2023 Preliminary SIPP Portfolio Review
Posted: October 21st, 2023, 2:30 pm
Following are some preliminary numbers for my 2023 Sipp portfolio:
Keep in mind this is for a SIPP for a 76-year old and it has been in draw down for about 15-years.
The SIPP provides a supplemental income for my wife and me. It will be passed on to my wife when I die. My wife currently has a much longer life expectancy than me and hence it may become a more important income source for her in the years after I am gone. When she dies, the SIPP will pass to our two sons.
The objective of the SIPP is to provide a dividend income in excess of the drawdown amount with any excess being reinvested to improve the income/growth of the fund.
A shorter-term objective is to reduce the number of holdings in the SIPP to make management simpler ahead of the handover to my wife.
Preliminary results for 2023.
2023 Portfolio Dividend Return +6.8% . Slightly up on last year’s 6.7%
Realized nett capital gain of 2.2%. BRWM, POLY, SANB, BWY and BDEV were all sold. Only loss was on POLY.
Change in value of portfolio based on current valuation is -7.4%
Change in value of portfolio of portfolio after adjusting for draw downs -3.7% (This is the change in value of investments in the fund.}
Current cash level 1.5%. Further surplus cash will be generated in November and December from dividends in excess of drawdowns. In addition, capital payments are expected from BVT and VSL.
SIPP drawdown for 2023 will be close to 4%.
Total Real Return after adjusting for Drawdowns looks like Plus 2.2% (Dividend Return of 6.8% PLUS Capital Gains of 2.2% MINUS Inflation of 6.8%). If this is how the year turns out I will be happy with that.
Apart from the disposals already mentioned, I’ve made some other changes ahead of year-end. Also, I’ve carried out a 10-year review and will report on this in the NEW Year along with an update on the portfolio that I will go forward with in 2024.
After the portfolio I have left the comments that I made about the portfolio last year.
Fixed Income Individual Issues
GACA 8.875 Cum Pref
GACB 7.875 Cum Pref
MBSP 6.75 PIBS
SANB Pref
High Yield Fixed Income
NCYF
SMIF
VSL
Large Cap UK Equities
AEI
BATS
IUKD
IMB
LGEN
MNG
PHNX
World ITs and ETFs
HFEL (Far East)
HINT (Non-UK Equity Income)
IAT (Asia x-Japan Equity Income)
IAPD (Asia)
JEGI (Europe G+I)
JGGI (Global G+I}
NAIT (North America)
Natural Resources
BWRM (World Mining and Metals)
Small Cap And VC
BVT
Speculative Equities
BDEV, BWY. POLY
THE FOLLOWING ARE MY COMMENTS FROM LAST YEAR
Total number of positions is 26. Allocations are not equal, and no position is more than 6% of the portfolio.
The top ten contributors to dividend income in descending order are: NCYF, IMPS, BRWM, BATS, BVT, HFEL, AEI, PHNX, MNG, IUKD.
On the agenda for next year is to continue to simplify.
BVT has become very illiquid. I have sold half and will sell the other half in 2023. The money will go into other existing positions.
I’d like to sell my remaining holding in MBSP. After holding them for several years without getting interest payments I eventually sold half my holding last year at about four times what they cost me. I would be giving up a running yield of close to 7.5% but it might be worth it to buy something more liquid and better quality.
One issue I am wary about is the use of leverage in most ITs. I’m not against leverage but it can have a devastating effect on a fund’s value if it becomes a forced seller in a bad market situation. With interest rates rising and the likelihood of more bankruptcies in 2023 it’s going to be critical for leveraged funds to have reliable financing available. I prefer low or unleveraged funds like IUKD.
In the Natural Resources sector BRWM and BERI have had a great run and I have already sold all my BERI and reduced my BRWM position. I wonder if we have seen the best in this cycle and I may take some more profits. The yields are no longer that good and I can move the proceeds somewhere else to improve the overall SIPP dividend yield.
The speculative stocks in my list are small positions that I think have some good potential for capital gains. POLY was a bet on Russia not invading Ukraine and, clearly, I lost that bet, but there is still hope for the company even if it takes a few years. I was probably a bit early to get into BDEV and BWY but I believe they will come good in a year or two and the yields will probably be reasonable.
With my weightings the prospective dividend yield for next year looks like 6.94% at my book prices but only 6.47% at current prices. I’d like to see the current yield back up to nearer 7%.
More fundamentally, setting all this information out is making me ask myself “Am I making my life too complicated by managing my SIPP the way I do and, if so, can I make it radically simpler without significantly undermining the results that I have been achieving for more than fifteen years”.
If the answer to that is “Yes” then what’s the alternative?
To take one simple alternative, I compared the results of my SIPP for 2022 with an investment in just two ETFs, IUKD and IAPD, both of which I already own in the portfolio.
On a very basic level, this is what it looks like:
SIPP Total Return YTD 0.70%
IUKD Total Return YTD -1.79%
SIPP Dividend Return 6.64%
IUKD Dividend Return 5.90%
IAPD Total Return -4.34%
IAPD Dividend Return 7.11%
SIPP Drawdown 3.70%
In summary, taking a 50/50 split of IUKD and IAPD, produced a dividend return of about 6.50%, only slightly below the SIPP dividend return but well above the SIPP drawdown rate of 3.70%.
As to whether this is the way forward for me, I will need to do an analysis over a longer time period to see if a longer history produces a similar picture. But it’s certainly food for thought.
There are several considerations that are unique to my situation as well as the more general considerations that would apply to anyone else thinking along these lines. Has anyone else been thinking of drastically simplifying a SIPP portfolio or already done so for whatever reason? If so, I would be grateful if you could share your thoughts/experience with us.
Best wishes and happy New Year to all TLF watchers/posters.
Y
Keep in mind this is for a SIPP for a 76-year old and it has been in draw down for about 15-years.
The SIPP provides a supplemental income for my wife and me. It will be passed on to my wife when I die. My wife currently has a much longer life expectancy than me and hence it may become a more important income source for her in the years after I am gone. When she dies, the SIPP will pass to our two sons.
The objective of the SIPP is to provide a dividend income in excess of the drawdown amount with any excess being reinvested to improve the income/growth of the fund.
A shorter-term objective is to reduce the number of holdings in the SIPP to make management simpler ahead of the handover to my wife.
Preliminary results for 2023.
2023 Portfolio Dividend Return +6.8% . Slightly up on last year’s 6.7%
Realized nett capital gain of 2.2%. BRWM, POLY, SANB, BWY and BDEV were all sold. Only loss was on POLY.
Change in value of portfolio based on current valuation is -7.4%
Change in value of portfolio of portfolio after adjusting for draw downs -3.7% (This is the change in value of investments in the fund.}
Current cash level 1.5%. Further surplus cash will be generated in November and December from dividends in excess of drawdowns. In addition, capital payments are expected from BVT and VSL.
SIPP drawdown for 2023 will be close to 4%.
Total Real Return after adjusting for Drawdowns looks like Plus 2.2% (Dividend Return of 6.8% PLUS Capital Gains of 2.2% MINUS Inflation of 6.8%). If this is how the year turns out I will be happy with that.
Apart from the disposals already mentioned, I’ve made some other changes ahead of year-end. Also, I’ve carried out a 10-year review and will report on this in the NEW Year along with an update on the portfolio that I will go forward with in 2024.
After the portfolio I have left the comments that I made about the portfolio last year.
Fixed Income Individual Issues
GACA 8.875 Cum Pref
GACB 7.875 Cum Pref
MBSP 6.75 PIBS
SANB Pref
High Yield Fixed Income
NCYF
SMIF
VSL
Large Cap UK Equities
AEI
BATS
IUKD
IMB
LGEN
MNG
PHNX
World ITs and ETFs
HFEL (Far East)
HINT (Non-UK Equity Income)
IAT (Asia x-Japan Equity Income)
IAPD (Asia)
JEGI (Europe G+I)
JGGI (Global G+I}
NAIT (North America)
Natural Resources
BWRM (World Mining and Metals)
Small Cap And VC
BVT
Speculative Equities
BDEV, BWY. POLY
THE FOLLOWING ARE MY COMMENTS FROM LAST YEAR
Total number of positions is 26. Allocations are not equal, and no position is more than 6% of the portfolio.
The top ten contributors to dividend income in descending order are: NCYF, IMPS, BRWM, BATS, BVT, HFEL, AEI, PHNX, MNG, IUKD.
On the agenda for next year is to continue to simplify.
BVT has become very illiquid. I have sold half and will sell the other half in 2023. The money will go into other existing positions.
I’d like to sell my remaining holding in MBSP. After holding them for several years without getting interest payments I eventually sold half my holding last year at about four times what they cost me. I would be giving up a running yield of close to 7.5% but it might be worth it to buy something more liquid and better quality.
One issue I am wary about is the use of leverage in most ITs. I’m not against leverage but it can have a devastating effect on a fund’s value if it becomes a forced seller in a bad market situation. With interest rates rising and the likelihood of more bankruptcies in 2023 it’s going to be critical for leveraged funds to have reliable financing available. I prefer low or unleveraged funds like IUKD.
In the Natural Resources sector BRWM and BERI have had a great run and I have already sold all my BERI and reduced my BRWM position. I wonder if we have seen the best in this cycle and I may take some more profits. The yields are no longer that good and I can move the proceeds somewhere else to improve the overall SIPP dividend yield.
The speculative stocks in my list are small positions that I think have some good potential for capital gains. POLY was a bet on Russia not invading Ukraine and, clearly, I lost that bet, but there is still hope for the company even if it takes a few years. I was probably a bit early to get into BDEV and BWY but I believe they will come good in a year or two and the yields will probably be reasonable.
With my weightings the prospective dividend yield for next year looks like 6.94% at my book prices but only 6.47% at current prices. I’d like to see the current yield back up to nearer 7%.
More fundamentally, setting all this information out is making me ask myself “Am I making my life too complicated by managing my SIPP the way I do and, if so, can I make it radically simpler without significantly undermining the results that I have been achieving for more than fifteen years”.
If the answer to that is “Yes” then what’s the alternative?
To take one simple alternative, I compared the results of my SIPP for 2022 with an investment in just two ETFs, IUKD and IAPD, both of which I already own in the portfolio.
On a very basic level, this is what it looks like:
SIPP Total Return YTD 0.70%
IUKD Total Return YTD -1.79%
SIPP Dividend Return 6.64%
IUKD Dividend Return 5.90%
IAPD Total Return -4.34%
IAPD Dividend Return 7.11%
SIPP Drawdown 3.70%
In summary, taking a 50/50 split of IUKD and IAPD, produced a dividend return of about 6.50%, only slightly below the SIPP dividend return but well above the SIPP drawdown rate of 3.70%.
As to whether this is the way forward for me, I will need to do an analysis over a longer time period to see if a longer history produces a similar picture. But it’s certainly food for thought.
There are several considerations that are unique to my situation as well as the more general considerations that would apply to anyone else thinking along these lines. Has anyone else been thinking of drastically simplifying a SIPP portfolio or already done so for whatever reason? If so, I would be grateful if you could share your thoughts/experience with us.
Best wishes and happy New Year to all TLF watchers/posters.
Y