The Lemon Fool

A former colleague of mine is about to retire early and has a lump sum to invest. He has a HYP, (as in the HYP-P board remit) but is interested to invest in ITs so as to gain exposure beyond the FTSE 100 & 250 markets.

I could point him to the B7, B8 or Gadge portfolios, but wanted to check if they are still recommended or whether a better selection might be made, considering both his current UK exposure (HYP) and our current political environment (weak pound, Brexit)?

Individual international shares might be interesting, but ITs feel like a lower risk approach?

TIA
VRD

The B7 and B8 are both UK heavy.

One simple approach would be just to buy the Vanguard FTSE Developed World ex-U.K. Equity Index Fund. Not much in the way of income though, if that's a requirement, and, as it's an OEIC, watch out for broker's platform charges.

Is income a requirement? And, while you're asking about an IT portfolio, does he particularly care about whether his non-UK exposure is ITs or ETFs or funds?

mc2fool wrote:The B7 and B8 are both UK heavy.

One simple approach would be just to buy the Vanguard FTSE Developed World ex-U.K. Equity Index Fund. Not much in the way of income though, if that's a requirement, and, as it's an OEIC, watch out for broker's platform charges.

Is income a requirement? And, while you're asking about an IT portfolio, does he particularly care about whether his non-UK exposure is ITs or ETFs or funds?

Good point re B7 & B8 for an existing HYP investor.

The available cash is in a Youinvest SIPP, so that's the platform fees / charging structure that will apply.

Neither he nor I know enough about the differences between ETFs, ITs or funds to care, but I read somewhere recently that ETFs haven't really been tested in a serious recession, and am wary of funds, both for charges and situations like the recent Neil Woodford problems. I suspect that peace-of-mind would favour ITs unless there was a significant argument for an alternative.

Income-wise, he'd like 2.5% or more from the total (new) investment, so it could be a mix of yields above and below that.

VRD

vrdiver wrote:Neither he nor I know enough about the differences between ETFs, ITs or funds to care

You need to know that ITs are usually "actively" managed by which I mean there's a person selecting the shares, whilst ETFs are usually passively managed by which I mean that investments are bought and sold according to a pre-determined formula with little human intervention. Funds (OEICs and Unit Trusts) can be either. Another practical difference is that ITs and ETFs are traded continuously whilst orders to buy or sell OEICs and Unit Trusts are queued and executed once a day.

If there's a serious market downturn, passive funds will go down with it. Active funds may not, depending on the skill of the stock picker. There again they could lose even more if all the worst performers had been selected.

I have for some time had a HYP which includes the usual UK based suspects but sold out of VOD, NG and SSE recently. Part of the cash I have now invested in a few ITs to diversify beyond the UK. So far I have bought BNKR, RCP and SMT. These don't do too much for my overall income stream but at least since I bought, the capital value is doing fine. MYI and HFEL are favoured by many hereabouts and CLDN has some appeal but for the moment I am sitting on my hands wondering what to do next.

vrdiver wrote:The available cash is in a Youinvest SIPP, so that's the platform fees / charging structure that will apply.

Hmmm...well, ok, I see that they have a 0.25% custody fee on funds up to £250K, so that's most definitely a consideration. https://www.youinvest.co.uk/sipp/charges-and-rates

vrdiver wrote:I read somewhere recently that ETFs haven't really been tested in a serious recession, and am wary of funds, both for charges and situations like the recent Neil Woodford problems.

AFAIAA no ETFs had any problems in (or since or before) the 2008 crash. Serious enough?

The Woodford situation is quite specific, a case of illiquid assets in a supposedly liquid structure, and easily avoidable by not choosing any funds that have such.

The high charges for funds is a poor generalisation nowadays, esp. for tracker funds, and you should look at each on a case by case basis. E.g. the aforementioned Vanguard tracker has an OCF of 0.15% which even after adding the 0.25% custody fee beats every IT in the AIC's global sectors (of course, it'd be even better if one could avoid the 0.25%...)

Still, if he's more comfortable with ITs, and given the non-UK and income requirements, the best place to start would be the AIC's Global Equity Income sector. (But do look into their portfolio breakdowns, some still have significant chunks in the UK).

The Global Emerging Markets and Asia Pacific Income sectors would be worth a look too.

Perhaps sign up to http://www.johnbaronportfolios.co.uk/ and take a look at the Income portfolio (Autumn), you can get a week's free trial which should help, the annual charge is £170 which he may not wish to pay. Alternatively, once a month Investors Chronicle updates the John Baron Winter & Summer portfolios.

John Baron is a decent introduction to the world of IT's and can help with getting started and/or maintaining a portfolio. The website does contain several portfolios but Autumn or Winter choices are for those later on in life.

mc2fool wrote:The B7 and B8 are both UK heavy.

please can you clarify what you mean by this.
My understanding was that B7&8 are filled with UK listed ITs, but some of these have their underlying investments largely overseas
Examples Henderson Far East (HFEL), Murray International (MYI) and Foreign & Colonial (FCIT)
I use these to get geographic diversity to balance my HYP.
Have I missed the point?

TUK020 wrote:

mc2fool wrote:The B7 and B8 are both UK heavy.

please can you clarify what you mean by this.
My understanding was that B7&8 are filled with UK listed ITs, but some of these have their underlying investments largely overseas
Examples Henderson Far East (HFEL), Murray International (MYI) and Foreign & Colonial (FCIT)
I use these to get geographic diversity to balance my HYP.
Have I missed the point?

The B7 contained "Bankers (BNKR), BMO Capital and Income (BCI-- formerly FCI), JPMorgan Claverhouse (JCH), Lowland Investment (LWI), Mercantile (MRC), Murray International (MYI) and Perpetual Income & Growth (PLI)" viewtopic.php?f=54&t=17903&p=225773

If you stick those into the Morningstar X-Ray facility in equal measures you'll see that the B7 is currently 74% UK. I call that pretty UK heavy.

The B8 contained "City of London (CTY), Dunedin Income Growth (DIG), Edinburgh (EDIN), Invesco Income Growth (IVI), Merchants (MRCH), Murray Income (MUT), Schroder Income Growth (SCF) and Temple Bar (TMPL)" https://web.archive.org/web/20161213063 ... 69374.aspx

Held in equal measures, the B8 is currently 90% UK. Even heavier.

Neither the B7 or B8 contained HFEL or FCIT. Sure, you can pick out just MYI (12% UK) but that doesn't change the fact that the B7 and B8 are both UK heavy.

In case it helps, the above is why having started with B7a plus (CTY) split between two ISAs accounts, when I took my 25% PCLS I used this injection of new money to diversify out internationally, and asset classes, ending up with my portfolio being 85% equities (pretty evenly split 50:50 UK and international, with many of the UK holdings trading globally of course), 5% fixed income (from the bond holdings within the equity income ITs), and 10% other asset classes (infrastructure, property, utilities).

Others may have done similar perhaps, with L'uni himself saying since their conception that if he were to create B7/B8 now they'd be more global in coverage, and I still thank him for setting me on this route with the TMF postings about the two baskets.

mc2fool wrote:

TUK020 wrote:

mc2fool wrote:The B7 and B8 are both UK heavy.

please can you clarify what you mean by this.
My understanding was that B7&8 are filled with UK listed ITs, but some of these have their underlying investments largely overseas
Examples Henderson Far East (HFEL), Murray International (MYI) and Foreign & Colonial (FCIT)
I use these to get geographic diversity to balance my HYP.
Have I missed the point?

The B7 contained "Bankers (BNKR), BMO Capital and Income (BCI-- formerly FCI), JPMorgan Claverhouse (JCH), Lowland Investment (LWI), Mercantile (MRC), Murray International (MYI) and Perpetual Income & Growth (PLI)" viewtopic.php?f=54&t=17903&p=225773

If you stick those into the Morningstar X-Ray facility in equal measures you'll see that the B7 is currently 74% UK. I call that pretty UK heavy.

The B8 contained "City of London (CTY), Dunedin Income Growth (DIG), Edinburgh (EDIN), Invesco Income Growth (IVI), Merchants (MRCH), Murray Income (MUT), Schroder Income Growth (SCF) and Temple Bar (TMPL)" https://web.archive.org/web/20161213063 ... 69374.aspx

Held in equal measures, the B8 is currently 90% UK. Even heavier.

Neither the B7 or B8 contained HFEL or FCIT. Sure, you can pick out just MYI (12% UK) but that doesn't change the fact that the B7 and B8 are both UK heavy.

FCI appears to mean Foreign and Colonial. Is that not FCIT? If so it seems that B7 contained this Trust. all very confusing because I gather it has now changed its name.

Dod

Dod101 wrote:FCI appears to mean Foreign and Colonial. Is that not FCIT? If so it seems that B7 contained this Trust. all very confusing because I gather it has now changed its name.
Dod

https://citywire.co.uk/investment-trust ... d/a1174108

See table 2.

Foreign & Colonial Investment Trust (FRCL) changed name to F&C Investment Trust (FCIT)

Investment Trust PLC (FCI) changed to BMO Capital and Income Investment Trust PLC (BCI)

The OP may find my real life Investment Trust income portfolio of interest. It is influenced by the John Baron portfolios, amongst others. Its formulation is described here:

viewtopic.php?f=8&t=13160

MP

Snorvey wrote:Yes but where do they get ťheir earnings from?

I doubt it's 74% from the UK.

Indeed, some 75% FTSE 100 earnings are from overseas, and 50% for the FTSE 250. (According to https://citywire.co.uk/funds-insider/ne ... nd/a926842 at least, numbers seem to vary by source).

But the OP said they already have a HYP and specifically said they wanted to gain exposure "beyond the FTSE 100 & 250 markets" ... and made it clear that by that they meant ex-UK holdings (via UK ITs).

Thanks monabri and apologies to mc2fool. The F & C (or should that be the BMO?) stable is very confusing.

Dod

"FRCL" and "FCIT" !

I find both phoenetically pleasing! "I was off for a little FRCL but then I thought,no, FCIT! "




(Maybe it's just me! - I'll get my coat)

monabri wrote:Foreign & Colonial Investment Trust (FRCL) changed name to F&C Investment Trust (FCIT)

Investment Trust PLC (FCI) changed to BMO Capital and Income Investment Trust PLC (BCI)

A little bit missing there. FCI was F&C Capital and Income Investment Trust PLC.

monabri wrote:"FRCL" and "FCIT" !

I find both phoenetically pleasing! "I was off for a little FRCL but then I thought,no, FCIT!

I quite like the MexID for the Fundsmith I ACC class -- FUQUIT! I just hope he isn't ... https://www.fundsmith.co.uk/home/fund-factsheet

Ought to be one called GrowthForth and Multiply (GFM?)

mc2fool wrote:The B7 and B8 are both UK heavy.
The B8 contained "City of London (CTY), Dunedin Income Growth (DIG), Edinburgh (EDIN), Invesco Income Growth (IVI), Merchants (MRCH), Murray Income (MUT), Schroder Income Growth (SCF) and Temple Bar (TMPL)"

Neither the B7 or B8 contained HFEL or FCIT. Sure, you can pick out just MYI (12% UK) but that doesn't change the fact that the B7 and B8 are both UK heavy.

thanks for the explanation/correction, I mis-remembered what was in B7 & B8

After some research, my former colleague has come up with the following selections of ITs to stand alongside his HYP:
Henderson Far East Income Ltd. HFEL
JP Morgan European Incom JETI
Manchester & London Investment Trust MNL
Bankers Inv Trust BNKR
JP Morgan Global Emerging Income JEMI
Monks Inv Trust MNKS
Murray International Trust MYI
Scottish American Inv Company SCAM
Henderson International Income Trust HINT
BlackRock Smaller Companies Trust BRSC
Blackrock North American Income Trust BRNA

Comments welcome!

VRD