IT portfolio growth over 20 years

[Luniversal]

In 2010-12 I chose model portfolios selected from big, mainstream, generalist investment trusts or companies, posting progress reports on The Motley Fool and later here. They were for equally weighted lump sums, shooting for high immediate income, income or capital growth or wealth preservation. Something to suit each stage of accumulation and decumulation over a lazy investor's lifetime, necessitating minimal attention after purchase.

Have they done the business, and can they in future?

Here is a roundup of key financial outcomes for 42 trusts, in the portfolios or adjacent to their purposes (1). For some I have stats since the early Seventies. Those tabled here for their latest five, ten and twenty financial years, ended between Aug. 2001 and Jul. 2022 (2).

The metrics are compound annual growth rates (cagrs) in per-share percentages- for earnings, dividends, basic year-end net asset values (NAVs) and year-end share prices. From these, changes in dividend cover as a ratio of earnings and discounts/premia of NAVs versus market prices can be inferred.


THE BIG PICTURE

For all 42 trusts, earnings, dividend, net asset value and share price cagrs:

REAL TERMS*
Latest five years: -1.8, 1.1, 0.1, -0.2

Latest ten years: 0.5, 1.2, 3.5, 3.4

Latest twenty years: 1.4, 1.4, 1.5, 1.8

MONEY TERMS
Latest five years: 2.9, 5.3, 4.8, 4.5

Latest ten years: 4.1, 4.8, 7.1, 7.0

Latest twenty years: 4.8, 4.8, 4.9, 5.2

* Deflated by average Retail Prices Index changes in years from Aug. 2002, 2012 or 2007 to Jul. 2022. Inflation was 4.7% pa over the latest five financial years-- when its post-covid spike kicked in-- 3.6% over ten and 3.4% over twenty.

Dividend cover (ratio of dividend to earnings growth); percentage discount(premium), ratio of price to NAV growth; ratio of dividend to NAV growth:

Latest five years: -71.09, 1.04, 2.15

Latest ten years: 1.66, 1.00, 0.46

Latest twenty years: 1.12, 0.89, 0.99

The most recent period has been tougher. Eps shrank marginally in real terms. So did share prices. Net assets were almost unchanged, but distributions grew hardly less fast than during the full two decades.

Hence dividend cover turned very negative. Trusts had to raid revenue reserves and a few handed out realised capital gains, all to keep payouts increasing in real terms. Dividend cover had expanded from 1.12 to 1.66 times between the longest and intermediate periods measured, so there was fat in hand for the rough weather since 2017. Before then, after the Global Financial Crisis of 2007-10 had strained the revenue account, trusts found it easy to match 3% or less inflation pa while socking away as much of their earnings as the law permitted.

No doubt such robustness in distributed income made the sector more popular among income-hungry investors who could not extract rising purchasing power from other asset classes. How long it can last is another matter. Over 20 years dividend and NAV growth have been pretty much in harness, but in 2017-22 payouts grew more than twice as fast.

Doubts may be reflected in the trend of discounts. For the full 20 years, NAV growth was 89% that of share prices. This signalled a major renascence. Investment trusts had customarily sold on discounts of 10-30% or even more in the Eighties and Nineties: dismissed by many such as Peter Hargreaves as cumbrous, obsolescent vehicles, ripe for devouring by pension funds. Since the GFC excitement about their new vitality-- assisted by discount control, made legally easier since 2004-- has cooled.

In the latest five years, NAV's cagr was back to 1.04 times that of prices. That may be down to nerves about overpaying dividends, or about opportunities for enriching the portfolio by churning... if the running cost of gearing up is to rise and/or economies toil in the non-roaring Twenty Twenties.

Macro anxieties affect all equity investment, and ITs have done a workmanlike job in the new millennium; both income and capital maintained and usually if modestly increased their purchasing power, navigating a variety of shoals and rocks. Moreover, the 42-trust averages do not cloak many very bad performances. To take the weakest aspect, earnings: over 124 measurable time periods, 20 produced real shrinkage, and half of those were for the latest five years.

Mainstream trusts have been smartened up by new management far more often than they were bought out, while holders voting for windings-up happens only among smaller and more specialised operations. Earnings shrinkage through two decades happened only to a handful: Shires and Troy, which never fully got over the 1990s split-caps debacle, Scottish Mortgage (unexpectedly) because it went for long-term growth above any revenue considerations, and Henderson High Income, SMT's polar opposite. HHI cares nothing for asset backing if its running yield stays at the top of the charts.

Nor has confirmation bias prettified the picture. My coverage, largely dating from 2010, worked back to 2000. Hardly any big names disappeared after the trough of pessimism about the sector in the Nineties. Only lately has the scene shifted much. Perpetual Income & Growth disappeared in 2021, Scottish this summer and Independent last month. These relatively poor performers are in the figures.

Now to the stats for model portfolios. To keep the length down, I have not shown real-terms cagrs; they can be obtained by subtracting the inflation rates stated above from the cagrs tabled. Listed by descending order of running yield and ascending order of capital security and volatility:


BASKET OF EIGHT

Latest five years: 0.2, 2.3, 0.2, 0.8

Latest ten years: 2.1, 2.6, 3.4, 3.2

Latest twenty years: 3.4, 3.8, 2.6, 2.8

Dividend cover; ratio of price to NAV growth; ratio of dividend to NAV growth:

Latest five years: 11.58, 0.21, 0.64

Latest ten years: 1.23, 1.08, 0.95

Latest twenty years: 1.12, 0.93, 0.99

The 'juiciest' collection guns for a yield typically a quarter or more higher than the All-Share Index, and fared worst over all periods. Most of its cagrs are below inflation. With a flat stockmarket and the B8 declaring meagre dividend rises all round there is no sign of attrition reversing. B8 members' stockpicking leans to mature UK blue chips with little 'bagger' potential. In the long run earnings and divis grew in real terms; capital values did not. I always recommended the B8 as an annuity substitute with hope of some residual value, for those who did not need it to pay bills for longer than a decade or for luxuries on top of a pension. That advice stands.

Latest historic yield: 4.7%
FE Trustnet Risk Score: 115 (3)


BASKET OF SEVEN

Latest five years: 1.7, 4.7, 3.5, 3.5

Latest ten years: 4.2, 4.9, 6.2, 6.2

Latest twenty years: 5.2, 5.9, 4.9, 5.0

Dividend cover; ratio of price to NAV growth; ratio of dividend to NAV growth:

Latest five years: 2.67, 1.02, 2.06

Latest ten years: 1.18, 1.01, 0.91

Latest twenty years: 1.14, 0.98, 0.61

For income investors who can stomach a market-average starting yield if dividends' purchasing power holds steady or enlarges over time-- say 12-25 years. As a corollary, capital value should be more robust than the B8's, though over shorter periods it may be twitchy. The B7 struggled in the latest five years, supplying subinflationary results except for payouts, its main purpose. Over longer stretches it has kept handily ahead of the cost of living, benefiting from more cosmopolitan stock selection than the B8 as regards geography, market cap and income potential. A good all-rounder.

Latest historic yield: 4.0%
FE Trustnet Risk Score: 123


GROWTH TEN

Latest five years: 3,9, 8.6, 9.0, 9.0

Latest ten years: 3.3, 6.5, 10.9, 11.3

Latest twenty years: 4.8, 5.9, 7.3, 7.7

Dividend cover; ratio of price to NAV growth; ratio of dividend to NAV growth:

Latest five years: 2.23, 1.01, 0.80

Latest ten years: 1.98, 0.96, 0.88

Latest twenty years: 1.24, 0.95, 1.38

This is for young and middle-aged shavers saving up for a FIRE income basket. Its goal is growth a-plenty, by investing mainly in foreign-based companies or go-go 'smidcaps' churned by more restless managements than the income basketeers. The G10 takes only incidental interest in payouts; although (reflecting the big economies where it fishes) dividends do more nowadays for total return, the Ten yield half the All-Share Index. With less of a cushion from income, in the short run market value can soar or nosedive. The G10 is for patient, sanguine accumulation during a working life.

Earnings have not kept up with inflation over five and ten years. This reflects portfolio rotation and lack of commitment to steady dividend rises. Growth was constant, particularly in the good times between the GFC and the pandemic, but next results will be gravely dented by this autumn's tech jitters, with two Baillie Gifford neophiliacs. Monks and Scottish Mortgage, in the squad. In the year to mid-Nov. the Growth Ten fell by one-third in real terms, much its worst showing in 22 years.

Latest historic yield: 2.0%
FE Trustnet Risk Score: 139


CONVICTION FIVE

Latest five years: 12.6, 11.3, 7.2, 5.7

Latest ten years: 11.1, 8.3, 8.0, 7.8

Latest twenty years: 10.8, 5.0, 7.8, 7.5

Dividend cover; ratio of price to NAV growth; ratio of dividend to NAV growth:

Latest five years: 0.90, 1.27, 0.93

Latest ten years: 0.75, 1.01, 0.94

Latest twenty years: 0.46, 1.05, 0.65

Results shown for old times' sake. The C5 was a bunch of 'conviction' oddballs oriented to wealth preservation plus a tinge of riskiness from Independent. It fell between the G10's and Defensive Three's stools. I called time after an estimable performance which was, however, latterly far too reliant on the minority stake in Lindsell Train's fund management business for comfort. LT's success explains why C5 dividend growth since 2017 has been more than twice as fast as since 2002, but a wealth conservationist is not supposed to disgorge large sums on the hoof as a by-product of a gravy Train.


DEFENSIVE THREE

Latest five years: 10.5, 6.9, 6.7, 6.0

Latest ten years: 9.2, 9.0, 6.3, 6.3

Latest twenty years: 4.1, 8.4, 7.1, 7.2

Dividend cover; ratio of price to NAV growth; ratio of dividend to NAV growth:

Latest five years: 0.66, 1.11, 0.85

Latest ten years: 0.98, 0.99, 0.70

Latest twenty years: 2.04, 0.98, 0.15

Latest historic yield: 2.1%
FE Trustnet Risk Score: 95

The D3 is most open to accusations of retro-conning, since I devised it recently as a substitute for the Conviction Five with less idiosyncracy. But its trio of Capital Gearing, Personal Assets and RIT Capital Partners were well established as ultra-prudent wealth guardians and shunners of downside risk by 2010; so for the two more recent periods at least they would have been plausible safety-first choices.

These trusts are eclectic multi-asset operations steered by risk-awareness, not by any rigid notion of optimal asset allocation such as 60:40. Yielding about the same as the G10, with sub-Footsie volatility, the D3 is no income generator (Personal Assets has frozen its dividend for years) but the steadiness of NAV and share price growth at 6-7% pa, or 2-3% pa real, over the 20-year haul is what capital preservers need.


LOOKING AHEAD

The consensus is that we are in for several flat years: recession. if no worse, followed by a shallow recovery. Both phases will be spooked by inflation which, if already close to peaking, may settle at a level well over the 3% the last forty years saw.

Of course it may all look quite different in a year or two. Further events like the WuFlu (war over Taiwan? Rise of the robots, shattering full employment? A renewed debt crunch?) could knock predictions of cyclical contraction and expansion sideways. OTOH arguably neither the Global Financial Crisis nor the coronavirus hurt bourses nearly as much as might have been expected. Sizeable shock-absorbers seem to be at work for equity valuations compared with, say, the 1973-75 bear market.

All one can say is that imaginable surprises are mostly nasty, and that it is always better to assume the worse, if not the worst. The event-free sky is cloudy and grey.

In that case, investment trusts have a fair bit to lose before they cease to sustain investors. If the typical growth of net assets and dividends over the next 10 years trundle at half the speed since 2000 after inflation, it will be 0.5-1% pa, which eventually mounts up. On form income baskets should find that target harder to hit; perhaps the argument for manufacturing quasi-income by drawdown from growth trusts will carry more force, despite the dangers of spending capital and crippling such growth during market downturns.

Whatever one's preference, ITs as a worry-free source of rewards, book-keeping-wise, have justified the reputation they began to gain 150 years ago. Nor do their costs hamper returns like the expense of importunate intermediaries and advisers. Compared with exchange traded funds and open-ended mutual funds trusts are tranquil and well policed. My models always rank such considerations as high as financial results for Mr Everyman, who knows little and wishes to know not a lot more; and for the Widow Everyman, who knows nothing and is glad her late husband did not complexify her inheritance.
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(1) Basket of Eight: abrdn Equity Income (AEI), City of London (CTY), Dunedin Income Growth (DIG), Edinburgh (EDIN), Merchants (MRCH), Murray Income (MUT), Schroder Income Growth (SCF), Temple Bar (TMPL).

Basket of Seven: Bankers (BNKR), CT UK Capital & Income (CTUK), JPMorgan Claverhouse (JCH), Lowland Investment (LWI), Mercantile (MRC), Murray Income (MUT), Murray International (MYI).

Conviction Five (discontinued, Oct. 2022): Capital Gearing (CGT), Independent (IIT), Lindsell Train (LTI), Personal Assets (PNL), Ruffer (RICA).

Defensive Three: CGT, PNL, RIT Capital Partners (RCP).

Growth Ten: Aberforth Smaller Companies (ASL), Alliance (ATST), Global Smaller Companies (GSC), F&C (FCIT), Law Debenture (LWDB), Monks (MNKS), Scottish (SCIN)*, Scottish American Investment (SAIN), Scottish Mortage (SMT), Witan (WTAN).

* Since replaced by JPMorgan Global Growth & Income (JGGI).

Not in portfolios: abrdn Diversified Income & Growth (ADIG), AVI Global (AGT), Brunner (BUT), Caledonia (CLDN), Diverse Income (DIVI), Finsbury (FGT), Henderson High Income (HHI), JPMorgan Mid Cap (JMF), Manchester & London (MNL), Securities Trust of Scotland (STS), Shires Income (SHRS), Troy Income & Growth (TIGT).

(2) Exceptions: Diverse Income (DIVI) and Henderson International Income (HINT) are too new for 20-year results. For Ruffer (RICA), launched in Jul. 2004, a 17-year cagr is used.

(3) Measures share price volatility over three years, weighted towards newest ups and downs, where the FTSE 100 index is 100 on the jumpiness meter and a cash deposit is 0. Portfolios which derive more of their total return from dividend income-- stabler than capital gains and losses based on market mood swings- should have lower risk scores.

[scotia]

First - many thanks to Luniversal for the amount of work put into maintaining his model IT portfolios generated over 10 years ago.
I have been looking at the total return of the component ITs in these portfolios, over the past 5 years.

Starting with the Basket of Eight - a quote from Luniversal

The 'juiciest' collection guns for a yield typically a quarter or more higher than the All-Share Index, and fared worst over all periods.

And the Basket of Seven - a quote from Luniversal

For income investors who can stomach a market-average starting yield if dividends' purchasing power holds steady or enlarges over time-- say 12-25 years.

All numbers from the Hargreaves Lansdown Site. Any mistakes are mine. For reference, the total return over 5 years of a developed world tracker is 55.2%, and the total return of the FTSE All share index is 18.3%. Clearly the UK has not produced the goods!

I'm currently looking at the other Luniversal portfolios

[scotia]

Continuing with a look at the components of the Luniversal portfolios, and their total return over the past 5 years:-

The Growth Ten - A quote from Luniversal

This is for young and middle-aged shavers saving up for a FIRE income basket. Its goal is growth a-plenty, by investing mainly in foreign-based companies or go-go 'smidcaps' churned by more restless managements than the income basketeers.

The Defensive Three - a quote from Luniversal

I devised it recently as a substitute for the Conviction Five with less idiosyncracy. But its trio of Capital Gearing, Personal Assets and RIT Capital Partners were well established as ultra-prudent wealth guardians and shunners of downside risk by 2010

And the linkage between the IT names and their Codes - from Luniversal (with a minor edit)

Basket of Eight: abrdn Equity Income (AEI), City of London (CTY), Dunedin Income Growth (DIG), Edinburgh (EDIN), Merchants (MRCH), Murray Income (MUT), Schroder Income Growth (SCF), Temple Bar (TMPL).

Basket of Seven: Bankers (BNKR), CT UK Capital & Income (CTUK), JPMorgan Claverhouse (JCH), Lowland Investment (LWI), Mercantile (MRC), Murray Income (MUT), Murray International (MYI).

Defensive Three: CGT, PNL, RIT Capital Partners (RCP).

Growth Ten: Aberforth Smaller Companies (ASL), Alliance (ATST), Global Smaller Companies (GSCT), F&C (FCIT), Law Debenture (LWDB), Monks (MNKS), Scottish (SCIN)*, Scottish American Investment (SAIN), Scottish Mortage (SMT), Witan (WTAN).
* Since replaced by JPMorgan Global Growth & Income (JGGI)

[DrFfybes]

I thank Luni for his hard work on this and Scotia for the summaries

The one thing that stands out AFAICT is that out of 28 ITs, only 5 have beaten a Global Tracker.

What would be interesting (at least to me) is the Dividend yield of the ITs against total return. As Scotia has presmably got a lot of this data in a spreadhseet (?) is it simple to add the average 5 year yield (or is this non trivial).

I could have a go tomorrow in between visits from the double glazing 'estimators', I'm off painting panto scenery tonight.

Paul

[scotia]

I thank Luni for his hard work on this and Scotia for the summaries

The one thing that stands out AFAICT is that out of 28 ITs, only 5 have beaten a Global Tracker.

What would be interesting (at least to me) is the Dividend yield of the ITs against total return. As Scotia has presmably got a lot of this data in a spreadhseet (?) is it simple to add the average 5 year yield (or is this non trivial).

I could have a go tomorrow in between visits from the double glazing 'estimators', I'm off painting panto scenery tonight.

Paul

Yes - I'll get round to adding yields, and marking those that are chiefly UK and those that are Global. A first look is not entirely as I expected.

[DrFfybes]

Yes - I'll get round to adding yields, and marking those that are chiefly UK and those that are Global. A first look is not entirely as I expected.

Sounds interesting, I've come to believe/observe in the last decade that yield over 4% tends to give lower TR, but I didn't delve too much into the market distribution of them. For mum I picked 10 non overlapping ITs/Income funds in her ISA and left them. I often thought about tracking back as a bit of an exercise, but never got around to it and once she died the account access was locked so I couldn't download all the historic purchase prices and divi data.

[HillManMill]

Thanks for the post Luniversal and your analysis Scotia

.....And the Basket of Seven - a quote from Luniversal

For income investors who can stomach a market-average starting yield if dividends' purchasing power holds steady or enlarges over time-- say 12-25 years.

All numbers from the Hargreaves Lansdown Site. Any mistakes are mine. For reference, the total return over 5 years of a developed world tracker is 55.2%, and the total return of the FTSE All share index is 18.3%. Clearly the UK has not produced the goods!........

I notice that LWI is the poorest performer of the B&. Wasn;'t there a 1 to 10 share split a year or two back? so just wondering if this was allowed for in HL/Scotia's data.

Thanks

[scotia]

Continuing my previous look at the constituents of Luniversal's model IT portfolios, I have now had a look at the current Dividend Yields, and at the geographical spread of the investments. I have simplified this spread to "UK" if there are least 75% UK investments, and "GLBL" otherwise.

Starting with the Basket of Eight -


And the Basket of Seven -


And the Growth Ten -


And the Defensive Three -


All data from the Hargreaves Lansdown Site. Any mistakes are mine - and I would appreciate any reports of errors. For reference, the total return over 5 years of a developed world tracker is 55.2%, and the total return of the FTSE All share index is 18.3%.

Thanks to Luniversal for having created these portfolios over 10 years ago. And now for a few personal observations which I can make with the advantage of hindsight.
As DrFfybes suggested - there may be a correlation between high yield, and poor performance. It looks like AEI and LWI are prime examples.
And it is certainly true to say that only a small minority of these ITs outperformed the world tracker return of 55.2%. However a number of them have constrained their investments to the UK, and within that area, a (reasonable?) number have made returns larger than the FTSE All Share return of 18.3%. But this still leaves a substantial number of IT managers with no excuses.

[scotia]

I notice that LWI is the poorest performer of the B&. Wasn;'t there a 1 to 10 share split a year or two back? so just wondering if this was allowed for in HL/Scotia's data.

Thanks

I'll try to check this out

[BullDog]

Thanks for the thread. It seems 5 year TR of the world market is better than 4 of the basket of ten. One, LWDB is a UK trust and almost matches global TR, that's a very good outcome given the UK FTSE100 index has gone nowhere in 22 years? So, five of the basket of ten have beaten the global TR performance? That's better than I'd have guessed actually.

[scotia]

I notice that LWI is the poorest performer of the B&. Wasn;'t there a 1 to 10 share split a year or two back? so just wondering if this was allowed for in HL/Scotia's data.

Thanks

I'll try to check this out

I went back to source https://www.janushenderson.com/en-gb/investor/product/lowland-investment-company-plc/#performance
They quote "The Price and Net Asset Value Total Returns"
And for the past 5 years (ending 30/9/22) These are listed as


So I suspect the Hargreaves Lansdown 5-year total returns are OK

[DrFfybes]

Thanks,

As Bulldog says, there are some surprisingly good performers in that list.

It does show how many have made a capital loss over 5 years (roughly take the yield x 5 and see if it beats the TR) - 5 of the 8, 4 of the 7, although the UK focus swayed that.

My observation of yield vs TR was initially based on buying £20k each of SAIN, CTY and ATST for mum circa 2009, where the much lauded income stream of CTY produced about 2.5x the divi of the others. A decade later SAIN and ATST income was about the same as from CTY, although the yield was still a lot lower, but the others were now worth £25-30k compared to IIRC £13k for CTY. Of course it is CTY's UK focus that I now know is more at the heart of this, but on a Global level comparing VEVE and VHYL is showing a smilar pattern over 5 years, short term pain for long term gain.

Paul

[Eboli]

I follows others in thanking L'uni for all the work done on his various Baskets.

But what worries me about these trawls back through 10 or more years is that we are only examining a snapshot of performance of one set of baskets set up according to precepts set at the time of their creation. The question that is never answered is whether a 2022 Doris clutching her £75,000 and desirous of, say, a Bo7 experience would invest in the very same Bo7 than had been chosen for Doris 2010. Of course in one sense that is never possible as the original constituents of Doris 2010's portfolio are not there. Perpetual Income and Growth (PLI) for example is no longer and is part of Murray Income & Growth (MUT). And would the developer of Doris 2022 Bo7 use a trust (MUT) that is also part of Bo8? I doubt it.

In this sense these sets of data for Baskets are just as besides the point as the endless trawls on the performance of Pyad's HYP which requires the belief it is sensible to hold so much of a portfolio in one share that has outperformed over part of the period chosen, but crucially that part at the beginning of the period.

To really consider the merits of these portfolios we should have several sets of portfolios going forward for an assortment of Doris-like investors or going back as the years go by (though the later is far more difficult to construct). Until then, they remain a quaint snapshot of what might have been, in the true meaning of those words.

Eb.

[TUK020]

To really consider the merits of these portfolios we should have several sets of portfolios going forward for an assortment of Doris-like investors or going back as the years go by (though the later is far more difficult to construct). Until then, they remain a quaint snapshot of what might have been, in the true meaning of those words.

Eb.

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