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Proportion of portfolio in Investment Trusts

Closed-end funds and OEICs
Dod101
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Re: Proportion of portfolio in Investment Trusts

#250254

Postby Dod101 » September 8th, 2019, 8:35 am

Hi Pref

By chance though you did buy Chesnara at more or less the top of the market. That was just bad luck. You have got a good point in that many of the HY stalwarts have had a very poor outcome for capital over the last few years and that is why a number of posters have been turning more to ITs, including me actually. Of course if you buy UK invested ITs for income then you have just the same problem which is why HFEL, Murray International and the like tend to feature in those portfolios.

I hold on to the income stalwarts like Chesnara and the tobaccos in the hope that eventually the capital values will recover because by most measures the UK market is not expensive, but the political turmoil is very worrying.

Dod

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Re: Proportion of portfolio in Investment Trusts

#250261

Postby PrefInvestor » September 8th, 2019, 9:19 am

Hi All, Well personally I must say that having any fixed number of ITs (or anything else) in my portfolio forms no part of my thinking at all. Rather I operate in accordance with a number of principles, as follows:-

I have long held the view that “big holdings make for big losses” especially in respect of single stocks, this being the case I have a maximum limit for the amount of my money that I am prepared to commit to ANY investment. When I have reached that limit then I will not invest any more in it EVER, the investment can grow to a greater value (in which case I will likely top slice at some point). I am quite happy to have a large number of holdings, I would rather do that that have a lot of eggs in one basket somewhere.

I am a high yield investor by inclination. Typically I don’t invest in anything that doesn’t pay a dividend of at least 4.5%. Capital growth is nice but I do not chase it, but I DO believe in capital preservation and loss avoidance (where possible). I have often said that my ideal investment would be an old style savings account paying 5% interest. If I could get that today with complete capital security then I would give up the stock market in an instant. This facet of my nature makes investing in the US difficult, as few things there pay decent dividends – but I have found a few things that do.

Diversification and distribution between asset classes, geography’s and currencies are all important to where I invest. I have a view on how much of my portfolio I want to have exposed to each, which is roughly as follows:-
a) Single stock equities – no more than ~25%
b) Fixed interest / debt – 25-30% (Prefs ~15%)
c) Overseas investments – 15-20%
d) Overseas currency exposure – 25-40% (mainly USD)
e) ETFs – 15-20%
f) Renewable Energy investments (15-20%)

Now clearly there is some overlap in those categories and they are just personal rules of thumb and if I feel that I need to change them I will, but I will never ignore them completely. My investment spreadsheet tracks my exposure to each and anytime I make a new purchase it will usually be to change my exposure to one of these areas rather than being in any way related to some company or ITs performance. Only when I have decided the area of my portfolio that I want to adjust will I start looking for a specific investment to fulfil that goal – and these days the instrument that I choose will nearly always be an IT or an ETF.

ATB

Pref

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Re: Proportion of portfolio in Investment Trusts

#250265

Postby tjh290633 » September 8th, 2019, 9:43 am

TUK020 wrote:
tjh290633 wrote: If and when I move into ITs, then I think 10 will be my absolute limit.

TJH


Terry,
Is that number an intuitive choice, or is there a chain of reasoning behind it?
TUK020

My thinking is that I need a couple of the big global rusts, FCIT and WTAN, a few of the income producing trusts, and maybe a couple of specialists, possibly including REITs.

I am still slowly doing my assessments.

TJH

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Re: Proportion of portfolio in Investment Trusts

#250268

Postby Dod101 » September 8th, 2019, 9:48 am

TJH's comments are almost exactly how my IT holdings have evolved, not through any grand plan but they just seemed right at the time. I very seldom sell an IT once I hold it, but as I said earlier, Edinburgh IT, a UK focussed income Trust has just the same problems as any HYP currently and it is on the block.

Dod

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Re: Proportion of portfolio in Investment Trusts

#250277

Postby 77ss » September 8th, 2019, 10:23 am

Itsallaguess wrote:....

I've said this elsewhere, but even if I did know the dividend-performance figures of both 'sections' of my HYP, or even if I knew the total-return figures in addition to that, and I found that I was actually 'performing' slightly worse in my IT-section than I was in my single-share section, I'd really be quite happy with that....

Itsallaguess


This is a not a high-yield board, but almost all posters seem to be approaching the topic from that angle.

Back in 2011 I decided to gradually increase the proportion I hold in ITs. I am now at about 33% - from a starting point of 13% (in just one IT - FCIT). I have no specific target, but I expect to continue to increase the figure, as my holdings and finances permit.

I deliberately did not go for yield. I was aiming at total return, allied to increased geographical and sectoral diversification. So far, so good. I now have 11 ITs (yields of 0-4%) , which is probably enough for me. It is always tempting to add more, but I shall try to work on a one-in/one-out basis.

Itsallaguess
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Re: Proportion of portfolio in Investment Trusts

#250289

Postby Itsallaguess » September 8th, 2019, 11:18 am

77ss wrote:
Itsallaguess wrote:....

I've said this elsewhere, but even if I did know the dividend-performance figures of both 'sections' of my HYP, or even if I knew the total-return figures in addition to that, and I found that I was actually 'performing' slightly worse in my IT-section than I was in my single-share section, I'd really be quite happy with that....


This is a not a high-yield board, but almost all posters seem to be approaching the topic from that angle.


I think it's fair that this is the case, given that the OP specifically said -

"Maybe it is my age, 55, that means I have a much larger portfolio and diversification and income has become much more of a focus" - https://www.lemonfool.co.uk/viewtopic.php?f=54&t=19349#p249643


77ss wrote:
Back in 2011 I decided to gradually increase the proportion I hold in ITs. I am now at about 33% - from a starting point of 13% (in just one IT - FCIT). I have no specific target, but I expect to continue to increase the figure, as my holdings and finances permit.

I deliberately did not go for yield. I was aiming at total return, allied to increased geographical and sectoral diversification. So far, so good. I now have 11 ITs (yields of 0-4%) , which is probably enough for me. It is always tempting to add more, but I shall try to work on a one-in/one-out basis.


I share some of your enthusiasm for Foreign and Colonial (FCIT) myself, so I do have interest in IT's beyond their yield alone, and agree that geographical and sectoral diversification is important.

Cheers,

Itsallaguess

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Re: Proportion of portfolio in Investment Trusts

#250318

Postby Julian » September 8th, 2019, 2:16 pm

UnclePhilip wrote:I think I must be drifting away from multiple investments in my dotage

I just recently sold about half of our individual shares and bought a couple of Vanguard global tracker ETFs

If we need a bit more income we'll sell a few

All this multiple IT buying makes me dizzy just reading

Perhaps I'm missing a trick; but actually I'm not so sure....

I'm also become more and more attracted to the simplicity of fewer investments but I see two counter-forces to that desire...

1 - In the world of ITs there will still be management differences and the possibility of a management team, at the very worst, "doing a Woodford" so even if I found a single IT that encapsulated my perfect allocation across geographies, company sizes, asset classes etc I would still be uncomfortable going all-in with too few managers (hence too few ITs). How many is my minimum for adequate diversification? Probably 8, maybe 10, and once I got above 15 I think the part of me that searches for elegant simplicity would start to rebel.

2 - In the passive tracking world I wouldn't have the same concerns about management missteps but for people with reasonably large portfolios I can see basic safety concerns regarding fraud or some administrative screw-up that freezes holders' assets for a while being an issue were they to arise either within the ETF or fund issuer or within the broker where those instruments were held. I am one of those people who has those concerns. Even though I accept that the risks are small I still feel a strong urge to try and at least partially mitigate them which would stop me for instance putting all my investments into a single global equity tracker (to take the most extreme example of simplicity). I would definitely want to split the holding across multiple nominee brokers as I do now and possibly as an additional step select 2 or 3 different quality ETFs all tracking the same index to mitigate against potential issues with the ETF provider(s).

In answer to Silverstar64's (the OP) original question in this thread's title...

In September 2001 I started my investment journey 100% investing in individual high yield shares.

In October 2009 I started adding high yield ITs to the mix and initially they were in such a low proportion that I integrated them into my HYP by considering them as an extra sector alongside Finance, Pharmaceutical, Utilities, Telcoms etc. Until March 2012 I was still 100% a high-yield investor but had drifted more and more towards my purchases being ITs. From looking at my CGT records, apart from one purchase of BAE in March 2014, it looks as if the last HYP individual share purchases that I made were in Jan 2011. That's quite interesting to see those dates so starkly since they show that I got sold on the idea of collective investments quite quickly - 16 months after adding my first IT I had, apart from that one BAE purchase, stopped buying individual shares entirely.

In March 2012 I started building a growth (total return) portfolio alongside my income portfolio. At that point I would say that my income portfolio was about 25% ITs vs 75% individual shares but all purchases in my growth portfolio were either actively managed ITs or passive trackers so the percentage of ITs/trackers in my total combined portfolio (income plus growth portfolios) started going up. Also by this time, as stated above, with the exception of that anomalous BAE purchase all additions to my income portfolio were ITs.

I now estimate that between my growth and my income portfolio combined and lumping together actively managed ITs, ETFs and passive trackers (not all of which are ETFs e.g. I have some Vanguard funds) as a combined "collective investments" category, I'm probably at about a 50%/50% split between collectives and individual shares.

I entered a new phase of my investment journey earlier this year where I now intend to sell off reasonably large chunks of capital each year in order to increase the annual income I have available to spend going forward and also to continue to make full use of my annual ISA allowances. Since I currently anticipate that those annual sell-offs will all be from within my individual-share HYP holdings and all new purchases within my ISA will be collective investments I expect the tilt towards 100% collective investments to accelerate. I think this will suit me better in my dotage, assuming I get there, and I am 100% comfortable with my planned trajectory.

If I were doing it all again I think I would probably still have started out with an income-oriented portfolio first but would have gone at that entirely from a collective-investment (high yield IT) angle from the outset and I would have probably also have started building my growth portfolio to sit alongside my income portfolio slightly earlier than I did but that's all hindsight and it doesn't cause me any regret. The positive is that I got the investment habit and started building a reasonably successful set of investments and have a path forward that I am comfortable with regardless of the path I took to get here; and here is a good place right now.

- Julian

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Re: Proportion of portfolio in Investment Trusts

#250457

Postby 77ss » September 9th, 2019, 9:58 am

Itsallaguess wrote:......

I think it's fair that this is the case, given that the OP specifically said -

"Maybe it is my age, 55, that means I have a much larger portfolio and diversification and income has become much more of a focus" - https://www.lemonfool.co.uk/viewtopic.php?f=54&t=19349#p249643


I understand your point, but I just read the OP slightly differently:

Maybe it is my age, 55, that means I have a much larger portfolio and diversification and income has become much more of a focus

I focused on the lower yield/total return aspect because I feel that sectoral diversification can be difficult to achieve with high yielding ITs. There is more than one way to skin a cat, and if one can afford to forgo some immediate income then in the long run growth ITs, with occasional top-slicing, certainly offer viable alternatives to high yield ITs.

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Re: Proportion of portfolio in Investment Trusts

#250498

Postby Silverstar64 » September 9th, 2019, 12:56 pm

I just wanted to thank everyone who has contributed to this thread, I have been very interested in the responses which have encouraged me to consider different perspectives. This forum is an excellent resource and I'm very appreciative of the knowledgeable contributions and frequency of postings.

Back to my portfolio it is in a gradual transition, it currently yields 4.6% overall on cost with 14% by value currently invested in non income producing investments, 2 ITs and a single high conviction US stock which I hope could become my lifetime best investment. To recap I said that "diversification and income has become much more of a focus" and I'd stress the word more and delete "much" as a summary of where I am today.

I still invest for growth where I see opportunity. For example a 6 week investment this summer gained 32.3% and that was a pure deep value play in a US stock, I've had a handful of such successful US Investments in the last couple of years and if I was 20 years younger this would be my sole play as it builds wealth (if you make the right calls); as I'm not I'm balancing this with income investing and letting the magic of compounding work wonders together with many trusts, but not all, growing dividends over time.

6 of my ITs are earmarked for either sale due to duplication or no further purchases, probably the former despite stamp duty on the reinvestment purchases.

Overall in share dealing I have a strong value approach and am comfortable taking contrarian positions. This approach has worked very well for me. This bias does inform some of my IT purchases for example Alliance Trust and Temple Bar but with ITs I have a number of distinct styles and I believe I have diversified quite successfully but my style very much reflects my personality, I wouldn't want a IT to replicate it right now but as we approach retirement in 10 years or less I'd expect less idiosyncrasy and more discipline. Looks like TLF and its wonderful contributors will guide me toward that goal.

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Re: Proportion of portfolio in Investment Trusts

#250566

Postby Itsallaguess » September 9th, 2019, 5:24 pm

77ss wrote:
I focused on the lower yield/total return aspect because I feel that sectoral diversification can be difficult to achieve with high yielding ITs.

There is more than one way to skin a cat, and if one can afford to forgo some immediate income then in the long run growth ITs, with occasional top-slicing, certainly offer viable alternatives to high yield ITs.


That's a fair point, so thanks for giving some more detail on that.

Totally agree that lower-yield and total-return can be a quite valid approach, and there's obviously no denying that there are many paths to heaven with regards to investing.

Cheers,

Itsallaguess

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Re: Proportion of portfolio in Investment Trusts

#250590

Postby monabri » September 9th, 2019, 6:59 pm

Itsallaguess wrote:
77ss wrote:
I focused on the lower yield/total return aspect because I feel that sectoral diversification can be difficult to achieve with high yielding ITs.

There is more than one way to skin a cat, and if one can afford to forgo some immediate income then in the long run growth ITs, with occasional top-slicing, certainly offer viable alternatives to high yield ITs.


That's a fair point, so thanks for giving some more detail on that.

Totally agree that lower-yield and total-return can be a quite valid approach, and there's obviously no denying that there are many paths to heaven with regards to investing.
Cheers,
Itsallaguess


Interestingly, I was plotting some graphs of Total Return over the last 3 years (wonder why I chose that period of time... ;) ). I start by comparing the Total Returns on some typical UK Income ITs. The relative poor performance of EDIN & PLI is very apparent. Plain vanilla CTY & TMPL seem to be holding the fort better (but so does "cheapy" cost-wise VUKE).

UK "Income" Investment Trusts (with Vanguard's VUKE ETF thrown in for comparsion)

Image

Growth ITs (with Temple Bar shown for reference)
If we now look at how Temple Bar IT (TMPL), chosen as a reference here, has performed compared to Monks, FCIT, Bankers & SMT.

Image

For me, the graphs indicate that one should not forgo long term "total return" for income "now" if one's investment horizon is "longer term". Of course, past performance is no guide etc.


--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Graphs produced using HL's website (here).
https://www.hl.co.uk/funds/fund-discoun ... ion/charts

--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Investment Trusts

CTY = City of London
TMPL = Temple Bar
PLI = Perpetual Income & Growth
EDIN = Edinburgh
LWI = Lowland

SMT = Scottish Mortgage
MNKS = Monks*
FCIT = F&C Investment Trust
BNKR = Bankers


(* I note I used "MONKS" in the graph rather than the ticker - apologies)

--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Re: Proportion of portfolio in Investment Trusts

#250676

Postby bluedonkey » September 10th, 2019, 10:03 am

I'm torn between going for international generalist ITs like FCIT and Witan - or just having a low cost world tracker such as VWRL. Are you able to include VWRL in your graph?
Cheers.

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Re: Proportion of portfolio in Investment Trusts

#250713

Postby monabri » September 10th, 2019, 12:11 pm

bluedonkey wrote:I'm torn between going for international generalist ITs like FCIT and Witan - or just having a low cost world tracker such as VWRL. Are you able to include VWRL in your graph?
Cheers.


There you go! :)

Image

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Re: Proportion of portfolio in Investment Trusts

#250715

Postby bluedonkey » September 10th, 2019, 12:18 pm

Thank you very much for that. I'm going to go out on a limb here and say that looks like the active ITs reverting to mean, i.e. VWRL.

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Re: Proportion of portfolio in Investment Trusts

#250720

Postby monabri » September 10th, 2019, 12:36 pm

bluedonkey wrote:Thank you very much for that. I'm going to go out on a limb here and say that looks like the active ITs reverting to mean, i.e. VWRL.


ditto "VUKE"

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Re: Proportion of portfolio in Investment Trusts

#250971

Postby gbjbaanb » September 11th, 2019, 11:10 am

What is interesting to me from that graph, is if you rebase it at Apr 18 rather than Apr 17 when they start to diverge, VWRL seems to outperform both.

I guess the moral is that graphs are only useful to show the real dogs.


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