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Starting an income growth pf

Closed-end funds and OEICs
Peter1B1
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Starting an income growth pf

#259412

Postby Peter1B1 » October 22nd, 2019, 11:09 am

I'm about to start an income growth pf with a historic IT holding, some cash and perhaps a bit more to come in time.

Following L'Uni's principles (with thanks, and which are serving well in family growth SIPPs), but with a currently selected basket of trusts I propose to start with the following, essentially gleaned from recent Arborbridge and MickeyPops posts and ensuing comments - my thanks again.

Looking for a close to natural yield to start with and capital preservation, the ambition is modest with progressive income support.

European Assets
Standard Life Property Income
Invesco Income Growth Trust
Temple Bar
City of London

I will welcome comment, please. A conservative start perhaps, with possible fruitier riders for later development.

Thank you.

bluedonkey
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Re: Starting an income growth pf

#259415

Postby bluedonkey » October 22nd, 2019, 11:45 am

For diversified international income, Murray International (MYI) is often selected.

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Re: Starting an income growth pf

#259417

Postby Dod101 » October 22nd, 2019, 11:59 am

I think you may be too UK centric or at least Euro centric. I would add Murray International and Henderson Far East. Both decent yields and international exposure.

Dod

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Re: Starting an income growth pf

#259419

Postby monabri » October 22nd, 2019, 12:22 pm

I would start with a peruse of the AIC website as this provides a good source of info on ~400 ITs that are in the AIC sphere.

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


I would check the "dividend cover (years) " for each candidate and also check whether the dividend is being paid out of "income" or "capital".

Note: European Assets pays it's dividends out of "capital", relying on it's underlying investments + dividends growing. It sets it's dividend level at the end of the year for the next year. The dividend this year (in terms of £ you would receive) was actually cut just before Christmas last year (I can't remember the exact dates but it is noted on TLF if you do a search). EAT pay the dividends out of "Capital" and when they did the evaluation at the end of the year, share prices generally were in the doldrums - hence there was a cut. Conclusion : Can't rely on EAT for a steadily rising divi.

I would check out the "dividend heros" on the AIC (of which City of London is on the list). However, there must be a lot of pressure to maintain a dividend year in year out and to grow it - hence, you need to check if the dividend is rising at a reasonable lick or just a token increase to maintain the "unbroken record of a rising dividend" claim.

Consultation of the tables on the AIC website will indicate which Trusts are increasing dividends and at what levels.

Then the next question is "where" in the World to invest..Brexit Britain or elsewhere? My own opinion ( treat with a bag of salt, nevermind a pinch) is that the USA is too expensive at the moment , Europe is looking at a recession. Long term I would certainly aim to have some exposure to the Far East. There are quite a few recs for HFEL (I hold) due to the dividend level, it's divi pedigree and where it invests.

Murray International (MYI) is also mentioned a lot round these parts (and was one of L'unis selections).

I'd also recommend a read of viewtopic.php?p=254212#p254212 which discusses and compares L'uni's B7 and B8 baskets in terms of capital and dividends.

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Re: Starting an income growth pf

#259420

Postby baldchap » October 22nd, 2019, 12:23 pm

Dod101 wrote:I think you may be too UK centric or at least Euro centric. I would add Murray International and Henderson Far East. Both decent yields and international exposure.

Dod


I would not disagree, but I noticed with my daughters JISA that a combination of both CTY + MYI + HFEL resulted in a high allocation to Asia and emerging markets.
This should have been quite obvious to me from MYI's portfolio, but use of an x-ray tool brought it home.
I have balanced with JP Morgan Global Income (JPGI) which is tilted much more to the USA/West. It aims for a 4% yield so not far behind MYI.

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Re: Starting an income growth pf

#259422

Postby gbjbaanb » October 22nd, 2019, 12:30 pm

For capital preservation, I'd go with Capital Gearing Trust - designed to preserve capital! And it turns out, has been a quite reasonable performer over a long time. You won't (often) get the double-digit returns from high-tech growth stocks that we've seen over the last few years, but then chances are you won't be seeing that from the high-tech growth shares for a while anyway.

Alternatives are Brunner and Personal Assets Trust. I prefer CGT as they appear less volatile than the others who have returned negative some years.

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Re: Starting an income growth pf

#259427

Postby monabri » October 22nd, 2019, 12:40 pm

baldchap wrote:
Dod101 wrote:I think you may be too UK centric or at least Euro centric. I would add Murray International and Henderson Far East. Both decent yields and international exposure.

Dod


I would not disagree, but I noticed with my daughters JISA that a combination of both CTY + MYI + HFEL resulted in a high allocation to Asia and emerging markets.
This should have been quite obvious to me from MYI's portfolio, but use of an x-ray tool brought it home.
I have balanced with JP Morgan Global Income (JPGI) which is tilted much more to the USA/West. It aims for a 4% yield so not far behind MYI.


here's the X ray tool

http://tools.morningstar.co.uk/uk/xray/ ... geId=en-GB

With equal percentages of CTY+MYI+HFEL (all numbers below are %)

Greater Europe 42.46
United Kingdom 36.44
Western Europe - Euro 1.90
Western Europe - Non Euro 3.61
Emerging Europe 0.30
Middle East / Africa 0.21

Americas 14.02
United States 7.66
Canada 1.31
Central & Latin America 5.04

Greater Asia 43.52
Japan 0.34
Australasia 7.58
Emerging 4 Tigers 20.15
Emerging Asia - Ex 4 Tigers 15.44


And with JPGI added - equal 25%

Greater Europe 38.49
United Kingdom 28.28
Western Europe - Euro 6.29
Western Europe - Non Euro 3.35
Emerging Europe 0.22
Middle East / Africa 0.35

Americas 26.00
United States 20.90
Canada 0.97
Central & Latin America 4.13

Greater Asia 35.51
Japan 1.30
Australasia 5.59
Emerging 4 Tigers 16.14
Emerging Asia - Ex 4 Tigers 12.47


I think I personally would prefer that combi of 4 as a starting point than a very UK centric selection ... but DYOR etc! Of course, one isn't constrained to go for equal percentages of the Trusts neither, nor buy at the same time !

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Re: Starting an income growth pf

#259429

Postby Dod101 » October 22nd, 2019, 12:47 pm

gbjbaanb wrote:For capital preservation, I'd go with Capital Gearing Trust - designed to preserve capital! And it turns out, has been a quite reasonable performer over a long time. You won't (often) get the double-digit returns from high-tech growth stocks that we've seen over the last few years, but then chances are you won't be seeing that from the high-tech growth shares for a while anyway.

Alternatives are Brunner and Personal Assets Trust. I prefer CGT as they appear less volatile than the others who have returned negative some years.


The OP was asking about an income growth portfolio. Neither CGT nor Personal Assets seem remotely likely to give him that surely?

Depending on his timescale, I would add Alliance. I do not know why it does not get more mention on these boards. It is a dividend hero even if it does not have a particularly high yield at the moment.

In answer to baldchap, I do not think that CTY is adding very much if anything to the exposure to Asia or emerging markets. Obviously HFEL is and Murray has always had a fair exposure to that part of the world as well but that is where the growth is!

Dod

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Re: Starting an income growth pf

#259436

Postby bluedonkey » October 22nd, 2019, 1:40 pm

MYI currently on a premium of 5.4% whereas Alliance Trust has a discount of 4.9%. The latter seems to generally always be on a discount but MYI fluctuates between discount/premium. Aliance has much lower yield but higher dividend growth rate.

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Re: Starting an income growth pf

#259459

Postby Peter1B1 » October 22nd, 2019, 5:52 pm

Many thanks for the comments thus far.

Yes, priority is income with capital preservation. I note the points regarding global spread - and the X-Ray tool which I have not used before but will try out. Domestic focus may be acceptable in the shorter term given that it eliminates currency risk (we spend in sterling). But scope to broaden the focus over time.

I found with the SIPP pfs that whilst initial decisions were quite demanding (just using the minimum £3600pa allowance), as the pfs built there was scope to experiment, to diversify further. I hope likewise with the income pf: the main thing is to get it started - and get it into ISA tax shelters as well!

Listening out. Peter1B1

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Re: Starting an income growth pf

#259517

Postby gbjbaanb » October 22nd, 2019, 10:10 pm

Ah, "growth income" means "everything" to me :)

For capitral preservation and income, you'd probably be best off looking at some of the more conservative REITs, but also mainly the green infrastructure trusts too - they are certainly in favour and don't look like they will be allowed to fall off the political scene anytime soon. They also give off a lot of income. Infrastructure... probably not, but utilities have also been a good source of stable, and defensive income. Ecofin Global Utilities is doing quite well ATM too.

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Re: Starting an income growth pf

#259626

Postby mc2fool » October 23rd, 2019, 11:53 am

gbjbaanb wrote:Ah, "growth income" means "everything" to me :)

The OP didn't say "growth income" but rather "income growth", i.e. a portfolio that generates an income that will grow, or, as the OP also put it, a "progressive income".

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Re: Starting an income growth pf

#259634

Postby jonesa1 » October 23rd, 2019, 12:15 pm

Peter1B1 wrote:Looking for a close to natural yield to start with and capital preservation, the ambition is modest with progressive income support.


You don't mention the level of yield you're after. Many of the moderate or lower yielding ITs have better long-term dividend growth than those with a higher yield (which I think was shown by the long term B7 v B8 comparison).

The AIC site will show the dividend growth for the last 5 years as well as the current yield (always check as there are a few errors, e.g. Invesco Perpertual UK Smaller Cos (IPU) is showing with a 5.1% yield, instead of the more realistic 3.6%). Some of these ITs have a much longer track record of good dividend growth (e.g. HSL). Some of the more extreme dividend growth figures result from a recent switch to supplementing the dividend from capital, e.g. JPM Global Growth & Income (33% pa), JPM Asian (48%) - both aim to distribute 4% of NAV, so the dividend will fluctuate in the same way it does for European Assets.

Examples of ITs with decent 5 year dividend growth:
Henderson Smaller Companies (HSL), currently yielding 2.6%, 5 year growth nearly 16% pa
JPM Claverhouse (JCH), yield 4%, growth 7.1% pa
Finsbury Growth and Income (FGT), yield 1.9%, growth 8% pa
Bankers (BNKR), yield 2.2%, growth 6.9% pa
Schroder oriental Income (SOI),yield 3.9%. growth 5.4% pa
Fidelity European Values (FEV), yield 2.6%, growth 16% pa

Andrew

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Re: Starting an income growth pf

#259667

Postby monabri » October 23rd, 2019, 2:40 pm

Also, I would consider ongoing charges and "gearing".


https://www.invesco.co.uk/uk/resources/ ... ment-trust

"Gearing (or leverage) is the process where Investment Trusts borrow money long-term in order to increase the amount of funds working for the benefit of shareholders.

Gearing increases the volatility of the portfolio and therefore the rise or fall in the value of net assets attributable to shareholders will be magnified."

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Re: Starting an income growth pf

#259675

Postby DavidM13 » October 23rd, 2019, 3:23 pm

jonesa1 wrote:
Peter1B1 wrote:Looking for a close to natural yield to start with and capital preservation, the ambition is modest with progressive income support.



The AIC site will show the dividend growth for the last 5 years as well as the current yield (always check as there are a few errors, e.g. Invesco Perpertual UK Smaller Cos (IPU) is showing with a 5.1% yield, instead of the more realistic 3.6%).



Those good folks at the AIC will always aim to fix immediately if they notice data issues so do feel free to drop them a line if you note issues. I have notified Morningstar (the data providers) about the yield as I agree with you it seems too high. I also agree with your numbers of 3.5% or 3.6%. Hopefully get a fix shortly.

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Re: Starting an income growth pf

#259788

Postby Peter1B1 » October 24th, 2019, 8:54 am

Thanks again. I will be adding MYIncome and JPMIncome Growth to the short list. Over and out, Peter1B1

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Re: Starting an income growth pf

#259798

Postby DavidM13 » October 24th, 2019, 9:54 am


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Re: Starting an income growth pf

#259816

Postby BrummieDave » October 24th, 2019, 10:37 am

Peter1B1 wrote:Thanks again. I will be adding MYIncome and JPMIncome Growth to the short list. Over and out, Peter1B1


And for completeness, in the Global Equity Income sector, you may as well add Securities Trust of Scotland (STS) to your list. A good balance to MYI IMHO; MYI has greater exposure to emerging markets and the Far East, STS is more the US and developed markets. I find JPGI too US centric.

For disclosure: I hold proportionately large positions in MYI and STS, along with MUT.

If interested you'll find my Income focussed IT PF and the logic behind its composition easily by searching on my username.

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Re: Starting an income growth pf

#259848

Postby bluedonkey » October 24th, 2019, 12:08 pm

Securities Trust of Scotland is quite a small IT, total assets only £228m. I think Dod has commented on them in the past, he will certainly know more about them than me. The concern is that with such a small asset base, the managers don't bother taking much interest in it.

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Re: Starting an income growth pf

#259865

Postby BrummieDave » October 24th, 2019, 1:30 pm

bluedonkey wrote:Securities Trust of Scotland is quite a small IT, total assets only £228m. I think Dod has commented on them in the past, he will certainly know more about them than me. The concern is that with such a small asset base, the managers don't bother taking much interest in it.


By your own admission you don't know much about STS, and I can't comment for Dod, but I know of at least one other long standing poster who owns STS and who I think, like me, is content with the trust performance. It's up 23% in the past 12 months, and has a 5 year divi growth rate of 5.4% per annum, and with the freedom to invest in whatever stocks the manager wishes (ie they can pay the dividend partly from capital) and a not too 'reachy' yield of 3.2%, all I'm saying is it's worth adding to any list of possible global equity income ITs.

Mark Whitehead and his team at Martin Currie probably take appropriate interest in it.


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