced by something else. So it's not exactly LTBH. I suppose there wouldn't be much point in a monthly article if it were LTBH. And, of course, by the time you receive the IC, the market may have moved away from the circumstances pertaining to JB's trades.
So, if you want to follow him, I expect you need to do it with minimum delay after his trades, which would imply subscribing to his service, rather than the IC.
Having said that, I have an idea that in one of his IC articles JB also specified an LTBH IT portfolio. (Just found it: It was in the 15/11/2012 issue).

LUniversal's basket philosophy is definitely LTBH. In my ignorance, I would call it passive investing in managed products. He applied a great deal of careful research and thinking to the selections, back-tested them and then did onward monitoring and review, making many contributions to the MF boards along the way. Surely, a must read.

CB

[Dod1010]

Do you only buy when NAV is at a discount?

Pretty much. mainly because ITs on a premium usually fall back at some point, and buying at a premium means not only that you are paying £10.50 say for £10 worth of assets but also the yield will be slightly lower as well.

You are right that it is mostly down to supply and demand. An IT or a manager with a very good track record (e. g. Scottish Mortgage with James Anderson) will attract a strong following because it tends to be a fairly rare occurrence but SM is not for everyone as it has a very small dividend and is more volatile than some. For your aims though, I would have thought it and the others I mentioned are more than worth a look.

I would suggest that you get hold of hard copies of the Annual reports though and take a good look at them, paying particular attention to what the Directors and the managers have to say.

[Chloe]

In my previous post I gave a reference for JB's Beginner Portfolio in IC. However, it seems to be wrong and I can't find a correct reference. I did note the ITs and their allocations when I read it. I also noted that JB suggested his Growth portfolio was also suitable, but that a beginner might prefer the smaller number of ITs in the Beginner PTF.
Here are the initial and current values of 100K invested in JB's Beginner Portfolio, according to the allocations he specified. I have used 5 year total return growths from Hargreaves Lansdown and, apart from applying 0.5% SDRT to the initial investment, no dealing / platform charges have been applied.

Code: Select all

IT Name                              EPIC    Initial Amt  Final Amt  Cum Grwth%  Alloc%
New City High Yield                  NCYF         12,500     17,947        44.3    12.5
Temple Bar                           TMPL         12,500     21,156        70.1    12.5
Scottish Mortgage                    SMT          12,500     34,402       176.6    12.5
Witan Pacific IT                     WPC          12,500     21,716        74.6    12.5
Templeton Emerging Markets           TEM          12,500     14,017        12.7    12.5
Ruffer Investment Company            RICA         12,500     15,870        27.6    12.5
Jupiter European Opportunities       JEO           8,333     19,403         134     8.3
Scottish Oriental Smaller Companies  SST           8,333     14,751        77.9     8.3
BlackRock Smaller Companies          BRSC          8,333     19,867       139.6     8.3
                                     TOTALs      100,000    179,129

Using the same methodology (and, like the above, just as an exercise) I did the same for JB's Growth Portfolio as it was around end 2011 and to Luniversal's B7 plus a few other reference items that I use and the aggregate numbers were:

Code: Select all

JB Beginner PTF            179,129
JB Growth PTF              174,360
Luniversal B7 Basket       188,666
FTSE All Share             160,450
Vanguard Lifestrategy 100  190,840
FTSE 250                   204,250
Vanguard US Equity A Acc   244,300

I'm not suggesting 5 years provides anything more than a convenient indication that the PTFs do not diverge too much (if HL provided a longer look back on total returns, I'd have used it).

I believe (but am not sure of the numbers) that JB's Growth Portfolio + monthly changes has better performance.

Although Luni's B7 is intended for steady income generation, he eventually noted that it appeared to grow well if the income was reinvested.

Beware, I usually make mistakes. (A minor one of which is that I didn't subtract Vanguard Lifestrategy 100's dilution levy, about 0.3%, which would have applied in 2011. )

CB

[OLTB]

I frankly don't comprehend your point about dividends - if its all going to sit in a SIPP what does it matter - capital gain is just as good as dividend income. Reallocation of the 'proceeds' from capital gains will incur a dealing fee for selling but surely this is trivial.

Thanks 77ss you make some good points - I'm not too sure I comprehend my reasons for dividend income either (trouble is, I am fond of receiving it and being under control over where those profits go). Maybe I should do half and half but then again that's just indecision. Luni's portfolios perhaps take the decisions out of my hands and will do the job for me - any dividends paid out I could then look to diversify into the other options offered by you, Chloe, Dod, mc2fool, tramrider, ermintrade etc.

I didn't study Luni's portfolios in great detail whilst on TMF and from what I continue to read, his input over the years has been valuable to an awful lot of contributors so that's the first place I'll go to I think.

I shall ponder during the Christmas break over some merlot.

Thanks again to all, OLTB.