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Proportion of portfolio in Investment Trusts

Closed-end funds and OEICs
Silverstar64
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Proportion of portfolio in Investment Trusts

#249643

Postby Silverstar64 » September 5th, 2019, 4:28 pm

I am a massive advocate of ITs and wonder how many other investors here prefer trusts to investing in company shares? I'm not trying to start a debate about passive v active or open v closed ended funds I just wanted to gauge how many have the majority of their stock market eggs in the investment trust basket?

For me I have been on a long term journey reducing my share buying from 100% shares since the early 1980's to 95%+ today in Investment trusts. Maybe it is my age, 55, that means I have a much larger portfolio and diversification and income has become much more of a focus. I miss the sheer excitement of buying a share, particularly a smaller cap that comes good as you'll hardly ever get a thrill like that from an IT and I do still read Simon Thompson in the IC but I only risk a modest amount.

Our portfolios today are 2 shares (mid cap housebuilder and micro cap US pharmaceutical) and 51 investment trusts. Maybe that's too many? (Another topic perhaps)

SalvorHardin
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Re: Proportion of portfolio in Investment Trusts

#249652

Postby SalvorHardin » September 5th, 2019, 4:54 pm

Since I retired, and as I live off my investments (zero pension), I've been increasing the percentage in investment trusts. Before I retired it was 0%. 16 years later the equity breakdown is 36% between 16 investment trusts and 64% in 16 operating companies.

As you said there's a lot less excitement in investment trusts than operating companies. For most of us I reckon that is a feature not a bug! I'm fortunate in that I can live off my investment trust dividends on their own, so I can tolerate a fair bit of risk and concentration in the operating companies.

I anticipate increasing the percentage in investment trusts as I enter my 60s to something approaching 50/50. I can't see me ever ending up with no operating companies, if only because investing is a hobby and I don't want to pay the capital gains tax that would arise if I sold the lot!

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Re: Proportion of portfolio in Investment Trusts

#249655

Postby Lootman » September 5th, 2019, 5:02 pm

SalvorHardin wrote: I can't see me ever ending up with no operating companies, if only because investing is a hobby and I don't want to pay the capital gains tax that would arise if I sold the lot!

If you hold all those shares until you die then you avoid all CGT because their basis is stepped up upon your expiry. But those assets will then attract IHT at 40%, whereas if you sell them you might be able to avoid IHT via gifts, trusts, emigration or other devices.

So it could end up being a choice between paying a tax 20% of the gain, or paying a tax of 40% of the entire value which is at least twice as bad!

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Re: Proportion of portfolio in Investment Trusts

#249667

Postby Silverstar64 » September 5th, 2019, 5:46 pm

Lootman wrote: If you hold all those shares until you die then you avoid all CGT because their basis is stepped up upon your expiry. But those assets will then attract IHT at 40%, whereas if you sell them you might be able to avoid IHT via gifts, trusts, emigration or other devices.

Good advice to which I'd add if we are taking tax on death a SIPP is IHT free on death before 75 and beneficiary only pays their income tax rate on any cash withdrawal from the inherited SIPP at death after 75.

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Re: Proportion of portfolio in Investment Trusts

#249669

Postby SalvorHardin » September 5th, 2019, 5:47 pm

Lootman wrote:If you hold all those shares until you die then you avoid all CGT because their basis is stepped up upon your expiry. But those assets will then attract IHT at 40%, whereas if you sell them you might be able to avoid IHT via gifts, trusts, emigration or other devices.

So it could end up being a choice between paying a tax 20% of the gain, or paying a tax of 40% of the entire value which is at least twice as bad!

I'm not fussed about inheritance tax. I'm single, have no children and asides from my parents I only have a few distant relatives.

LooseCannon101
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Re: Proportion of portfolio in Investment Trusts

#249748

Postby LooseCannon101 » September 5th, 2019, 11:03 pm

I have over 95% of my life savings in a highly diversified global investment trust - F&C. The rest is in cash.

F&C has over 450 individual holdings and so is similar to a portfolio containing 10 trusts. I am 56 and had a relatively small amount invested in a former company but decided to sell this to simplify my holdings.

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Re: Proportion of portfolio in Investment Trusts

#249804

Postby tjh290633 » September 6th, 2019, 10:14 am

Silverstar64 wrote:I am a massive advocate of ITs and wonder how many other investors here prefer trusts to investing in company shares? I'm not trying to start a debate about passive v active or open v closed ended funds I just wanted to gauge how many have the majority of their stock market eggs in the investment trust basket?
....
Our portfolios today are 2 shares (mid cap housebuilder and micro cap US pharmaceutical) and 51 investment trusts. Maybe that's too many? (Another topic perhaps)

51 ITs? I would say that is about 40 too many.

I have 35 shares and invest for my grandchildren in 3 global ITs. I'm 86 and am contemplating a future move into ITs, but certainly no more than 9 or 10.

Why so many?

TJH

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Re: Proportion of portfolio in Investment Trusts

#249830

Postby Silverstar64 » September 6th, 2019, 11:07 am

tjh290633 wrote:51 ITs? I would say that is about 40 too many.

I have 35 shares and invest for my grandchildren in 3 global ITs. I'm 86 and am contemplating a future move into ITs, but certainly no more than 9 or 10.

Why so many?

TJH

Good question. Just to clarify the 51 is about 20 main holdings and a long tail of much smaller holdings. I'm aware that such a high number will greatly diminish the chance of a single trusts performance doing much to the portfolio, but the other side of that coin is I'm mitigating against the damage of a 'Woodford' scenario. I'm very careful with asset allocation, geographic spread and spend a lot of time researching and maintaining my Excel model.

My approach has two upsides, dividend reinvestment buys maintain my HL account at the £5.95 rate and I mostly invest monthly at £1.50 so fees are reduced (I moved to them for the high quality support and phone always answered on 1 ring, no waiting) and I can achieve a variety of approaches for example in real estate RGL, NRR, SIR, BCPT, LXI, TRY. Too many, possibly, so maybe it's just I am reluctant to pick a small number of 'one stop shops' for fear of choosing poorly. Maybe I just enjoy trust selection too much!

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Re: Proportion of portfolio in Investment Trusts

#249839

Postby mrbrightside » September 6th, 2019, 11:26 am

Timely question. I have just invested in 4 Investment Trusts with the proceeds from selling Greene King (after the recent increase).

However as I have a 15 years old HYP invested in single shares, this represents just 4% of my total savings.

I am looking to gradually increase the IT allocation by disposing of individual HYP shares and reinvesting dividends in IT's but I don't envisage holding more then 10 IT's as that should provide enough diversification between sectors, regions and fund managers.

Andy

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Re: Proportion of portfolio in Investment Trusts

#249889

Postby everhopeful » September 6th, 2019, 1:25 pm

If you want to have a broad spread of global equities via ITs a few trusts would cover it. If you want to diversify away from that via property, infrastructure, fixed interest, credit, individual country exposure, private equity etc. you would need to have a much larger number. The AIC has in excess of 50 sectors in which to invest. I have 31 ITs covering most of the aforementioned as well as some direct shareholdings and some fixed interest via ETFs and direct holdings of Prefs and bonds. I enjoy the portfolio management but if I needed to slim things down (perhaps in anticipation of my wife having to take it on) I would probably put it all in about twenty ITs

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Re: Proportion of portfolio in Investment Trusts

#249920

Postby Silverstar64 » September 6th, 2019, 2:37 pm

everhopeful wrote:If you want to have a broad spread of global equities via ITs a few trusts would cover it. If you want to diversify away from that via property, infrastructure, fixed interest, credit, individual country exposure, private equity etc. you would need to have a much larger number. The AIC has in excess of 50 sectors in which to invest. I have 31 ITs covering most of the aforementioned as well as some direct shareholdings and some fixed interest via ETFs and direct holdings of Prefs and bonds. I enjoy the portfolio management but if I needed to slim things down (perhaps in anticipation of my wife having to take it on) I would probably put it all in about twenty ITs

Interesting and helpful post, thanks. It prompted my to check my AIC sectors, I have ITs in 19 and constantly try to evaluate all the data that is available from AIC and elsewhere in a giant Excel file.

As wife and I are 55 and 53 my approach is good for the foreseeable future, hopefully, but you've made me think she couldn't manage so many as she hasn't got the patience I have for investing even though like me she is an accountant in industry. One day I'll have to give her a list of a much smaller number of buy and forget ITs.

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Re: Proportion of portfolio in Investment Trusts

#249943

Postby Lootman » September 6th, 2019, 4:15 pm

Silverstar64 wrote:
tjh290633 wrote:51 ITs? I would say that is about 40 too many.

I have 35 shares and invest for my grandchildren in 3 global ITs. I'm 86 and am contemplating a future move into ITs, but certainly no more than 9 or 10.

Why so many?

Good question . . .Too many, possibly, so maybe it's just I am reluctant to pick a small number of 'one stop shops' for fear of choosing poorly. Maybe I just enjoy trust selection too much!

It's a question of when prudent diversification turns into stamp collecting. I've been guilty of that in the past. I'm generally a buy-and-hold guy, so once I have built a position I basically forget about it. Then when some new funds come along, I look for something new. There are always new ideas and watch lists, so there is a danger that you can creep towards having a portfolio with too many securities in it. That is a risk whether it is ITs, shares or anything else. Buffett called it diworsification.

Compounding that in my case was the fact that I ran six different strategies. With 30 or so securities in each, I had about 200 holdings at one point. Even in a tax-sheltered account that is far too many. In a taxable account it becomes an administrative headache.

In general, investors seem to find it easier to generate buy ideas than sell ideas. If as well as that, you have constant new money coming in and needing to be put to work, then the number of holdings can creep up over the years. A few years ago I decided to cull the flock. Each bet should represent an amount that is significant such that it would make a material difference to your portfolio, in my view. These days small holdings irk me so I sell them off unless I really love it, in which case I buy more of it.

Each position should matter.

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Re: Proportion of portfolio in Investment Trusts

#249966

Postby Silverstar64 » September 6th, 2019, 5:38 pm

Lootman wrote:It's a question of when prudent diversification turns into stamp collecting. I've been guilty of that in the past. ...

Thanks for your very thought provoking remarks Lootman. The phrase stamp collecting resonates with me as I enjoy selecting new trusts and as long as they fit the strategy I've added them as we invest monthly in both our SIPPs and ISAs. I'm mixing an interesting and time consuming hobby with investing. I'll start looking at trust consolidation!

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Re: Proportion of portfolio in Investment Trusts

#250034

Postby tikunetih » September 6th, 2019, 11:58 pm

Silverstar64 wrote:For me I have been on a long term journey reducing my share buying from 100% shares since the early 1980's to 95%+ today in Investment trusts.

...

Our portfolios today are 2 shares (mid cap housebuilder and micro cap US pharmaceutical) and 51 investment trusts. Maybe that's too many? (Another topic perhaps)

51 ITs!

You started your post encouragingly, suggesting to me that with experience you'd distilled and honed your investment strategy... only for me to have that illusion shattered with the subsequent revelation. ;)

I'm of the view that the following quote is very relevant to the subjects of investment and portfolio construction:

“Simplicity is the end result of long, hard work, not the starting point.”


A portfolio containing 51 ITs suggests to me an absence of strategy and ethos, or absence of rigour in the application of strategy, which in turn and per my quote would indicate you've some hard miles still to do.

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Re: Proportion of portfolio in Investment Trusts

#250043

Postby Silverstar64 » September 7th, 2019, 6:00 am

tikunetih wrote:51 ITs!

You started your post encouragingly, suggesting to me that with experience you'd distilled and honed your investment strategy... only for me to have that illusion shattered with the subsequent revelation. ;)

I can see how you'd reach that concilusion but I'd like to emphasise the last 7 words I wrote above your post: " I enjoy selecting new trusts and as long as they fit the strategy"
What I meant is I have a carefully constructed Excel file with data links pulling in every data point about my ITs e.g asset class, geographic data, top underlying holdings, dividend, AIC sectors, charges, gearing etc. All modelled against my target allocations both current and future projections. Underlying holdings are consolidated and valued to check for overlaps.

So I suppose while I liked the stamp collecting analogy I like to think I have a data led strategy so only collect valuable stamps. I'd never claim the best as I'm not that good. ;)

Over time I'll post about my ITs and would appreciate any comments.

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Re: Proportion of portfolio in Investment Trusts

#250044

Postby Itsallaguess » September 7th, 2019, 6:14 am

Silverstar64 wrote:
I am a massive advocate of ITs and wonder how many other investors here prefer trusts to investing in company shares? I'm not trying to start a debate about passive v active or open v closed ended funds I just wanted to gauge how many have the majority of their stock market eggs in the investment trust basket?

For me I have been on a long term journey reducing my share buying from 100% shares since the early 1980's to 95%+ today in Investment trusts. Maybe it is my age, 55, that means I have a much larger portfolio and diversification and income has become much more of a focus. I miss the sheer excitement of buying a share, particularly a smaller cap that comes good as you'll hardly ever get a thrill like that from an IT and I do still read Simon Thompson in the IC but I only risk a modest amount.

Our portfolios today are 2 shares (mid cap housebuilder and micro cap US pharmaceutical) and 51 investment trusts. Maybe that's too many? (Another topic perhaps)


When I started building my equity holdings at the start of my investment journey, I was mainly a share-holding HYP investor with the majority of my income-investments held in a taxable account.

As I've grown older and my invested capital has also grown, both from re-invested dividends and new capital as I'm still working, I find myself gravitating towards a much more 'income-Investment-Trust' approach, and currently have around 38% of my invested capital in 8 income-IT's, with the rest being held in single-company shares.

I continue to fund new ISA allowances with fresh capital and accumulated dividends, and also regularly sell down some of my taxable-account single-share holdings to rotate the new ISA allowances into my Shares-ISA accounts, which feels like a good portfolio-management process that also then gives me fairly regular opportunities to grow my IT holdings across my income portfolio.

I don't think I'll ever get to a point where I don't hold any single-company shares, as I do always want some 'play money' to be available to satisfy that small 'red-room' aspect of my investment nature, and I tend to find that 'allowing' myself to pursue relatively small holdings like this definitely helps me to 'ignore' the bulk of my invested capital that tends to just keep chugging away elsewhere.

I've got to agree with the other posters who have said that 51 investment trusts seems to be too many. I currently tend to think that I'll end up with around 20 IT holdings, and fully expect that selection to contain 'double-ups' in each of the areas I want to invest, but that's a fairly fluid expectation at this stage.

I will add that the primary reason I headed down the income-IT route is that my share-based HYP had grown to a size where I found it simple 'difficult to live with', given what I found to be quite regular 'stumbles' in that segment of the market, which was mainly UK-based large-cap high-yield companies, and I can hand-on-heart say that changing tack and moving into income-IT's has been the single best investment decision that I've ever made.

Cheers,

Itsallaguess

Dod101
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Re: Proportion of portfolio in Investment Trusts

#250050

Postby Dod101 » September 7th, 2019, 8:01 am

Diworsification is a term I first came across in Peter Lynch although for all I know Buffett may have used it as well. I think about it all the time.
Having just read through this thread two things stand out for me.

The first is that anyone holding 51 ITs does not have an investment strategy and they would be far better off with a tracker, because to me that is probably what they have constructed at considerable cost. (Each of those 51 trusts will have an investment manager and their own admin expenses and the holder is helping pay for them all. I know it can be argued that a single trust would still have to be managed but it would have economies of scale; the charges are not all as low as say Scottish Mortgage's). If the portfolio has equal weighting, each holding is only about 2% and that is not going to have much effect on the overall result, even if it doubles or triples in value. A Scottish Mortgage does not come along very often. If the investor has some individual shares as well, that will dilute the effect of individual trusts even further.

The second point is that there seems to me a considerable move towards ITs away from individual shareholdings, especially amongst some of the erstwhile HYPing fraternity, led, eloquently, by IAAG. Maybe they are right but once an idea gains popularity it tends to be a bit late and you never know, whatever the outcome of Brexit for instance, UK shares are currently cheap, at least compared to the rest of the world and it may be that they are due a rebound in the not too distant future. If they remain cheap, further takeovers are very possible, such as was seen recently in Greene King. These themes are developed in this week's IC, led by the well respected John Barron at that.

Personally, for some years now my entire portfolio has had only about 29/30 shares of which ITs are 9/10, not split geographically (except maybe Henderson Far East) but mostly either I like the manager (Scottish Mortgage, Finsbury Growth and Income, Murray International), they are income trusts, (Edinburgh IT, Temple Bar and Murray Income), they invest in areas that I would find to difficult to access myself, (RIT & Caledonia), or an out and out generalist (Alliance) Of those I would happily sell Edinburgh IT but it is held outside a tax wrapper and I would have a large CGT bill so will keep it for this year as I have already used this year's allowance.

Dod

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Re: Proportion of portfolio in Investment Trusts

#250051

Postby tikunetih » September 7th, 2019, 8:02 am

Silverstar64 wrote:What I meant is I have a carefully constructed Excel file with data links pulling in every data point about my ITs e.g asset class, geographic data, top underlying holdings, dividend, AIC sectors, charges, gearing etc. All modelled against my target allocations both current and future projections. Underlying holdings are consolidated and valued to check for overlaps.


Depending on the specifics, this sounds like it could be activity that might provide a sense of control and involvement but not necessarily achieving much else (dependent upon the answer to my next question...).


Silverstar64 wrote:So I suppose while I liked the stamp collecting analogy I like to think I have a data led strategy so only collect valuable stamps. I'd never claim the best as I'm not that good. ;)


What actually is the strategy?

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Re: Proportion of portfolio in Investment Trusts

#250052

Postby OhNoNotimAgain » September 7th, 2019, 8:03 am

Itsallaguess wrote: and I can hand-on-heart say that changing tack and moving into income-IT's has been the single best investment decision that I've ever made.

Cheers,

Itsallaguess


Can you tell us which has given the biggest increase in dividends over the last decade?

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Re: Proportion of portfolio in Investment Trusts

#250054

Postby Silverstar64 » September 7th, 2019, 8:25 am

tikunetih wrote:What actually is the strategy?

Build a diversified portfolio of ITs to produce a dividend income equal to my salary at retirement (additionally I have a current and frozen DB pension, my wife is 100% SIPP), so about half of our current joint income. Also to create a capital value substantial enough to pay any care fees in later retirement assuming a 100 year lifespan.


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