Interactive Investor 'basket' of ITs for income

[floyd3592]

I’m looking to set up a basket of ITs to supplement my HYP for retirement income. I came across this list of trusts from an iI article from 2015 to give an income of £10,000 per annum (needing an investment of £245,000): -

UK
City of London
Perpetual Income and Growth
Temple Bar
Troy Income and Growth

International
Murray International
Majedie
Scottish American
JPM Emerging Mkts Inc

Other
Middlefield Canadian Income
Princess Private Equity

The majority of these were trading at a premium to their NAVs at that time but was justified because “a modest premium paid at the outset will have little impact on overall returns”

1) Is the ‘modest premium is ok’ viewpoint valid (I guess this would depend on one’s definition of ‘modest’)? and if it is, then what current ITs would have a premium considered ‘modest’ or, conversely, ‘immodest’?!

2) What is the opinion on here of the overall ‘basket’ listed here? Is it still a ‘good’ listing? currently, are there any listed that should definitely be excluded or some which would be definitely included?

3) Is it more worthwhile just simply constructing a basket based on Luni’s B7 or a John Barron portfolio?

[DavidM13]

If the Lemon Fool doesn't mind I am going to use this opportunity for a shameless plug. Before the end of March we are launching on the AIC website an "Income Builder" tool. Which allows you play around with virtual portfolios of Investment Companies to plan income over time. Using the yields to predict revenues based on previous payments and number of shares held, and, importantly, using the dividend payment schedules of the individual companies to for example smooth income over the year. Of course this service will be completely free.

So for example (using the beta version of the tool). If you put 10k in each of the companies you mention (100k invested) your annual income received over the last 12 months would be £3,815. Your average monthly revenue would be £318 with zero months without any income. Your weakest month would be August with £211 of income received and your healthiest month would be December £535 and July £511.

There will be other bells and whistles too!

So I sincerely hope it helps investors study Investment Companies for Income.

[Darka]

So I sincerely hope it helps investors study Investment Companies for Income.

Thanks David, that sound like it's going to be very useful!

Will keep an eye out for it.

[swill453]

If the Lemon Fool doesn't mind I am going to use this opportunity for a shameless plug. Before the end of March we are launching on the AIC website an "Income Builder" tool. Which allows you play around with virtual portfolios of Investment Companies to plan income over time.

Is there any reason it won't cover ETFs as well? Or even any share in general?

Scott.

[tjh290633]

If the Lemon Fool doesn't mind I am going to use this opportunity for a shameless plug. Before the end of March we are launching on the AIC website an "Income Builder" tool. Which allows you play around with virtual portfolios of Investment Companies to plan income over time.

Is there any reason it won't cover ETFs as well? Or even any share in general?

Scott.

I would have thought that was obvious. The AIC is there to promote Investment Companies.

TJH

[Avantegarde]

I wouldn't use that list of ITs at all. The likes of City and Temple Bar have been poor performers in the past five years ort so, failing to beat a simple tracker of the 100-share index or the all-share index, while charging you half of 1% of your holding ever year for the privilege of this "underperformance". The same is true for quite a few global ITs and their relevant trackers. ITs can go off the boil quite quickly which means it is almost impossible predict which, if any, will provide you with a decent starting yield now AND keep raising your dividend income by more than inflation each year. I suggest that you make your selection using the stats on the AIC website which show, very helpfully, the average annual increase in dividends for every IT over the past few years. Many ITs with the world "income" in their title have failed to raise dividends even in line with inflation, let along by a greater amount.

[formoverfunction]

1.2.1 score for me.

One from the top row

Two from the second

One from the bottom.


Held for at least 5 years, most for over a decade. Not sure if that means I'm spending too much time visiting ii, or maybe not one to jump around much.

[tramrider]

I’m looking to set up a basket of ITs to supplement my HYP for retirement income.
...
3) Is it more worthwhile just simply constructing a basket based on Luni’s B7 or a John Barron portfolio?

I think you may also find the Gadge IT portfolio of interest for suggesting useful ITs. It has a wider global reach and perhaps a higher overall yield. It had £100,000 of capital and produced £5656.38 over the last year.

https://www.lemonfool.co.uk/viewtopic.php?f=8&t=15719&p=193875&hilit=Gadge+portfolio#p193875

[DavidM13]

I wouldn't use that list of ITs at all. The likes of City and Temple Bar have been poor performers in the past five years ort so, failing to beat a simple tracker of the 100-share index or the all-share index, while charging you half of 1% of your holding ever year for the privilege of this "underperformance". The same is true for quite a few global ITs and their relevant trackers. ITs can go off the boil quite quickly which means it is almost impossible predict which, if any, will provide you with a decent starting yield now AND keep raising your dividend income by more than inflation each year. I suggest that you make your selection using the stats on the AIC website which show, very helpfully, the average annual increase in dividends for every IT over the past few years. Many ITs with the world "income" in their title have failed to raise dividends even in line with inflation, let along by a greater amount.

Whilst I cannot disagree with the facts quoted on 5y performance for those particular trusts, and completely agree about how good the AIC website is I do take a slight issue with the comment on charges. The NAV and Share price performance that is quoted has all the expenses baked in already. (save for your own transaction/product charges). People often quote performance against a tracker and assume a) that expenses come off after and b) they can access a magical free tracker product. Clearly there is also a charge attached to a tracker too. So in summary my theory is if the returns match, or are even everso slightly less than the index that is still a win for the active management.

[Avantegarde]

I wouldn't use that list of ITs at all. The likes of City and Temple Bar have been poor performers in the past five years ort so, failing to beat a simple tracker of the 100-share index or the all-share index, while charging you half of 1% of your holding ever year for the privilege of this "underperformance". The same is true for quite a few global ITs and their relevant trackers. ITs can go off the boil quite quickly which means it is almost impossible predict which, if any, will provide you with a decent starting yield now AND keep raising your dividend income by more than inflation each year. I suggest that you make your selection using the stats on the AIC website which show, very helpfully, the average annual increase in dividends for every IT over the past few years. Many ITs with the world "income" in their title have failed to raise dividends even in line with inflation, let along by a greater amount.

Whilst I cannot disagree with the facts quoted on 5y performance for those particular trusts, and completely agree about how good the AIC website is I do take a slight issue with the comment on charges. The NAV and Share price performance that is quoted has all the expenses baked in already. (save for your own transaction/product charges). People often quote performance against a tracker and assume a) that expenses come off after and b) they can access a magical free tracker product. Clearly there is also a charge attached to a tracker too. So in summary my theory is if the returns match, or are even everso slightly less than the index that is still a win for the active management.

I disagree. If an active fund, even an expensive one, produces an obviously superior return then you may consider that a good reason to pay their charges. If an active fund produces a return simply in line with an index fund or, worse, a poorer performance, then why bother?

[DavidM13]

My point is if an active fund quotes a return that is the same as an index then you are better in the active fund as it is not free to follow the index. The returns quoted for the investment company are after the costs but the returns for the index assume no costs. Which is not reality.

[scotia]

My point is if an active fund quotes a return that is the same as an index then you are better in the active fund as it is not free to follow the index. The returns quoted for the investment company are after the costs but the returns for the index assume no costs. Which is not reality.

I agree with your statement - but would like to add a further slight adjustment. If the tracker is an ETF, then the performance quoted also includes the regular charges as for an IT. However the initial charge does not include a transfer stamp of 0.5% - a small saving compared to an IT. I think we agree that some of the UK Income ITs have been pretty poor performers recently. A FTSE 100 tracker ETF (XDUK) is ahead of City of London (CTY) by about 5% (cumulative total return - net income reinvested) over the past three years (data from HL). I know - fashions can change, and there is no guarantee that this will continue.

[DavidM13]

My point is if an active fund quotes a return that is the same as an index then you are better in the active fund as it is not free to follow the index. The returns quoted for the investment company are after the costs but the returns for the index assume no costs. Which is not reality.

I agree with your statement - but would like to add a further slight adjustment. If the tracker is an ETF, then the performance quoted also includes the regular charges as for an IT. However the initial charge does not include a transfer stamp of 0.5% - a small saving compared to an IT. I think we agree that some of the UK Income ITs have been pretty poor performers recently. A FTSE 100 tracker ETF (XDUK) is ahead of City of London (CTY) by about 5% (cumulative total return - net income reinvested) over the past three years (data from HL). I know - fashions can change, and there is no guarantee that this will continue.

Yes, totally agree. If it is an ETF the charges are built in as they are with CEFs. That is all I wanted to say. I just wanted to ensure we confirm like with like. ETF with CEF is fine but Index with CEF comes with the caveat.

Now, back to the income portfolio....

[Avantegarde]

My point is if an active fund quotes a return that is the same as an index then you are better in the active fund as it is not free to follow the index. The returns quoted for the investment company are after the costs but the returns for the index assume no costs. Which is not reality.

No, your proposed comparison is inaccurate, at least in my case. I compare the total return of my chosen tracker fund (not the index itself, but a fund that actually tracks the index) with the total return of my chosen ITs. In both cases, expenses are taken into consideration when calculating that total return. That is why I find investing in a tracker so useful and illuminating.

[DavidM13]

Yep i think we are all agreed on that . CEF and ETF tracker quote inclusive of all costs.

[Parky]

The majority of these were trading at a premium to their NAVs at that time but was justified because “a modest premium paid at the outset will have little impact on overall returns”

1) Is the ‘modest premium is ok’ viewpoint valid

I think the level of discount/premium when you buy is critical to improving IT returns, and is one of the big advantages of investing in ITs.
Using your figures of £245000 invested and £10000 p.a. dividend (i.e 4% yield approx), the difference between a 5% discount to NAV and a 5%premium to NAV when you purchase would mean either £24500 more/ less investment for the same income, or £1000 p.a. more/less income for the same investment ( assuming the IT had the same underlying income from its investments, and ignoring changes in the share price) - very significant I would say.
Of course, not many trusts swing that much between premium and discount, but there are some significant changes, especially in today's volatile market. I always try to buy at a discount, in the hope that the share will move to a premium, giving me a capital gain bonus as well as a good yield. There are reasons why this is not always possible, as some ITs control their premium/discount by buying and selling shares themselves, and of course ITs may be selling at a large discount for a reason which makes them worth avoiding.

[Arborbridge]

I wouldn't use that list of ITs at all. The likes of City and Temple Bar have been poor performers in the past five years ort so, failing to beat a simple tracker of the 100-share index or the all-share index, while charging you half of 1% of your holding ever year for the privilege of this "underperformance". The same is true for quite a few global ITs and their relevant trackers. ITs can go off the boil quite quickly which means it is almost impossible predict which, if any, will provide you with a decent starting yield now AND keep raising your dividend income by more than inflation each year. I suggest that you make your selection using the stats on the AIC website which show, very helpfully, the average annual increase in dividends for every IT over the past few years. Many ITs with the world "income" in their title have failed to raise dividends even in line with inflation, let along by a greater amount.

Could you suggest a simple tracker or index fund which will outperform the "usual suspects" and give me a similar yield? - let's say, to CTY.

Arb.

[toofast2live]

Naughty, naughty, Arb.

You know the answer - you take a capital sum instead of the “natural yield”, which has tax advantages. Some don’t like this idea, others do. Each to their own - let a million flowers bloom.

[Arborbridge]

Naughty, naughty, Arb.

You know the answer - you take a capital sum instead of the “natural yield”, which has tax advantages. Some don’t like this idea, others do. Each to their own - let a million flowers bloom.

Were you answering my question about recommending a fund? If so, you've misunderstood me. I thought there would be an index fund which paid out the yield as a dividend. Are you saying there are non which do that and that you must slice off the equivalent yield as you need it?

I've never looked into index or trackers for this purpose before, so excuse my ignorance. I do have a secondary reason for asking: my daughter is interested in investing in something for her future, and it seems to me a simple tracker might be a good way for her as she is very much "hands off".

Arb.

[OhNoNotimAgain]

Naughty, naughty, Arb.

You know the answer - you take a capital sum instead of the “natural yield”, which has tax advantages. Some don’t like this idea, others do. Each to their own - let a million flowers bloom.

Were you answering my question about recommending a fund? If so, you've misunderstood me. I thought there would be an index fund which paid out the yield as a dividend. Are you saying there are non which do that and that you must slice off the equivalent yield as you need it?

I've never looked into index or trackers for this purpose before, so excuse my ignorance. I do have a secondary reason for asking: my daughter is interested in investing in something for her future, and it seems to me a simple tracker might be a good way for her as she is very much "hands off".

Arb.

Yes there are.