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Income Portfolio with HYP plus Investment Trusts

General discussions about equity high-yield income strategies
puffster
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Re: Income Portfolio with HYP plus Investment Trusts

#101763

Postby puffster » December 5th, 2017, 11:00 am

The fees for HFEL have been altered recently, as per the annual report:
Management Fees
As announced on 26 October 2017, following a formal review of the management fee arrangements, I am pleased to report that with effect from 1 September 2017, the Board has agreed a tiering basis to the management fee arrangements so that the existing management fee of 0.9% will only apply to the first £400m of net assets with the balance above that charged at a reduced rate of 0.75%. There is no performance fee.


This may bring it closer to 1% depending upon share price etc.

Puffster

eyeball08
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Re: Income Portfolio with HYP plus Investment Trusts

#119046

Postby eyeball08 » February 19th, 2018, 1:58 pm

I added smallish holdings in North American Income Trust (NAIT), Finsbury Growth and Income (FGT) and Mercantile Investment Trust (MRC) to my previous little collection of fuller holdings in CTY, MYI, HFEL and PLI today. I am hoping seven will be sufficient to provide a little more yield, international diversity and perhaps stability to my HYP of UK shares. Fingers crossed.

monabri
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Re: Income Portfolio with HYP plus Investment Trusts

#119121

Postby monabri » February 19th, 2018, 6:56 pm

eyeball08 wrote:I added smallish holdings in North American Income Trust (NAIT), Finsbury Growth and Income (FGT) and Mercantile Investment Trust (MRC) to my previous little collection of fuller holdings in CTY, MYI, HFEL and PLI today. I am hoping seven will be sufficient to provide a little more yield, international diversity and perhaps stability to my HYP of UK shares. Fingers crossed.


Sounds like we are going along the same path! I wanted to add a little bit of exposure to the US of A as well. I looked at both NAIT and Blackrock North America (BRNA). In the end I decided to add a small holding of both rather than a single, larger holding. The reason (logic?) behind this being that they held (mainly) a different composition in their respective top 10 holdings.



NAIT is more focused on North America and Canada whereas BRNA is slightly more "international" (but not to a significant extent).



I topped up HFEL just after the last XD and after the "minor correction". HFEL is my biggest IT holding followed by MYI and then Aberdeen Asian Income.



I felt that my HYP was too UK Centric (even though quite a few of the holdings are global businesses - ULVR, BP, RDSB etc) and after being "Carillionised" ,"Interserved" and "Providentfinancialised" decided that my individual stock picking skills are "wanting".

I think my game plan is to slowly increase the IT content using dividends from the "HYP+IT" portfolio. The ITs chosen are income based rather than growth oriented. Maybe if "the price is right" and divis are available, then I shall look further afield to growth & income ITs.

eyeball08
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Re: Income Portfolio with HYP plus Investment Trusts

#119238

Postby eyeball08 » February 20th, 2018, 10:39 am

Thanks for that Monabri. It certainly can be a lottery at times.
Good news: I managed to avoid Carillion, Interserve and Provident Financial through hesitancy and inertia rather than any knowledge or insight.
Bad news: over the years since 2008 I have not avoided: RBS, Pearson, Rexam, First Group, Inmarsat, Balfour Beatty and Tesco. Probably one or two in there that'll be fine in the end but I sold. Still have 29 holdings total in shares(22) and ITs(7).
Future plan: Try and stop looking so much and do nothing with it at all for a couple of months.

vrdiver
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Re: Income Portfolio with HYP plus Investment Trusts

#119266

Postby vrdiver » February 20th, 2018, 12:06 pm

Just a comment on mixing HYP company holdings with ITs: if (like me and quite a few other HYPers) you have a HYP based on the FTSE 100 / upper reaches of the FTSE350 then ITs like CTY may well be a considerable duplication of underlying holdings.

Having said that, I like ITs for two reasons:
#1 they reach parts of the market that my individual HYP holding don't, and
#2 they simplify a diverse set of holdings and management, offloading the thinking part of HYP for a relatively small fee.

#1 predominates currently, but #2 becomes more interesting as I transition to gaga-proofing the HYP. Creating a small IT portfolio with instructions like "in the event of VRD losing his marbles, sell all the individual shares and invest the cash in the following ITs, at the %s shown" should make for a less stressed and less ripped-off-for-seeking-advice Mrs VRD, especially if we've discussed it beforehand!

VRD

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Re: Income Portfolio with HYP plus Investment Trusts

#119279

Postby gnawsome » February 20th, 2018, 12:55 pm

VRD
ITs like CTY may well be a considerable duplication of underlying holdings.

I puzzle why this is a problem. Surely it's what they do with those holdings - I suspect it might be somewhat different from what I might do ( just buy and hold until a better idea comes along).
In Nov 97 I bought several ITs -- Murray Inc, Temple Bar, Merchants Trust and I suppose they may well have held some of the same holdings as each other and as I may well have held. Some may have held, some may have sold and some may have traded in and out. My gamble was that they would get it right in a good enough proportion. I did not expect that they would all be 'top brick on the chimney' at all times but hoped they would collectively be better than me.

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Re: Income Portfolio with HYP plus Investment Trusts

#119394

Postby vrdiver » February 21st, 2018, 12:41 am

gnawsome wrote:VRD
ITs like CTY may well be a considerable duplication of underlying holdings.

I puzzle why this is a problem.

Sorry if I didn't make the context clear.

If a HYPer is building their portfolio and has currently reached say, 10 different UK FTSE100 companies, and then decides that to get a bit more diversification, they'll add some CTY, they may not realise (without looking at what CTY holds) that the extra holding of CTY provides very little additional diversification!

E.g. Our intrepid HYPer has built a portfolio of:

RDSB
HSBC
BATS
DGE
BP
VOD
Pru
ULVR
LLOY
GSK

As luck would have it (and it's very lucky, nothing to do with me having the CTY fund sheet in front of me!) the above constitute just over 1/3 of the holdings of CTY so our budding HYPer has effectively used 1/3 of their top up money to purchase more of what they already had.

If this is repeated with a few more UK focussed ITs, the portfolio may well have 15 - 20 holdings, but the overlapping holdings within the ITs may mean our portfolio holder has a much greater concentration of assets in a few key shares than they would be comfortable with if the holdings were direct.

For many holders, this duplication isn't a problem, because they have chosen not to hold the underlying assets directly, (e.g. if 10 ITs each hold 5% of RDSB, and our investor holds all ten equally, they still only have 5% exposure to RDSB). The issue is when the holder also has 5% of RDSB directly, making a portfolio concentration of 10%, which may be more than they realised!

The message I'd like to get accross is that IT holders need to be aware of what the IT holds, and whether this is compatible with the rest of their holdings from a stock or sector perspective. Pretty obvious, but worth mentioning, especially in the context of mixing ITs in with a HYP style equity portfolio.

gnawsome
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Re: Income Portfolio with HYP plus Investment Trusts

#119457

Postby gnawsome » February 21st, 2018, 11:53 am

Sorry if I didn't make the context clear.

...The message I'd like to get accross is that IT holders need to be aware of what the IT holds,[/b] and whether this is compatible with the rest of their holdings from a stock or sector perspective. Pretty obvious, but worth mentioning, especially in the context of mixing ITs in with a HYP style equity portfolio.


I think we are looking from different perspectives.
While you focus on the holdings I'm more inclined to focus on the ability of the managers as RDSB for instance the manager may have 5% on day 1, they may have zero on day 2 and back to 5% at some other time and repeat at times during the year such that at year end they have a similar amount as the year begining.
I remind myself of what the Equitable Life salesperson told me "our investment managers have the skills to make money even in falling markets"... and I believed them

Julian
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Re: Income Portfolio with HYP plus Investment Trusts

#120090

Postby Julian » February 24th, 2018, 11:42 am

gnawsome wrote:
Sorry if I didn't make the context clear.

...The message I'd like to get accross is that IT holders need to be aware of what the IT holds,[/b] and whether this is compatible with the rest of their holdings from a stock or sector perspective. Pretty obvious, but worth mentioning, especially in the context of mixing ITs in with a HYP style equity portfolio.


I think we are looking from different perspectives.
While you focus on the holdings I'm more inclined to focus on the ability of the managers as RDSB for instance the manager may have 5% on day 1, they may have zero on day 2 and back to 5% at some other time and repeat at times during the year such that at year end they have a similar amount as the year begining.
I remind myself of what the Equitable Life salesperson told me "our investment managers have the skills to make money even in falling markets"... and I believed them

I agree. To me if I have 1000 shares of RDSB in my portfolio where 500 are held directly in my HYP and the other 500 represent what I have worked out I indirectly hold due to exposure of my ITs to RDSB then I do not consider those two lumps of 500 shares to be exactly the same financial instrument. Because I am a fairly no-tinkering HYPer the 500 shares I hold directly are likely to stick around forever, they will always be RDSB shares and so are fully described by the properties of the company, the decisions of its management, etc. The other 500 shares are, over the medium to long term, somewhat more exotic instruments however since their properties are I admit heavily influenced by the properties of RDSB but they are also influenced by the approach of the IT manager. My 500 “more exotic” instruments might one day stop being RDSB shares altogether and suddenly become BATS or HSBC shares or more likely become less fully defined by the properties of RDSB and additionally defined by a sprinkling of other shares (because the manager lightened his/her weighting in RDSB and deployed funds released in various other shares).

Ultimately I view my income ITs as adding the following benefits to my HYP, probably in the following decreasing order of importance to me...

1 - I like to pick ITs with a solid history of not cutting dividends so that my IT income is likely to partially shelter my dividend stream from big income hiccups such as divi cuts or even the effects we’re seeing at the moment due to the partial reversal of Sterling’s post-referendum weakness.

2 - While some of my ITs do have significant holdings in companies I already hold in my HYP most ITs also have a “tail” of much smaller holdings in companies that, with my almost entirely FTSE-100 focused HYP, I would not otherwise have any exposure to. I consider that to add at least a little extra diversification that I value.

3 - The possibility that a manager might get out of a holding when I wouldn’t, e.g. as discussed in my RDSB example above, just might at least partially stop me going down with a sinking ship if the IT manager gets out while I stick to my no-tinker rule in my directly held HYP shares for something like Carillion or PFG.

Each to their own, and some of the above is no doubt linked to my personality (e.g. I hate seeing the steps backward that my income projections take when some event happens, or even when an HSBC dividend is significantly reduced in Sterling terms due to exchange rate fluctuations), but I think that ITs add a lot of value to me personally as far as my income portfolio goes and I intend to skew my weighting further in favour of income ITs vs directly held shares.

- Julian


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