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How many IT's...

General discussions about equity high-yield income strategies
Darka
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How many IT's...

#245747

Postby Darka » August 20th, 2019, 1:19 pm

I took advantage of the recent bid for Greene King to sell my full holding and am now looking for a new home for these funds.

These funds will be added to my IT portfolio as I've been moving that way over the last 2-3 years, but want to avoid owning too many, both to reduce complexity and I believe that as they are already diversified you don't need as many as you would for individual share holdings.

I primarily focus on income (and growing dividends) but also include some growth ITs too:

Income
UK - City of London (CTY)
UK - Merchants Trust (MRCH)
Global - Murray International (MYI)
Asia - Henderson Far East Income (HFEL)
USA - Blackrock North America (BRNA)

Growth
UK - Finsbury Growth & Income Trust (FGT)
Global - Scottish Mortgage (SMT)
Global (Smaller)- Smithson (SSON)

I'd like to increase my North American focus, but can't find anything (other than BRNA) that gives a medium/high dividend with annual growth.

What I can't decide on however, is how many ITs is too many ITs.... and if I'm missing anything obvious from my current choices?

regards,
Darka

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Re: How many IT's...

#245766

Postby Lootman » August 20th, 2019, 2:58 pm

You could take a look at the North American Income Trust (NAIC):

https://www.northamericanincome.co.uk/

Although personally for the US I'd want to be in the growthier names, and for that JP Morgan American Trust (JAM) has worked well for many years.

As for the number of ITs to hold, for me it's like anything else: Too many means you end up with holdings that don't make much difference individually, and cause you more administrative work, especially in a taxable portfolio. I've made that mistake in the past myself, and decided that there isn't much value in my 80th favourite investment.

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Re: How many IT's...

#245768

Postby OLTB » August 20th, 2019, 3:05 pm

I also have NAIT in my IT portfolio for the US exposure.

Cheers, OLTB.

Itsallaguess
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Re: How many IT's...

#245770

Postby Itsallaguess » August 20th, 2019, 3:07 pm

Lootman wrote:
You could take a look at the North American Income Trust (NAIC)


I think the ticker is NAIT -

https://www.trustnet.com/factsheets/t/eb14/the-north-american-income-trust-plc

Currently yielding around 2.9%

Cheers,

Itsallaguess

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Re: How many IT's...

#245776

Postby JuanDB » August 20th, 2019, 3:29 pm

Henderson International Income (Epic HINT) yields 3.25% trailing and has a good dividend growth rate. 30% of the portfolio is US based.

Looking for yield from the US is going to be challenge given the prevailing tax regime. BRNA switched to paying dividends in part from capital to boost the yield. The share price has been largely static since.

Personally I’ve stopped thinking about the US as a source of dividends for my income portfolio and focus on it more for growth.

Cheers,

Juan.

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Re: How many IT's...

#245785

Postby Gengulphus » August 20th, 2019, 4:21 pm

Darka wrote:What I can't decide on however, is how many ITs is too many ITs.... and if I'm missing anything obvious from my current choices?

Well, just one IT is more diversified than most HYPs, and you can get its diversification to be global if you choose the right IT. So I'd say that the real question you should be asking is not so much how many ITs is too many, but how many IT managers is too many - they're what you're really diversifying between.

IT managers ought to be better investors than you are, so just one IT manager ought to be better than the one manager your HYP has (i.e. yourself). But they can make mistakes, and even without making mistakes they can end up not pursuing your best interests because they've got to balance them against those of other shareholders and they can come under particular pressure from big shareholders - and if an IT manager thinks course of action A is the best one and a sufficient number of big shareholders thinks it's course of action B instead, then the manager either gives in or finds himself out of a job and the new manager follows course of action B instead.

So basically, you need to decide how many managers you want for your investments to reduce single-manager risk to a level you find acceptable...

Gengulphus

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Re: How many IT's...

#245787

Postby Lootman » August 20th, 2019, 4:26 pm

Itsallaguess wrote:
Lootman wrote:You could take a look at the North American Income Trust (NAIC)

I think the ticker is NAIT -

https://www.trustnet.com/factsheets/t/eb14/the-north-american-income-trust-plc

Currently yielding around 2.9%

Yes, NAIT, sorry.

JuanDB wrote:Looking for yield from the US is going to be challenge given the prevailing tax regime. BRNA switched to paying dividends in part from capital to boost the yield. The share price has been largely static since.

Personally I’ve stopped thinking about the US as a source of dividends for my income portfolio and focus on it more for growth.

BRNA also generates "income" from selling calls against its positions. Since the premia received is technically classified as capital gains, the decision to pay out capital as dividends might be at least partly justified.

I am not sure what you mean by the "tax regime" but there are decent possibilities to derive yield from US equities. As well as the usual suspects of utilities, REITs, royalty trusts and LLPs, some common stock possibilities are:

IBM: 4.8%
Abbvie Pharma: 6.3%
Dow Chemicals: 6.3%
Broadcom: 3.7%
AT&T: 5.8%
Exxon: 5.0%
3M: 3.5%
Kraft Heinz: 6.3%
Blackstone: 4.3%

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Re: How many IT's...

#245795

Postby Backache » August 20th, 2019, 5:06 pm

Bankers IT is maybe a bit betwixt and between in terms of Income /Growth International /Domestic but it has a decent track record yields 2% and has low costs.

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Re: How many IT's...

#245800

Postby JuanDB » August 20th, 2019, 5:20 pm

Lootman wrote:I am not sure what you mean by the "tax regime" but there are decent possibilities to derive yield from US equities. As well as the usual suspects of utilities, REITs, royalty trusts and LLPs, some common stock possibilities are:

IBM: 4.8%
Abbvie Pharma: 6.3%
Dow Chemicals: 6.3%
Broadcom: 3.7%
AT&T: 5.8%
Exxon: 5.0%
3M: 3.5%
Kraft Heinz: 6.3%
Blackstone: 4.3%


My understanding is that US dividends are taxed at the beneficiaries marginal federal rate which discourages significant levels of dividend payment and encourages earnings to be retained for growth. I understand that individual shares may yield well above average however the thread is focussed on Investment Trusts and in aggregate the DJIA and S&P500 both yield ~2%. This seems to be the level at which most NA focussed trusts operate without boosting yield through other means I.e. BRNA.

Cheers,

Juan

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Re: How many IT's...

#245803

Postby Lootman » August 20th, 2019, 5:27 pm

JuanDB wrote:
Lootman wrote:I am not sure what you mean by the "tax regime" but there are decent possibilities to derive yield from US equities. As well as the usual suspects of utilities, REITs, royalty trusts and LLPs, some common stock possibilities are:

IBM: 4.8%
Abbvie Pharma: 6.3%
Dow Chemicals: 6.3%
Broadcom: 3.7%
AT&T: 5.8%
Exxon: 5.0%
3M: 3.5%
Kraft Heinz: 6.3%
Blackstone: 4.3%


My understanding is that US dividends are taxed at the beneficiaries marginal federal rate which discourages significant levels of dividend payment and encourages earnings to be retained for growth. I understand that individual shares may yield well above average however the thread is focussed on Investment Trusts and in aggregate the DJIA and S&P500 both yield ~2%. This seems to be the level at which most NA focussed trusts operate without boosting yield through other means I.e. BRNA.

It used to be the case that dividends were taxed as ordinary income, which was a higher rate than capital gains. But not any more - Bush Junior changed the rules. So now a US investor and taxpayer will pay either 15% or 20% tax on dividends - the same as their CGT rate. Whilst the top rate of US income tax is 37%.

https://smartasset.com/taxes/dividend-tax-rate

The main tax issue for a UK investor is the withholding rate.

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Re: How many IT's...

#246317

Postby mike » August 22nd, 2019, 2:42 pm

Darka wrote:I took advantage of the recent bid for Greene King to sell my full holding and am now looking for a new home for these funds.

These funds will be added to my IT portfolio as I've been moving that way over the last 2-3 years, but want to avoid owning too many, both to reduce complexity and I believe that as they are already diversified you don't need as many as you would for individual share holdings.

I primarily focus on income (and growing dividends) but also include some growth ITs too:

[...]

What I can't decide on however, is how many ITs is too many ITs.... and if I'm missing anything obvious from my current choices?

regards,
Darka


I wonder if I could swing the discussion back to the premis of the OP, but just alter the question slightly.

Several of us are in the process of switching from an HYP over to ITs, whether in part or in whole. Part of the HYP strategy is diversification and we had limits that each share or sector could contribute as income, or in cost, or in market value.

It is fine saying that, for example, share XYZ cannot contribute more than 5% of income as the pool of individual suitable shares is quite large. But this breaks down at an IT level. On the other hand, ITs have their own, built-in diversification.

I remember a post by Gengulphus about mixing ITs with HYP shares, and if memory serves me correctly, the conclusion was that if one owned 3 ITs and an HYP, then each IT and the HYP should be approx 25% each. There were in effect 4 HYP managers, 3 x ITs and you.

I am very roughly aiming for a split 50% Overseas ITs, 25% UK ITs, and 25% my HYP as it is tinkered away, eg the recent Cobham & Greene King takeovers. As I don't withdraw income from my ISAs, but sell down outside the ISA to match the income re-invested into ITs inside, this also (slowly) whittles down the individual share proportion.

My overseas ITs are the generalist Murray International (MYI) and Henderson International (HINT) as core holdings, plus Henderson Far East (HFEL), Aberdeen Asian Income (AAIF) and Blackrock Frontiers (BRFI) as smaller holdings. I have set up the country split for each of these and together they suit me.

So my question - as opposed to the number of IT holdings, what would people class as a safe percentage level of holding for individual ITs. Perhaps 10, 15 or even up to 20% of one's holdings ?

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Re: How many IT's...

#246327

Postby richfool » August 22nd, 2019, 3:39 pm

mike wrote:So my question - as opposed to the number of IT holdings, what would people class as a safe percentage level of holding for individual ITs. Perhaps 10, 15 or even up to 20% of one's holdings ?

Mike, In response to your question, I've just taken a quick "shuftie" through my IT holdings. My largest individual holding is 9.7% of my portfolio and the second largest 7.7%. Though most are in a range between 2%- 4.4%. It tends to be influenced by how specialised they are. E.g the largest holding is MYI, a more cautious global G&I trust; but specialised trusts tend to be down at the 2% end of the scale.

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Re: How many IT's...

#246342

Postby mike » August 22nd, 2019, 4:54 pm

richfool wrote:
mike wrote:So my question - as opposed to the number of IT holdings, what would people class as a safe percentage level of holding for individual ITs. Perhaps 10, 15 or even up to 20% of one's holdings ?

Mike, In response to your question, I've just taken a quick "shuftie" through my IT holdings. My largest individual holding is 9.7% of my portfolio and the second largest 7.7%. Though most are in a range between 2%- 4.4%. It tends to be influenced by how specialised they are. E.g the largest holding is MYI, a more cautious global G&I trust; but specialised trusts tend to be down at the 2% end of the scale.


Thanks Rich. With such low percentages, you must have a large quantity of ITs, virtually at an individual share level with the exception of MYI and your 2nd largest holdings.

Whereas MYI is currently my largest at 12%, and I shall be bringing HINT up to that level, I would then prefer to increase the sizes of these holdings up to 15-17.5% ish, rather than start adding a North American or European specialist. Scottish Amercian as another generalist (Ticker SCAM, but "Saints" according to them) has a yield under 3% so is a bit light on income for me.

Is this too high from a safety of income point of view ?

The financial criteria for ITs I look at are
- yield
- increasing dividend
- how many months of revenue reserve
- increasing revenue reserve (yes I know MYI dipped into their reserve recently !) unless there is an 'event' such as 2008
- paying dividend only from income, not capital.

This should ensure, as far as one can, that the income is sustainable. But .... ?

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Re: How many IT's...

#246352

Postby Gengulphus » August 22nd, 2019, 5:30 pm

mike wrote:It is fine saying that, for example, share XYZ cannot contribute more than 5% of income as the pool of individual suitable shares is quite large. But this breaks down at an IT level. On the other hand, ITs have their own, built-in diversification.

I remember a post by Gengulphus about mixing ITs with HYP shares, and if memory serves me correctly, the conclusion was that if one owned 3 ITs and an HYP, then each IT and the HYP should be approx 25% each. There were in effect 4 HYP managers, 3 x ITs and you.

Yes, I remember producing such a post (though I don't think I could find it again without spending far too much time on a search). There is an important qualification to the conclusion, though, which I might have stated in it, or might have been clear from the context of the thread it was in, or might have been left totally unspecified by mistake: it's basically about UK generalist ITs. So it basically doesn't apply to sector-specialised ITs like Greencoat UK Wind (UKW), where what the IT manager does is similar in nature to what the directors do in e.g. GlaxoSmithKline: one chooses which wind farms to invest in, the other which drug developments. And it only applies to a limited extent to global, region-specialised and non-UK-country-specialised ITs, since a large percentage of the business operations of many (not all, of course) big UK companies lie outside the UK and so their directors are making geographical investment decisions as well.

So adding a sector-specialised ITs to a HYP is very much like adding another company, and I would weight it for company/sector diversification, i.e. similarly to a company or sector in the HYP. And at the opposite end of the scale, adding a UK generalist IT to a HYP only really diversifies the portfolio management (*), so I would weight it similarly to the whole HYP, i.e. the principle you remember me expressing. Adding a non-UK generalist IT is somewhere inbetween: it certainly diversifies the portfolio management just like adding a UK generalist HYP does, but it also clearly adjusts the geographical focus of the overall portfolio (which will almost certainly be nowhere near UK-only, since many big UK companies are very multinational in their operations, but will have operations that are biased towards being UK-focused) and will probably also adjust the sector diversification (due to different geographical regions' companies happening to be weighted towards different industries). Depending on why the investor wants to choose the non-UK generalist IT, either style of weighting might be appropriate, or something intermediate.

(*) Including the strategy that the manager uses, which seems very unlikely to be HYP, especially the stricter non-tinkering forms. Or at least, I find it hard to imagine an IT manager getting away with an "I pursued a policy of masterly inactivity and did nothing at all in this period" story for very many company reports before being voted out of office by the shareholders!

mike wrote:So my question - as opposed to the number of IT holdings, what would people class as a safe percentage level of holding for individual ITs. Perhaps 10, 15 or even up to 20% of one's holdings ?

I can't really give an answer to that - once one brings portfolio management diversification into it, it depends too much on how confident the investor feels in their own ability to manage their portfolio, and in their own ability to assess IT managers' ability to do the job. In my own case, I'm pretty confident in my own ability to manage my portfolio (though I'll keep an eye on it as I get older!) and not very confident at all in my ability to assess the managers of any company, IT or not, and together those lead me to the conclusion that I don't want to go into ITs for portfolio management diversification at all. I have bought a couple of ITs (one sector-specialised and one geographical-region-specialised) with weightings similar to other companies in my HYP, but that's for sector diversification that is not available from non-IT UK companies and a slight adjustment to geographical diversification. I'll probably buy a few more such ITs in the future, and indeed that's one of the options I'll consider for reinvesting the Greene King takeover proceeds, when they arrive (and if they do, of course).

But your conclusions ought to be based on your degree of confidence in your own abilities, not on mine in mine, and might reasonably be very different!

Gengulphus

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Re: How many IT's...

#246366

Postby richfool » August 22nd, 2019, 7:07 pm

Mike wrote:Thanks Rich. With such low percentages, you must have a large quantity of ITs, virtually at an individual share level with the exception of MYI and your 2nd largest holdings.

Whereas MYI is currently my largest at 12%, and I shall be bringing HINT up to that level, I would then prefer to increase the sizes of these holdings up to 15-17.5% ish, rather than start adding a North American or European specialist. Scottish Amercian as another generalist (Ticker SCAM, but "Saints" according to them) has a yield under 3% so is a bit light on income for me.

Is this too high from a safety of income point of view ?


I would have thought 8-10% might be a suitable maximum for a broadly based IT, like MYI, but a lower percentage for a more specialised trust.

I hold quite a lot of trusts, probably too many. They include: MYI, JPGI & HINT (in that order of size) in the Global G&I sector, and also trusts in the flexible/multi-asset sector, as well as the UK, Asian Pacific and North American sectors, along with property REIT's, infrastructure, utilities and renewables. Often more than one trust in a particular sector. I also hold a Gold miner and a Gold ETF which represent c 2% of the portfolio. Hence the larger number of holdings.

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Re: How many IT's...

#246378

Postby bonrepos » August 22nd, 2019, 7:52 pm

Hi Richfool

Would you be kind enough to list your ITs ?

I also have a number of ITs but would be interested in your mix.

Many thanks

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Re: How many IT's...

#246384

Postby mike » August 22nd, 2019, 8:22 pm

Thanks both.

Gengulphus wrote:But your conclusions ought to be based on your degree of confidence in your own abilities, not on mine in mine, and might reasonably be very different!

My self-confidence took quite a knock a few years back when a lot of my HYP cut their dividends - well after the 2008 GFC ! From memory and in no particular order, Tesco, Sainsbury's, Centrica, Stan Chartered, Pearson, AMEC and Cobham, and then Provident Financial and Carillion more recently. But my current forecast income for the tax year 2019/20 has a safety margin of just under 10%, so I am trying to ensure, as far as is reasonable, that multiple failures do not re-occur.

richfool wrote:I would have thought 8-10% might be a suitable maximum for a broadly based IT, like MYI, but a lower percentage for a more specialised trust.

Why I was more relaxed in my proposed level for the two overseas generalists MYI & HINT was in part thinking back to Luni's B7 & B8 baskets, having starting percentage holdings of 14.3 and 12.5% respecitvely. These were all general UK trusts, with only (the rather ubiquitous) MYI appearing as an overseas G&I in the B7.

My HFEL, AAIF & BRFI are, and will be, at a lower level, and I am aware of the Asia Pacific holdings of MYI (37%) and HINT(23%) just to keep everything in check on the geographical spread.

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Re: How many IT's...

#246392

Postby richfool » August 22nd, 2019, 8:42 pm

bonrepos wrote:Hi Richfool

Would you be kind enough to list your ITs ?

I also have a number of ITs but would be interested in your mix.

Many thanks

Hi Bonrepos, My holdings are listed here:

viewtopic.php?f=8&t=17859

Since the above was posted, ASEI, SIGT and CYN have been sold and NAIT, PNL and SGLN added. The former (NAIT) to increase US exposure, PNL for wealth preservation, bond and gold exposure, and SGLN for gold exposure.

Whilst I primarily target income, I do include some growth, mid cap/smaller coy, or specialist sector trusts for diversification, e.g. MRC (Mercantile), SLS (Standard Life smaller coys) and WWH (Worldwide Healthcare).

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Re: How many IT's...

#246395

Postby richfool » August 22nd, 2019, 8:52 pm

My current holdings should look something like this (the percentages were the yields, which are no longer current):

UK GROWTH & INCOME TRUSTS:
MUT.L MURRAY INCOME TST 4.53%
CTY.L CITY OF LONDON INV 4.00%
FGT.L FINSBURY G&I TST 2.00%
SHRS.L SHIRES INCOME TST 4.78%
MRC.L MERCANTILE TST 2.31%
SLS.L STD LIFE UK SMALL 1.50%

FTSE 100 HYP STOCKS:
GSK.L GLAXOSMITHKLINE 5.40%
LGEN.L LEGAL & GENERAL 6.00%

GLOBAL G&I IT's:
HINT.L HENDERSON INTL INC 3.20%
JPGI.L JPMORGAN GBL GTH &INC 4.00%
MYI.L MURRAY INTL TRUST 5.40%

GLOBAL MULTI-ASSET IT's:
BMPI.L BMO MANAGED PFOLIO INC 4.33%
MATE.L JP MORGAN MULTI-ASSET 4.30%
PNL - PERSONAL ASSETS

ASIAN PACIFIC INV TRUSTS:
AAIF.L ABERDEEN ASIAN INC 5.40%
SOI.L SCHRODER ORIENTAL INC 4.35%
JAI.L JPMORGAN ASIAN IT 4.10%

NORTH AMERICAN IT's:
MCT.L MIDDLEFIELD CAN INC 6.60%
NAIT - North American Trust

COMMERCIAL PROPERTY/REIT IT's:
PHP.L PRIMARY HLTH PROP 4.60%
RGL.L REGIONAL REIT LTD 7.30%
SLI.L STD LIFE INV PROP 4.75%
WHR.L WAREHOUSE REIT PLC 6.00%

INFRASTRUCTURE TRUSTS:
GCP.L GCP INFRASTRUCTURE 6.20%
INPP.L INT PUBLIC PARTNER 4.15%

ENVIRONMENTAL TRUSTS:
JLEN.L JOHN LAING ENVIRON 5.55%
TRIG.L THE RENEWABLES INF 5.34%

UTILITY TRUSTS:
EGL.L ECOFIN GBL UTILITI 5.00%

W/W PHARMAS:
WWH.L W/WIDE HLTHCARE 0.67%

RESOURCES/GOLD:
SGLN.L ISHARES PHYSICAL GLD 0.00%

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Re: How many IT's...

#246400

Postby 77ss » August 22nd, 2019, 9:41 pm

Darka wrote:.....
I primarily focus on income (and growing dividends) but also include some growth ITs too:

Income
UK - City of London (CTY)
UK - Merchants Trust (MRCH)
Global - Murray International (MYI)
Asia - Henderson Far East Income (HFEL)
USA - Blackrock North America (BRNA)

Growth
UK - Finsbury Growth & Income Trust (FGT)
Global - Scottish Mortgage (SMT)
Global (Smaller)- Smithson (SSON)

I'd like to increase my North American focus, but can't find anything (other than BRNA) that gives a medium/high dividend with annual growth.

What I can't decide on however, is how many ITs is too many ITs.... and if I'm missing anything obvious from my current choices?

regards,
Darka


You might like to consider private equity. A niche area perhaps, but BPET (BMO Private Eq Trust - which used to be FPEO) gives a 4% yield and has a 5 year total return of 113% - matching that of BRNA. Last time I looked, it was about 60% in non-UK holdings. Standard Life Private Equity (SLPE) is nearly as good, at 99% TR and is even more (87%) non-UK focussed, but has a lower yield - 3.4%.

You pay your money.....


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