Investment Trust Income Portfolio - Year 5 Review

[mickeypops]

This is the fifth annual review of my real life Investment Trust Income portfolio, as of month end July 2023. The objective at the outset was to provide income which helps to support our retirement which can keep pace with inflation, and to preserve the real capital value over the long term.

My wife and I retired in May 2018. We'd been building this portfolio in our SIPPs with Hargreaves Lansdown for some years, and it was completed in July 2018 upon the transfers-in from DC funds from our final employers. For reporting purposes I use close of business 31/07/2018 as the cut off point.

This income supplements income from guaranteed sources, i.e. legacy DB pensions and the State Pension and it is about 45% of our total income. I think of it it as an annuity substitute, accepting the trade off between lack of guarantee versus the prospect of retaining and growing the capital.

The portfolio consists of 20 income focused ITs, diversified across markets and themes, consisting of:

4 UK equity trusts; Dunedin Income Growth, Merchants, Shires Income, Henderson High Income
5 International equity trusts: Murray International, Europeans Assets, Blackrock North American, Middlefield Canadian, Henderson Far East
2 Private Equity Trusts; Apax Global Alpha; Princess Private Equity
2 Bond/Debt trusts: Twentyfour Income, CQS New City High Yield
3 Property trusts: Abrdn Property,Income Trust (formerly Standard Life,) Real Estate Credit Investment; Regional Reit
4 Infrastructure based Trusts: Renewables Infrastructure, John Laing Environmental Assets, GCP Infrastructure, Sequioa Infrastructure.

I've rebased the portfolio's starting value to £100,000 for these reports, so all the figures below are pro rata to that amount. This is a buy and hold portfolio and there has been no trades since its inception. All income is removed (not necessarily spent.)

The initial investments weren't quite evenly balanced: the equity trusts were a little overweight so as to achieve a 60/40 equity/others balance.

1. INCOME

Inv Trust Income Portfolio | Income | Year on Year | From Start
Start (31.07.2018) (forecst)| £5,677 | |
Year 1 (to 31.07.2019 | £5,743 | 1.16% | 1.16%
Year 2 (to 31.07.2020) | £5,781 | 0.66% | 1.83%
Year 3 (to 31.07.2021) | £5,802 | 0.37% | 2.21%
Year 4 (to 31.07.2022) | £6,011 | 3.60% | 5.89%
Year 5 (to 31.07.2023) | £5,990 | -0.35% | 5.52%

The portfolio suffered its first ever cancelled dividend this year - Princess Private Equity cancelled its interim (half yearly) dividend in December, in response to cash flow issues over currency hedging costs. The dividend recommenced as promised in June. This cost the portfolio about 3% of its annual income. This was offset by a sharp increase in Twentyfour Income's dividends - up just over 60% due to rising interest rates. Elsewhere, European Assets shed 24% of its prior year dividends, as it pays out a fixed portion of the NAV at the start of its financial year. Total payments were just about unchanged on the year, and are up an anaemic 5.52% over the five years.

Capital

Inv Trust Income Portfolio | Capital | Year on Year | From Start
Start (31.07.2018) | £100,000 | |
Year 1 (to 31.07.2019 | £102,712 | 2.7% | 2.7%
Year 2 (to 31.07.2020) | £85,843 | -16.4% | -14.2%
Year 3 (to 31.07.2021) | £103,081 | 20.1% | 3.1%
Year 4 (to 31.07.2022) | £99,817 | -3.2% | -0.2%
Year 5 (to 31.07.2023) | £89,201 | -10.6% | -10.8%

A shocker of a year. Investment trusts were unloved in general over the past twelve months. Discounts widened. The trusts selected for this portfolio included 40 % of the original capital in alternatives from company equities, and these have performed badly, The three property trusts have suffered badly. Regional and Abrdn Property are down 53% and 46% respectively from the start in 2018. GCP and Sequioa Infrastructure, down 38% and 28%. Dividends from these though have held up and current yields are high. On the positive side, Murray International, Dunedin Income Growth and Blackrock North American are all about 10% up and Apax Global Alpha is 31% up.

The original 60/40 split Equities/Alternatives is now 67/33 due to the relative poor performance of the latter.

Summary

Not a great year. No dividend growth despite soaring inflation. Capital loss of 10%. Over the five years the portfolio has delivered just short of 30% of the original capital value in income, for a "total return" of about 20%, which is about exactly the same TR as Vanguard's Lifestrategy 60% Equity (Acc) fund. A chastening thought...

On the other hand, this is a hold and forget portfolio. The dividends roll in, month after month with just the one missed payment as mentioned above. Over five years, one missed dividend payment out of 380 is quite reassuring. They roll into our SIPP accounts with Hargreaves Landsown, as cash, and they send the requested monthly withdrawal to our bank accounts. It's as good as maintenance free as you'll get I reckon.

I'm hoping for a return to form from ITs in general next year...

I have thorough records if anyone wants more details.

MP
[code]

[richfool]

Thanks for sharing that Mickeypops.

I hold many of your holdings. (Yes) it's disappointing that the alternatives (property trusts and renewables) have performed so poorly (in capital terms), primarily due to rising interest rates, though their dividends have held up well, so far. I've stuck with my holdings, which I think are beginning to see the prospect of interest rate rises petering out, thus showing signs of recovery.

In the international space, I also hold: JGGI, SAIN, HINT, JEGI, AAIF, JAGI, for income, ... but not HFEL.