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Income vs Growth IT Performance

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Finao
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Income vs Growth IT Performance

#184909

Postby Finao » December 5th, 2018, 3:58 pm

I've come from a HYP background but I'm thinking of moving into investment trusts as I don't really need the income anymore. I've done a fair bit of reading about them over the years and have a good feeling for them and I think it's the way I would like to go. In researching various IT candidates though there's one thing I'm not really sure about and can't find any information.

Comparing higher yielding ITs with more growth oriented ones, the growthier ITs always seem to fare better in the performance charts. Is this because the income ITs are just not such good performers as the growth ITs or is it because the growth charts don't take into account dividends reinvested? I've tried several of the IT performance websites but none of them seem to detail what is behind their performance charts.

DavidM13
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Re: Income vs Growth IT Performance

#184913

Postby DavidM13 » December 5th, 2018, 4:05 pm

All charts that you see should be total return. ie. with dividends re-invested. It will be done on the theoretical value of NAV or Market price on the ex-dividend date. I say theoretical because clearly you don't actually invest at that time or price.

So in theory it is a like for like basis and the returns you see should be comparable. Just a different income and capital return split.

If you want to provide examples of where you are looking happy to clarify further and confirm if they indeed are total return rather than raw/capital return.

I must say I would be quite surprised if there was legitimately such an obvious trend....

Dod101
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Re: Income vs Growth IT Performance

#184922

Postby Dod101 » December 5th, 2018, 5:01 pm

Finao wrote:Comparing higher yielding ITs with more growth oriented ones, the growthier ITs always seem to fare better in the performance charts. Is this because the income ITs are just not such good performers as the growth ITs or is it because the growth charts don't take into account dividends reinvested? I've tried several of the IT performance websites but none of them seem to detail what is behind their performance charts.


If we accept that the figures you are looking at are for total return in each case, the outcome would not really surprise me because a bit like a classic HYP share, the income IT is sacrificing growth in capital for an enhanced income and as we have seen with HYP shares in the last few years, defensive shares such as make up a typical HYP, have not on the whole fared very well on the capital front, and the enhanced income has failed to make up the shortfall overall.

I cannot say if that applies in general but it would I think apply to the more UK oriented income trusts, such as say Edinburgh, although even something like Murray International has hit a bit of a plateau for capital growth, and its stablemate, Murray Income is even worse.

If you do not need the income then things like Finsbury Growth and Income and RIT and in fact many generalist trusts should suit you well.

Dod

Itsallaguess
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Re: Income vs Growth IT Performance

#184927

Postby Itsallaguess » December 5th, 2018, 5:20 pm

Finao wrote:
I've come from a HYP background but I'm thinking of moving into investment trusts as I don't really need the income anymore. I've done a fair bit of reading about them over the years and have a good feeling for them and I think it's the way I would like to go. In researching various IT candidates though there's one thing I'm not really sure about and can't find any information.

Comparing higher yielding ITs with more growth oriented ones, the growthier ITs always seem to fare better in the performance charts. Is this because the income ITs are just not such good performers as the growth ITs or is it because the growth charts don't take into account dividends reinvested? I've tried several of the IT performance websites but none of them seem to detail what is behind their performance charts.


I've considered this issue too - and I came to the conclusion that even if there was a slight performance improvement to more 'growthy' Investment Trusts, it would mean that I'd need to consider a different approach to then taking income from them, as I'd clearly need to consider sales of equity to fund that 'income', which is something I'd prefer not to have to worry about.

I'm currently around 60% HYP shares and 40% income Investment Trusts (with a side-holding of Lifestrategy 80/20 for safe-keeping), and will probably allow my IT slice to increase over the coming years, but if there's a slight performance hit from me deciding not to go with the more growthy IT's then I'll consider that to be the cost I allow myself to pay so that I can continue to simply take an overall income from dividends in the future, rather than have to worry about sales...

Just my view, although I appreciate that others see it differently when it comes to even small overall performance benefits over many years of investment.

Cheers,

Itsallaguess

Lootman
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Re: Income vs Growth IT Performance

#184929

Postby Lootman » December 5th, 2018, 5:33 pm

Itsallaguess wrote: I came to the conclusion that even if there was a slight performance improvement to more 'growthy' Investment Trusts, it would mean that I'd need to consider a different approach to then taking income from them, as I'd clearly need to consider sales of equity to fund that 'income', which is something I'd prefer not to have to worry about.

I'm currently around 60% HYP shares and 40% income Investment Trusts (with a side-holding of Lifestrategy 80/20 for safe-keeping), and will probably allow my IT slice to increase over the coming years, but if there's a slight performance hit from me deciding not to go with the more growthy IT's then I'll consider that to be the cost I allow myself to pay so that I can continue to simply take an overall income from dividends in the future, rather than have to worry about sales.

As for "worrying about sales" then at least in a taxable account you are probably making some sales each year anyway, to utilise the annual CGT-free allowance. In that case the issue is more how much of those proceeds to reinvest. Whether you then draw your income from actual income or sales proceeds doesn't really matter so much. It's all just cash at that point and you can invest any surplus case either way.

More generally the idea that it is better to "only spend the income" is really another way of saying that you have enough capital for that to be an option. There is a class of investors/retirees who quite simply do not have enough capital to retire on if they are determined to live off only the income. But if they draw down capital as well, then they do have enough.

And in that latter case, superior capital preservation and growth aspects do become important.

In my case I partly live off the proceeds of share sales in my taxable account, whilst subscribing the maximum each year to my ISA, where I do not make withdrawals and all dividends are reinvested. Eventually the taxable account may be null, and then I will have to figure out how to draw income from my ISA, but I'm not there yet. But I do not feel I have to choose between spending the income or the capital. I just spend cash and a total return approach seems the best way.

In fact the distinction between capital and income can be seen as moot given that there are techniques for turning one into the other. I think that investing is best seen in terms of cashflows rather than "income".

Finao
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Re: Income vs Growth IT Performance

#184930

Postby Finao » December 5th, 2018, 5:59 pm

I've been using the performance charts on the AIC and HL websites to compare say Finsbury Growth and Income and Scottish Mortgage (and others) say with the likes of City of London, Shires Income, Edinburgh and Murray International over 5 and 10 years. I'm finding that all the income ITs seem to bumble along at about the same level, generally about the same as the FTSE 100 whilst the growth ITs do much better over the mid to long term.

Thanks for confirming that the charts should show comparable total return with dividends reinvested. I'm not saying that I wouldn't select say the likes of City of London for other reasons but it does help to know there is a level playing field.

DavidM13
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Re: Income vs Growth IT Performance

#184936

Postby DavidM13 » December 5th, 2018, 6:46 pm

Just as an aside, perhaps charts are not the best way of comparing numerous trusts. You can use those sites you mentioned to bring up performance tables for the whole industry/peer group at once. Saves you playing about with all sorts of navigation and being worried that you are not comparing the same figures. Find and Compare Investment Companies or the Interactive Statistics feature on the AIC site allows you to do that for example as well as "Analyse Investment Companies".

Both HL and AIC rely on Morningstar data, who also have a "Quick Rank" facility on their website too.

Basically there is a wealth of free information out there configured in a way that the retail investor can really dig deep at no charge. Which is nice!

Finao
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Re: Income vs Growth IT Performance

#184942

Postby Finao » December 5th, 2018, 7:39 pm

DavidM13 wrote:Just as an aside, perhaps charts are not the best way of comparing numerous trusts. You can use those sites you mentioned to bring up performance tables for the whole industry/peer group at once. Saves you playing about with all sorts of navigation and being worried that you are not comparing the same figures. Find and Compare Investment Companies or the Interactive Statistics feature on the AIC site allows you to do that for example as well as "Analyse Investment Companies".

Both HL and AIC rely on Morningstar data, who also have a "Quick Rank" facility on their website too.

Basically there is a wealth of free information out there configured in a way that the retail investor can really dig deep at no charge. Which is nice!


Thanks David, I'll check those out.

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Re: Income vs Growth IT Performance

#184961

Postby nmdhqbc » December 5th, 2018, 10:14 pm

Finao wrote:I've been using the performance charts on the AIC and HL websites to compare say Finsbury Growth and Income and Scottish Mortgage (and others) say with the likes of City of London, Shires Income, Edinburgh and Murray International over 5 and 10 years. I'm finding that all the income ITs seem to bumble along at about the same level, generally about the same as the FTSE 100 whilst the growth ITs do much better over the mid to long term.

Thanks for confirming that the charts should show comparable total return with dividends reinvested. I'm not saying that I wouldn't select say the likes of City of London for other reasons but it does help to know there is a level playing field.


I just checked and I think HL is just comparing share price / NAV whereas AIC seems to do total return. I just did a CTY vs FGT comparison chart over 10 years on both sites and AIC shows larger increases indicating it "re-invests" the dividends. Whatever source of data I use I always to a rough calculation sense check because they tend to be unclear.

Seems to me growth has outperformed lately but that's not to say that will continue forever. I like to have both. In terms of income I see my growthier holdings as jam tomorrow. All other things being equal they should grow quicker and become overweight in the longer term. If that happens I'll re-balance selling lower and buying higher yielding investments resulting in a nice pay rise for me down the line.

Avantegarde
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Re: Income vs Growth IT Performance

#185030

Postby Avantegarde » December 6th, 2018, 10:53 am

Finao wrote:I've come from a HYP background but I'm thinking of moving into investment trusts as I don't really need the income anymore. I've done a fair bit of reading about them over the years and have a good feeling for them and I think it's the way I would like to go. In researching various IT candidates though there's one thing I'm not really sure about and can't find any information.

Comparing higher yielding ITs with more growth oriented ones, the growthier ITs always seem to fare better in the performance charts. Is this because the income ITs are just not such good performers as the growth ITs or is it because the growth charts don't take into account dividends reinvested? I've tried several of the IT performance websites but none of them seem to detail what is behind their performance charts.


A word of warning. Many ITs that describe themselves as income-oriented are nothing of the sort. The stats available on the AIC website show that many of these ITs have been miserable failures when it comes to raising their dividends faster than inflation. And the total return on these ITs has often been far lower (in the past five years) than the return you could have obtained by simply investing in a low cost tracker, such as one tracking the FTSE All-Share or FTSE World Index. One reason for this is that many "income" ITs are heavily focused on UK stocks only, which have produced mediocre returns compared to those available abroad, especially from the US. That is why the place to be has been global ITs, at last for the past few years.

scotia
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Re: Income vs Growth IT Performance

#185055

Postby scotia » December 6th, 2018, 11:54 am

nmdhqbc wrote:I just checked and I think HL is just comparing share price / NAV whereas AIC seems to do total return.

Rather confusingly HL has two tools for the display of IT prices.
From the top bar of their menu, if you choose a share, and enter the IT code (e.g. CTY) you will be taken to a graphic which displays price and NAV - as you have observed.
However if from the top bar you select a fund (e.g. Fundsmith), then go for charts and performance - you will get a different graphic which allows you to display funds, ITs, ETFs and shares. And this graphic allows you to choose Price or Total Return. Over 5 years for City of London (CTY) the Total Return is currently quoted as 34.13%, while the Price increase is quoted as 9.53%.
And you may find this performance somewhat disappointing when compared to Fundsmith.

nmdhqbc
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Re: Income vs Growth IT Performance

#185065

Postby nmdhqbc » December 6th, 2018, 12:23 pm

scotia wrote:Rather confusingly HL has two tools for the display of IT prices.
From the top bar of their menu, if you choose a share, and enter the IT code (e.g. CTY) you will be taken to a graphic which displays price and NAV - as you have observed.
However if from the top bar you select a fund (e.g. Fundsmith), then go for charts and performance - you will get a different graphic which allows you to display funds, ITs, ETFs and shares. And this graphic allows you to choose Price or Total Return. Over 5 years for City of London (CTY) the Total Return is currently quoted as 34.13%, while the Price increase is quoted as 9.53%.


Interesting. So just compare 2 IT's to a random fund to compare them. Seems to be just 5 years though so probably best to use AIC. I'd prefer longer than their 10 years to be honest as even that now misses most of the last downturn.

Hariseldon58
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Re: Income vs Growth IT Performance

#185500

Postby Hariseldon58 » December 7th, 2018, 11:23 pm

Regarding Growth Vs Income ITs

My original investing from 1990 onwards was ITs and Income ITs were very satisfactory for many years.

I thought they became less appealing around 2011 or so and slowly moved to an almost total passive approach with global ETFs. This has worked well and clearly the growth approach has been a winner since the GFC.


However... I believe Income and UK based IT’s are looking much more attractive and I have moved heavily in that direction and so time will tell whether that was a good idea !

If nothing else I get an extra £25 k in dividends and that’s always reassuring if markets are going down or sideways.

OhNoNotimAgain
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Re: Income vs Growth IT Performance

#185534

Postby OhNoNotimAgain » December 8th, 2018, 9:50 am

Hariseldon58 wrote:Regarding Growth Vs Income ITs


I thought they became less appealing around 2011 or so and slowly moved to an almost total passive approach with global ETFs. This has worked well and clearly the growth approach has been a winner since the GFC.


Indeed, QE favoured growth and momentum investing.

Now it has stopped the old rules apply again.

GoSeigen
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Re: Income vs Growth IT Performance

#185653

Postby GoSeigen » December 8th, 2018, 8:01 pm

OhNoNotimAgain wrote:
Hariseldon58 wrote:Regarding Growth Vs Income ITs


I thought they became less appealing around 2011 or so and slowly moved to an almost total passive approach with global ETFs. This has worked well and clearly the growth approach has been a winner since the GFC.


Indeed, QE favoured growth and momentum investing.

Now it has stopped the old rules apply again.



Can you put some dates and locations on these sweeping statements please?



QE hasn't stopped so the old rules don't apply.

See what I did there?


GS

langley59
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Re: Income vs Growth IT Performance

#185677

Postby langley59 » December 8th, 2018, 9:32 pm

QE has stopped, at least in the US which arguably is the most significant central bank, where QT is underway as the FED is reducing the size of its balance sheet. QE stopped in the UK 2 years ago and is scheduled to stop in the Eurozone at the end of this year. So I think OhNoNotimAgain's comment stands actually.

Arborbridge
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Re: Income vs Growth IT Performance

#185709

Postby Arborbridge » December 9th, 2018, 9:56 am

One quick and dirty way of comparing is using trustnet's filtering for ITs.
They give the average performance for the various sectors, at present, for example, the average TR for UK equity income ITs over 1,3 and 5 years, is -5% +12.6% and +22.9%. whereas for UK All companies it is -4%, 14% ,24.7%.

An obvious problem here is that this is not NAV based, but whenever I've looked over the past 15 years, the income sector is alaways lower in performance by this method than the All companies. Not conclusive but a straw in the wind perhaps.

So my general feelings is that if one is an income drawer, income ITs could be favourite (unless you like the bother of asset harvesting) but for pot-builders, I would look elsewhere.

One can also graph a number of ITs together - perhaps ones you are interested in - and compare the performance "with dividends re-invested" and "without dividends reinvested" to see what can be gleaned. Some income ITs are clearly not growing their capital much, or even eating into it.


Arb.

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Re: Income vs Growth IT Performance

#185757

Postby GoSeigen » December 9th, 2018, 3:16 pm

langley59 wrote:QE has stopped, at least in the US which arguably is the most significant central bank, where QT is underway as the FED is reducing the size of its balance sheet. QE stopped in the UK 2 years ago and is scheduled to stop in the Eurozone at the end of this year. So I think OhNoNotimAgain's comment stands actually.



QE hasn't stopped in Japan so it is still continuing actually.

This discussion highlights the bland contentless comments made earlier, which mean anything the author wants or indeed nothing at all.


GS

langley59
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Re: Income vs Growth IT Performance

#185815

Postby langley59 » December 9th, 2018, 8:42 pm

GoSeigen wrote:
langley59 wrote:QE has stopped, at least in the US which arguably is the most significant central bank, where QT is underway as the FED is reducing the size of its balance sheet. QE stopped in the UK 2 years ago and is scheduled to stop in the Eurozone at the end of this year. So I think OhNoNotimAgain's comment stands actually.



QE hasn't stopped in Japan so it is still continuing actually.

This discussion highlights the bland contentless comments made earlier, which mean anything the author wants or indeed nothing at all.


GS


When you sum them all up in USD the global central banks' balance sheet is reducing in size whereas for the past 10 or so years it has been increasing (I would provide a link but its proprietary Bloomberg information so you'll have to take it on trust). Its my belief that this expansion and now contraction in the money supply is the most important factor in the determination of asset prices generally.

OhNoNotimAgain
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Re: Income vs Growth IT Performance

#185891

Postby OhNoNotimAgain » December 10th, 2018, 10:43 am

langley59 wrote:
GoSeigen wrote:
langley59 wrote:QE has stopped, at least in the US which arguably is the most significant central bank, where QT is underway as the FED is reducing the size of its balance sheet. QE stopped in the UK 2 years ago and is scheduled to stop in the Eurozone at the end of this year. So I think OhNoNotimAgain's comment stands actually.



QE hasn't stopped in Japan so it is still continuing actually.

This discussion highlights the bland contentless comments made earlier, which mean anything the author wants or indeed nothing at all.


GS


When you sum them all up in USD the global central banks' balance sheet is reducing in size whereas for the past 10 or so years it has been increasing (I would provide a link but its proprietary Bloomberg information so you'll have to take it on trust). Its my belief that this expansion and now contraction in the money supply is the most important factor in the determination of asset prices generally.


I am part way through Crashed by Adam Tooze and hadn't previously appreciated the scale of liquidity provision by the Fed. It's programme not only supported prices but prevented the whole system from falling apart. Removing that support is understandably having an impact.


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