Should I diversify?

[bejocomo]

Hi all,

I'm fairly green when it comes to investing, but having done some reading on the old message boards (thank you to the many who made excellent contributions there) and having some surplus cash, I started drip feeding into CTY about 6 months ago. I own some individual shares too but ITs appeal to me because of their diverse nature.

The rational for CTY was simple; low charges and high yield.

I'm 32 and investing £250 per month using a regular investment scheme to minimise charges.

I now find myself able to spare another £250 each month and I'm tempted to put that into CTY too. I can't see much point buying another UK Income Trust just to duplicate holdings, but I am pondering a Global Income Trust such as MYI.

It seems to me that many of the constituents of CTY have international exposure anyway, so am I wasting my time picking a second IT to incur another lot of monthly charges, or should I seek to get some more international diversity?

Thank you for reading.

[hamzahf]

It seems to me that many of the constituents of CTY have international exposure anyway, so am I wasting my time picking a second IT to incur another lot of monthly charges, or should I seek to get some more international diversity?

Murray International has about 50% exposure to emerging markets/ asia pacific, so as a diversifier it would make good sense. I like Morningstar X-ray analysis of fund mixtures to aid decisions. The link below leads to such an analysis for an equal mixture of CTY and MYI.

http://tinyurl.com/jj9poo3

The two funds share a 17% overlap from nine components. Pretty good in my view. I no longer hold investment trusts, preferring to stick to a portfolio of index trackers, so offer no other comment.

Regards
Hamzah

[hamzahf]

I would also add that if low charges are desirable and you are not after income from a global trust but growth, then the obvious choice would be Scottish Mortgage (SMT).

The Morningstar X-Ray shows even less overlap and boosts US holdings whilst giving a good slice of asian emerging markets.

http://tinyurl.com/juea9oh

Regards
Hamzah

[bejocomo]

Hi Hamzah,

Thank you for the link to the X-Ray, that's very useful. I'd never have known there was so little overlap.

Perhaps with the uncertainty surrounding Brexit more international exposure might be a wise move.

It seems to me that much of the total return from equities comes from dividends, hence my inclination towards income ITs. As I intend to reinvest dividends, for now at least, I can't see any particular justification for a growth IT over an Income IT?

I am keen, like all of us, to minimise charges. I have looked at index trackers (VWRL, MXWS and SWDA) but I need to understand them a bit better first!

Kind regards.

[ADrunkenMarcus]

Bejocomo,

I hold 18 percent of my dividend portfolio in MYI and I have been happy with it - either that or SMT would be great as a second investment trust.

As you indicated, you'll get a lot of diversification from just a few investment trusts and holding a small number of high quality ones is the way to go IMHO. If you are reinvesting dividends in any case then it's really a question of the differences between MYI and SMT, other than the dividend yield, that you need to consider.

Best wishes


Mark.

[grimer]

The Morningstar X-Ray shows even less overlap and boosts US holdings whilst giving a good slice of asian emerging markets.

Do you have a link to the page that allows you to add holdings to the X-ray tool? Do you just manipulate the URL?

[hamzahf]

Do you have a link to the page that allows you to add holdings to the X-ray tool? Do you just manipulate the URL?

Yes, I gave it before but perhaps was not clear. Morningstar allows free X-ray analysis of investment trusts selected from the performance tab of the investment trust section, but one has to subscribe to do likewise for other funds. Someone on TMF pointed out that by going directly to the Instant X-ray page (linked below) one can enter both investment trusts (by EPIC code or name) or funds (by name) or combinations thereof without subscribing. A dialogue will aid selection of the desired item. One can then assign percentage weights (which can be a little temperamental) or assign equal weightings.

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

I think it is a fantastic tool for portfolio modelling.

Regards
Hamzah

[GJHarney]

On the specific point of holding the same underlying holdings in different, but similar investment area, IT's I understand the points about not wanting to duplicate, however there is an argument that sometimes the same holdings spread between different IT's is itself a form of extra security and diversification due to the (very) small potential for problems to hit an individual IT (accounting errors, fraud, loss of a 'star' manager). That was I think a part of the thinking behind Luni's income IT baskets.

More generally in terms of small monthly drip feeding into IT's I have to say that I really like Baille Gifford's in house fund platform. No dealing or annual holding charges and a reasonable spread of global IT's to choose with minimum monthly investments of £30 per IT. For a good while I've had a monthly drip going into Scottish Mortgage that if it does well (and it has done very well in recent years) I move much of the profits into the likes of SAINTS, Monks or this year Edinburgh Worldwide (there are no switch charges either).

[Chloe]

Regarding the X-Ray tool, which I am very grateful to Hamzahf for providing the link to a while ago, it is indeed very temperamental and frustrating if you specify percentages that add up to more than 100, even by a smidgen. However, you can alternatively elect to put numbers in the 'Amount' column; so if you put your percentages in the latter column, it should work fine (but won't sanity check your total percentage equalling 100).

[Dod1010]

Bejocomo,

I hold 18 percent of my dividend portfolio in MYI and I have been happy with it - either that or SMT would be great as a second investment trust.
.

But do not make the mistake of thinking that Murray International and SMT (Scottish Mortgage) are in any way comparable. SMT is much more of a technology based and unquoted vehicle trust than Murray and unlike Murray pays only a very modest dividend.

Dod

[PresumingEd]

The answer is 'yes', as anyone holding foreign stocks or funds when we voted for Brexit will testify. The devaluation of Sterling saw a significant rise in the value of overseas holdings.

If you are investing for the long-term I wouldn't worry too much about income. I have held a lot of global trusts in the past but now only Murray International. However in your shoes I would consider a low cost etf like VWRL from Vanguard or HMWO from HSBC. These have a bit of UK exposure but not much (6 percent) and you don't have to pay 0.5% stamp duty.

[bejocomo]

On the basis I have no overseas exposure beyond that attributable to my FTSE Holdings and the fact I want to minimise charges and reinvestment costs I have opted to invest the additional £250 into iShares Core MSCI World UCITS ETF.

Many thanks to all who replied.