Which IT as a temporary investment?

[staffordian]

I have a portfolio of investment trusts held within an ISA.

It comprises the following in broadly equal amounts:

Bankers Inv Trust BNKR
BMO Capital and Income Inv. Trust BCI
JPMorgan Claverhouse Inv Trust JCH
Lowland Investment Co LWI
Mercantile Investment Trust (The) MRC
Murray International Trust MYI
Perpetual Income and Growth Inv Trust PLI
Henderson Far East Income Ltd. HFEL
Foreign & Colonial Investment Trust FCIT
Securities Trust of Scotland STS

I don't have any plans to introduce other candidates for the forseeable future, but am still adding funds so I intend to add to each in turn as new money and accumulated dividends allow.

That's the background, now to my question.

I am due to receive an inheritance of around £50k in the next few months, a good chunk of which I've earmarked for the portfolio. However it will take several years to feed this into the ISA, because as I mentioned above, I'm still adding to the ISA (about £1k per month meaning I can only feed £8k of the inheritance per year).

My plan is to invest the earmarked money in a non sheltered account and sell £8k per year to add to the ISA. I think the best plan is a single trust, to reduce trading costs and keep things simple.

I also think a completely new IT would be wise to spread the risk (which I realise is probably quite small).

Additionally, I don't particularly want a high yielder for two reasons.

First, I don't want to risk being taxed on the dividends, which I know is unlikely given the amount involved, unless the goalposts are moved and second, as I shall not be adding to this unsheltered IT, the relatively low value of dividends will not be cost effective to reinvest. So I think a growth rather than an income IT would fit the bill better.

I'm not looking to take undue risks to see this grow, but a bit of solid growth wouldn't go amiss.

Bearing the above in mind, I'd be very grateful to hear any thoughts on a suitable IT, or possible any flaws in my plan?

Thanks in advance,

Staffordian

[BrummieDave]

That looks like B7a plus HFEL, FCIT and STS to me; I started with B7a and have added added HFEL and STS plus a few non equity ITs, and hold FCIT in another portfolio, so we probably think similarly.

In terms of there being any flaws or not, it's probably as good a plan as any, but hey who knows.

In terms of where to park the cash whilst you move it into your ISA over several years, I'd definitely go global, partly due to the UK centric nature of B7a (as it looks like you've already started to address with HFEL, FCIT and STS). If you think markets will continue to improve and you don't need much downside protection, more FCIT is as good a home as any IMHO. If you are concerned about the markets, Capital Gearing Trust may help you sleep during the intervening years.

If you want to try something a little different though, Seneca Global Income and Growth may also be worth a look.

Hope this helps.

[Alaric]

Bearing the above in mind, I'd be very grateful to hear any thoughts on a suitable IT, or possible any flaws in my plan?

As another suggestion, you could just buy in a taxed dealing account what you want to see longer term in the ISA. Every year you ask your Broker to run a "Bed and ISA"" to sell and repurchase at minimal spread to utilise the the annual ISA allowance.

[nmdhqbc]

You specified IT's but are open ended funds out of the question? Maybe they are if your broker charges % fees for them. If not consider something like Fundsmith as it has a low yield of about 0.6%. If you have the £8k in savings you can transfer from non-ISA to ISA simultaniously without the cost of the bid/offer spread or stamp duty of IT's. Plus you can do it to exact pound pence amount making it neater. Just a though.

[Dod101]

I would think that CGT, Caledonia or RIT Capital Partners would fit the bill. They more or less protect your capital and at least the latter two will give you a chance of some capital growth as well and pay a very modest dividend.

Dod

[staffordian]

Thank you for the responses and suggestions.

@BrummieDave Quite right about the origins of the portfolio and the thinking behind it's development. I shall look at your suggestions, which at first glance look interesting. The idea to simply go with FCIT also appeals as I'm in my comfort zone there...

@Alaric Another appealing suggestion, though instinctively I'd rather keep this side of my investments as simple as possible. Maybe just two or three of my existing holdings is a reasonable compromise. Food for thought there.

@nmdhqbc (hope I'm pronouncing your name correctly ) I appreciate the suggestion. I don't rule anything out at present but am leaning heavily towards staying with what I'm comfortable with, rather than researching new stuff for just a one off investment.

@Dod101 Thanks, three I'd not come across in my initial screening, probably as I didn't cast my net wide enough.

Plenty for me to think about, so again, many thanks for the input. It's much appreciated.

Staffordian

[BrummieDave]

Thank you for the responses and suggestions.

@Dod101 Thanks, three I'd not come across in my initial screening, probably as I didn't cast my net wide enough.

Dod's CGT is my 'Capital Gearing Trust', which along with his other two, Caledonia and RIT (Rothschild Investment Trust), are all 'Capital Preservation' ITs, the latter two initially being investment vehicles for their respective founding families' wealth, Cayzer and Rothschild. If you aren't familiar with them, their websites make interesting reading not least of all for their history. There's plenty of reviews and past performance data readily available elsewhere too. As you will see, all three invest in several asset classes, and seek to preserve wealth whilst cautiously growing it with less volatility and downside risk than pure equity investments.

Good luck!

[77ss]

I have a portfolio of investment trusts held within an ISA.

It comprises the following in broadly equal amounts:

Bankers Inv Trust BNKR
BMO Capital and Income Inv. Trust BCI
JPMorgan Claverhouse Inv Trust JCH
Lowland Investment Co LWI
Mercantile Investment Trust (The) MRC
Murray International Trust MYI
Perpetual Income and Growth Inv Trust PLI
Henderson Far East Income Ltd. HFEL
Foreign & Colonial Investment Trust FCIT
Securities Trust of Scotland STS

I don't have any plans to introduce other candidates for the forseeable future, but am still adding funds so I intend to add to each in turn as new money and accumulated dividends allow.

That's the background, now to my question.

I am due to receive an inheritance of around £50k in the next few months, a good chunk of which I've earmarked for the portfolio. However it will take several years to feed this into the ISA, because as I mentioned above, I'm still adding to the ISA (about £1k per month meaning I can only feed £8k of the inheritance per year).

My plan is to invest the earmarked money in a non sheltered account and sell £8k per year to add to the ISA. I think the best plan is a single trust, to reduce trading costs and keep things simple.

I also think a completely new IT would be wise to spread the risk (which I realise is probably quite small).

Additionally, I don't particularly want a high yielder for two reasons.

First, I don't want to risk being taxed on the dividends, which I know is unlikely given the amount involved, unless the goalposts are moved and second, as I shall not be adding to this unsheltered IT, the relatively low value of dividends will not be cost effective to reinvest. So I think a growth rather than an income IT would fit the bill better.

I'm not looking to take undue risks to see this grow, but a bit of solid growth wouldn't go amiss.

Bearing the above in mind, I'd be very grateful to hear any thoughts on a suitable IT, or possible any flaws in my plan?

Thanks in advance,



Staffordian

I don't think that bunging it all into FCIT would be too bad an idea. Simple too.

Alternatives, which might give better capital growth include WWH (health, 0.9%) and ATT (tech, 0%). An embarrassment of options really.

[barchid]

Or a left field thought, as you are already putting 60% into your ISA by monthly dripfeeding and as you are also receiving a lump sum, why not put some of that inheritance into a current or forthcoming VCT offer to keep the cash in a shelter and enjoy 30% rebate from HMRC & tax free divis as well ?

[staffordian]

Or a left field thought, as you are already putting 60% into your ISA by monthly dripfeeding and as you are also receiving a lump sum, why not put some of that inheritance into a current or forthcoming VCT offer to keep the cash in a shelter and enjoy 30% rebate from HMRC & tax free divis as well ?

Thanks for the suggestion, but I think any upside (in my case) on the tax front is far outweighed by the risk of capital loss.

I'm definitely leaning towards a safe and boring IT, either more of my existing FCIT or one of the suggestions made by BrummieDave and Dod101

Staffordian

[staffordian]

As an aside, the other option I was considering was Premium Bonds. Guaranteed capital security; just the risk of inflation eating into it v the possibility of becoming a millionaire

[hiriskpaul]

Bung it all in a global ETF. Minimal bid/ask spread, no stamp duty and a dividend yield of about 2% should comfortably bring income within the dividend allowance.

Something like Vanguard VEVE would be a good choice. With 0.12% OCF it will also cost you less in charges than your existing portfolio and probably outperform it.

[BrummieDave]

Bung it all in a global ETF. Minimal bid/ask spread, no stamp duty and a dividend yield of about 2% should comfortably bring income within the dividend allowance.

Something like Vanguard VEVE would be a good choice. With 0.12% OCF it will also cost you less in charges than your existing portfolio and probably outperform it.

Except the OP asked for an IT, and FCIT has beaten VEVE over 3 and 5 years anyway.

[hiriskpaul]

Bung it all in a global ETF. Minimal bid/ask spread, no stamp duty and a dividend yield of about 2% should comfortably bring income within the dividend allowance.

Something like Vanguard VEVE would be a good choice. With 0.12% OCF it will also cost you less in charges than your existing portfolio and probably outperform it.

Except the OP asked for an IT, and FCIT has beaten VEVE over 3 and 5 years anyway.

That's in the past. Over the next 5 years, some of his ITs will likely outperfom VEVE, some will likely underperform, much as they are likely to have done over the last 5 years (Just my assumption, have not checked). It is unlikely that VEVE will be the best pick, but also unlikely to be the worst. One thing that is most likely is that it will be the lowest cost and have the lowest trading friction.

If the OP is confident FCIT or whatever will outperform VEVE over the next 5 or so years he should go for it. If not, cut the risk and take the middle path with the lowest cost.

[staffordian]

Bung it all in a global ETF. Minimal bid/ask spread, no stamp duty and a dividend yield of about 2% should comfortably bring income within the dividend allowance.

Something like Vanguard VEVE would be a good choice. With 0.12% OCF it will also cost you less in charges than your existing portfolio and probably outperform it.

Except the OP asked for an IT, and FCIT has beaten VEVE over 3 and 5 years anyway.

I have always been wary of EFTs, mainly because I don't have a clue about them.

Notwithstanding my original post, I did ask if anyone could see any flaws in my approach, and paying higher than necessary charges could well be one

I shall have a look.

Staffordian

[hiriskpaul]

Bung it all in a global ETF. Minimal bid/ask spread, no stamp duty and a dividend yield of about 2% should comfortably bring income within the dividend allowance.

Something like Vanguard VEVE would be a good choice. With 0.12% OCF it will also cost you less in charges than your existing portfolio and probably outperform it.

Except the OP asked for an IT, and FCIT has beaten VEVE over 3 and 5 years anyway.

I have always been wary of EFTs, mainly because I don't have a clue about them.

Notwithstanding my original post, I did ask if anyone could see any flaws in my approach, and paying higher than necessary charges could well be one

I shall have a look.

Staffordian

I would add that, as previously noted, you could go for a global tracker OEIC/UT instead if you would prefer not to buy an ETF, but the platform you are using might charge you for holding it.

Don't be too concerned about bog standard, cap weighted ETFs though. As I noted on a previous thread, the oldest ETF was released about 26 years ago and is worth more than all ITs put together. Cap weighted ETFs have survived multiple seismic market events and not a single one anywhere in the world has failed or significantly underperformed its index.

Pick a world tracker and you will get market returns less a miniscule amount. Pick an IT and you will get market returns minus higher costs, plus/minus whatever the manager can add/detract from the market returns. This fund manager risk/variance can be huge - which is why it is best not to buy just one IT!