Having a crack at an Investment Trust Portfolio to live on in old age

[dmukgr]

I may well choose to replace some (or maybe all, who knows) of the trusts with various trackers. I think in order to keep this thread on topic what I will do is assume not at this stage, finalise the portfolio so that I am happy with it and then assess in another thread on the Strategy board if I want to diversify it further by swapping out some trusts for either trackers or individual shares.

With that said, I should iterate that the intention is to achieve an income of 4% that I can rely on in good times and bad - either through pure dividends or dividends and top slicing. My current thinking is to not chase high yields but to get the natural yield and top slice as the gains would outweigh any dividend lost by discarding the highest yield (as I assume these under-perform the market).

Having thought about what people have said with having less holdings, I have trimmed it (and changed a few selections based on comments here) so it now looks like :



N.B. NAV I got from morning star along with past dividend payments in order to calculate the yield (which sometimes disagrees with Morningstars own quoted yield).

What I am now thinking about is how I would go about timing the purchases. I have included the NAV info this time but what do I do with it? How do I help it time a purchase or is it just a case of replacing those with a positive discount with another fund?

[Lootman]

May I ask what the difference is between the two sectors I have highlighted? In other words what is the difference between "Asia" and "Asia-Pacific"? Both are ex-Japan equity funds.

[Avantegarde]

May I ask what the difference is between the two sectors I have highlighted? In other words what is the difference between "Asia" and "Asia-Pacific"? Both are ex-Japan equity funds.

I don't know if there is a formal, industry-agreed, definition of these two regions. But, having invested in some Far East/Asia Pacific trusts, I can assure you that there is a huge difference in the composition of the various trusts that fish in these waters. They may be heavily weighted towards, say, China, or India, or HK, or Singapore or Australia. And that is before deciding if Japan is to be excluded or not. Pay close attention to the countries in which the trusts actually invest. You may be surprised.

[StOmer]

Both of those are in the Asia Pacific - Excluding Japan sector according to the AIC. Is the OP referring to Morningstar Categories which differ from the Industry?

[dmukgr]

Both of those are in the Asia Pacific - Excluding Japan sector according to the AIC. Is the OP referring to Morningstar Categories which differ from the Industry?

Yes, I took them from Morningstar, although I didn't realise that they differed from other places.

May I ask what the difference is between the two sectors I have highlighted? In other words what is the difference between "Asia" and "Asia-Pacific"? Both are ex-Japan equity funds.

Scottish Oriental has a sizeable bent towards India (~30%), Phillippinse (~10%) and Taiwan (~12%) with the emphasis on consumer goods and industrials.
Henderson Far East Income is more bent to China (~25%) and Australia (15%) whilst also holding (~15%) Taiwan but South Korea and Singapore (~12% each). Their emphasis is Financials in a heavy way and something that I tried to derisk by having Scottish Oriental as well.

[Raptor]

There is no need to stay away from HYP Practical if you want to talk about an HYP portfolio. If you have a mixture of investments, just keep them separate. If you want to discuss everything, there are places you can do that without problems.

As far as switching to ITs in old age, mentioning that you may be or are making that move is a logical way of saying farewell to that board and picking up the discussion on a more relevant board. The definition of old age is another question, and for some it might be 60, for others 90 or anything in between. I haven't got to the stage of wanting or needing to make the transition, although for some it could be the right medium in youth.

TJH

I started a move away from pure HYP shares in 2015. It was after a TMF thread on maintaining a HYP when you no longer want to or can. I was 61 then. So far have managed to be able to follow both paths but have been moving to a greater percentage of ITs. Started off with income producing IT's and have now started to build a portfolio covering sections/areas I do not have in my HYP. Last yeat brought in MCT for Nth American exposure and recently JETI for Europe, already have Far East. When that is up to median will probably look at an IT with technology.

Good luck with your portfolio.

Raptor.

[dmukgr]

4) If you want income, pay close attention to the statistics on the AIC website https://www.theaic.co.uk/aic/find-compa ... statistics which will show you the annual growth in dividends of individual trusts. You would be amazed at how many profess to offer their investors a steady rising income, yet whose dividends fail to rise faster than RPI.

[A bit of a delayed reply to this post if people are trying to find the source it was on page 1]

I didn't know about the 'theaic' site and having looked at it, really like it. I've now added the dividend information from it :



This is making me have second thoughts about a few, namely SST & BRCI.

[OZYU]

OP,

The AiC website is indeed imho essential reference for anybody starting with ITs. As a starting point, no more. By contrast, apart from the John Baron's regular articles, the Investors Chronicle articles on ITs are generally pathetic, written by what appears to be wet behind the ears investors.

AiC is generally pretty good in terms of data quality(but not perfect at all, for example the exact 5yr rolling cagr of HFEL divis is 5.08%), but for your purpose, look also at the underlying reasons for some of the exceptional divi cagr data, for example change of divi policy can obscure what is really going on for a few on your list. Do not invest without reading at least the latest two Company Reports, and also take a look at the last few months RNSs(I use the LSEs web site for that), to see if something unusual is afoot.


Having said all that, ITs, reasonably researched, won't let you down as a basket imho, that is why I gave you a baker's dozen to contemplate.


There are countless investors who say they can do better with whatever other approach, and of course a few do, but many of these don't even measure their portfolio performance properly, or just look at too short a timescale to take a proper view. Over the last 30 years, my wife's ITS (unlike me she only invests in collectives) have returned 7.46%, NET of RPI, as of last Friday's update(we measure and plot that way because it gives us a proper REAL return approximation, and is more challenging). She is happy with that considering the average RPI over the period.


If I consider the amount of work other portfolios of ours have needed to better that, many investors just don't have the time/knowledge/inclination....



Ozyu

[tramrider]

I think that IBT has a yield of about 4.1% at the moment, which should increase your portfolio average.

https://www.theaic.co.uk/companydata/30218

[dmukgr]

Yes, I seemed to have missed that. Thanks.

[OZYU]

Ozyu - I typed up your suggested portfolio and it does look good to me and has a slightly higher yield (around 3.4% I calculated). I'll investigate those choices, especially BGS which stood out but seems to be on a huge premium.

I'm not sure how to go with premiums and discounts to NAV as it feels like trying to time the market which is a bad idea, but it also seems ridiculous to contemplate buying something that you know isn't worth the price being asked

Thanks for looking at it, it was a selection from ours which I thought blended income with a few serious growers, which you could trim from time to time if wanted, but could indeed be balanced for your kind of yield. I made sure there was enough reasonable divi growth in there too, and they are pretty solid as a bunch, some we have held for many years. I see many posters thought you had too many, I generally think in the 10-15 range is what is needed to guard against black swan stuff but still focus enough in the different themes and geographies. My wife holds quite a few more because we also set a maximum absolute max value on single investments, an the size of the portfolios thus demands more holdings, a habit of ours.

As for buying at a premium, you must of course be careful of not making a habit of it, but trying to catch some at a discount is like waiting for godot at times. People pay much too much attention to this aspect, because if you are in it for the long term, it matters a lot less. To get round the problem I suggested buying gradually, by that I mean buy across the board and gradually top them up. We do attempt a bit of timing in that we go in light when we feel markets defy gravity, but much heavier when armaggdon threatens, not foolproof at individual investment, but overall highly effective in getting an edge, but of course you can't do that because your requirement is to find a sensible long term home for a lump sum.


Please note that the income stream on those which release capital for divis will fluctuate, nothing which a sensible household income reserve can't handle imho. And they won't always fluctuate synchronously.


Good hunting, don't feel rushed, you have time to ponder quite a bit more.


Ozyu

[Hariseldon58]

@dmukgr

Kepler Investment Trust site is interesting

https://www.trustintelligence.co.uk/

And this one also https://www.edisoninvestmentresearch.com/research/team/investment-companies-trusts

[chevin]

Reading your initial post, it was almost complete deja vu in terms of history of relationship with LemonFool and TMF. Only real difference is that whilst I did have a portion of my portfolio in HYP, I had just as much in small caps, and spent a lot of time on the Cornishman and Friends board. However, like you, with retirement looming, I decided to move over into being more IT based, which is where I am now. I was struck as to how much our two portfolios had in common, although yours looks geographically much more balanced than mine. So just some thoughts on where they touch and where they differ (apologies if any of this is out of date, as I know you've been revising since the OP).

Global/Flexible: hold BNKR, HINT, PNL, SIGT (4-5% each) I used to hold MYI, and did so for some time before going down the IT route, but, whilst it has a good yield, it's performance left me unimpressed, so swapped into HINT - ungeared, slightly lower divi, but has performed better for me. It has a different geographical balance, but as I don't hold any specific North American trusts, that covers that part of the world for me. MYI is strong on the Far East, but I'm a long term holder of SOI to cover that.

I gather you've dispensed with RIT. I did too - premium was too high for me for starters, but I also wanted something which might balance an otherwise heavily equity orientated portfolio particularly in a market that looks increasingly iffy (and I wanted something to counterbalance some more adventurous holdings), thus the PNL and SIGT (the latter with a stronger income)

UK: like you, I hold CTY and HSL. I also hold DIVI and SHRS, as have focused more on income than growth with an element of non-equity. Even so, probably at least one holding too many. I've reduced my UK holdings a fair bit - now about 15%, although some other ITs include UK.

In Europe, again like you hold EAT. Also have SLPE - I wanted an element of private equity in the portfolio but most seem to be North American orientated, and didn't want that. Together = 5%.

In North America - no specific trusts, but feel I've got more than enough exposure at present through primarily HINT, BNKR, PNL and WWH.

In Japan, I'm a long term holder of BGS (just over 6 years) - running my winners. Doesn't do anything directlyfor income, although have top-sliced a fair bit now. Still represents just over 5%.

Asia-Pacific - SOI as above. I also wanted some exposure to Vietnam, so hold some VOF. Total = 5%.

Other Emerging Markets: like you, I hold UEM, around 2% portfolio. I sold off my BRFI a few months ago as the price was sliding too much and didn't like the combined premium, gearing, or short-term prospects. Most holdings I'm in for the long term, but this was one I was prepared to deal in shorter term.

Health and Biotech: Like you, holdings are WWH and IBT. WWH is a long term hold (5 and a half years) and I'm treating it the same way as BGS.

My other holdings, you don't seem to have an equivalent for, so maybe this might be worth a look? I have around 9% in property, split across four trusts in areas that I like: PHP, TRY, PCT, and DIGS. Good income and another asset area to balance pure equities. Also 6% in infrastructure: INPP for general, and BSIF is in a particular area I think worthwhile longer term. Again, good income. Finally, I have around 6% in fixed interest, again for income, split equally between NCYF and TFIF.

I also currently have just under 20% in cash, I would normally be closer to 5-10%, but like you, want to see how Brexit etc pans out. Yield is thus 2.7% on total, and 3.3% on actual holdings.

Hope that helps.

[dmukgr]

Thanks all,

I've made a couple more tweeks (or am in the process of doing) and will post an update next week once I've finished my research.

As for when I commit - I'm still unsure about when and how to do that. I may do it as a fantasy porfolio until after Brexit.

[TahiPanasDua]

Asia-Pacific - SOI as above. .

How does HMRC treat income and capital gains from Guernsey based, UK quoted, ITs such as SOI? Any different to other ITs such as MYI?

The ongoing charge is a stonking 1.95% and it is not covered by the financial compensation scheme.

TP2

[Bluestone77]

How does HMRC treat income and capital gains from Guernsey based, UK quoted, ITs such as SOI? Any different to other ITs such as MYI?

It seems to be a legacy to avoid double taxation, but now it seems not to make any difference compared with UK based.
See:
http://m.citywire.co.uk/money/offshore- ... ys/a708628
That is for Jersey but I presume Guernsey is the same.
One benefit is that there is no stamp duty to pay on purchases. I hold AAIF which is Jersey based.

[chevin]

How does HMRC treat income and capital gains from Guernsey based, UK quoted, ITs such as SOI? TP2

Sorry, I don't know. All my ITs are in ISAs, so I've never really looked at this side of things.

[dmukgr]

Sometimes I think about cracking on and sometimes I worry about dropping such a large sum in one go and think that waiting on a drop would be nice - though I would keep waiting on further drops and end up buying on a high. Maybe I'll go in with 50% and wait for a while.

Regarding whose idea it was - the idea itself has come from years of reading about financing and liking this approach, but I then felt I shouldn't try and cherry pick sectors so tried to have a general approach, which is why comments suggesting to just buy a world tracker are relevant.

Once I decided the sectors I then looked at peoples suggestions for each of those sectors and picked the ones I liked the look off but I'm trying to make my list smaller as it is easier for rebalancing and topping up that way and whilst I like the comfort of having more funds it doesn't seem worth the hassle. As part of that I am currently shrinking my targeted funds and am currently looking at WWH, IBT, ATT and HRI though the latter is probably me trying to jump on a trend and I need to talk myself out of it.