1. Supplement my pension with regular tax free income (using ISA’s).
2. Earn at least 4% dividend from the capital I have invested
3. Expect the dividend income to keep pace with inflation
4. Keep portfolio charges down below 1% (I have achieved 0.9% TER overall)
5. Preferably buy at discount or at worst a small premium. (I have just about achieved this overall)
6. Mainly UK centred, but some global exposure, and some diversification to manage risk.
7. Use this IT portfolio as a benchmark for my HYP, with the long-term aim of reverting the HYP into this (or similar) basket of IT’s when I lose the will or capability to run the HYP in my dotage.
Having invested equal amounts in the first 7 IT’s originally in 2013, the current status looks like this:
Company Name Ticker Value % Yield
Henderson Far East Income Ltd. HFEL 14.1% 5.6%
BlackRock World Mining Trust BRWM 10.0% 3.9%
City of London Inv Trust CTY 13.9% 3.8%
Dunedin Income Growth Inv Trust DIG 11.1% 4.7%
F&C Capital & Income Inv Trust FCI 15.0% 3.1%
Scottish American Inv Company SCAM 14.3% 3.0%
Standard Life Equity Inc Trust SLET 14.6% 3.5%
Murray International Inc Trust MYI 7.1% 4.3%
In the past year I top-sliced SCAM and used some accumulated dividends to add MYI to the portfolio. I decided MYI would add a bit more international diversification to the portfolio. Otherwise, there has been no other buy/sell activity in the past 5 years, and all income has been withdrawn, and either spent or re-invested elsewhere.
Income
The forecast yield on 1st purchase in May 2013 was 4.2%, and the current forecast yield is 3.9% - close to my target of 4%. I have seen steadily rising income from all the IT’s except Blackrock World Mining (BRWM) which cut its dividend in 2016-17. I unitise this portfolio, and income per unit has increased by 9.5% over the last 4 years, which is CAGR of 2.3%, about the same as inflation, despite the BRWM dividend cut. I am fairly satisfied with this.
Capital
Capital is up just over 13% from what I invested. The 2 extremes are BRWM, which is down 15%, and SCAM which is up 44% (hence the top-slice).
Comparison to HYP and FTSE AS
I have unitised both this portfolio, as well as my HYP. I use income units to make the comparison. My HYP was started later, so I can compare the IT’s and HYP over 3.5 years which allows a direct comparison without the large dividend drag effects in the first year of each portfolio.
Over this 3.5 year period, the IT basket unit price has increased by 18.5%, the HYP unit price has declined by 3% and the FTSE AS has increased by 15%. I can only explain this result by the relative out-performance of the international components of the IT portfolio compared to the UK FTSE AS. My HYP capital performance has been pretty bad, mainly due to the likes of Carillion, Capita and AMEC FW - but that is another story!.
Income per unit (i.e current yield) from my IT is 3.9% based on past 12 months of dividends and today’s unit price, largely just reflecting the increase in capital. The equivalent for my HYP is 5.5%.
In summary, the overall IT portfolio has delivered income steadily from inception, except for Year 4 when it declined due to the BRWM dividend cut, but overall has just kept pace with inflation. However, capital performance has been strong. I am reasonably happy, and the portfolio is much easier to run than the HYP, although of course it yields quite a bit less.
Running this portfolio is really very simple – I just withdraw the income, and everything else takes care of itself. Virtually no trading costs, no platform ISA costs and no tax to pay (all ISA’d) – just the TER taken by the IT.
Thanks for reading and I am Interested in any comments, or suggestions.