Merchants top-up

[Itsallaguess]

I'm currently nudging a cash-position of around 18%, which is slightly over the 15% level that I want to maintain in the current market, and have now started to deploy some of the surplus cash into some income-related Investment Trusts.

I'm still working, so have regular additional capital and of course the accruing dividends of my existing HYP coming in that I can roll-up into that cash position, so I can see me dripping capital into the market quite regularly now for the next 12 months or so, and certainly when the new tax-year comes around when I can get some of my non-ISA holdings inside a welcome tax-shelter.

This month I've bought a slug of Merchants, which currently yields around 5.4% and provides a broad base of UK-equity high-yield companies, with some of the larger holdings shown below -



Trustnet link for Merchants - https://www2.trustnet.com/Factsheets/Factsheet.aspx?fundCode=ITmrch&univ=T&pageType=overview&skipre=1

I'm not currently in the mood to stock-pick, and would perhaps see individual companies around the 6% yield and over to be something I wouldn't be too comfortable to be selecting at the current time, so these broader IT's with relatively good yields are a quick and simple way for me to gain some good income whilst also minimising single-company or single-sector risk, especially when fishing in the UK markets.

I'll most probably rotate around some of my non-UK high-yield-Investment Trusts in the coming months, and this is very much my preferred approach when I'm nervous of the current market but still want to gain some broad equity-exposure over and above my base-line cash position.

Steady as she goes....

Cheers,

Itsallaguess

[Dod101]

Merchants seems to have improved its debt profile in the last year or so which must be a welcome development but you have the same issue that exists with City of London, a largish slug of the usual suspects that make up a typical HYP so increasing your exposure to the very shares you are feeling nervous about. I hold Edinburgh IT and to some extent this same issue applies there but on the whole my IT holdings are not particularly UK or high yield oriented for that very reason. Just because they are held in a collective investment does not ensure that that issue disappears.

Dod

[monabri]

MRCH is my biggest (in terms of £ invested) IT holding, followed by Henderson Far East (HFEL). I accept that dividend growth rate has been pedestrian and there is a high degree of replication with HYP Practical favourites. I think of buying MRCH as mini Top Ups.

Why is MRCH my biggest IT holding?

I took a decision a couple of weeks ago to sell my full GSK holding for an increase in MRCH - I looked at the yield on offer with GSK and the (lack of) divi growth and decided that I would add to the higher yielding (at the time) MRCH where the dividend also looked more secure.

[Itsallaguess]

Merchants seems to have improved its debt profile in the last year or so which must be a welcome development but you have the same issue that exists with City of London, a largish slug of the usual suspects that make up a typical HYP so increasing your exposure to the very shares you are feeling nervous about.

I hold Edinburgh IT and to some extent this same issue applies there but on the whole my IT holdings are not particularly UK or high yield oriented for that very reason. Just because they are held in a collective investment does not ensure that that issue disappears.

Hi Dod,

Well it depends what the particular 'issue' is that we're discussing....

The 'issues' that I want to reduce at this time, by investing a single slug of capital into Merchants rather than a single-company in my HYP, are those of single-company and single-sector risk.

Would you agree that investing this slug of capital into Merchants satisfies that requirement?

Forgetting about the rest of my HYP make-up for a moment, it's the risk to this capital, and the income that will hopefully flow from it, that is of interest to me with this particular trade.

There's clearly no silver-bullet to avoid market-risk, other than to invest in different markets and assets of course, so then we're down to just what options I've got available that still satisfy my 'low single-company risk / low single-sector risk' requirement, whilst still delivering a relatively high, hopefully stable income, with a fair chance of that income rising over the coming 30 or 40 years.

I don't see any contradiction in wanting to avoid a single-UK-company high-yield investment with this slug of capital, and investing it into Merchants, which is broadly invested in those same single-UK-companies.

It's the very fact that it's a single-shot, broad-UK-market, high-yield investment that is the attraction in this particular case.

Cheers,

Itsallaguess

[Dod101]

The 'issues' that I want to reduce at this time, by investing a single slug of capital into Merchants rather than a single-company in my HYP, are those of single-company and single-sector risk.

Would you agree that investing this slug of capital into Merchants satisfies that requirement?

Of course as a standalone slug of capital Merchants will satisfy your requirement. My concern would be that it is not a standalone slug because it is likely to be somewhat similar to a well spread top up of many of your single holdings I expect. I would be doing a 'look through' to see what effect it had on my individual exposures. However each to his own.

Dod

[Itsallaguess]

My concern would be that it is not a standalone slug because it is likely to be somewhat similar to a well spread top up of many of your single holdings I expect.

Thanks Dod - it most probably is, and I'm 100% comfortable with that, given that the yield from this capital is relatively high, and that 'well-spread top-up' has been very simply achieved at an extremely low dealing cost.

So that's all boxes ticked for this investment, with very little work or fretting on my part - and I'll look at my next slug, and which high-yield IT to invest it in, around this time next month.

Cheers,

Itsallaguess

[Raptor]

Merchants are the biggest by far IT in my portfolio.



Brought on my first foray into ITs in April 2015, MRCH being one of the 5 brought at the same time. Brought 3 smaller tranches since then, last was in July 2017. Since then have been working on adding more diverse IT's, thus MCT followed by JETI, which I intend to bring up to Median size. MRCH has been a good buy for me and its yield is nice to have. I have tended away from buying individual shares in my HYP for about 9 months, for various reasons (diverting the dividends in those accounts to fund car replacement and feel funding my IT's is better for me in the current climate).

in the current climate a top-up (for you) in MRCH seems a good stance.

Raptor.

Off topic but my looking forwards this year. All of the IT's above sit inside my SIPP. I have only individual HYP shares outside of that in an ISA (72%) and a trading account (28%). Once I buy the replacement motor will be funding my ISA and thinking of selecting an IT for the money, my mind is thinking along an IT IT ( ), one with a broad selection of hardware and software if it exists. Not saying will not float back to HYP, probably will do this if I need to "balance" the portfolio.

[tjh290633]

Merchants seems to have improved its debt profile in the last year or so which must be a welcome development but you have the same issue that exists with City of London, a largish slug of the usual suspects that make up a typical HYP so increasing your exposure to the very shares you are feeling nervous about. I hold Edinburgh IT and to some extent this same issue applies there but on the whole my IT holdings are not particularly UK or high yield oriented for that very reason. Just because they are held in a collective investment does not ensure that that issue disappears.

Dod

It does not disappear, but is surely mitigated. The IT is limited as to how much it can hold of any one security, and probably holds far more securities than an individual would.

Not holding very low yield or nil yield shares is surely to be a virtue in an income oriented IT.

TJH

[Itsallaguess]

Merchants are the biggest by far IT in my portfolio.

Merchants make up just 6.95% of my overall invested HYP, and my overall investment into income-IT's is currently 40.15% of my HYP, so it's not as large a proportion of my HYP portfolio as yours, but I suspect you aren't taking your single-company holdings into account with your 21.54% statement, whereas I am talking about my overall HYP, which includes around 60% single-companies, and roughly 40% income-Investment Trusts.

I expect that 40% proportion of income-Investment Trusts to nudge higher over the coming 12 months...

I've added the Forecast Yields to your Investment Trust holdings table above, in case any are of interest to other readers and they might wish to investigate further.

Cheers,

Itsallaguess

[Raptor]

I left out the yields on purpose as the spreadsheet was a bit out of date on that and I was being lazy? However, have now updated the "whole portfolio" so you can see where my IT's actually sit.



I work out that my IT's are 37% of the total. My aim is/was to reach that target this year. viewtopic.php?p=129024#p129024

Raptor.

[Dod101]

I am chary of this becoming a topic for the IT Board but as we are on the HYP Strategies Board I guess we are OK. Apart from Edinburgh which I have held for more than 20 years, my foray into income oriented ITs has been the two Murrays (and I daresay Murray Income has UK income shares) and Henderson Far East because I am trying to avoid too much duplication with my directly held HYP shares. HFEL seems to me to be as near ideal as I can find because of its holdings which do not and are unlikely ever to clash with my UK holdings, accompanied by, at least for now, what looks like a sustainable high yield.

Like others I seem to be moving in the direction of more ITs. That is I think for me at least a reflection of the reducing choice in directly held shares as much as anything else. I think the twin threats/influence of Brexit and Corbyn are probably mostly to blame but I now have several sectors of the UK market that I am simply not interested in.

Once EAT has migrated to the UK in March, I think I will take a close look at it for my ISA sub for 2019/20.

Dod

[Raptor]

After Itsallaguess added the yields to my list I have updated my spreadsheets. The 2.2% yield on SCF did not look right to me. I tend to use TheAIC web-site for IT's rather than Webfg (MCT does not appear there!). Anyway here is the "updated" list for those who maybe interested in High Yield IT's as part of their strategy.



Raptor.

[moorfield]

Looks like a HYP with a beard on to me.




















https://wifflegif.com/tags/227178-monty ... brian-gifs

[jackdaww]

Looks like a HYP with a beard on to me.

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yes indeed , would probably do just as well as most HYP's , if not better , without the fuss.

[monabri]

One other thing about the "beardy HYP"...if you need a bit of cash for something, you can give it a trim. Now, imagine the same situation where one urgently needs cash then has to picker whether to sell X or Y or Z?

[moorfield]

One other thing about the "beardy HYP"...if you need a bit of cash for something, you can give it a trim. Now, imagine the same situation where one urgently needs cash then has to picker whether to sell X or Y or Z?

That answer is obvious I would have thought, presumably one would trim/sell the lowest yielding of X,Y,Z first ?

[StepOne]

Looks like a HYP with a beard on to me.

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yes indeed , would probably do just as well as most HYP's , if not better , without the fuss.

Apart from the charges, of course.

[88V8]

One other thing about the "beardy HYP"...if you need a bit of cash for something, you can give it a trim. Now, imagine the same situation where one urgently needs cash then has to picker whether to sell X or Y or Z?

Post the Brexit vote, some UK Property fund managers suspended redemptions because they could not sustain the negative cashflow.
In the event of market crisis, this could easily happen again and not only with Property funds. Not saying one wouldn't get one's money, but one might have to wait more than a few days.

Not perhaps something to fret over when buying Fundies, but worth keeping in mind.

V8.

[Arborbridge]

ITs are good to provide some diversity, but I don't agree with those who avoid ITs which are too HYP-like. In fact, those interested me for comparison purposes when I first started. I had a choice between investing in high yielding equities by buying an IT or by buying those same or similar shares directly. Unless I buy both to compare the results, I would stand no chance of being able to decide on the basis of performance.

After ten years, I have to say that the answer as to which way to go is still as clear as mud but I'm with that.


Arb.

[Dod101]

One other thing about the "beardy HYP"...if you need a bit of cash for something, you can give it a trim. Now, imagine the same situation where one urgently needs cash then has to picker whether to sell X or Y or Z?

Post the Brexit vote, some UK Property fund managers suspended redemptions because they could not sustain the negative cashflow.
In the event of market crisis, this could easily happen again and not only with Property funds. Not saying one wouldn't get one's money, but one might have to wait more than a few days.

Not perhaps something to fret over when buying Fundies, but worth keeping in mind.

Property funds are by definition invested in property which is much less liquid than shares. That is I think why in particular had a problem meeting redemptions. It should not happen with funds invested in shares, but is another reason why it is often better to be invested in closed end funds like ITs.

Dod