Transfer pension from Aviva to SIPP and investing in ITs

[squareofthewicket]

Hello All
I have a pension from previous employment with Aviva invested in the default life styling fund. The charges are 0.38% pa and the value of the pension is approx £300K. I have been contemplating moving this to a SIPP and investing in Income focussed Investment Trusts.

Some informaiton about myself
I am 51, married with 1 child and employed full time. I am contributing to a pension scheme with my current employer. I have no plans to retitre anytime soon, not until at least the mortgage on the house is paid off.

What I have been thinking of doing
Before starting the process of moving the pension with Aviva to SIPP, I have been looking at what possible ITs I can invest in.
One approach that really appeals is to do a lazy IT selection by using the Dividend heroes from the AIC website and invest equal amounts in them.
Any dividends accumulated in the SIPP will be invested into other ITs, prorbably at intervals of 3-4 months until such a time that I have reitred and need to draw on this income for living expenses.

I came up with 4 scenarios for this lazy option. (I will create another post for the ITs that I have chosen instead of just going down the list of dividend heroes). I haven't give any consideration so far to the platform / SIPP provide or the associated one off dealing costs + ongoing platform costs.

You will also notice that I have ommitted a couple of the ITs which would otherwsie have been included in these lists of ITs - they are heavy enough in China for me to make a personal ethical case to not invest in them.

Dividend Heroes - Top 10





Dividend Heroes - Top 15




Dividend Heroes - Top 20





Dividend Heroes - Top 25






Dividend Heroes - Top 30




My Lazy analysis on the above options
Dividend Heroes - Top 10 : The yield of 3.22% is quite low as an income to live off in retirement.
Dividend Heroes - Top 15 : I guess the yield of 4.17% is acceptable, although I am not very comfortable with the low market caps of either Athelney Trust or Value and Indexed Property Income.
Dividend Heroes - Top 20 : The yield of 3.94% is still low and we add another lowish market cap in Artemis Alpha Trust
Dividend Heroes - Top 25 : Decent yield of 4.39%
Dividend Heroes - Top 30 : Decent yield of 4.56% but adds 2 more lowish market cap ITs in Chelverton UK Dividend Trust and Invesco Select Trust - Global Equity Income shares

The best starting yield comes from investing in 30 ITs, which was actually a surprise for me as I was more expecting the one with 15 ITs would achieve the best icome outcome.

Overall across all of the above portfolios, the Income exposure to UK is between 49% - 62%.

Ok, so what was the point of such a long post : What I am after is valued opinions of people on here about what they think of such a lazy approach to IT selection and whether a 30 IT portfolio to get the higher starting yield makes sense.

TiA
Squareofthewicket

[Itsallaguess]

What I am after is valued opinions of people on here about what they think of such a lazy approach to IT selection.

Personally, I think where you might be looking to invest in multiple options within any particular sector, I'd at least want to see an 'Ongoing Charges' column in that data-set, just to see if there's any stand-out expensive options in there that you might prefer to avoid...

As a lazy income-investor myself, I'm happy to contract-out income-IT management processes, but I want visibility of those costs to make sure I'm not being taken for a ride where alternative same-sector options might be available with lower charges...

If there's any stand-out anomalies in there in terms of on-going charges, then you at least want to be aware of them so you can check to see if such charges can be justified by performance records, and also to be able to compare costs and performance records between options within a given sector.

Don't fly blind on costs...

I'd also perhaps look to whittle down any given list by introducing a lower market-cap limit. There's likely to come a point during diversification within a given sector where many of their underlying holdings are likely to overlap with other candidates.

On the face of it, your lists look like they could have fewer candidates within each sector, for most of the provided sector-diversification options, and whilst I'm a fan of in-sector diversification to some degree, I think there quickly comes a point beyond three or four holdings per sector where you're just likely to be muddying the waters, and where your final list has 9 UK Equity Income sector candidates, that's probably as good an example of that particular issue as I can see initially...

In an ideal world, you might see that some of the lower market-cap options also might have some of the higher ongoing-charges, which might help gravitate any attention if you would be happy with a more focussed approach.

Cheers,

Itsallaguess

[DrFfybes]

As IAAG says - include the charges.

Also put in a 5 or 10 year Total Return column. Because you're not thinking about retirement yet, so I can't see why you'd want to sacrifice growth for a higher than average Dividend return.

Then, when you've done all the sums, calculations, scenarios, and comparissons, add VWRP in at the end and see how your choice compares

[BullDog]

As IAAG says - include the charges.

Also put in a 5 or 10 year Total Return column. Because you're not thinking about retirement yet, so I can't see why you'd want to sacrifice growth for a higher than average Dividend return.

Then, when you've done all the sums, calculations, scenarios, and comparissons, add VWRP in at the end and see how your choice compares

I was thinking along those lines. There's thousands of underlying investments there in a large number of ITs. Strikes me this is likely to be very similar outcome to buying a whole of market ETF or fund. But with added costs and problems keeping track of everything with such a large number of ITs.

[tjh290633]

As IAAG says - include the charges.

Also put in a 5 or 10 year Total Return column. Because you're not thinking about retirement yet, so I can't see why you'd want to sacrifice growth for a higher than average Dividend return.

Then, when you've done all the sums, calculations, scenarios, and comparissons, add VWRP in at the end and see how your choice compares

I was thinking along those lines. There's thousands of underlying investments there in a large number of ITs. Strikes me this is likely to be very similar outcome to buying a whole of market ETF or fund. But with added costs and problems keeping track of everything with such a large number of ITs.

I agree. At this stage you should be looking at total return, rather than yield. When you start to draw down cash, then is the time to look at yield more, and adjust the portfolio as required.

TJH

[mikewarr]

It’s interesting that I have just done this very thing.

I already had a sizeable SIPP - I just moved another from Aviva to It.
Can say AJBell make it easy.
I’ve made around 30% overall in last 5 years so must be doing something right.

Do your own research… but,,,

There are a couple of asset classes you don’t mention. Fixed div.

Bank and insurance company pref eg AV.A , LlPC or NWBD but buy at the right price, not the first you are offered.
Also check dividend patterns. No point in NWBD yet unless the price drops . No div till March.

Also the RIGHT Reit - not any REIT . They were all oversold some to 30% discount on NAV becausr of commercial sector woes but the business model matters.
Check out the financials for growth, profit, bad debt etc,

Nursing homes such as target REIT are full occupancy and not hurt by down turns. I bought at 72 this week, now 82.
But wait for it to dip after DIvidend paid. That’s 7-8% div and underlying profit growing.

The above are all,illiquid, so keep getting quotes abd don’t buy the first price you see. On a spread of 4 you can often buy at the lower end if you wait.

There are good fundamentals equities out there not too vulnerable to down turn, but good pattern of growth.
Take Microsoft, UnitedHealth group , I also bought Linde , others such as Chubb. Buffett reckons Apple is strong

Finally a banker for me has always been etf physical gold. It’s done 50% for me in last few years.
Yes it’s up and down , it is speculated but as a hedge on inflation or equity crash, it’s been good.

But you must make your own choices. And give it time. Strong shares bounce back from dips.

[moorfield]

One approach that really appeals is to do a lazy IT selection by using the Dividend heroes from the AIC website and invest equal amounts in them.

Hi SOTW. I think that approach is a highly commendable one. The Dividend Heroes is the go-to list of ITs that can be reasonably expected to sustain and preferably grow their dividends in the future imo, however a look also at 5+ year payers will give you a broader selection of worthwhile candidates. A portfolio of ITs will lend itself very easily to a lazy style of investing, I doubt you would need to meddle or let press comment on specific companies influence you at all. Fluctuations in capital values are certain to occur, don't worry about those either.

I think 15 ITs spread across different AIC sectors is enough to strip out excessive risk of holding too few. Apropos of nothing I've selected these ranked by descending yield higher than the FTSE 100, Dividend Heroes (from the longer 10+ years list) bolded, for an overall yield of 7.5%.

EPIC    | Sector                          | Sector Type | Yield
HFEL    | Asia Pacific Equity Income      | Overseas    |  12.0
SMIF    | Debt (Loans & Bonds)            | Debt        |  10.0
NCYF    | Debt (Loans & Bonds)            | Debt        |   9.3
JLEN    | Renewable Energy Infrastructure | Specialist  |   8.7
FSFL    | Renewable Energy Infrastructure | Specialist  |   8.5
AEI     | UK Equity Income                | UK          |   7.5
THRL    | Property (UK Healthcare)        | Property    |   7.2
APAX    | Private Equity                  | Specialist  |   7.2
HHI     | UK Equity & Bond Income         | UK          |   7.1
CHI     | UK Equity Income                | UK          |   6.9
INPP    | Infrastructure                  | Specialist  |   6.4
CTPE    | Private Equity                  | Specialist  |   6.1
TRY     | Property Securities             | Property    |   5.3
MYI     | Global Equity Income            | Overseas    |   4.8
SOI     | Asia Pacific Equity Income      | Overseas    |   4.8
        |                                 |             |      
Overall |                                 |             |   7.5

There's some sector duplication here, so it may be helpful to look at the Sector Type spread also.
(*) Since you have listed abrdn Asian Income Fund its not clear what you mean by heavy enough in China, so I have thrown caution to the wind and included HFEL and SOI.
(**) THRL is a "wildcard" choice in Property, it has recently rebased its dividend and is available on a deep discount but is a compelling long term prospect imo.

Any dividends accumulated in the SIPP will be invested into other ITs, prorbably at intervals of 3-4 months until such a time that I have reitred and need to draw on this income for living expenses.

Quite so. TJH has a good system for managing top ups which you could use here. For an initial 15 holdings you might want to use higher income and and cost limits (~7.5%, say) for topping up by 20%. Sooner or later a state of equilibrium may arise that would disqualify all holdings from further top up, at which point you would add a 16 th, and then continue as before until you simply start drawing income.

[DrFfybes]

As IAAG says - include the charges.

Also put in a 5 or 10 year Total Return column. Because you're not thinking about retirement yet, so I can't see why you'd want to sacrifice growth for a higher than average Dividend return.

Then, when you've done all the sums, calculations, scenarios, and comparissons, add VWRP in at the end and see how your choice compares

I was thinking along those lines. There's thousands of underlying investments there in a large number of ITs. Strikes me this is likely to be very similar outcome to buying a whole of market ETF or fund. But with added costs and problems keeping track of everything with such a large number of ITs.

Almost - one thing you don't get from Global Trackers is much Bond exposure.

However in the main you are correct that a carefully selected spread of diverse and non overlapping ITs (rather like a lot of Wealth Managers charge you 3% pa for ) will eventually lead towards something like a Vanguard 60:40 (or whatever split you choose) type underlying investment. it just depends on your attitude to risk and inclination to tinker.

Paul

[BullDog]

I was thinking along those lines. There's thousands of underlying investments there in a large number of ITs. Strikes me this is likely to be very similar outcome to buying a whole of market ETF or fund. But with added costs and problems keeping track of everything with such a large number of ITs.

Almost - one thing you don't get from Global Trackers is much Bond exposure.

However in the main you are correct that a carefully selected spread of diverse and non overlapping ITs (rather like a lot of Wealth Managers charge you 3% pa for ) will eventually lead towards something like a Vanguard 60:40 (or whatever split you choose) type underlying investment. it just depends on your attitude to risk and inclination to tinker.

Paul

As you've illustrated, choose your desired equity/bond split and there's a ready made product out there waiting.

Personally, I've never felt the need to hold bonds in my ISA/SIPP. I know others do.

[mikewarr]

One approach that really appeals is to do a lazy IT selection by using the Dividend heroes from the AIC website and invest equal amounts in them.

Hi SOTW. I think that approach is a highly commendable one. The Dividend Heroes is the go-to list of ITs that can be reasonably expected to sustain and preferably grow their dividends in the future imo, however a look also at 5+ year payers will give you a broader selection of worthwhile candidates. A portfolio of ITs will lend itself very easily to a lazy style of investing, I doubt you would need to meddle or let press comment on specific companies influence you at all. Fluctuations in capital values are certain to occur, don't worry about those either.

I think 15 ITs spread across different AIC sectors is enough to strip out excessive risk of holding too few. Apropos of nothing I've selected these ranked by descending yield higher than the FTSE 100, Dividend Heroes (from the longer 10+ years list) bolded, for an overall yield of 7.5%.

EPIC    | Sector                          | Sector Type | Yield
HFEL    | Asia Pacific Equity Income      | Overseas    |  12.0
SMIF    | Debt (Loans & Bonds)            | Debt        |  10.0
NCYF    | Debt (Loans & Bonds)            | Debt        |   9.3
JLEN    | Renewable Energy Infrastructure | Specialist  |   8.7
FSFL    | Renewable Energy Infrastructure | Specialist  |   8.5
AEI     | UK Equity Income                | UK          |   7.5
THRL    | Property (UK Healthcare)        | Property    |   7.2
APAX    | Private Equity                  | Specialist  |   7.2
HHI     | UK Equity & Bond Income         | UK          |   7.1
CHI     | UK Equity Income                | UK          |   6.9
INPP    | Infrastructure                  | Specialist  |   6.4
CTPE    | Private Equity                  | Specialist  |   6.1
TRY     | Property Securities             | Property    |   5.3
MYI     | Global Equity Income            | Overseas    |   4.8
SOI     | Asia Pacific Equity Income      | Overseas    |   4.8
        |                                 |             |      
Overall |                                 |             |   7.5

There's some sector duplication here, so it may be helpful to look at the Sector Type spread also.
(*) Since you have listed abrdn Asian Income Fund its not clear what you mean by heavy enough in China, so I have thrown caution to the wind and included HFEL and SOI.
(**) THRL is a "wildcard" choice in Property, it has recently rebased its dividend and is available on a deep discount but is a compelling long term prospect imo.

Any dividends accumulated in the SIPP will be invested into other ITs, prorbably at intervals of 3-4 months until such a time that I have reitred and need to draw on this income for living expenses.

Quite so. TJH has a good system for managing top ups which you could use here. For an initial 15 holdings you might want to use higher income and and cost limits (~7.5%, say) for topping up by 20%. Sooner or later a state of equilibrium may arise that would disqualify all holdings from further top up, at which point you would add a 16 th, and then continue as before until you simply start drawing income.

You have to be REALLY careful with bonds.
Most high return bonds are junk.

eg " renewable sector bonds" may sound good. But Toucan energy with over 50 solar farms just went bust.
One of the leading voices in onshore wind says energy prices will have to double to make sense of the investment.

[squareofthewicket]

Thank you all for your various inputs. I will update the tables with the charges and 5 & 10 year Total Returns for the ITs.
Will also look at comparision with Global ETFs as suggested.
In addition I will also see what the predicted growth is for the default fund I hold in my pension with Aviva ( from memory it may be similar to a 80/20 global tracker with life styling option) where the charge is 0.38%

TiA
Squareofthewicket

[Charlottesquare]

Think I would want some North American focused ITs as well as Asia/Pacific/China. Note you have lots of UK and a little Europe in the mix. World funds are also fine but if chasing sectors to spread I doubt I would ever omit North America from my selection.

(I hold Berkshire Hathaway as a sort of US focused IT, B Rock Sustainable American Income, Middlefield Canadian and North American Income Trust to cover North America)

[Wuffle]

Unless I have missed it, there doesn't appear to have been a reason presented for this.
The Aviva product appears totally conventional and not prohibitively expensive.
Use of the word 'lazy' and going for the dividend hero's doesn't indicate any expertise being brought to bear.

Don't get me wrong, I have a dividend focused, IT exclusive ISA and am very aware of the widening discounts because I bought a lot of it without them! But also I am very happy to leave my workplace pensions ticking away with NEST and The Peoples Pension which will just be copy and paste to your conventional Aviva job.

So SOTW (it is Pistonheads 'shed of the week' to me) why?

W.

[squareofthewicket]

Apologies for the delay in posting the updated with charges and 5 & 10 year returns for the High Yielding Dividend Heroes based portfolio

Dividend Heroes - 10


Dividend Heroes - 15

Dividend Heroes - 20


Dividend Heroes - 25



Dividend Heroes - 30


Based on this, it looks like the ITs with the lower market cap are the most expensive to hold.

[scrumpyjack]

I can't see any reason for focussing this on dividends, or buying so many ITs. I would prefer to put, say, 50% in an All World Tracker and the rest in 2 or 3 ITs (or just put it all in the tracker and leave it be!)

[moorfield]

I can't see any reason for focussing this on dividends, or buying so many ITs. I would prefer to put, say, 50% in an All World Tracker and the rest in 2 or 3 ITs (or just put it all in the tracker and leave it be!)

For income, presumably ? I agree re so many ITs, a well diversified income PHY shouldn't need more than 12-15, the one I posted above could drop a couple.

[scrumpyjack]

I can't see any reason for focussing this on dividends, or buying so many ITs. I would prefer to put, say, 50% in an All World Tracker and the rest in 2 or 3 ITs (or just put it all in the tracker and leave it be!)

For income, presumably ? I agree re so many ITs, a well diversified income PHY shouldn't need more than 12-15, the one I posted above could drop a couple.

But the OP is 51 and not planning to retire anytime soon, so presumably won't be taking an income from the SIPP for many years?