Diversifying away from the UK through IT

[zharrt]

I have a smallish portfolio >100K in a SIPP, although I am 38 so a long way from retirement. At the moment I have a portfolio of 30 shares, all but on UK based (although with companies like RIO, RDSB, BP, ULVR, GSK, IMB etc) so I have some exposure to the world outside the LSE and the associated pains that are effecting the UK at the moment.

I have mainly stuck with shares over EFT's or IT's as I am unfortunately with HL so the fees for holding shares are a max £200 a year where as holding funds in a HL SIPP is on the more expensive end of the scale (or so I was led to believe, happy for that view to be challenged if it's no longer the case).

At the moment I am running a yield of about 6.81%, although this is biased with one stock (PLUS500, the only non UK holding) without this included it's more like 5.95%, I tend to not include PLUS500 as it's a nuts share to hold, the yield for me is 38.8% on this stock, but I have seen far too many days when 60-70% of the share price has been wiped off as regulators beat it around the head, but I keep it as its making me money and I am diverting it's dividends into more stable shares rather than reinvest which I do with most of the rest of my portfolio)

So, my question is where to go next, I would like more non-UK exposure, and have looked at a few shares (SID, CDI and CHL) and feel comfortable enough to throw a smallish amount at these as a testing the water. But I am wondering if an IT like HFEL might be a better shout as it keeps the risks lower, but I am ok to take on some risk because I feel I have diversified my portfolio well enough that if one stock tanks and is wiped out it will only ever account for between 2-3% of my portfolio.

Should I stick with what is working, or is IT's the better bet as I feel I am being more than lucky overall. I am in it for the long term so happy to sink in and wait for something to rebound if it goes wrong.

If I do go for IT's what would be a good ration to work towards. I am thinking 90/10, get HFEL upto say 10% of the overall portfolio, or would my mixed strategy hurt me more by having the worse of both sides.

[Alaric]

I have mainly stuck with shares over EFT's or IT's as I am unfortunately with HL so the fees for holding shares are a max £200 a year where as holding funds in a HL SIPP is on the more expensive end of the scale (or so I was led to believe, happy for that view to be challenged if it's no longer the case).

As far as I aware it's only OEICs where HL make a charge as a % of value. Stock market quoted instruments such as ITs and ETFs have the same costs as shares.

[richfool]

Henderson International Income Trust (HINT) would give you exposure to global equities, specifically excluding the UK.

https://www.hl.co.uk/shares/shares-sear ... rd-gbp0.01

Otherwise you might like to look at JPGI or MYI from the same Global G&I sector (and which include the UK).

[Dod101]

The OP asked what would be a good 'ration' towards ITs. I would certainly think that 10/15% would be a reasonable proportion, and I would choose HFEL (Henderson far East) and MYI (Murray International) Both are to an extent income trust investing internationally and managed by different investment houses. That will give him some international exposure and a feel for ITs, and of course instant diversification. With ITs I would keep them for the long term and let the manager do his thing.

Dod

[PrefInvestor]

I have mainly stuck with shares over EFT's or IT's as I am unfortunately with HL so the fees for holding shares are a max £200 a year where as holding funds in a HL SIPP is on the more expensive end of the scale (or so I was led to believe, happy for that view to be challenged if it's no longer the case).

As far as I aware it's only OEICs where HL make a charge as a % of value. Stock market quoted instruments such as ITs and ETFs have the same costs as shares.

Indeed Alaric is quite correct, HL do not levy their 0.45% pa charge (less on larger holdings) on ITs and ETFs, only Funds (OEICs and UTs). Because of this by and large I refuse to invest in OEICs and UTs so as to avoid these charges (and also the many more opaque charges that these types of investment are prone to). Some say things have changed in recent years and Fund charges are no longer significant, I confess that I am not so sure about that. I personally also dislike the delay inherent in trading Funds, ITs and ETFs can be traded online instantly without having to wait for the next valuation point as with a Funds (and if you are unlucky sometimes the one after that.....).

ATB

Pref

[Itsallaguess]

The OP asked what would be a good 'ration' towards ITs. I would certainly think that 10/15% would be a reasonable proportion, and I would choose HFEL (Henderson far East) and MYI (Murray International)

Both are to an extent income trust investing internationally and managed by different investment houses. That will give him some international exposure and a feel for ITs, and of course instant diversification.

I fully agree with the above sentiments.

I hold around 40% of my invested wealth in income-related Investment Trusts, and to diversify away from exclusively holding single-company investments in my HYP has been the single best investment-decision I think I've ever made.

As well as generating exposure to segments of the global market that are much more difficult to access via single-companies alone, one of the best side-effects of this move has simply been for me to be able to see what I could probably only describe as 'the general investment stress' of holding a relatively large and growing (to me at least...) investment portfolio become something that's very, very much easier to live with on a day-to-day basis once I started to move away from only owning specific individual shares.

I really do wish I'd done it years earlier, but having now done so I can heartily recommend it.

Cheers,

Itsallaguess

[jackdaww]

The OP asked what would be a good 'ration' towards ITs. I would certainly think that 10/15% would be a reasonable proportion, and I would choose HFEL (Henderson far East) and MYI (Murray International)

Both are to an extent income trust investing internationally and managed by different investment houses. That will give him some international exposure and a feel for ITs, and of course instant diversification.

I fully agree with the above sentiments.

I hold around 40% of my invested wealth in income-related Investment Trusts, and to diversify away from exclusively holding single-company investments in my HYP has been the single best investment-decision I think I've ever made.

As well as generating exposure to segments of the global market that are much more difficult to access via single-companies alone, one of the best side-effects of this move has simply been for me to be able to see what I could probably only describe as 'the general investment stress' of holding a relatively large and growing (to me at least...) investment portfolio become something that's very, very much easier to live with on a day-to-day basis once I started to move away from only owning specific individual shares.

I really do wish I'd done it years earlier, but having now done so I can heartily recommend it.

Cheers,

Itsallaguess

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hope you are right.

i am also moving away from single company investments (some HYP type but not in a HYP) .

it is becoming belatedly very clear that i dont have any special skills at stock picking .

it seems a lot less trouble and stress to move to the IT route.

my IT picking skills may also not be special , at least i wont wake up finding a 50% drop or worse on a single stock .

views on IT's on these boards are welcome and appreciated.

[seagles]

Should I stick with what is working, or is IT's the better bet as I feel I am being more than lucky overall. I am in it for the long term so happy to sink in and wait for something to rebound if it goes wrong.

If I do go for IT's what would be a good ration to work towards. I am thinking 90/10, get HFEL upto say 10% of the overall portfolio, or would my mixed strategy hurt me more by having the worse of both sides.

My route into ITs came about after a great thread on TMF about what would you do if you no longer wanted to or could manage your share portfolio. so I decide to combine all my various Pension pots into a SIPP with HL. At the time I did a 50/50 split of shares V IT's, 5 shares and 5 IT's (MRCH, MYI, HFEL, DIG and SCF). Once I was "happy" with the way it was working started moving more into IT's. At the time IT's were about 7% of my total portfolio. Now that is close to 40%,my SIPP is now 7 ITs, added MCT and JETI for more international exposure and have just 2 shares left (which at some point will get rid of!).

IMHO I wish I had started with an IT/Shares split day one, rather than many years trying to build and manage a HYPish portfolio. I am happy managing what I have left in shares (currently 20, GNK will give me a decision to make). I would say rather than just HFEL, look at MYI, JETI and MCT, there are other ITs in the same arenas that may be worth a look though.

Let us know what way you go and how it works over time.

[digitaria]

I hold a combination of UK direct company investments and overseas-focused ITs, such as NAIT and HFEL. I completely understand itsallaguess's point about ITs and stress reduction, but I do wonder whether such reassurance is stemming from an abrogation of responsibility, since you're leaving it all to the fund manager.

After all, if Bruce Stout, or whoever, loses all your money, you have Bruce to blame, but you still lost all your money

[Wuffle]

I am also with HL, the 0.45% applies to SIPP content up to a £200 cap and £45 cap in an ISA (not important to you but might be a source of confusion).
Unless I am misunderstanding a quick read of the website.
For your 100k SIPP, the cap would apply, so £200 rather than a calculated £450.
Much discussion bounces back and forth over this sort of minutiae but frankly, a working 38 year old has bigger fish to fry.
The price is ballpark for a professional outfit, get on with your life.

Wuffle.

[Dod101]

I cannot speak for Itsallaguess but in my case I hold a few overseas invested trusts not to 'abrogate responsibility' as digitaria says, but because that seems to me to be the most efficient way to diversify away from the UK. In fact I can rationalise my holdings of ITs by saying that it is a way for me to access stuff that I cannot easily access myself. I am though an income investor and there are not that many non UK income trusts around as far as I can see.

Some may see it as an abrogation of responsibility but being able to blame an investment manager would be of no comfort to me and so I can see no advantage in that. Obviously for probably many people not having the hassle of seeking individual investments will be part of the attraction and I see nothing wrong with that. In my case picking ITs is not stress reduction as I am not in the least stressed by running a portfolio of individual shares. There are more important things in life to get stressed about unless of course we have another 2008 or the like. Even then I do not recall not being able to sleep at night.

Dod

[Gengulphus]

I hold a combination of UK direct company investments and overseas-focused ITs, such as NAIT and HFEL. I completely understand itsallaguess's point about ITs and stress reduction, but I do wonder whether such reassurance is stemming from an abrogation of responsibility, since you're leaving it all to the fund manager.

After all, if Bruce Stout, or whoever, loses all your money, you have Bruce to blame, but you still lost all your money

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similarly , it could also be seen as an abrogation of responsibility to go down the HYP path , as many have , putting ones faith in [others] [I have removed the insults, dspp ].

That equating of "going down the HYP path" and "putting ones faith in a[...] financial journalist" is an assumption on your part. And at least in my case, it's a false assumption: I have gone down the HYP path, and I have not put my faith in any financial journalist. My faith in my HYP comes from over 18 years of experience of owning a HYP, rather than being based on anyone's advice, and I only invested a small percentage of my money in it in the early days, until I'd gained a reasonable amount of experience with it.

I.e. I've taken on full responsibility for my investments, not abrogated it. That even applies to the managements of the companies I've invested in, by the way: if they make a mess of the job, I will probably analyse and discuss their incompetence. But as far as I am concerned, picking them / their companies is my mistake and my responsibility: the purpose of the analysis and discussion is to try to avoid making similar mistakes in the future, not to lay blame on them.

Gengulphus

Moderator Message:
Please stay polite. This is not a comment on G. I've just deleted an insulting post, and edited G to remove a quoted insult. regards, dspp

[Itsallaguess]

I completely understand itsallaguess's point about ITs and stress reduction, but I do wonder whether such reassurance is stemming from an abrogation of responsibility, since you're leaving it all to the fund manager.

After all, if Bruce Stout, or whoever, loses all your money, you have Bruce to blame, but you still lost all your money

That's a fair comment, and perhaps even a fair assumption to make too, but I'm not too sure I'd really describe any 'stress-relieving benefits' that I've received from owning income-IT's coming specifically from an 'abrogation of responsibility', but rather more towards knowing that the managers in charge of the IT's that I hold are simply 'there' in charge of them, with the potential additional benefit of them being 'closer to the ground' when it comes to the more diverse income-IT's that I hold, in global markets and areas that I would find harder to both reach and research even if I was inclined to do so.

Similar to other comments in this area, I would certainly hold no 'blame' at all towards those IT-managers if those IT's failed to deliver on expectations, and I would still take 100% responsibility in where I invest my capital, but I do know that I gain a real psychological benefit from taking a more 'layered' approach to income-investing via Investment Trusts than I do from making a number of more precise investments into a single-share HYP. That has become absolutely clear to me since my first steps into the income-IT world, and it's further developed as I've stepped towards my current 39% income-IT weighting, and I expect to maintain that benefit as I continue onwards down that pathway...

I do agree with Dod's position in that one of the main positive arguments for heading towards income-IT's initially might be to gain access to global markets or market-segments that are otherwise more difficult to reach. That was the reason for my initial steps in that direction, certainly, and I've maintained that approach to looking for wider income and capital diversification that might be achieved by doing so, but I've also allowed myself to buy mainly FTSE-focussed income-IT's too, to act as a specific diversifier for my remaining FTSE/UK holdings, whilst accepting that there is the largely inevitable part-overlap between some of those UK-IT holdings and some of my single-share UK holdings...

I should add a little caveat to the above however, in that I really do appreciate that taking a more IT-centered approach to generating investment-income might come at a slight cost if compared to some single-company HYP's, but I really do subscribe to the 'you don't get anything for nothing' view, and having once owned a 100% single-company HYP, and lived with it for long enough to realise that it wasn't for me, then I do think that people wanting to go that route fully deserve any additional income-benefit they might see from such a path.

What I'd add to that though, is that knowing the benefit *to me* of taking a more 'income-IT' approach, then I am more than happy to 'pay that price' if indeed there is one over the long term....

Cheers,

Itsallaguess

[Dod101]

I am puzzled by Gengulphus's quote as I cannot see the original anywhere but I completely agree with his sentiments. I pay no attention to financial journalists and take full responsibility for own portfolio. In fact I really do not understand the point of digitaria's comments anyway.

Dod

[77ss]

..... I am in it for the long term so happy to sink in and wait for something to rebound if it goes wrong....

Quite right. There are many ways to diversify away from the UK - direct equity purchase, ITs, ETFs etc and I think you would do well to spread your investments more widely. Personally I use ITs, not just to broaden my geographical exposure, but also as a means to invest in sectors where I have little or nothing in the way of direct investments.

However, I wonder if, at age 38, there isn't a more fundamental question that you might consider. Going off-topic for this board, is 'high yield' so important for you? Do you need the income? Might you not be better advised to put some of your money into lower yielding investments that promise a better total return in the long run?

You mention HFEL. A good yield and nothing wrong with that for far east exposure (I hold the similar SOI), but how does it compare with the low yielding FCIT? A mere 1.65% yield , but over the past 5 years it has delivered a total return of 100%, compared with 60% for HFEL. Not a recommendation, just an example.

[Alaric]

However, I wonder if, at age 38, there isn't a more fundamental question that you might consider. Going off-topic for this board, is 'high yield' so important for you? Do you need the income? Might you not be better advised to put some of your money into lower yielding investments that promise a better total return in the long run?

If the ambition is to accumulate wealth rather than spend it, it's the total of accumulated wealth that should be the benchmark. One of the ways of doing this is to pick out stocks with high dividend yields, It's not the only way and some Companies maintain dividend yields by distributing the wealth of the Company as if it were profits.

[jackdaww]

However, I wonder if, at age 38, there isn't a more fundamental question that you might consider. Going off-topic for this board, is 'high yield' so important for you? Do you need the income? Might you not be better advised to put some of your money into lower yielding investments that promise a better total return in the long run?

If the ambition is to accumulate wealth rather than spend it, it's the total of accumulated wealth that should be the benchmark. One of the ways of doing this is to pick out stocks with high dividend yields, It's not the only way and some Companies maintain dividend yields by distributing the wealth of the Company as if it were profits.

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surely total of accumulated wealth is the ONLY benchmark? regardless of building or spending.

[scrumpyjack]

Unless you are confident that your skill at stock selection is better than the market, I can’t really see the point of buying individual shares. The risk is so much higher than simply holding ETFs and Investment Trusts. Personally I avoid unit trusts because their fees tend to be higher. I have a number of Vanguard and Ishares ETFs and ITs such as SMT, ATST, WTAN, MYI, RCP, MNKS, FCIT, CLDN . I still have substantial holdings of individual shares which I am reducing as and when but have not bought any more for a long time.

The money I have given to my children and grandchildren has all gone into ETFs and ITs, heavily weighted to non UK assets and lowest charges. They need portfolios they can forget and for most people I think that is the best way to go,

[TUK020]

The OP asked what would be a good 'ration' towards ITs. I would certainly think that 10/15% would be a reasonable proportion, and I would choose HFEL (Henderson far East) and MYI (Murray International) Both are to an extent income trust investing internationally and managed by different investment houses. That will give him some international exposure and a feel for ITs, and of course instant diversification. With ITs I would keep them for the long term and let the manager do his thing.

Dod

I too have both HFEL & MYI as means of diversifying internationally from an FTSE based HYP.
You may also wish to look at HICL as an infrastructure IT.

[Alaric]

surely total of accumulated wealth is the ONLY benchmark? regardless of building or spending.

Don't risk saying that on the HYP Practical Board. Some contributors consider the amount of dividend the only benchmark, even going to the extent of buying just before a stock goes ex dividend. Understandable perhaps if income to spend is a requirement but pointless if all they do with the income is reinvest it.

If you were living of the income generated by a portfolio, the amount of income could be a relevant benchmark to the extent even that Companies maintaining their dividends by distributing retained earnings may not be a problem.