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Diversified non-UK income IT portfolio

General discussions about equity high-yield income strategies
wanderer101
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Diversified non-UK income IT portfolio

#246867

Postby wanderer101 » August 25th, 2019, 10:24 am

With many thanks to Itsallaguess for this extremely helpful post viewtopic.php?f=31&t=19097

I'm looking to set up a small portfolio of high-yield non-UK-focussed investment trusts to diversify investment income away from UK sources (capital growth is also welcome). Funds will be paid in regularly and over the next 4 years or so as other investments mature, at which point dividends will start being withdrawn.
Using the AIC stats page and setting a target minimum yield of 4 percent (with a bit of flexibility in light of other factors) and minimum market cap of £100m I've come up with the following shortlist and selections.
I've intentionally not chosen any particular sector-focussed IT as one of the main goals here is geographical diversification. I'm also open-minded about how many of the areas below to include – preferably at least three but not necessarily all four.
All figures from theaic website as on 25/8/19 except OCF, from individual fund pages on trustnet.



(my first TMF/TLF table. Phew!)

Selections:
Asia: JPMorgan Asia. Even if the dividend growth rate proves unsustainable (the figure is remarkably high), the sustained capital growth suggests income generated could outpace HFEL in short order.
US/North America: BRAM - superior yield, dividend growth and (marginally) capital growth outweigh slightly higher charges and small premium

After that it's a close-run thing.
Europe:
JP Morgan European Income has reasonable initial yield and capital growth, but higher charges and I'm slightly ambivalent about having the same firm for two of the ITs. European Assets has a higher initial yield but a shrinking dividend. European Investment has good div growth but lower initial yield and weaker capital performance. Baring Emerging has a decent yield and discount, higher dividend growth than JPM but is a different region so not a direct comparison.
*Fidelity European Values shows as 2.54% yield on theaic but 3.60% on trustnet (the two sites' figures do vary a bit, but not usually this much) – although the company's own RNS announcements themselves refer to a yield of 2.5 percent. I've included it for completeness (and the fact it has the best capital growth of these).
Global:
Another JPMorgan with a spectacular annual dividend growth figure (but the low OCF does not include a 15% performance fee, which is not appealing). MYI has decent yield and low costs, but dividend growth and capital performance are so-so. Majedie has a big discount but poorer capital performance and higher fees. Jupiter Emerging has a high yield but a very short record.

With no standout choice from either the European or Global areas I'm inclined to go for one from either (probably one of the JPMorgans, depending on further research) to go with JPMorgan Asian and Blackrock North American Income.

All views, suggestions and comments welcome.

Incidentally can anyone explain how OCF can be lower than annual charges, which is sometimes the case on the Trustnet fund pages?

Mods: I'm cross-posting this to the IT/OEICs board. Please move it if it would sit better there.

TahiPanasDua
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Re: Diversified non-UK income IT portfolio

#246871

Postby TahiPanasDua » August 25th, 2019, 11:31 am

As noted elsewhere, JPGI (and probably the unchecked European equivalent) is a growth IT that, unusually, distributes high dividends like a growth and dividend IT. They do this by distributing capital gains if necessary. They are very upfront about this so nothing too devious apart from the obvious marketing ploy of appearing to outperform other world income ITs by not actually being one. As a result, you can expect this IT to fluctuate a bit more with the overall market and, with a big US content, it will suffer if and when the US expansion comes to a cyclical end.

I am waiting patiently for this to happen and will then grab some. Coming soon?....no idea.

TP2.

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Re: Diversified non-UK income IT portfolio

#246882

Postby BrummieDave » August 25th, 2019, 1:00 pm

I was about to make a similar point. Not wishing to turn the thread into a discussion on the merits of paying dividends from capital, there's already threads dealing with this on LF, it is useful to understand which ITs do, why they do, and when they have, as this in combination explains much of the data presented on the AIC's website.

Within the universe of ITs that do, or at least have the option to do this, some pay a fixed yield of NAV every year (eg EAT) whilst most others just have the option to do so allowing them to invest in growthier stocks and use the capital gain to maintain a growing income (a more flexible position than the fixed % of NAV approach)..

This article from IC shows which can pay dividends from capital, and is a good start to the seek further info (why, how, when) from the individual IT's websites that you're interested in: https://www.investorschronicle.co.uk/fu ... m-capital/

I hope this is useful to the wanderer, as it helps when selecting ITs for income, especially as part of an overall income requirement or wider investment objective.

Everyone has their favourite ITs of course, and the list posted above contains several that I hold. Two additional ITs I suggest that may be worthy of consideration are Securities Trust of Scotland (STS), a global equity income IT (that can pay dividends from capital) that whilst below the OP's 4% target yield has performed well recently, especially this calendar year and provides goo access to the US market, and Schroder Oriental Income (SOI) in the Asia Pacific Income sector. I know of at least one other poster on LF who favours these two, as do I.

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Re: Diversified non-UK income IT portfolio

#246888

Postby gbjbaanb » August 25th, 2019, 1:58 pm

I looked at some emerging market trusts and the one I ended up with weas Aberdeen Emerging Markets (AEMC) SP total return 8/29/39%, 3.6% yield, discount currently 15%!

The discount plus past perf beats Blackrock you've chosen.

I'd take a look at how much of the global income funds are really American or UK - Murray is a good spread geographically, JPMorgam G&I is 56% USA, but Majedie is 77% UK and 18% Ireland. Its biggest holding is Majedie Asset Management! I don't like trusts that invest in other trusts, smells wrong to me, like they're taking double fees. It might be fine, but it makes me question it.

I'd rec Henderson intl Income - 26% USA, then a good spread across geographies.

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Re: Diversified non-UK income IT portfolio

#246921

Postby UncleEbenezer » August 25th, 2019, 5:11 pm

If timing is an issue you consider, you might want to take a view on whether Boris is truly going to take us over a cliff. 'Cos if he doesn't, and sterling rebounds, non-UK assets are suddenly going to look a lot cheaper when measured in pounds sterling. The reverse is also of course a risk.

wanderer101
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Re: Diversified non-UK income IT portfolio

#248456

Postby wanderer101 » September 1st, 2019, 1:49 pm

Many thanks to all for your inputs and suggestions, and terimah kasih TahiPanas2 (anda nama terlalu bagus!).

The point about paying dividends from capital is an interesting one. With a fixed percentage of NAV, 1% per quarter for JPMorgan Asian (JAI) and JPMorgan Global (JPGI), it means that the yield will dependent entirely on the discount/premium and in this case will vary around 4 per cent. In the wider scheme of things that doesn't strike me as too risky, given that markets tend not to fall for more than two years in row and the capital growth required to sustain the underlying is not too onerous. Equally, most brokers will let any investor preferring capital growth simply automatically reinvest dividends at a negligible transactional cost. That said, they may be more suited to a growth-oriented IT portfolio (separate thread coming on a more appropriate board).
But looking at their dividend records, the change of policy at JPMorgan saw a one-off leap in their payouts a few years ago, with limited subsequent growth, so I'm ignoring their 5-year dividend growth rates altogether. Which changes the projections somewhat.

Asia:

BrummieDave, thanks for pointing out Schroder Oriental Income, you're right it's definitely worth considering. At 3.98% the current yield is only a fraction below 4 percent and the capital performance of 4.7/24.9/57.6 beats Aberdeen Asian over 3 and 5 years. But JAI does better on both counts, 4.43% yield and 7.2/46.2/86.7.
(nb all figures in this post are gathered today from Trustnet, not TheAIC, and so may differ from the OP).

Also worth considering here is Aberdeen Emerging Markets, now 3.64%, 5.9/29.2/36.5 (thanks Gbjbaanb), which is majority Asian in its holdings. It's actually a fund-of-funds, so highly diversified.

That said, discounting the dividend growth record at JAI due to JPMorgan rebasing its dividend policy means that Henderson Far East Income (HEFL), currently yielding 6.17% and with capital figures of 7.2/27.6/47.3, has better projected payouts than any of the other contenders in the medium term (if we assume same yield and growth figures in the future, which obviously won't happen). It's a close-run thing but I'm going to switch my Asian income pick to HEFL.

US:

I'm going to stick with Blackrock North American Income BRNA. It sets its dividends once a year but given the fact that US companies tend to pay lower dividends in general (largely for tax reasons according to other discussions), that's a factor I'm willing to accept for exposure to this particular geographical area.

Europe:

Today's numbers are:


EAT pays 6% of NAV a year in dividends. That seems too ambitious to be sustainable in the long term.
BEE's numbers are interesting but it's only just over my £100m minimum size and its capital figures are boosted by the impressive outperformance this year.
JPMorgan's European investment trust is split into two, income (JETI) and growth (JETG), and as far as I can tell from their factsheet here: https://am.jpmorgan.com/gb/en/asset-man ... #/overview they don't pay dividends from capital.

I'm going to go with JETI.

Global:

The points made by posters about geographical spread of global funds are very valuable. There would be a significant amount of doubling-up at the initial stage of portfolio building, so I'm not going to include one now, but I can see the point of considering adding JPGI, MYI, STS or HII later.

TP2, JPGI definitely looks like something to pick up at a time of market turmoil. Incidentally the JPGI performance bonus actually has a reasonably high threshold, and comes with an unusually low annual management fee of 0.4% of NAV, so the combination does seem fair to shareholders:
A performance fee is payable of 15% of outperformance of the Company's net asset value total return over the total return of the benchmark plus 0.5% per annum.

Gbjbaanb, you're right Majedie doesn't fit the bill at all.

Again, thanks everyone. Further thoughts welcome.

Wand

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Re: Diversified non-UK income IT portfolio

#248471

Postby richfool » September 1st, 2019, 2:43 pm

Wand, my understanding is that JPGI and JAI dividends are supported from capital where necessary.

Note that HFEL and JAI have a higher exposure to China than their peers (30% & 37% respectively). I personally am wary of high exposure to China. (I hold JAI, along with AAIF & SOI, the latter two each have a lower 8% exposure to China). SOI's yield is lower because its SP has grown well.

HFEL is at a premium of +1.8%. JAI is at a discount of -9.19%. SOI - premium +0.8%. AAIF- discount: -7.20%

Source HL.

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Re: Diversified non-UK income IT portfolio

#248477

Postby TahiPanasDua » September 1st, 2019, 3:37 pm

wanderer101 wrote:Many thanks to all for your inputs and suggestions, and terimah kasih TahiPanas2 (anda nama terlalu bagus!).


Wand


Wand,

Kalau nama ini bagus, jangan lupa..........ada bau besar. Saya belajar bahasa ini sedang kerja di JKR Kota Kinabalu (41 tahun yang lalu!!!)

I really like your comparative approach. Its quite logical. Well, I would say that as I remember doing it the same way!

TP2.

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Re: Diversified non-UK income IT portfolio

#248478

Postby mike » September 1st, 2019, 3:46 pm

richfool wrote:Note that HFEL and JAI have a higher exposure to China than their peers (30% & 37% respectively). I personally am wary of high exposure to China. (I hold JAI, along with AAIF & SOI, the latter two each have a lower 8% exposure to China). SOI's yield is lower because its SP has grown well.

HFEL is at a premium of +1.8%. JAI is at a discount of -9.19%. SOI - premium +0.8%. AAIF- discount: -7.20%

Source HL.


From their latest factsheet (31 July), HFEL's direct exposure to China is rather lower than your HL source at 20.9%, followed by Australia, Taiwan & Singapore at around the 14/15% mark

http://documents.financialexpress.net/Literature/53ABC0B57004EC132C8FD0516B7D721C/124948266.pdf

JAI's factsheet of 31 July supports HL's 37% http://documents.financialexpress.net/Literature/C07F91764A96F70C4CF988DB423BBE1D/124545423.pdf

Dod101
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Re: Diversified non-UK income IT portfolio

#248485

Postby Dod101 » September 1st, 2019, 4:37 pm

If a trust is investing in the Far East, I would expect it to have a decent slug in China so either percentage in China held by HFEL does not bother me in the slightest, in fact it has to be a reason for investing in HFEL in the first place, apart that is from the yield.

The other point is that on the whole I do not much like investing in regional ITs. I prefer generalists where the management can decide where to invest and it means I do not have to second guess them. I totally understand though the idea of finding income ITs investing outside of the UK because for the last while income and capital growth of not exactly come together with UK shares.

Dod

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Re: Diversified non-UK income IT portfolio

#248491

Postby richfool » September 1st, 2019, 4:53 pm

mike wrote:
richfool wrote:Note that HFEL and JAI have a higher exposure to China than their peers (30% & 37% respectively). I personally am wary of high exposure to China. (I hold JAI, along with AAIF & SOI, the latter two each have a lower 8% exposure to China). SOI's yield is lower because its SP has grown well.

HFEL is at a premium of +1.8%. JAI is at a discount of -9.19%. SOI - premium +0.8%. AAIF- discount: -7.20%

Source HL.


From their latest factsheet (31 July), HFEL's direct exposure to China is rather lower than your HL source at 20.9%, followed by Australia, Taiwan & Singapore at around the 14/15% mark

http://documents.financialexpress.net/Literature/53ABC0B57004EC132C8FD0516B7D721C/124948266.pdf

JAI's factsheet of 31 July supports HL's 37% http://documents.financialexpress.net/Literature/C07F91764A96F70C4CF988DB423BBE1D/124545423.pdf

Hi Mike, I had been researching the exposure to China and other points a week or so back, using both HL and Citywire and had written the figures down as 30% and 37%. Today I checked the discounts and premiums again through HL, but used my existing notes, from the Citywire source, for the China exposure. Upon re-checking I see Citywire shows 25% for HFEL and as you say the HL factsheet shows 20.9%. So apologies, I didn't mean to mislead anyone. I either wrote it down wrongly or it has changed since I looked.

https://citywire.co.uk/funds_insider/in ... undID=2963

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Re: Diversified non-UK income IT portfolio

#248512

Postby BrummieDave » September 1st, 2019, 6:29 pm

richfool wrote:
mike wrote:
richfool wrote:Note that HFEL and JAI have a higher exposure to China than their peers (30% & 37% respectively). I personally am wary of high exposure to China. (I hold JAI, along with AAIF & SOI, the latter two each have a lower 8% exposure to China). SOI's yield is lower because its SP has grown well.

HFEL is at a premium of +1.8%. JAI is at a discount of -9.19%. SOI - premium +0.8%. AAIF- discount: -7.20%

Source HL.


From their latest factsheet (31 July), HFEL's direct exposure to China is rather lower than your HL source at 20.9%, followed by Australia, Taiwan & Singapore at around the 14/15% mark

http://documents.financialexpress.net/Literature/53ABC0B57004EC132C8FD0516B7D721C/124948266.pdf

JAI's factsheet of 31 July supports HL's 37% http://documents.financialexpress.net/Literature/C07F91764A96F70C4CF988DB423BBE1D/124545423.pdf

Hi Mike, I had been researching the exposure to China and other points a week or so back, using both HL and Citywire and had written the figures down as 30% and 37%. Today I checked the discounts and premiums again through HL, but used my existing notes, from the Citywire source, for the China exposure. Upon re-checking I see Citywire shows 25% for HFEL and as you say the HL factsheet shows 20.9%. So apologies, I didn't mean to mislead anyone. I either wrote it down wrongly or it has changed since I looked.

https://citywire.co.uk/funds_insider/in ... undID=2963


Why use Citywire, HL or any such 3rd party for anything that you deem important?

The only source of accurate info is the originator, and that's the IT's own website where the holdings are always clearly shown.

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Re: Diversified non-UK income IT portfolio

#248532

Postby richfool » September 1st, 2019, 8:08 pm

BrummieDave wrote:Why use Citywire, HL or any such 3rd party for anything that you deem important?

The only source of accurate info is the originator, and that's the IT's own website where the holdings are always clearly shown.

BD, I use Citywire and HL for routine info., but go to the factsheets or Report & Accounts through HL for more detailed or accurate information. The factsheets and R&A's (accessed through HL) are those of the IT itself. There is a section at the bottom right on HL factsheets which when you click on, link you to the IT's actual documents, (they load as pdf's). I also access the KID's that way (top right of HL factsheet.

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Re: Diversified non-UK income IT portfolio

#248540

Postby Lootman » September 1st, 2019, 8:49 pm

Dod101 wrote:The other point is that on the whole I do not much like investing in regional ITs. I prefer generalists where the management can decide where to invest and it means I do not have to second guess them.

One idea is to use ETFs for investing in regions. That way you capture the beta of those regional markets without taking active bets, and at a lower cost. Then you can overlay an active global IT or two to make your conviction bets.

So for example I can't find a single European IT that I like, so just use the Vanguard Europe ETF. Although for Japan and the US, I like the JP Morgan ITs. For the Far East I have the Schroder IT. Whilst for emerging markets I want to be as broadly diversified as possible, and so again an ETF works for me.

And then I overlay Scottish Mortgage and Lindsell Train ITs.

For the UK and US, I also buy individual shares.

Bear in mind here I do not pursue income particularly, but rather total return.

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Re: Diversified non-UK income IT portfolio

#250199

Postby Silverstar64 » September 7th, 2019, 7:43 pm

wanderer101 wrote:Gbjbaanb, you're right Majedie doesn't fit the bill at all.

Another downside of Majedie is that it has an expensive debenture: £20.7m 7.25% 2025 debenture stock despite paying off the £13.5m 9.50% 2020 debenture stock that's still quite a drag on earnings.

As has already been mentioned above the biggest investment is Majedie Asset Management which had an additional valuation write down at the half year.

(I'm looking out for expensive historic debt having missed the borrowing by ADIG not suitable anyway for this thread as it's a mixed asset trust)

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Re: Diversified non-UK income IT portfolio

#250204

Postby Dod101 » September 7th, 2019, 8:21 pm

Majedie has been just about everything to everybody over the years and never seems to get its act together so I have given up looking at it.

The Barlow family control it but unlike other family controlled trusts, for instance Caledonia, they do not manage to make much of it.

Dod


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