Simplifying and derisking

[freddythefish]

A little while ago I posted the following on the Investment Trusts board in a response to another's post:

"...........I'm minded to leave a "tidier" portfolio to sustain my better half (who has no interest in maintaining a shares portfolio) once I've "shuffled off the mortal coil and joined the choice invisibule" (like the dead parrot).
So here's my dilemma. I need to start shifting my HYP into ITs.
I've started the process and have some obvious picks like CTY, Murray International, BBGI Infrastructure, Invesco BIPS and HFEL but I'd like to spread the net a bit wider as I move forward. I'd also like to increase my exposure to overseas markets (especially the US) as I have little faith that the UK market will thrive under the current political regime. But as ever, income will be important.
So - the sixty four dollar question - which ITs (or other collective vehicles) would anyone suggest to tick some (or even all) of these boxes?

Itsallaguess encouraged me to report on progress, and, although early days, here's where I'm up to:

First I've refined my strategy as follows: I will split my portfolio into three parts:

One will remain in traditional HYP shares, but only stable, large cap, blue chips, with lots of liquidity (and international reach). In this category I have:

Shell
BP
BHP
RIO
M&G
L&G
BATS
IMB
GSK
TW
ULVR
LLOY
STAN
VOD

VOD and STAN will be revisited when their current strategies play out a little further.

Not very balanced in HYP terms, I know, but I don't care about that as the balance will be somewhat mitigated through the ITs I choose, which are as follows:

AAIF
BBGI
CTY
NCYF
EAT
HFEL
HHI
HICL
BIPS
MYI
SEQI

You will notice that I lean towards infrastructure and bonds, this fits well with my desire to leave a level of stability in income behind for if and when.

The third plank of my strategy is represented by preference shares, some of which I have held since the GFC and which have provided a steady stream of income, which fits well with how I wish things to be moving forward. These include:

AV.A
ELLA
LLPC
LWBD
SANB

As my strategy evolves I expect to explore more international opportunities. Research suggests that this is unlikely to be very HYPish so I may have to accept a capital gain component, with instructions to liquidate as appropriate and as necessary, though this aspect needs a bit more thought.

It is a work in progress, I hope my meanderings are if interest to others and I welcome any feedback, especially the positive kind.

(With thanks to all the wisdom I have benefitted from others over the years)

[moorfield]

So - the sixty four dollar question - which ITs (or other collective vehicles) would anyone suggest to tick some (or even all) of these boxes?

IAAG posts of IT tables are a good starting point, for example: Investment Trusts with 10-year consecutive dividend increases

You might then select a portfolio of 15 by ranking them by descending yield choosing one or two from each sector.

Then simply buy and hold forever. Do not be tempted to meddle, and try not to let press comment on your selections influence you. Do not worry about the fluctuations in their capital value that are certain to occur.

With that approach, there is a very good chance that one will derive an increasing income, and that capital may well increase over time. I would suggest however that increasing income is the primary objective here, capital growth being merely the icing on the cake.


Apropos of nothing:

IT                                | Sector
Henderson Far East Income         | Asia Pacific Equity Income     
CQS New City High Yield Fund      | Debt - Loans and Bonds         
Greencoat UK Wind                 | Renewable Energy Infrastructure
Value and Indexed Property Income | Property - UK Commercial       
International Public Partnerships | Infrastructure                 
Henderson High Income Trust       | UK Equity & Bond Income        
CT Private Equity Trust           | Private Equity                 
CT UK High Income Trust           | UK Equity Income               
Athelney Trust                    | UK Smaller Companies           
TR Property Investment Trust      | Property Securities            
Murray International Trust        | Global Equity Income           
North American Income Trust       | North America                  
Fidelity China Special Situations | China / Greater China          
Fidelity European Trust           | Europe                         
Bankers Investment Trust          | Global

[Itsallaguess]

So here's my dilemma. I need to start shifting my HYP into ITs.

I've started the process and have some obvious picks like CTY, Murray International, BBGI Infrastructure, Invesco BIPS and HFEL but I'd like to spread the net a bit wider as I move forward.

I'd also like to increase my exposure to overseas markets (especially the US) as I have little faith that the UK market will thrive under the current political regime. But as ever, income will be important.

So - the sixty four dollar question - which ITs (or other collective vehicles) would anyone suggest to tick some (or even all) of these boxes?

It's tricky to get a feel for the income-IT holdings you've currently got just from a list of tickers, so here they are presented with some broader associated data that might help people get a better view of your current holdings -

Company name                             EPIC   Management group                  AIC sector                   Total assets (m)   Ongoing charge (%)   5yr div grth (%pa)   Div cover (yrs)   Div yld (%)
Henderson Far East Income                HFEL   Janus Henderson Investors         Asia Pacific Equity Income   402.89             1.08                 1.89                 0.73              10.7
abrdn Asian Income Fund                  AAIF   abrdn                             Asia Pacific Equity Income   417.82             1                    5.13                 0.84              5.27

CQS New City High Yield Fund             NCYF   New City Investment Managers      Debt - Loans & Bonds         319.57             1.18                 0.22                 0.62              8.62
Invesco Bond Income Plus                 BIPS   Invesco Asset Management          Debt - Loans & Bonds         391.82             0.91                 3.17                 0.4               7.21

European Assets Trust                    EAT    Columbia Threadneedle             European Smaller Companies   364.96             1.04                 -0.52                0                 7.25

Murray International Trust               MYI    abrdn                             Global Equity Income         1803.63            0.53                 2.23                 1.08              4.55

Sequoia Economic Infrastructure Income   SEQI   Sequoia Investment Management     Infrastructure               1586.56            0.95                 2.76                 0                 8.93
HICL Infrastructure                      HICL   InfraRed Capital Partners         Infrastructure               3473.79            1.14                 0.49                 11.52             7.37
BBGI Global Infrastructure S.A.          BBGI   BBGI Global Infrastructure S.A.   Infrastructure               1056.3             0.93                 3.27                 0                 7.07

Henderson High Income Trust              HHI    Janus Henderson Investors         UK Equity & Bond Income      372.49             0.86                 1.58                 0.49              6.63

City of London Investment Trust          CTY    Janus Henderson Investors         UK Equity Income             2255.87            0.37                 2.06                 0.45              4.93

If you're looking for more diversified global exposure then as well as the helpful post from moorfield earlier, it will be worth familiarising yourself with the fairly simple instructions that I detail at the bottom of my regular monthly income-IT posts (https://www.lemonfool.co.uk/viewtopic.php?f=31&t=45496), where following the instructions will allow you to dump some updated AIC data into your own spreadsheet, where you can then play with some filters and get a feel for some of the options that might be available to you.

From a specifically North America point of view, the three options below currently yield above 3% -

Company name                        EPIC   Management group                       AIC sector      Total assets (m)   Ongoing charge (%)   5yr div grth (%pa)   Div cover (yrs)   Div yld (%)
Middlefield Canadian Income Trust   MCT    Middlefield International              North America   167.23             1.33                 0.96                 0                 4.46
BlackRock American Income           BRAI   BlackRock Investment Management (UK)   North America   154.51             1.03                 0                    0.1               3.98
North American Income Trust         NAIT   Janus Henderson Investors              North America   500.23             0.99                 6.6                  1.52              3.57

I happen to own NAIT from the above North America sector, and whilst it's not got the highest yield in the list, I chose that one because it's the largest of the three, has the lowest charges, and taking a view on long-term dividend-growth and total-return performance over a number of years, it seemed to offer a good broad appeal in that sector for my particular requirements.

One thing I would say regarding sector-based IT-fishing is that it's important to get a feel for the underlying holdings and sectors that those holdings cover, as there can be quite a difference between income-IT's in the same sector in terms of the areas and holdings that they actually invest in, so after using the broader table-based data shown in my earlier linked post, I would always spend some time bouncing through some individual AIC pages and tabs related to individual income-IT's, to gain some IT-specific information from there regarding performance, holdings, gearing etc., and to help cover those, here's a few links to those areas of the AIC site for the North American Income Trust (NAIT) listed in the above table -

NAIT Overview - https://www.theaic.co.uk/companydata/north-american-income-trust
NAIT Performance - https://www.theaic.co.uk/companydata/north-american-income-trust/performance
NAIT Portfolio - https://www.theaic.co.uk/companydata/north-american-income-trust/portfolio
NAIT Dividends - https://www.theaic.co.uk/companydata/north-american-income-trust/dividends

Using the AIC search facility linked below and typing a ticker into the search box will present you with a link to the IT focussed on the IT 'Overview' page shown in the first link above, but which also then offers the other available information tabs, such as performance, portfolio, dividends etc., for that particular IT...

AIC Search Page - https://www.theaic.co.uk/site-search


The AIC site also contains a specific 'Dividend Heroes' page that's regularly updated, so that also might be worth you taking a look at during these types of exercises -

Dividend heroes - The AIC's dividend heroes are the investment trusts that have consistently increased their dividends for 20 or more years in a row -

https://www.theaic.co.uk/income-finder/dividend-heroes


Hopefully the above offers some good investigative opportunities for you.

Cheers,

Itsallaguess

[dealtn]

my better half (who has no interest in maintaining a shares portfolio)

...But as ever, income will be important.

You want to simplify and derisk. Why not simplify even further and just arrange a whole life inflation linked annuity for her?

[freddythefish]

All the investments are held in ISAs, so extremely reluctant to give up the benefits of that (though fingers are crossed in case Torsten Bell replaces Rachel from Accounts).

[88V8]

my better half (who has no interest in maintaining a shares portfolio)
...But as ever, income will be important.

You want to simplify and derisk. Why not simplify even further and just arrange a whole life inflation linked annuity for her?

Heresy... but in our case with no one in particular to inherit our tax-exposed pot, annuitising part of it would leave my wife in a simpler situation.
Hmmm.

V8

[dealtn]

All the investments are held in ISAs, so extremely reluctant to give up the benefits of that (though fingers are crossed in case Torsten Bell replaces Rachel from Accounts).

You are talking about when you die - and your surviving partner who has no interest in maintaining a shares portfolio. 3 years and a day after your death those ISAs will close. You/she doesn't have any option other than to (reluctantly) give up those benefits.

[freddythefish]

...... And thanks again to Itsallaguess and Moorfield for their generosity in replying. Be assured I'm taking the advice and input seriously.

[DrFfybes]

All the investments are held in ISAs, so extremely reluctant to give up the benefits of that (though fingers are crossed in case Torsten Bell replaces Rachel from Accounts).

Apologies if I have missed this, but you don't seem to be clear on how much yield you want/need from your investments. Because until you know what you need, you can't really plan how to get it. You also don't say if you need to preserve capital, or wish to gift surplus income, or whether your Spouse woud be happy with all her money in Equities.

You also say you need to Keep It Simple - and that is something that you certainly have not done so far . Casting an eye over your holdings there are appears to be a dozen or so ITs going forward. Presumbly you've chosen the ITs on yield, but also on minimal overlap of the underlying holdings?

So I'm going to go left field and perhaps cause some people to spit tea at their screen, but she WILL at some point need to take action on this, so either you need a PoA set up, or find an IFA.

My approach was to convert my investments into 2 or 3 funds. As they're in an ISA then ERI/tax is not an issue, so the overseas domiciled Vanguard products are as good as any. Pick a mix of trackers, or for (relatively!) higher income eg Vanguard Global Equity Income, Vanguard FTSE Global All Cap Index for TR, and a Bond Fund if you want.

Then choose a platform that will automatically sell a fixed value of these funds each month and deposit the cash into your bank account, using income first if desired, or pay income AND sell down. I have used Quilter offer this service, and their fees are not too oulandish https://www.quilter.com/products-and-se ... d-charges/ . If she wants or needs to change the income amount then they will do it over the phone. I think they also allow you to specify a percentage to take each month rather than a fixed sum.

OK, the risk is the assets deplete due to taking too much income, and this is where the Poa/IFA comes in - find someone who will do a periodic assessment for a fixed fee and amend the income if required, and consider your wife's needs, health, care requirements, etc.

FWIW I put a sum (unsheltered) into a Global tracker to sell down and increasing it for the the 12 years I had until State Pension kicked in, expecting the capital to deplete over the time period. I actually found I didn't need it so reduced the withdrawals, and apart from it not dwindling down after recent gains it seems to be working

It doesn't get much simpler than that unless you buy an annuity.

Paul

[vand]

Personally I question your original premise of "simplifying into ITs"

I would argue it's superior in just about every way to move to a passive strategy with a well dialed-in asset allocation, at least for the bulk of your investments.

More and more, it has become very difficult for ITs to match the overall market, and most ITs have done pretty poor job

Speaking for myself, and I think for most others on TMF who run active portfolios, we do it because we enjoy the challenge, but if you have no interest in doing so it's best to just stick to trackers and a passive strategy.

[kempiejon]

Personally I question your original premise of "simplifying into ITs"

I would argue it's superior in just about every way to move to a passive strategy with a well dialed-in asset allocation, at least for the bulk of your investments.

More and more, it has become very difficult for ITs to match the overall market, and most ITs have done pretty poor job

Speaking for myself, and I think for most others on TMF who run active portfolios, we do it because we enjoy the challenge, but if you have no interest in doing so it's best to just stick to trackers and a passive strategy.

Yes most of us poor investors are investing sub optimally for fun. Deliberately ignoring some shares, or classes, or regions or focusing on preferred trends and traits makes us poorer by choice. Perhaps we think we are cleverer or luckier, tested against the global market index we take on more risk and lower returns. I do of course get lucky or clever from time to time so con myself I do ok, stuck at it because I enjoyed it.

[vand]

Personally I question your original premise of "simplifying into ITs"

I would argue it's superior in just about every way to move to a passive strategy with a well dialed-in asset allocation, at least for the bulk of your investments.

More and more, it has become very difficult for ITs to match the overall market, and most ITs have done pretty poor job

Speaking for myself, and I think for most others on TMF who run active portfolios, we do it because we enjoy the challenge, but if you have no interest in doing so it's best to just stick to trackers and a passive strategy.

Yes most of us poor investors are investing sub optimally for fun. Deliberately ignoring some shares, or classes, or regions or focusing on preferred trends and traits makes us poorer by choice. Perhaps we think we are cleverer or luckier, tested against the global market index we take on more risk and lower returns. I do of course get lucky or clever from time to time so con myself I do ok, stuck at it because I enjoyed it.

Do as I say, not as I do!

[Dicky99]

It looks like you're planning to leave behind quite a large and complicated portfolio. Does your better half share your enthusiasm for managing a complicated portfolio?

My mum inherited a large basket of equities and bond funds when dad passed away. She hadn't the first idea what she had or what to do with it. I sold the lot and divided the resulting sum between a Vanguard Lifestrategy 60/40 fund and 2 other comparable equivalents, so all the eggs weren't in one basket. I explained to her that the likelihood is it won't shoot the lights out in good times and won't cause sleepless nights in bad times. During the ups and down of the last 3 years that's been the case.

She's happy because despite drawing occasional chunks out for cruises, house improvements and Christmas give aways its broadly the value it was 7 years ago at the outset. What's more for her there's no more involvement than asking me how much she has.

That's both simplifying and derisking to me.

[Itsallaguess]

I'd also like to increase my exposure to overseas markets (especially the US)

In an earlier reply to the above point, I focussed on the North American AIC sector for potential US-facing options, but where there might be specific geographical requirements like the US one above, it's also always worth digging a little deeper into some of the Global AIC sectors as well, just to make sure that you're hopefully making informed choices about the potential options you might have available.

Looking at the AIC 'Global Equity Income' sector, for instance, shows that JP Morgan Global Growth & Income (JGGI) has almost 70% of it's holdings related to the US Market, with perhaps some of the US companies listed in their top-holdings being the types you might specifically be interested in adding to your investment-exposure -




[Sources - https://www.theaic.co.uk/companydata/jpmorgan-global-growth-income and https://www.theaic.co.uk/companydata/jpmorgan-global-growth-income/portfolio]


In my view one of the few failings of the current AIC site is that it's difficult to start from a specific geographical area, with perhaps the US one being discussed here as being a good example, and then ask the AIC site to list all income-IT options that have a given percentage in that geographical area, no matter which underlying AIC sector they might currently be allocated to, and the JGGI option shown above is a good example of that, where looking in the North American sector listing on it's own would not specifically list JGGI as being a potentially still-relevant option to an investor with these types of area-specific requirements, so it's definitely worth keeping this in mind for anyone using the AIC site for this type of investigative work.

Cheers,

Itsallaguess