Income Portfolio with HYP plus Investment Trusts

[eyeball08]

In combining a traditional HYP with some investment trusts I have got a bit stuck about whether to stick to a few trusts and keep topping-up (have 4 at present) or seek further world-wide diversity with more of them. Diversity versus keeping life reasonably simple I guess. I would particularly like to hear from those who are going down this route (Itsallaguess springs to mind) about which IT's they have bought. My circumstances are that I am retired, remove all the income but can add and top-up as this is a pensions top-up rather than sole income. The tables show my HYP shares plus 4 investment trusts with weightings of the whole thing. IT's currently just over 15% of the whole.


and the investment trusts:


It might be of interest to some:
MYI top 17% approx of holdings: Taiwan Semiconductor, SQM, Assur, British American Tobacco
HFEL top 16%: Samsung, Taiwan Semiconductor, China Construction Bank, Agricultural Bank of China, Hon Hai Precision Industry
CTY top 15%: Royal Dutch Shell, HSBC, British American Tobacco
PLI top 18%: British American Tobacco, BP, British Aerospace, AstraZeneca

I would be especially interested to hear which Trusts others have bought. I know about the B7 and B8 Luni portfolios but do not want
much more duplication e.g. CTY, MYI and PLI all have British American Tobacco in their top holdings. Prefer large trusts with less than 1% fees so growth is not strangled, but suspect this might be a tough ask.

eyeball

[Dod101]

You are not far from my portfolio. I too have four ITs to supplement a HYP, but my four are Murray International, Murray Income, Edinburgh and Temple Bar. You would not want to add Edinburgh since it duplicates a lot both in your HYP and City of London. Temple Bar might be worth looking at since it is a bit different. Alistair Mundy, the manager is a bit of a contrarian and holds some shares which I would never buy, mostly for recovery.

Obviously you could hold other ITs. I do but not for income and that seems to be what you are looking for. You might like to look at some infrastructure trusts, although many are standing at a premium to NAV and so I have not bought any.

Otherwise I would carry on as you are because you seem to me to have a well balanced portfolio.

Dod

[Raptor]

Not far from mine as well. Have 20 HYP shares and 5 ITs. DIG, MYI, MRCH, SCF and HFEL. See
viewtopic.php?p=99617#p99617

Brought the five together a few years back and as you can see from link looking to expand.

Raptor.

[bonrepos]

As you are wanting income and trying to avoid duplication, I offer the following trusts
for your research

JP Morgan Global Growth and Income ( JPGI ) target yield 4%, present actual yield 3.7%

International Biotechnology ( IBT ) target yield 4%, present yield 3.8%

Ecofin Global Utilities and Infrastructure (EGL ) present yield 4.9%.

Standard Life Investment Property Income ( SLI ) present yield 5.3%

These have all been in my portfolio for some time. I hold these alongside MYI,FGT and CTY and
many of the normal HYP shares. Like many here, I started with HYP shares only but concluded
that my stock picking skills with HYP only were,on average, not as good as the Investment Trusts
that I have since chosen.

You can check out all the mentioned Investment Trusts on the AIC website.

Good luck!

[Wasron]

When I transferred a pension into my sipp earlier this year I studied John Baron’s IT portfolios and took a pick and mix approach, topping up HYP shares and filling in gaps with ITs. I’m still drip feeding the transfer into the market so have added a few more over the course of the year. i’ve also invested into UK large cap ITs like CTY with the funds from my HYP failures like Pearson and Cobham.

Holding size varies, with niche ITs receiving far less cash.

I’ve got City of London, Henderson Far East, Merchants Trust, Murray International, Law Debenture, Personal Assets, European Assets, Utilico Emerging Markets, North American Income and Henderson Smaller Companies as the major holdings.

The niche ones are Princess Private Equity, Funding Circle, Middlefield Canadian Income, F&C Private Equity, Blackrock Commodities, Bluefield Solar Income and Real Estate Credit Investments.

Portfolio yield is around 4%.

I’ve still got 15 years before I can touch this, and have much more invested in ITs than my HYP.

Wasron

[eyeball08]

Many thanks for those suggestions. I'll have a proper study of them in the next day or two hopefully. Thanks for your help.
eyeball

[Lootman]

International Biotechnology ( IBT ) target yield 4%, present yield 3.8%

That's a curiously high yield for a low-yielding sector. But Trustnet agrees with you so I will take it at face value.

The highest yielding biotech share I know of is Gilead with 2.9%. Amgen is close at 2.7%. Many don't pay a dividend at all. So something doesn't add up here.

I took a look at the biggest holdings, half expecting to see the fund padded with largecap pharma companies to boost the headline yield. That would dilute the trust's stated description. But I didn't find any in the top ten holdings.

So this is a mystery to me. Could it be selling call options against its positions? That would boost income but would also crimp future growth. Or playing some other kind of game to turn capital into income e.g. trading around ex-dividend dates?

Any idea?

[Julian]

International Biotechnology ( IBT ) target yield 4%, present yield 3.8%

That's a curiously high yield for a low-yielding sector. But Trustnet agrees with you so I will take it at face value.
...
So this is a mystery to me. Could it be selling call options against its positions? That would boost income but would also crimp future growth. Or playing some other kind of game to turn capital into income e.g. trading around ex-dividend dates?

Any idea?

Might they not simply be selling off sufficient holdings to fund the dividends? There is no law against that as far as I'm aware and if done in a rising market NAV would still increase provided that the capital growth across the portfolio for the year has been greater than the sales needed to make up the gap between dividends paid out by the IT and dividends generated by the holdings. Also, if the sell-offs were done in rough proportion to the underlying holdings then one wouldn't see a sudden drop in any one shareholding and it's likely that the percentages of the holdings would stay roughly the same in the absence of any significant market price corrections for specific holdings. Or am I missing something?

- Julian

[richfool]

This should help answer the question about the dividend yield, - From an RNS issued on 2nd November 2017:

INTERNATIONAL BIOTECHNOLOGY TRUST PLC (IBT or the Company)
Annual Financial Report Announcement of Audited Results for the year ended 31 August 2017

Dividends, buybacks and discount

I am pleased to report that our first dividend payment was made to Shareholders on 31 January 2017 at a rate of 11.5p per share. We paid out a dividend equal to 4% of NAV as at 31 August 2016 in two equal tranches on 31 January 2017 and 31 August 2017. As anticipated, the underlying growth of our investments is more than sufficient to support the payment of the dividend out of capital growth.

In accordance with the Shareholder Circular dated 13 September 2016 and as a matter of best practice, the Board will be seeking Shareholder approval to continue the payment of dividends, and a resolution will be put to Shareholders at the forthcoming Annual General Meeting (AGM). For the year ended 31 August 2017, we propose a dividend of two equal tranches of 13.5p to be paid on 31 January 2018 (to Shareholders on the Register at the close of business on Friday, 5 January 2018) and 31 August 2018. This represents a 17.4% increase on the previous year's dividend.

[melonfool]

I too found my HYP choosing was more troublesome than I wanted so having had to sell to fund a house purchase anyway, I am left with fewer shares, a couple that I bought as 'solid UK shares - not necessarily HYP', plus I reduced my ETF holdings, focusing those more on the US and small cap, and added two ITs.

I will be adding more ITs in future rather than individual shares I think.

Soon, in the next few weeks I think, I will post up a portfolio for comments.

Mel

(only really commenting so I get notifications of all your other useful posts on the topic!)

[TUK020]

I have about 15% of my portfolio in ITs, about 5% in Gold ETF, 5% in bond ladders (mostly as a proxy for cash reserve), and the remainder in about 35 individual shares.

I am moving to rebalance my portfolio (prune some of the overweight holdings, get rid of a couple), and use the harvested monies from sales, plus dividends to primarily increase the IT section as part of a long term plan to make my portfolio more resilient to neglect, and also increase the diversification safety (in numbers of companies, size and geography).

My ITs so far are:
City of London - large cap
Temple Bar - large cap
Murray International - global large cap
Henderson Far East - Far east
River & Mercantile - UK Microcap
HICL - Infrastructure investments
The CTY stake is about 3x any of the others.

On my potential list:
FCI
AAIF
Finsbury Income Growth (FGT)
SCF Schroder Income Growth
IVI Invesco Income Growth?
FRCL
DIG,
MRCH

Worth looking at Monevator site on ITs. report is a year out of date but a worthwhile read.

[Itsallaguess]

I would particularly like to hear from those who are going down this route about which IT's they have bought.

Hi eyeball,

Here's the bulk of my Investment Trust holdings -

Company Name	                        Ticker	      Forecast Yield
City of London Inv Trust	        CTY	      3.80%
Law Debenture Corp.	                LWDB          2.80%
Aberdeen Asian Income Fund Ltd.	        AAIF	      4.00%
JP Morgan Global Emerging Income	JEMI	      3.00%
Murray International Trust	        MYI	      3.70%
Merchants Trust	                        MRCH	      5.00%

I hold a couple of others, but those are less income-oriented.

Currently the above accounts for around 32% of my HYP, and I'll probably try to maintain that proportion as I continue to grow my HYP through the rest of my working life.

I've been very pleased with my decision to diversify into a number of Investment Trusts, and whilst I acknowledge that there will be some element of overlap with my existing single-share holdings, and also that I'm paying a number of people to manage these holdings, I think the 'not-me' diversification is a real benefit to me personally, and one I am willing to sacrifice a small amount of income for.

Cheers,

Itsallaguess

[CryptoPlankton]

If you pick out the the "HYP" shares from my portfolio, there are 25 of them, mostly drawn from the usual suspects. I started picking up IT's six or seven years ago. Apart from one or two temporary slumps in capital value, I've found them generally to be far less stressful and far more reliable in churning out the dividends. Consequently, as I approach completion of the shares and IT's income part of my retirement portfolio, the remaining funds are going into IT's (along with any dividends and other funds released from the single shares). The current balance is about 50:50, but I will clearly end up with a greater weight in IT's.

To date, my IT's are:

Aberdeen Latin American Income (ALAI)
European Assets Trust (EAT)
Henderson Far East Income (HFEL)
Murray International Trust (MYI)
Middlefield Canadian Income (MCT)
(For geographical diversity - thinking of adding NAIT and/or SCAM and/or HINT sometime)

GCP Infrastructure (GCP)
HICL Infrastructure (HICL)
John Laing Infrastructure (JLIF)
SQN Asset Finance (SQN)
(Too much in infrastructure, long story, but intend to rebalance)

BlackRock World Mining (BRWM)
BlackRock Commodities Income (BRCI)
(Preferred to have a collective than just one or two "HYP" miners)

Aberdeen Diversified Income (ADIG)
Henderson Diversified Income (HDIV)
New City High Yield Fund (NCYF)
Real Estate Credit Investments (RECI)
Princess Private Equity (PEY)
(Alternative/FI sources of income)

And I haven't finished yet! Maybe it's too many, but I feel comfortable having relatively "bite-size" chunks in several IT's...

[eyeball08]

Wow I've got a ton of pondering on the AIC website to do. Thanks to all. I particularly like that you can construct your own watchlist on the AIC site with the criteria of your choice. I could have added on first post that I particularly like to get dividends 4 times a year but there is no solid logic to that idea that I can think of. I don't think I'll ever get up to 16 Trusts Crypto but you never know. Maybe 6 or 8 or umm...10...
eyeball

[bluedonkey]

I've read this thread with interest.

My HYP is mature and so am I! Retirement is approaching and my attitude to risk is reducing. My HYP is all in UK shares, so I am looking at diversifying by purchasing international ITs with a reasonable yield. MYI crops up so often that I would have just gone ahead and bought it except it is at a small premium.

[eyeball08]

blue donkey
MYI crops up so often that I would have just gone ahead and bought it except it is at a small premium.

4.6% premium over NAV for Murray International MYI when I just looked on AIC. I don't know how frequently the AIC updates the numbers to be honest. The share price has gone up a bit since I bought 4 and 2 years ago. I suspect those perceived as being protective against a FTSE big fall have got more popular in the last year or so but of course I know nothing. If you buy in, if the yield still seems fair, maybe spread it over a year or so instead of all-in. Then it is easier to keep it on your radar for top-ups and so on. For example, I first bought in to MYI around just under £11 4 years ago and was happy to top up at under £9 2 years ago. Currently around £12.50
eyeball

[funduffer]

Have a look at Gadge's global IT income portfolio if you want a good global spread.

viewtopic.php?f=8&t=92

I think this is an very interesting portfolio and I look forward to seeing how it turns out relative to my more UK-foced IT's.

FD

[eyeball08]

Have a look at Gadge's global IT income portfolio if you want a good global spread.

Thanks for that funduffer. I got so interested in that Gadge list that I have set it up as a separate watchlist on the AIC site.

I hesitate a bit as they all seem to have ongoing expenses in excess of 1%. The exception is Law Debenture with annual expense at 0.43%.
Also is on offer at 7.4% discount to the NAV but lowish yield at 2.8%.

One of the main things which encouraged (and still encourages) me to continue with the HYP as well is the low expenses even compared to my legal and general all share passive index-linker trust which I started aeons ago. I noticed more of the income was coming to me! But it had been a great way to build up some capital to start a HYP when I was financially pretty naive and too busy with work anyway.

I digress, sorry!

eyeball

[CryptoPlankton]

I hesitate a bit as they all seem to have ongoing expenses in excess of 1%. The exception is Law Debenture with annual expense at 0.43%.

eyeball

Maybe I'm being foolish (small 'f'), but I struggle to see why people worry so much about fees. I have to admit that I don't even consider charges as long as an IT can produce what I need. For instance, New City High Yield Fund (NCYF) has been steadily paying me a (net) dividend yield of >6% for some years now, growing the absolute dividend slightly every year. In the context of my investment portfolio, that suits me just fine and the 1.2% TER is of no consequence to me whatsoever. Similarly (though OT here), Biotech Growth Trust (BIOG) has four-bagged in the time I've held it - I see the 1.1% TER as having been an insignificant price to pay to spread my risk across such a wide array of biotech companies. Both investments have more than fulfilled my expectations.

Please set me straight if anyone thinks I'm missing something important!

[eyeball08]

My post of yesterday 3rd December was inaccurate. I implied that all the ongoing expense ratios were over 1% but I was only looking at the ITs in the World Income portfolio not already owned by me.
City CTY, Murray International MYI, are under 1% but Henderson Far East HFEL is just over1%.

You may well be correct that I am worrying about these ongoing expenses too much Crypto. I just don't know.

Eyeball