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If you were picking a new basket of 7/8 ITs for income

General discussions about equity high-yield income strategies
TUK020
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Re: If you were picking a new basket of 7/8 ITs for income

#520896

Postby TUK020 » August 9th, 2022, 8:27 am

Arborbridge wrote:
Dod101 wrote:I know which list I would have, but at least moorfield has come up with his list. Where is yours, Arb?

Dod


Good point - I'm a bit slow and do not keep abreast of the best offerings these days. All I can present is what I've actually invested in and below I give my ITs with historic yields within the 4-5% criterion as returned by HYPTUSS.

Whether they are eating capital or not, one would have to look in futher detail. This can be done initially on the HL website or similar by plotting "with dividends invested" or "without" - and just see how the capital line behaves.
I have also added a column to give my experience of the Total Return of these investments (measured by XIRR) since I bought them as a another guide to whether they are eating capital*. Clearly, the TR should be higher than yield, to allow for inflation, so MRCH and HFEL fail on this count, whereas SOI and MYI are the opposite - a reasonably yield and high TR. Where TR is not given, it is because I have not owned them long enough to have generated a reliable figure.



I recommend that you check some of these ITs - ruling out HFEL and MRCH - and see if they appeal to you. All except IVPU, MUT, JAGI, I have invested in for a considerable number of years.

*Note of caution: this is my experience only and the result depends on length of ownership and whether I invested at a bargain price or not.
Arb.

Gentlemen,
A super set of responses to the question posed. Thank you.

In my SIPP (which I orient towards income, I have a different set of aims for my ISA), I have been gradually shifting resources from single company shares to income ITs, in order to build a cash buffer, and harvest income on a 'minimal attention required' basis.

I have a double position of CTY, and then in decreasing capital order:
LWDB, MRCH, MYI, HICL, a slightly smaller position in HFEL.
Then much smaller positions in TMPL, MCT & IBT.
I have not been particularly impressed with TMPL.

I think I will add to MCT, and then one of LWDB, MRCH, MYI, HICL based on whichever is on discount (HICL seems to be on permanent premium, so unlikely to qualify). I will perhaps also take a look at SOI

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Re: If you were picking a new basket of 7/8 ITs for income

#520906

Postby Arborbridge » August 9th, 2022, 8:43 am

Dod101 wrote:
Thanks. I always think that actual figures are much better than a theoretical list. My list is not so very different from yours in fact. I was asked directly if I could recommend some ITs yielding around 3/4% for a real life widow and being put in that position does concentrate the mind in terms of identifying and recommending anything. In fact I feel very uncomfortable doing that and hedged my recc with all sorts of stuff. I know that she would not be impressed with the likely outcome from say HFEL. She would ask quite rightly, 'What is the point in a nice big yield if it is at the expense of my capital?'

Your numbers are very helpful.

Dod


Thanks Dod. I'd agree with your friend's comment too: no point paying huge dividends from capital, for capital is your seed corn.
The position is always more complex, though. For example, if I had published those numbers three years ago, the yield on HFEL was around 5.1% and the XIRR 10%!
MRCH is always one on the edge of being given the "heavy-ho" but I've retained them and instead "bulked up" other holdings proportionately. Holdings like MRC and SOI which are lower yield but higher return.

At my age, if a small fraction of my capital is being eroded in some years, but replaced in other years, it isn't a big worry. Overall, I'm winning despite paying myself enough to live on.

Arb.

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Re: If you were picking a new basket of 7/8 ITs for income

#520907

Postby richfool » August 9th, 2022, 8:48 am

TUK020 wrote:Gentlemen,
A super set of responses to the question posed. Thank you.

In my SIPP (which I orient towards income, I have a different set of aims for my ISA), I have been gradually shifting resources from single company shares to income ITs, in order to build a cash buffer, and harvest income on a 'minimal attention required' basis.

I have a double position of CTY, and then in decreasing capital order:
LWDB, MRCH, MYI, HICL, a slightly smaller position in HFEL.
Then much smaller positions in TMPL, MCT & IBT.
I have not been particularly impressed with TMPL.

I think I will add to MCT, and then one of LWDB, MRCH, MYI, HICL based on whichever is on discount (HICL seems to be on permanent premium, so unlikely to qualify). I will perhaps also take a look at SOI

I like those holdings which look good, but note you seem to have quite a lot of UK focus there. I would favour more global emphasis/exposure, in respect of any new holdings. Possible candidates could also include: JGGI (global growth & income sector) which aims at a dividend of 4% based on NAV, supplemented from capital if necessary and includes growth stocks, thus widening the sectors one has exposure to. JGGI is my largest holding. I like (and have a large holding of) MCT.

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Re: If you were picking a new basket of 7/8 ITs for income

#520922

Postby monabri » August 9th, 2022, 9:15 am

XIRR might strongly be influenced by when one bought the IT so it would be better to chose a common starting point in time. However, this is also not without issue as other factors (eg Brexit or Xi Jinping) might weigh upon the IT.

Over a 5 year period, here's a plot of total returns for Arb's list of ITs. Unfortunately I'm limited by Hargreaves Lansdown's comparator tool to 7 curves at a time. In the second graph below I've included JAGI again as this sets the scaling in the y-axis to a common maximum of 80% TR for both graphs. I've also included Vanguard's UK tracker, VUKE.

source: https://www.hl.co.uk/funds/fund-discoun ... ion/charts

Image

Note ...Unfortunately I cannot control the colour of the curves. JAGI has been plotted again and is shown as a brown curve for all of you who have colour sets.. ;) ...please check the colour key below each individual chart.

Image


1st Plot

- HFEL ( blue curve) seems to simply marking time and the total return (TR) is ...not a lot.

- JAGI was screaming into the TR lead for a while and then "other factors" took over (35% China)...with a 5.3% yield "on offer".

- JEMI , similar comment, similar China content (~30%)...currently at 12% discount to NAV but has traded 'at par' within the 5 yr window presented here. This made me note that JAGI is currently on a 10% discount to NAV ( CTY & MRCH trading on a slight positive valuation).

- the current superstar appears to be Merchants ( MRCH) ...green curve. ( which is pleasing as it is my top UK IT holding percentage wise...as Dave Lister (*) would say " played for and got"...translation....a jammy fluke! )


2nd Plot ...

-EDIN...or HFEL in disguise. After 5 years, a very similar TR to HFEL.

-IVPU...trying to be as bad as EDIN but not quite succeeding.

-VUKE...Vanguard's FTSE100 tracker ( purple).... well, it's mid range....leading to the question ' does the average fund manager add value ?'

-MUT seems the better choice followed by SOI ( slightly cautious about SOI's exposure to Taiwan).

Overall, by eyeball, a TR in the range of 0 to 30%, averaging out somewhere in the middle (?) for equal investments across a basket of ITs. Better than leaving it in the bank or in a building society.

monabri.



(*) Red Dwarf!

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Re: If you were picking a new basket of 7/8 ITs for income

#520928

Postby Arborbridge » August 9th, 2022, 9:29 am

monabri wrote:XIRR might strongly be influenced by when one bought the IT so it would be better to chose a common starting point in time. However, this is also not without issue as other factors (eg Brexit or Xi Jinping) might weigh upon the IT.

Over a 5 year period, here's a plot of total returns for Arb's list of ITs. Unfortunately I'm limited by Hargreaves Lansdown's comparator tool to 7 curves at a time. In the second graph below I've included JAGI again as this sets the scaling in the y-axis to a common maximum of 80% TR for both graphs. I've also included Vanguard's UK tracker, VUKE.



Thanks for doing that - it's something I do from time to time for a reality check. It amply illustrates the point I also made about XIRR being my experience. If one had the cash or nouse to buy some of those when they crashed, then recovered, one's TR would have gained pleasingly. I think the very general rule with pooled investments is: "if they crash, buy more" - for mostly they will recover and reward you. Not true with single shares which often crash and stay crashed.

An example might be Temple Bar, which crashed in 2020-21, and received a good savaging on these boards. It re-formed itself and then zoomed back again. Those with courage and faith could have made a killing. I notice it has been recommended in The Times on occasions recently as a steady eddy!

Arb.

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Re: If you were picking a new basket of 7/8 ITs for income

#520930

Postby dealtn » August 9th, 2022, 9:40 am

Arborbridge wrote: If one had the cash or nouse to buy some of those when they crashed, then recovered, one's TR would have gained pleasingly. I think the very general rule with pooled investments is: "if they crash, buy more" - for mostly they will recover and reward you.



Not necessarily in practice. In order to achieve this it requires an investment strategy where significant investable sums are held in cash (or better in a no-correlated earning alternative) to utilise in such a situation. That uninvested cash sum is a drag on TR all the time you are waiting for that "crash". Analysis suggests being out of the market doesn't offset the gains from such situations.

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Re: If you were picking a new basket of 7/8 ITs for income

#520942

Postby baldchap » August 9th, 2022, 10:23 am

if for 30 years, and presuming not already retired, I wouldn't look at much north of 3% currently but make sure has a history of raising divs.

I will break that rule and pick JPM Global though to go alongside Bankers and Scottish American.
Take your pick of the rest to pad it out (Law Debenture, FGT?), but I am now of the opinion that Asia equity income is too big a risk unless someone starts one which is ex China.

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Re: If you were picking a new basket of 7/8 ITs for income

#520952

Postby Dod101 » August 9th, 2022, 10:47 am

Arborbridge wrote:
monabri wrote:XIRR might strongly be influenced by when one bought the IT so it would be better to chose a common starting point in time. However, this is also not without issue as other factors (eg Brexit or Xi Jinping) might weigh upon the IT.

Over a 5 year period, here's a plot of total returns for Arb's list of ITs. Unfortunately I'm limited by Hargreaves Lansdown's comparator tool to 7 curves at a time. In the second graph below I've included JAGI again as this sets the scaling in the y-axis to a common maximum of 80% TR for both graphs. I've also included Vanguard's UK tracker, VUKE.



Thanks for doing that - it's something I do from time to time for a reality check. It amply illustrates the point I also made about XIRR being my experience. If one had the cash or nouse to buy some of those when they crashed, then recovered, one's TR would have gained pleasingly. I think the very general rule with pooled investments is: "if they crash, buy more" - for mostly they will recover and reward you. Not true with single shares which often crash and stay crashed.

An example might be Temple Bar, which crashed in 2020-21, and received a good savaging on these boards. It re-formed itself and then zoomed back again. Those with courage and faith could have made a killing. I notice it has been recommended in The Times on occasions recently as a steady eddy!

Arb.


I think in recent years, IT Boards have become a bit more 'on the ball' and are able to pick up problems more professionally and effectively but otoh look at Scottish Investment Trust. It was an under performer for years and should have been put out of its misery long ago. I think we are back to culture yet again. A failing trust tends to stay a failing trust but Temple Bar was doing reasonably well as a sort of steady eddy under the previous manager, who mysteriously dropped out. Certainly Boards are more willing it would seem to consider reconstructions, or amalgamations than they used to be.

Dod

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Re: If you were picking a new basket of 7/8 ITs for income

#520965

Postby Arborbridge » August 9th, 2022, 11:16 am

dealtn wrote:
Arborbridge wrote: If one had the cash or nouse to buy some of those when they crashed, then recovered, one's TR would have gained pleasingly. I think the very general rule with pooled investments is: "if they crash, buy more" - for mostly they will recover and reward you.



Not necessarily in practice. In order to achieve this it requires an investment strategy where significant investable sums are held in cash (or better in a no-correlated earning alternative) to utilise in such a situation. That uninvested cash sum is a drag on TR all the time you are waiting for that "crash". Analysis suggests being out of the market doesn't offset the gains from such situations.


To be fair, I wasn't suggesting it as a "strategy" - just illlustrating that XIRR does depend very much on personal behaviour. If one happens to have cash lurking about (and most of us do now and then) it can be an advantage in putting into an IT which has been through a wobble - given the courage.

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Re: If you were picking a new basket of 7/8 ITs for income

#521137

Postby Eboli » August 9th, 2022, 7:22 pm

To curve in a wide ball...

I would have thought that the one thing I have concluded from the numerous posts by L'uni of his Bo7 and Bo8 is that if you want optimal income over anything but the shorter (say < 10 year) period you don't achieve it by a Bo8 type basket with an initial income target of 4.5% - 5%. So I would want to be sure first that I'm chasing the right hare or tortoise.

Eb.

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Re: If you were picking a new basket of 7/8 ITs for income

#521190

Postby BullDog » August 9th, 2022, 9:37 pm

Eboli wrote:To curve in a wide ball...

I would have thought that the one thing I have concluded from the numerous posts by L'uni of his Bo7 and Bo8 is that if you want optimal income over anything but the shorter (say < 10 year) period you don't achieve it by a Bo8 type basket with an initial income target of 4.5% - 5%. So I would want to be sure first that I'm chasing the right hare or tortoise.

Eb.

Absolutely. That's why I suggest closer to 4% initial yield and a steadily (probably) growing capital is more attractive than a higher yield with little or negative portfolio growth. My thinking is that if anyone really feels a need to generate a higher than moderate yield then you simply don't yet have enough capital.

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Re: If you were picking a new basket of 7/8 ITs for income

#521193

Postby moorfield » August 9th, 2022, 10:10 pm

BullDog wrote: My thinking is that if anyone really feels a need to generate a higher than moderate yield then you simply don't yet have enough capital.


Alternatively they may be targeting a higher income than is needed and building some tolerance to periodic drops in the future ?

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Re: If you were picking a new basket of 7/8 ITs for income

#521244

Postby steveal » August 10th, 2022, 8:36 am

Itsallaguess,

Can you explain how you 'capture' that page from the AIC website?

I'd like to download the whole of the information and play with it in Excel. Do you know how to do that?
When I try to copy and paste into Excel, the information transforms into a vertical mode (thousands of rows in one column).

steveal

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Re: If you were picking a new basket of 7/8 ITs for income

#521253

Postby Itsallaguess » August 10th, 2022, 9:03 am

steveal wrote:
Can you explain how you 'capture' that page from the AIC website?

I'd like to download the whole of the information and play with it in Excel. Do you know how to do that?

When I try to copy and paste into Excel, the information transforms into a vertical mode (thousands of rows in one column).


The process is explained in good detail at the bottom of my regular 'AIC Sector and Yield' threads, the latest of which for August is linked below -

https://www.lemonfool.co.uk/viewtopic.php?f=31&t=35409

The only difference would be to make sure to bring the comparative 3 and 5-year 'Share Price Total Return' data-points into play, to help test for 'non-eaters', but I should think that the above linked instructions should help get you going. The key point often missed is to turn on 'Print Mode'...

Let me know how you get on with the above. If you've still got any issues then I'm happy to help.

Cheers,

Itsallaguess

Bagger46

Re: If you were picking a new basket of 7/8 ITs for income

#521437

Postby Bagger46 » August 10th, 2022, 6:28 pm

Well, we all know the story of the chap who asks for the way to a town, only to be told: 'I would not start from here'!

With a 30-year timescale ahead in the OP's, as others have said, I would not start worrying about a basket biaised to a highish income.

If a youngster came to me today with this in mind, I would try very hard to point him to a small globally well diversified to regions and aspects portfolio of mostly ITs, with maybe the odd ETF thrown in, and it is very likely that the opening yield would be a lot nearer to 2%.

Why, because over the decades everything I have learnt in investing is that not chasing yield, but still reinvesting divis which would grow at good lick, leads to a better TR in the long run, and with a 30-year horizon it is the only thing which matters.

But of course if the OP insists on a 4.75% ish opening yield, fine. But I would be willing to bet that the outcome, although satisfactory to many, will be modest in relation to what can be achieved with a different approach. Unfortunately, a real 30-year bet I can't take, I can't escape taxes and the other certainty, unfortunately.

An interesting thread,

Bagger

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Re: If you were picking a new basket of 7/8 ITs for income

#521451

Postby Dod101 » August 10th, 2022, 7:30 pm

Bagger46 wrote:Well, we all know the story of the chap who asks for the way to a town, only to be told: 'I would not start from here'!

With a 30-year timescale ahead in the OP's, as others have said, I would not start worrying about a basket biaised to a highish income.

If a youngster came to me today with this in mind, I would try very hard to point him to a small globally well diversified to regions and aspects portfolio of mostly ITs, with maybe the odd ETF thrown in, and it is very likely that the opening yield would be a lot nearer to 2%.

Why, because over the decades everything I have learnt in investing is that not chasing yield, but still reinvesting divis which would grow at good lick, leads to a better TR in the long run, and with a 30-year horizon it is the only thing which matters.

But of course if the OP insists on a 4.75% ish opening yield, fine. But I would be willing to bet that the outcome, although satisfactory to many, will be modest in relation to what can be achieved with a different approach. Unfortunately, a real 30-year bet I can't take, I can't escape taxes and the other certainty, unfortunately.

An interesting thread,

Bagger


Which is why I suggested the ITs that I did.

Dod

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Re: If you were picking a new basket of 7/8 ITs for income

#521468

Postby 88V8 » August 10th, 2022, 8:18 pm

I nominate :

AXI Axiom yield 7.4%
ASEI (now AEI) Aberdeen 6.1%
BRWM Blackrock Mining 3.8%
CTY 4.7%
JCH Claverhouse 4.8%
MRCH 4.8%
NCYF New City 8.6%

Thirty years? No idea, and I won't be around to find out.

V8

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Re: If you were picking a new basket of 7/8 ITs for income

#521470

Postby ADrunkenMarcus » August 10th, 2022, 8:25 pm

Bagger46 wrote:Why, because over the decades everything I have learnt in investing is that not chasing yield, but still reinvesting divis which would grow at good lick, leads to a better TR in the long run, and with a 30-year horizon it is the only thing which matters.


That's certainly my experience to date and my approach. I have obtained far better results from investments with an initial low dividend yield, growing quickly.

Best wishes


Mark.

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Re: If you were picking a new basket of 7/8 ITs for income

#521484

Postby steveal » August 10th, 2022, 10:26 pm

Itsallaguess wrote:
steveal wrote:
Can you explain how you 'capture' that page from the AIC website?

I'd like to download the whole of the information and play with it in Excel. Do you know how to do that?

When I try to copy and paste into Excel, the information transforms into a vertical mode (thousands of rows in one column).


The process is explained in good detail at the bottom of my regular 'AIC Sector and Yield' threads, the latest of which for August is linked below -

https://www.lemonfool.co.uk/viewtopic.php?f=31&t=35409

The only difference would be to make sure to bring the comparative 3 and 5-year 'Share Price Total Return' data-points into play, to help test for 'non-eaters', but I should think that the above linked instructions should help get you going. The key point often missed is to turn on 'Print Mode'...

Let me know how you get on with the above. If you've still got any issues then I'm happy to help.

Cheers,

Itsallaguess


That is excellent! Thank you.

Steve

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Re: If you were picking a new basket of 7/8 ITs for income

#521495

Postby steveal » August 10th, 2022, 11:43 pm

One of the data points from the AIC site which seems to get little attention is '5 Year Dividend Growth (%pa)'.
Does it not make sense to aim for a more modest initial dividend, which is growing quickly?
I noticed that many of the ITs mentioned in this thread have very low dividend growth rates. MCT, for example, grew at only 0.4% pa over the past 5 years.

steveal


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