ITs for cash from bought-out shares

[spiderbill]

Having been less than impressed with the capital performance of many so-called HYP stalwarts in my Hyp-ish share portfolio, I've been considering moving some of my investments into ITs.

I'm about to have three shares bought out from under me - KCOM, RPC, and Immarsat - so I'll have the proceeds to make a start on such a switch in the fairly near future, and am wondering where best to place them.
My current IT collection is fairly small and mostly bought around the end of 2017/beginning of 2018 - just over £7k split over HFEL (4% down), MYI (11% down), FCIT 6% up), and MRCH (most recent and only 1% up).

I bought them mainly to learn about performance and compare them to the share portfolio which I started around 2011, but I'm still a relative novice in ITs, so I'd like to canvass opinion here about whether to just topup these or add anything else. The share proceeds would double the IT holdings so it's still not a large amount compared to my shares or OEIC, but getting a bit more significant.
Tempted to just put 2/3 into Merchants and 1/3 into FCIT but maybe that woud be duplicating many of the existing shares.

Age 64 I'm mainly looking for income but not at the risk of more capital loss.
My shares are somewhat overweight on insurers (mostly in profit apart from Aviva) so should probably avoid ITs which have high holdings there, but are otherwise the usual HY suspects e.g. Shell, HSBC, Glaxo, National Grid, Taylor Wimpey, IMB, Lloyds etc.

Thoughts welcome.
cheers
Spiderbill

[seagles]

Having been less than impressed with the capital performance of many so-called HYP stalwarts in my Hyp-ish share portfolio, I've been considering moving some of my investments into ITs.

I'm about to have three shares bought out from under me - KCOM, RPC, and Immarsat - so I'll have the proceeds to make a start on such a switch in the fairly near future, and am wondering where best to place them.
My current IT collection is fairly small and mostly bought around the end of 2017/beginning of 2018 - just over £7k split over HFEL (4% down), MYI (11% down), FCIT 6% up), and MRCH (most recent and only 1% up).

I bought them mainly to learn about performance and compare them to the share portfolio which I started around 2011, but I'm still a relative novice in ITs, so I'd like to canvass opinion here about whether to just topup these or add anything else. The share proceeds would double the IT holdings so it's still not a large amount compared to my shares or OEIC, but getting a bit more significant.
Tempted to just put 2/3 into Merchants and 1/3 into FCIT but maybe that woud be duplicating many of the existing shares.

Age 64 I'm mainly looking for income but not at the risk of more capital loss.
My shares are somewhat overweight on insurers (mostly in profit apart from Aviva) so should probably avoid ITs which have high holdings there, but are otherwise the usual HY suspects e.g. Shell, HSBC, Glaxo, National Grid, Taylor Wimpey, IMB, Lloyds etc.

Thoughts welcome.
cheers
Spiderbill

I have had MRCH, HFEL and MYI for a while now. Recently started to look outside these for areas I had not covered in my Equity shares. Originally went for MCT for north american, 5.32% and now putting into JETI, European focus, 4.27%. I also have SCF and DIG. I am 65 and also looking at income but not averse to growth either. I am moving away from Equity shares into IT's, although did top-up IGG today as all my IT's are in my SIPP and had rare spare money to put into my ISA.

[monabri]

I'd go 50:50 MYI and HFEL.

This would give you (i) an opportunity to average down on MYI, (ii) a good yield & (iii) both are ex UK ( ok, MYI is 10% UK).

Merchants would give you more of the same (your HYP share list).



FCIT is trading close to it's year high and with a yield of 1.6% then one must be hoping for growth rather than income?

[spiderbill]

I have had MRCH, HFEL and MYI for a while now. Recently started to look outside these for areas I had not covered in my Equity shares. Originally went for MCT for north american, 5.32% and now putting into JETI, European focus, 4.27%. I also have SCF and DIG. I am 65 and also looking at income but not averse to growth either. I am moving away from Equity shares into IT's, although did top-up IGG today as all my IT's are in my SIPP and had rare spare money to put into my ISA.

Thanks for this.
MCT is a new one on me - will need to do some research.
JETI I've heard of but not looked at closely; partly as I have a small holding in the Europe-focussed ETF VERX which hasn't done well over the last couple of years since I bought it, though it's been creeping near break-even recently. Will take a good look.
SCF I'd looked at as it was one of Luni's Basket of 8, but I'd rejected it then as it was falling at the end of last year. I see it's mostly recovered since then so I'll take another look.
DIG I haven't looked at for about a year so that's another to reconsider.

Very useful suggestions; many thanks

Spiderbill

[spiderbill]

I'd go 50:50 MYI and HFEL.

This would give you (i) an opportunity to average down on MYI, (ii) a good yield & (iii) both are ex UK ( ok, MYI is 10% UK).

Merchants would give you more of the same (your HYP share list).
FCIT is trading close to it's year high and with a yield of 1.6% then one must be hoping for growth rather than income?

Thanks for the opposite view - always useful!
I guess I've been so put off by the results of chasing yield in my share portfolio (despite trying not to) or of averaging down on things like Petrofac, that I'm nervous of repeating capital losses - at one point I was over 17% down of MYI.
However I'll sit down and rethink it all before making any decisions; there's a couple of weeks before the first of the cash comes through.

much obliged
Spiderbill

[monabri]

Originally went for MCT for north american, 5.32% .

Besides the yield, the AIC reported divi cover is 9.6 years.

https://www.theaic.co.uk/companydata/C0PAJ

[mike]

Originally went for MCT for north american, 5.32% .

Besides the yield, the AIC reported divi cover is 9.6 years.

https://www.theaic.co.uk/companydata/C0PAJ

MCT has wonderful cover, but excruciatingly snail like increases in dividend - only one increase since cutting the divi 9 years ago, and that was by just 1 %.

https://www.theaic.co.uk/companydata/C0PAJ/overview/dividends

[Wasron]

Have you considered Law Debenture LWDB?

They yield only 3.16%, but they are heavy in Industrials, so fit well with the cash coming from RPC and Inmarsat.

They also have the fiduciary element that distinguishes them other options out there.

Best of luck with your decision making

Regards

[Dod101]

I do not know why no one mentions Alliance Trust. I think in their new guise they might just do something. They are now almost purely into equities with about 10% I think in the US (maybe more, I cannot find the number) and a worldwide exposure. I have held on to them through thick and thin and I think the stockpickers that have so far been presented at AGMs come across well.

Dod

[monabri]

I do not know why no one mentions Alliance Trust. I think in their new guise they might just do something. They are now almost purely into equities with about 10% I think in the US (maybe more, I cannot find the number) and a worldwide exposure. I have held on to them through thick and thin and I think the stockpickers that have so far been presented at AGMs come across well.

Dod

Spiderbill ( the OP) mentioned he was looking for income in his opening question. The current yield for ATST is ~1.8%. According to Hargreaves Lansdown they are 49% US, 12 % UK (I'm guessing that the 10% figure attributed to the US is a typo above and Dod meant UK). The 5 year growth rate in dividends has been good at +7.3% ( data from A.I.C). The share price has done well from 2016 (500p ...766p).

[Dod101]

Thanks monabri. You are much more specific with the numbers. It is not an income trust I agree but I think it might be fine as a total return trust. It has a worldwide exposure and I rather like that.

However, it has a 20 years poor performance record to live down.

Dod

[spiderbill]

Apologies for not responding immediately to the latest replies - been launching a client website and doing an urgent server migration on some others at the same time. WIll consider them when I get a few minutes. Thanks to all for the suggestions.

Spiderbill

[SKYSHIP]

Spiderbill - You bought in at a difficult time as 2018 was somewhat of a disappointment for many; though 2019YTD has seen a nice turn-around.
So overall your IT portfolio isn't a disaster, just rather pedestrian.

I would suggest you cash in those worthy yet uninspiring performers and switch into Private Equity and Specialist funds. Other than a few Biotech & Tech trusts, PE is the best sub-sector of the IT world.

You will find most players on The Private Equity thread over at ADVFN:

https://uk.advfn.com/cmn/fbb/thread.php3?id=26570589

Since starting that thread back in 2011 I majored on the liquidating trusts and these paid out very handsome returns as they worked through their liquidation agendas - I touch on that aspect in the thread Header.

At the moment I would suggest 3 trusts: JPEL, LMS & NBPE - all will give you currency diversification to the US$:
# JPEL is in liquidation mode on a 17% discount
# LMS is on a 31%+ discount
# NBPE is on a 21% discount whilst providing a 4% yield

I would also very strongly recommend Tetragon Financial (TFG):

https://www.edisongroup.com/publication ... ets/23895/

Read that review and you will see that at a 47% NAV discount and a 5.7% yield, TFG is remarkably GOOD VALUE

Good luck; and post on that PE thread with questions from time to time; there are a few excellent and very knowledgeable investors visiting there!

[spiderbill]

A wee update on this and a couple of questions about possible choices.

The money from RPC was spent on a further slug of Henderson Far East (HFEL) after reconsidering Monabri's suggestion, along with a smaller top-up of Regional REIT.

The KCOM money is just coming through now (arrived today in my Interactive Investor account, not yet arrived in my HSBC account). Since my ITs are all with ii and I want to keep them together I'm mulling over using that part (around 3.6k) to buy either one or two new ITs, while the HSBC money (around 2.3k) will go into an individual share (possibly Rio Tinto or Marstons).

Having bought more far east and with the situation there a bit volatile I was thinking about either Europe or North America, both of which I'm a bit light on.
Interactive Investor don't seem to recognise seagles suggested MCT, so that's out. Dunedin is partly UK focused so I've decided to leave it for now, though I may return to it later as it has Unilever, Diageo and BHP - all of which I'd like to get exposure to at some point.

So I looked again at JPMorgan European Investment Trust (JETI) as a possible for European (Roche, Novartis, Total, Allianz, etc.) and also reading the thread on Arb's IT portfolio, I wondered about Blackrock North American Income Trust (BRNA) for some US exposure (Pzfizer, JP Morgan, Citigroup, Verizon). Both of these seem to be about 4.2% yield and have had at least some capital growth - more so Blackrock (though with last Autumn's slump and the current Trump/Brexit inspired one it's been a bit of a choppy ride all round).

My question, largely due to my as yet novice understanding of ITs, is regarding the premium/discount to NAV. How important is it in practice and how might it affect future trends. Blackrock NA, which seems to have done better on capital is at a premium of 4.5%, while JETI is currently at a discount of 12%. Is the latter a bargain or a too-good-to-be-true? I have vague memories of some people saying they only ever buy at a discount and others saying that a premium is an indication of a successful management; but don't recall any real explanation/discussion of which is likely to be most beneficial in the long run.
Might it be worth splitting the cash between the two or is that just hedging my bets?

Thanks for all the previous contributions - all were valuable food for thought. Finally to SKYSHIP, I'm intrigued by your Private Equity suggestions but feel I need to learn a lot more about that sector before jumping in. So not this time but I'll return to it later when I have time for proper research.

cheers all
Spiderbill

[Dod101]

Spiderbill

In the long run whether you buy at a premium or discount will not make a lot of difference. I cannot say just ignore this factor but it does not need to be very high on your list of priorities. Obviously you buy preferably at a discount and certainly not at a large premium but otherwise you really need to know about the management of the trust and its recent performance. I think ITs ought to be in a portfolio for upwards of ten years and I have held some for more than 20. In that time the impact of a premium or discount is minimal.

Given the discount on European trusts, I have been looking at them as well. Now that European Assets Trust is managed from the UK, I am wondering about it. The trouble is that ITs trade a discount usually for good reason, that is they are unpopular because of perceived poor results, so you make your choice......

Good luck whatever you do.

Dod

[seagles]

I brought into JETI last year and have been adding to it when I can. At the time EAT was based in Netherlands and The way it paid its divis did not give me a warm feeling, have not looked at it since it switched to the UK though.
MCT was available with HL when I was buying. Sometimes a call to broker will make the share available to you. Just a thought.
I always buy at discount but if it was a share that passed all my investigations being discount or premium would not hold me back.

[monabri]

Europe...

Britain heading for a no deal Brexit.
Germany on the precipice of recession.
France....

JETI has a 4.1% yield but I think I'd wait for the end of the year.

[Dod101]

monabri is right and that is probably the reason that European oriented trusts are at a decent discount at the moment. I am not very enthusiastic about specialist trusts anyway, whether by geography or industry for just this reason. I prefer that managers have got a flexible mandate subject maybe to an income trust or growth trust or some other very broad aspiration. But leave them to get on with it.

So I hold Murray International, Caledonia, RIT Capital Partners, Finsbury Growth and Income, Tenple Bar, HFEL (a sort of geographical specialist, but a fairly broad one) and the two UK income trusts, Edinburgh IT and Murray Income. I would have ditched Edinburgh but I have held it for a long time and despite its very poor performance recently, I will have a large CGT liability if I sell and do not want that this year.

Dod

[richfool]

So I looked again at JPMorgan European Investment Trust (JETI) as a possible for European (Roche, Novartis, Total, Allianz, etc.) and also reading the thread on Arb's IT portfolio, I wondered about Blackrock North American Income Trust (BRNA) for some US exposure (Pzfizer, JP Morgan, Citigroup, Verizon). Both of these seem to be about 4.2% yield and have had at least some capital growth - more so Blackrock (though with last Autumn's slump and the current Trump/Brexit inspired one it's been a bit of a choppy ride all round).

My question, largely due to my as yet novice understanding of ITs, is regarding the premium/discount to NAV. How important is it in practice and how might it affect future trends. Blackrock NA, which seems to have done better on capital is at a premium of 4.5%, while JETI is currently at a discount of 12%. Is the latter a bargain or a too-good-to-be-true? I have vague memories of some people saying they only ever buy at a discount and others saying that a premium is an indication of a successful management; but don't recall any real explanation/discussion of which is likely to be most beneficial in the long run.
Might it be worth splitting the cash between the two or is that just hedging my bets?

I would try and get your exposure through Global Growth & Income trusts. You don't then need to concern yourself with asset allocation choices between Europe, North America and the Far East etc. E.g. Trusts such as: MYI, JPGI and HINT (all of which I hold). They hold US, European and Far Eastern and UK stocks (with the exception of HINT which excludes the UK).

If you want to broaden the scope beyond equities, look at trusts like MATE (JP Morgan Multi-Asset trust).

That said, I do (also) hold: MCT, NAIT, AAIF, SOI, JAI), but currently no European only trusts.

[spiderbill]

Britain heading for a no deal Brexit.
Germany on the precipice of recession.
France....

JETI has a 4.1% yield but I think I'd wait for the end of the year.

You make a good point there. Maybe I'm in too much of a hurry to allocate the cash considering the current uncertainties. I see we're falling again today and sub-7000 for the FT looks not far away again. Another Trump tweet or a twitchy finger in Hong Kong and we could easily be under it.

Hmmm. Maybe should have bought gold