Portfolio Review

[yieldhog]

I'm in the process of doing a year-end review of my SIPP portfolio and have some decisions to make.
The SIPP provides my wife and I with supplemental income and has been in drawdown for about 15-years.
My life expectancy is quite short, so I have been trying to simplify the portfolio to make it easier for my wife to manage.
My plan is to reduce the number of positions but retain the income producing dividend flow. I'd like to see some growth as well as income as my sons will eventually inherit the SIPP when my wife passes away. Another aim is to reduce exposure to single name shares, except where I'm comfortable with the name (e.g. IMB, BATS, LGEN). I also have a small allocation of more speculive shares that I hope will produce a bit more growth.
Over the past 10-Years dividend yield on the SIPP has grown around 40 - 50%. In the past few few years the annual dividend return has been around 7% and it looks as though this year will hit a new high of around 7.3%.

In line with my income/growth objectives, I'm considering some consolidation of the following allocations:


Ticker Estimated 2024 Yield (%) Dividend Cover Potential Upside (%)
CAML 11.2 2.41 +50
CLIG 10.2 1.11 +40
FORT 9.33 1.85 +70
FSFL 7.36 1.72 +20
PHNX 10.33 1.60 +40
VOD 10.53 1.27 +100
MNG 9.60 -3.37 +10
LGEN 8.66 1.98 +10

I currently have positions in all of these except VOD in my SIPP.
For several years I previously had significant positions in BERI and BRWM but sold out at the peaks in 2021/22. However, I like to keep part of the SIPP in the natural energy and resources sectors. CAML and FSFL were bought to keep a foot in the door of this sector. CALM promises to deliver on growth and income but I'm not so sure about FSFL. I may have been a little early getting into this one.
FORT is more of a bet on the building sector which may take another year or two to pay off, but I remain hopeful this will happen whilst in the meantime I believe it can sustain a good dividend. stream.
PHNX and LGEN have overlapping life insurance businesses but while PHNX promises better growth LGEN may have a more secure dividend outlook. Should I consolidate?
CLIG and MNG also have some business overlap but CLIG is very much the up and coming small company compared with the well-established MNG. The fall in dividend cover at CLIG may portend a cut in dividend.
VOD is in a sector where I currently do not have any direct investment. I previously held the stock and did very well out of it, but sold out when it appeared to stagnate. More recently it seems to have got it's act together and appears to offer good growth and dividend prospects.

Your constructive thoughts on any or all of these shares and on the general theme of income and growth will be most welcome.

Y

[moorfield]

My life expectancy is quite short, so I have been trying to simplify the portfolio to make it easier for my wife to manage.
My plan is to reduce the number of positions but retain the income producing dividend flow. I'd like to see some growth as well as income as my sons will eventually inherit the SIPP when my wife passes away.

Your constructive thoughts on any or all of these shares and on the general theme of income and growth will be most welcome.

This kind of contingency planning crosses my mind from time to time. I think the key thing to consider is how au fait your wife and sons are with your investment style and how hands on they would want to be? Might a single IT such as CTY suit instead?

[yieldhog]

This kind of contingency planning crosses my mind from time to time. I think the key thing to consider is how au fait your wife and sons are with your investment style and how hands on they would want to be? Might a single IT such as CTY suit instead?

moorfield, thanks for your comment.
In answer to the first part of your comment, my wife and sons are in no way au fait with any type of investment management. The portfolios I leave them will need to be largely structured to require little or no management. For my wife, my thought is to make them as simple as possible to generate income and growth but to have her employ the services of a financial adviser to review the portfolios annually for a fee (not on a commission basis). I have not yet checked out potential local investment advisors but imagine they would need to charge for one or two meetings plus some research time. If anyone on this board has any experience of this approach it would be great to hear from them.

With regards to CTY, it's one that's been on my radar for many years but never found it's way into my portfolios. That may well change as I continue to simplify our taxable and tax-free portfolios. The problem I have with CTY is that does not appear to have generated results anywhere close to my own portfolio structures, especially my SIPP. I did a quick analysis of CTY results versus My SIPP results and found: CTY performance over 10 and 5 years of +3 and -1.13 % respectively, versus my SIPP of +30 and +12.5 % respectively. The figure for CTY over 20 years was +25% but I do not have a comparable number for my SIPP.
I posted my full SIPP portfolio at the start of this year and it has remained largely unchanged until recently when I started to restructure for 2024. Preliminary results for this year indicate a dividend return of just over 7% and a decline in value of 5.6% including withdrawal of 4%. Sales of some shares have realised a net positive 3% or so. I'll be posting the full portfolio in December as soon as I complete all the changes and have the full year results.

All the best
Y

[88V8]

The SIPP provides my wife and I with supplemental income and has been in drawdown for about 15-years.
My life expectancy is quite short, so I have been trying to simplify the portfolio to make it easier for my wife to manage.
My plan is to reduce the number of positions but retain the income producing dividend flow. I'd like to see some growth as well as income as my sons will eventually inherit the SIPP when my wife passes away.

PHNX and LGEN have overlapping life insurance businesses but while PHNX promises better growth LGEN may have a more secure dividend outlook. Should I consolidate?
CLIG and MNG also have some business overlap but CLIG is very much the up and coming small company compared with the well-established MNG. The fall in dividend cover at CLIG may portend a cut in dividend.
VOD is in a sector where I currently do not have any direct investment. I previously held the stock and did very well out of it, but sold out when it appeared to stagnate. More recently it seems to have got it's act together and appears to offer good growth and dividend prospects.

Sorry to hear of your time horizon.

You refer to 'supplemental income' so you have other investment streams... I recall you have VSL... BATS etc... In which case the SIPP is of lesser importance...
My wife has zero interest in investing and we have no children, so I would be consolidating to a collection of AIC's Dividend Champions plus a couple of outliers such as NCYF and SMIF, even though it would reduce our portfolio income.

As regards your specifics I have held CLIG for some years but they have wobbled of late, I would prefer MNG.

Phoenix and their peer Chesnara are out of fashion, I would prefer LGEN (I hold all three).

VOD are a bit of a marmite... long-term holders might be inclined to dump them for their SP erosion, those looking anew may disregard their flat dividend and buy them for their yield. Of course, one does not have to be in all sectors....

I have no knowledge of your smaller shares but if you will not be there to keep an eye on them then I question their retention. If the object is near-term income and longer term value preservation, one might better outsource this sector to a Smaller Cos IT such as Blackrock BRSC which has done OK on the value front while growing its income apace.

V8

[Dod101]

You asked directly about L& G and Phoenix. I have little doubt that L & G is the better company. Phoenix always seems to be having to squeeze a bit more out, although of course the accounts for both companies are rather obscure. I hold and I would suggest you do the same, continue to hold both.

I am not in the least convinced that ‘simplifying’ a portfolio for in your case the survivors is really worth the hassle. I have just spent almost six weeks in hospital and have scarcely looked at my finances in that time, but today have been doing so. To my huge surprise, it runs just fine on its own. It needs some funds moved around as there are too many accumulated dividends sitting in my ISAs. I tend not to touch my SIPP anyway but it ticks along on its own.

Nearly all my investments are in ISAs or my SIPP but there are still a few outside so any survivor would need to be aware of the tax rules and how to complete a tax return.

This may happen some day if I need to go into a care home, but on my death, I am sure that the portfolio, maybe except for the SIPP, will be liquidated.

Dod

[moorfield]

The problem I have with CTY is that does not appear to have generated results anywhere close to my own portfolio structures, especially my SIPP. I did a quick analysis of CTY results versus My SIPP results and found: CTY performance over 10 and 5 years of +3 and -1.13 % respectively, versus my SIPP of +30 and +12.5 % respectively. The figure for CTY over 20 years was +25% but I do not have a comparable number for my SIPP.

This is what you see. Again your wife and sons may have a different view, or not even a view at all. CTY is a good example of what I would call a "widows and orphans" IT, offering income and capital preservation. I know from my own discussions Lady M just wants something fire and forget and that money "is there" when needed, and that's it. Personally I'd avoid handing any management over an external adviser unless I already knew and trusted them well.

[88V8]

This kind of contingency planning crosses my mind from time to time. I think the key thing to consider is how au fait your wife and sons are with your investment style and how hands on they would want to be? Might a single IT such as CTY suit instead?

.... have her employ the services of a financial adviser to review the portfolios annually for a fee (not on a commission basis). I have not yet checked out potential local investment advisors but imagine they would need to charge for one or two meetings plus some research time. If anyone on this board has any experience of this approach it would be great to hear from them.

For a few years until we found our own investment feet, we used Towry Law and JP Morgan. They provided what I came to think of as 'managed mediocrity'. Adequate wealth preservers, aiming not to undershoot rather than to outperform.

I doubt that you would find anyone capable of assessing the relative merits of a diverse portfolio. Most advisers would just steer you towards safe collectives.

If you wanted to trial such an arrangement, I would do it now, while you are still around to assess the merits or otherwise.

V8

[kempiejon]

In answer to the first part of your comment, my wife and sons are in no way au fait with any type of investment management. The portfolios I leave them will need to be largely structured to require little or no management. For my wife, my thought is to make them as simple as possible to generate income and growth but to have her employ the services of a financial adviser to review the portfolios annually for a fee (not on a commission basis). I have not yet checked out potential local investment advisors but imagine they would need to charge for one or two meetings plus some research time. If anyone on this board has any experience of this approach it would be great to hear from them.

I don't think employing an investment manager would be my route, I think it's an unnecessary expense, still if that suits your wife fair enough. I expect to predecease SO but who knows? My inherited portfolio could probably be ignored and natural yield just used for spending. That said, there might be corporate actions to deal with. I already have vanguards global etfs VWRL and VWRP the distributing and accumulating versions.
We've not discussed it but without me to manage the portfolio just ignore it and spend. An alternative would be to buy VWRL with any surplus capital or for even less admin swap it all. So my vote is for global market average, and it's cheap, and its had good returns something like 50% 5 years and over 100% 10. I knowingly admit that's better investing return than I've managed.

[yieldhog]

Thank you Dod and V8. Your comments are always valued.
To respond to some of your points.

I agree with the suggestion to keep both LGEN and PHNX for now but may look to consolidate in the future. I have looked at Chesnara in the past but always concluded it was higher risk than LGEN and PHNX. I too think LGEN is the best of the bunch.

I'm sure my wife will take good care of the funds and if she downsizes from our present property she may have even more money to invest. We have already bought a nice property for our older son but as yet we have not done the same for our younger son. I'm sure that buying him his own property at some point will take place. So many things could change there's not much use speculating and as you say, the funds may one day be liquidated and our sons will use them for whatever purposes they see fit.

VSL is liquidating and I have bought some more at just below 70 to average down my cost, which I think now stands at around 82. Hopefully this will clear the average price of the liquidation process.

Y

[kempiejon]

For a few years until we found our own investment feet, we used Towry Law and JP Morgan. They provided what I came to think of as 'managed mediocrity'. Adequate wealth preservers, aiming not to undershoot rather than to outperform.

I doubt that you would find anyone capable of assessing the relative merits of a diverse portfolio. Most advisers would just steer you towards safe collectives.

If you wanted to trial such an arrangement, I would do it now, while you are still around to assess the merits or otherwise.

V8

Out of interest, if you have the data, how did the managed mediocrity do against an alternative like an index? My cynical opinion is you'd have paid to do no better. Early on in all out investing timeframes we don't know what we're doing so buying expertise is a solution for some and as you say you've found your investing feet. Good suggestion to test it in the field before one has to.

[yieldhog]

I don't think employing an investment manager would be my route, I think it's an unnecessary expense, still if that suits your wife fair enough. I expect to predecease SO but who knows? My inherited portfolio could probably be ignored and natural yield just used for spending. That said, there might be corporate actions to deal with. I already have vanguards global etfs VWRL and VWRP the distributing and accumulating versions.
We've not discussed it but without me to manage the portfolio just ignore it and spend. An alternative would be to buy VWRL with any surplus capital or for even less admin swap it all. So my vote is for global market average, and it's cheap, and its had good returns something like 50% 5 years and over 100% 10. I knowingly admit that's better investing return than I've managed.

I must admit, those returns on VWRL look significantly better than my SIPP has generated. A quick check confirms them but I will need to do a bit more researh to see where I went wrong. I note that the yield on VWRL is around 1.9% which would mean that some shares would need to be sold each year if, for example, my wife wanted to maitain the 4% or so drawdown the SIPP currently provides. I also note that the value of VWRL has not changed much over the last couple of years. However, it looks promising and VWRL and VWRP may well have a place in some of my portfolios. Thanks for drawing my attention to them.

[88V8]

For a few years until we found our own investment feet, we used Towry Law and JP Morgan. They provided what I came to think of as 'managed mediocrity'. Adequate wealth preservers, aiming not to undershoot rather than to outperform.

Out of interest, if you have the data, how did the managed mediocrity do against an alternative like an index?

This was in the noughties and, sorry, all related paperwork has been binned, but in bad years they outperformed the FTSE100 and in good years they undershot. I dare say an index fund would be a viable alternative as a smoothing mechanism.

V8

[kempiejon]

Out of interest, if you have the data, how did the managed mediocrity do against an alternative like an index?

This was in the noughties and, sorry, all related paperwork has been binned, but in bad years they outperformed the FTSE100 and in good years they undershot. I dare say an index fund would be a viable alternative as a smoothing mechanism.

V8

Thanks for coming back, if your recollection is an index would have been viable isn't documented it's interesting to get your feeling. I have been looking at my investing and have come round to the idea that an index fund would be a viable alternative and easy but we come here because we like investing. I have learnt a lot in the process since I first read the Motley Fool UK investing guide that sort of said buy a tracker.

[yieldhog]

An alternative would be to buy VWRL with any surplus capital or for even less admin swap it all. So my vote is for global market average, and it's cheap, and its had good returns something like 50% 5 years and over 100% 10. I knowingly admit that's better investing return than I've managed.

I must admit, those returns on VWRL look significantly better than my SIPP has generated. A quick check confirms them but I will need to do a bit more researh to see where I went wrong. I note that the yield on VWRL is around 1.9% which would mean that some shares would need to be sold each year if, for example, my wife wanted to maitain the 4% or so drawdown the SIPP currently provides. I also note that the value of VWRL has not changed much over the last couple of years. However, it looks promising and VWRL and VWRP may well have a place in some of my portfolios. Thanks for drawing my attention to them.

Y

[JohnW]

Does this help? ‘The First Law of Active Management: Never diversify with active managers. Active bets tend to offset one another, leaving the investor with an expensive closet index fund’.
Hogwart’s Finance https://papers.ssrn.com/sol3/papers.cfm ... id=4614451

[yieldhog]

Does this help? ‘The First Law of Active Management: Never diversify with active managers. Active bets tend to offset one another, leaving the investor with an expensive closet index fund’.

It may do, if you can suggest specific investments to suit my portfolio. The portfolio that is under discussion on this thread is my SIPP. The objective of the SIPP is to sustain a modest (5%+) drawdown that will continue to provide my wife and I with a useful income supplement and capital appreciation for when our sons eventually inherit it.

At the moment the fund hs 23 investments ranging from single company shares to global equity and global equity/income, plus some fixed income funds.

An earlier helpful post on this thread suggested I might give some thought to simplifying the SIPP with the use of Vanguard funds such as VWRL. I'm continuing to explore this option. One of the issues I have with this type of Vanguard fund is that it's an open ended fund and one of my investing rules is to avoid open-ended funds. However, another of my investment rules is to keep an open mind and I'm to think that Vanguard may be an exception to my anti-opened funds.

My SIPP this year will generate just over 7% dividend income plus a modest realised net capital gain. My spreadsheet indicates a similar dividend income next year. My drawdown remains about 4%. I'm looking to get a little more growth into the portfolio.

Do you have specific investments that might be useful for my situation?

Y

[JohnW]

Do you have specific investments that might be useful for my situation?

I know so little about closed high dividend funds for me to be any use to you. You wanted to simplify your portfolio, but had reasons to keep a lot of it. I simply offered you another reason to divest of most of it; leaving you with a more risky portfolio that could deliver in spades or flame out compared to what you now have - the alternative being one or two index funds at half the cost.

[yieldhog]

I know so little about closed high dividend funds for me to be any use to you. You wanted to simplify your portfolio, but had reasons to keep a lot of it. I simply offered you another reason to divest of most of it; leaving you with a more risky portfolio that could deliver in spades or flame out compared to what you now have - the alternative being one or two index funds at half the cost.

I appreciate you are suggesting a way to simplify the portfolio but, correct me if Iam wrong, the suggestion seems to me to be sell most of my SIPP funds with high fees and buy just a few index funds with low fees. That would, by definition, achieve lower fund costs and simplification but would it achieve my objectives ?
This suggestion appears to be similar to that suggested by another posted on this thread.

At the moment I have a few reservations about this approach and as I said to the earlier poster I need to do some more research before making such a drastic change in the way I manage the SIPP. I've already mentioned that I tend to avoid open-ended funds, mainly because of potential liquidity issues. I also need to understand why my SIPP has performed so badly on some measures and whether or not this is due to a fundermentally flawed approach or whether it's more to do with factors such as the heavier weighting of the US in global funds compared with my SIPP. Again, as I've mentioned with an index fund like VWRL the yield is so low (1.9%) that units would need to be sold to achieve a withdrawal rate of , say, 4 -5%.

I'll continue to research all of these ussues and hopefully report all my findings when I post my 2024 SIPP portfolio in late December or early next year

Y

[JohnW]

I wasn’t trying to suggest something, not knowing risk preferences etc particularly to someone well versed, rather to offer reasons for choices. Investing is inherently risky, and you may be accepting of the additional risk that comes with reducing the number of actively managed funds you hold, was my thought; were you not, there are alternatives which I can see some you have dividend payout and liquidity issues with. They’re personal preferences which I can’t give proper weight to.

[GeoffF100]

I also need to understand why my SIPP has performed so badly on some measures and whether or not this is due to a fundermentally flawed approach or whether it's more to do with factors such as the heavier weighting of the US in global funds compared with my SIPP. Again, as I've mentioned with an index fund like VWRL the yield is so low (1.9%) that units would need to be sold to achieve a withdrawal rate of , say, 4 -5%.

Failure to diversify sufficiently is fundamentally flawed. Companies that are incorporated in the US generate a very large proportion of the global profit. Good diversification inevitably entails a high weighting in these companies. If taxes and other factors are equal, market capitalisation weighting provides the optimal geographical diversification. That is because it does not matter where a company incorporates in such a world. Restricting your investment to higher yielding shares also reduces diversification.

It is not expensive to sell units. Whether a withdrawal rate of 4-5% will prove to be sustainable is another matter.