Natural Yield Portfolio Review

[ignotus20]

I've been devising a few different portfolios recently, including Total Return (TR) and Natural Yield (NY). The arguments about which approach is superior seem impossible to resolve without the benefit of hindsight, so I'm hedging my bets.

I am in the deaccumulation stage, but most of the funds have come from the sale of a business, not prior investments. I have an ISA and a SIPP with quite a few prefs and bank subordinated bonds as well as some single company shares and a mixture of other stuff, but I can't draw anything from the SIPP for another 7 years. I have no other employee pensions nor sources of income, apart from the state pension which I won't be entitled to for at least another 18-19 years.

My mortgage is paid off and I have no dependents. I have an underlying health condition, but what might happen with it is unclear, I could live normally for another 40+ years or drop dead within the next 5. The doctors don't know how that will play out. For that reason (amongst others) I'm not eager to boost my income with conventional paid employment. I require this portfolio to start paying its share of my living expenses in the next 12-24 months. I have a cash reserve, however, which will cover three times my current annual expenses, irrespective of what happens.

Below is my NY portfolio:

Equity: 75%
Debt: 5%
Other/alternative (green, REITs, infrastructure, commodities/mining, health): 20%

Equity (75%)

Lindsell Train Investment Trust (LTI)
JPMorgan Global Growth & Income PLC (JGGI)
Murray International Trust PLC (MYI)
Henderson International Income Trust PLC (HINT)
Global High Yield (VHYL)
VanEck Vectors Morningstar Developed Markets Dividend Leaders (TDGB )
Princess Private Equity (PEYS)
3i (III)

Debt (5%)

RM Infrastructure Income PLC (RMII)
CQS New City High Yield Fund Ltd (NCYF)
CVC Income & Growth Ltd (CVCG)

Other/alternative (20%)

Commodities & Mining
Black Rock World Mining Trust (BRWM)
Black Rock Energy & Resources Income (BERI)

Health
International Biotechnology (IBT)
BB Healthcare (BBH)

Infrastructure
Ecofin Global Utilities And Infrustructure Trust PLC (EGL)
International Public Partnership Ltd (INPP)

Green
Renewables Infrastructure Group (TRIG),
Greencoat UK Wind PLC (UKW),
Harmony Energy Income Trust PLC (HEIT)
JLEN Environmental Assets Group Ltd (JLEN)
NextEnergy Solar Fund (NESF)

Property
TR Property Investment Trust PLC (TRY)
Segro PLC (SGRO)
Primary Health Properties PLC (PHP)

The selections have primarily been made because they offer a relatively high (and increasing) yield averaging just over 4%. In addition there are a couple of ETFs (VHYL and TDGB) to balance things out a bit. There are 24 positions, which it could be argued is excessive, but I started with well over 30.

My plan is to spread the investments out over 12 monthly regular instalments (using the free ii facility) to reduce both costs and market timing risk. I'm not intending to use the capital from this portfolio and I'm treating it a bit like an annuity, but equally I'd prefer to avoid seeing really huge write-downs in the valuation in case I ever did need to raise funds.

I'd be interested to take feedback on this as a proposed Natural Yield portfolio. Discussions about whether to use that particular strategy or not we can have elsewhere another time.

[ignotus20]

Judging by the lack of comments, evidently, I've devised the perfect Natural Yield portfolio and a glittering career as a fantastically well-paid armchair asset manager awaits then? You can all pay me later.

[nmdhqbc]

a couple of notes on a few of these...

Lindsell Train Investment Trust (LTI)

bear in mind this like buying a single company (Lindsell Train Limited) and a portfolio. HL has it at 40% of the portfolio but not sure how up to date or accurate that number is. if you want to avoid too big of a position in any one company you might want to avoid this one.

JPMorgan Global Growth & Income PLC (JGGI)
International Biotechnology (IBT)
BB Healthcare (BBH)

these 3 all pay out a % of NAV each year as dividend. so i guess it depends how you define "natural yield". this to me is not really natural. the underlying portfolios will be yielding much lower than the payouts. it's like holding a growth fund and selling units for income except they are doing if for you and the tax implications will be different i guess. as a result the dividends will fluctuate up and down with the market. depending on how you look at it you might want to categorise these into the total return portfolio instead.

[ignotus20]

Thanks, nmdhqbc. I'd noted that about LTI and the 40% holding in Lindsell Train Limited before. I need to go away and research this more thoroughly, it does seem somewhat opaque.

Over the other NAV-payers, I was looking for some reasons to trim away a few more candidates (and perhaps re-allocate for the TR portfolio instead, as you say).

[Jam1]

Ignotus, noted that PEYS suspended the second dividend ion the 2nd half of 2022, given liquidity concerns. Looks to be solely that distribution but APAX (same sector) did not suffer the same issue.
Jam (tomorrow)

[ignotus20]

Ignotus, noted that PEYS suspended the second dividend ion the 2nd half of 2022, given liquidity concerns. Looks to be solely that distribution but APAX (same sector) did not suffer the same issue.

Thanks for pointing that out it, it's reason enough for me to exclude it from this particular portfolio.

[dealtn]

Judging by the lack of comments, evidently, I've devised the perfect Natural Yield portfolio and a glittering career as a fantastically well-paid armchair asset manager awaits then? You can all pay me later.

Well there is no mention of what those natural yields of the underlying investments are, nor any information about their payout ratios or likely growth, nor their costs.

Not surprising to me few have commented on them.

Good luck.

[Wuffle]

Certain elements bear considerable resemblance to CMPI (columbia Threadneedle Global Income).
I have a decent percentage in this.

We're you aware of it?
Have you copied it and eliminated their charge?
Would you be better off letting the professionals get on with it for a small charge given the similarities?

W.

[Wuffle]

I made a mess of that.

No apostrophe.
And CMPI, Columbia Threadneedle Global Managed Portfolio, Income.

That's better.

W.

[ignotus20]

Hi Wuffle,

Over CMPI:

We're you aware of it?
Have you copied it and eliminated their charge?
Would you be better off letting the professionals get on with it for a small charge given the similarities?

I wasn't aware of this, it could well be worth checking out. The charges are a bit higher, but as you say it could be worth it to let someone else deal with the hassle.

Looking at the AIC page for it: https://www.theaic.co.uk/companydata/ct ... lio-income It does cover a lot of the ITs in my list. It's perhaps a bit overweight on UK funds (41%) but I'm giving it some serious consideration. Thanks for bring this to my attention.

[Hariseldon58]

Logically a natural yield portfolio with dividends reinvested should return as much as a total return portfolio.

I would watch investment costs, you could be leaving 1% with the middlemen.

At times I have used a lot of investment trusts and bought with decent discounts this can work out well but for my decummulation portfolio the core is a developed world index etf, very low costs and I spend capital to supplement the low yield as required, works well.