My Investment Trust Strategy

[richfool]

I thought I would share a few thoughts about my strategy in relation to my portfolio of Investment Trusts.

Due to the market disruption caused by the Covid pandemic and the resultant cuts by many companies to their to their dividends, UK growth & income trusts took a hit. Although previously I focussed predominantly on income trusts, I have increased my exposure to growth trusts.

Over the last couple of months, I reduced my UK G&I exposure by selling: Temple Bar and TIGT (Troy Income & Grth trust), and added to FGT (Finsbury Growth & income trust).

In the Global Growth sector I topped up MWY (Mid Wynd Global Growth trust), and bought new positions in global growth trust: MNL (Manchester & London), and USA (Baillie Gifford US Growth trust). These increased my exposure to growth, technology and the USA. Plus I added NAIT (North American Income trust). I also hold MCT (Middlefield Canadian Inc trust).

In the global G&I sector, I still hold JGGI (JP Morgan Global G&I), HINT and MYI. (Increased holding of JGGI). I also hold JETI (JPMorgan European G&I).

In the flexible/multi-asset trust sector, I still hold: MATE (JP Morgan Multi-asset trust) which fell more than I would have expected along with BMPI (BM Global Inc portfolio).

In the UK I am still left with MUT (Murray Income ) and FGT (Finsbury Grth & Inc), both now increased holdings. In the UK (growth sector) I hold Mercantile (MRC) and Standard Life Smaller Coys (SLS), both of which are down and I now see as recovery plays.

Last week because of concerns over China and Hong Kong, in the Asia Pacific sector I reduced JAGI because of its high exposure to China and reduced SOI (Schroder Oriental Income) because of its higher exposure to Hong Kong. I also hold HFEL (topped up a while back whilst yield was c7.6%) and AAIF, a prudent plodder

I still hold renewable energy (JLEN, TRIG & GSF) and property REIT's (PHP, RGL, SLI & WHR), plus a pharmaceutical WWH.
Utilities: EGL. Infrastructure: INPP and SEQI.

[richfool]

Apologies, I didn't actually summarise my strategy or conclusion.

My thinking was that if income equities and their yields were going to suffer, (and possibly more so UK dividend yields), I ought to seek a return from wherever I can get it, which seems to point to growth stocks. Hence the increased focus on growth and technology.

(I had been trying to take a position in SMT, but found the SP was already reaching new highs, so I settled on a combination of MNL and USA as substitutes, tempered with a top up of MWY.)

[bluedonkey]

Apologies, I didn't actually summarise my strategy or conclusion.

My thinking was that if income equities and their yields were going to suffer, (and possibly more so UK dividend yields), I ought to seek a return from wherever I can get it, which seems to point to growth stocks. Hence the increased focus on growth and technology.

(I had been trying to take a position in SMT, but found the SP was already reaching new highs, so I settled on a combination of MNL and USA as substitutes, tempered with a top up of MWY.)

As a slightly less racy alternative to SMT, you could look at Monks. Both are ITs managed by Baillie Gifford and are pure growth plays, but Monks doesn't take such large bets on individual companies. If you are prepared to consider an OEIC, there's also Fundsmith of course.

[Dod101]

That is about 14 investment trusts and what some might call anther 7 quasi ITs, although a REIT is nothing like an investment trust and I am not sure renewable energy trusts are exactly the same thing either.

Quite a collection but as long as you can justify it and know why you hold them there is no reason why not. I know very few of them actually and tend to go more for generalists than particular sectors, because then you need to do what you are doing and decide whether one or the other sector is worth hanging on to. Buying generalists, you leave that decision to the manager.

From your reporting here you seem to do quite a bit of chopping and changing, 'active management' I suppose it is called. I wonder about that as a strategy because trading usually costs money and a lot more hassle than just sitting tight, although I do not think much of Temple Bar at the moment. I will keep it pro tem though because the Directors seem to be giving some thought to the future of the management of the trust and that often improves performance. Not much point if it does not.

It would be interesting to know if your results are any better than any other approach.

Meanwhile Scottish Mortgage share price is approaching £7.50.

Dod

[JuanDB]

I’m still not sure what your strategy is from reading the two posts. Is this portfolio in accumulation and focussed on capital growth or do you need an income and concerns over reliability of dividends are causing you to seek income from sales of growth stock, as examples?

A few thoughts on some of the names you mention:

Out of HFEL, SOI and AAIF the latter always seems to be the neither fish nor fowl choice.It’s neither high and growing yield like HfEL, nor driving capital growth like SOI has. Capital is flat over 3 years, yield growth is sub-inflationary. I hold HFEL and SOI and not AAIF as a result.

JETI I hold but as an income IT. I thought JEGI was the G&I version?

Buying into SMT is one for the patient. Yes it’s hitting new highs but the share price is pretty volatile and at least once a year seems to have a big drop. I’d keep some money on the sidelines for when it does.

Out of interest, how do you track this portfolio? As a whole or by region or growth vs income etc? Personally I have two IT sub portfolios. One is purely income focused with dividends invested which I track against a primary objective of growing organic income 10% y/y. The second is purely growth focused and which I track on a capital growth basis. Clear separation between the two helps focus on whether each constituent is doing the job it was purchased to do.

Cheers,

Juan.

[Dod101]

Out of interest, how do you track this portfolio? As a whole or by region or growth vs income etc? Personally I have two IT sub portfolios. One is purely income focused with dividends invested which I track against a primary objective of growing organic income 10% y/y. The second is purely growth focused and which I track on a capital growth basis. Clear separation between the two helps focus on whether each constituent is doing the job it was purchased to do.

I'm sure that that is right. I do not have an IT portfolio as such but I have an income portfolio and a growth portfolio both of which contain some ITs. I know what I expect from the constituents of each and that certainly helps my thinking.

Dod

[richfool]

Thanks for the various comments and observations, which are appreciated. I'll try and pick them off, one by one:

My strategy now is more one of total return, income and growth. I am retired, but don't need the income so reinvest it. I suppose I am in the maintenance or gentle accumulation phase, rather than outright accumulation.

From your reporting here you seem to do quite a bit of chopping and changing, 'active management' I suppose it is called. I wonder about that as a strategy because trading usually costs money and a lot more hassle than just sitting tight,...

Agreed that is one of my weaknesses, - tinkering. I take an interest in stock markets and enjoy following them, and all too often get drawn into making adjustments. I do keep telling myself that I have assembled the portfolio that I want and therefore should leave it there, which is where I am now. My excuse then becomes, just the accumulated dividends to reinvest. I think my New Year's resolution is, not more than one trade a month.

I have just the one IT portfolio, which previously was almost all income trusts, but the portfolio is now a mix of income and growth trusts, though income trusts are still well in the majority. I monitor the income that I receive (including the yield on cost and yield on value) and the capital appreciation of the portfolio, and maintain a spreadsheet that monitors Total Return.

As SMT was at such highs, I tried to get similar exposure through MNL and USA.

AAIF is something of a legacy holding, which I have hung onto because of the dividend income and a more conservative risk profile. I have previously taken profits from SOI and reinvested them. I also hold JAGI in that sector, with a higher technology exposure.

JETI - Yes agreed European income, (as opposed to JETG European Growth).

[LooseCannon101]

Looking at your portfolio and trading action, I wonder how your portfolio total return over 1,3,5 and 10 years compares to the MSCI World Equity Index.

Would a long-term, buy and hold strategy of one or more generalist investment trusts or a world equity index tracker, have achieved a better return?

[Lootman]

Looking at your portfolio and trading action, I wonder how your portfolio total return over 1,3,5 and 10 years compares to the MSCI World Equity Index.

Would a long-term, buy and hold strategy of one or more generalist investment trusts or a world equity index tracker, have achieved a better return?

I would guess that most people would do better with the tracker. The problem is that you don't really learn anything that way, nor have much fun.

You can do both. Put 50% in a global tracker and then actively manage the other 50%. Safety at the core and fun around the edges. And a quick glance at any point in time will show you which did better.

[Wuffle]

Some just marry the once, some make a habit of it.

W.

[Mememe]

I also wonder whether you would be better off with a world tracker. Too much second guessing is my view, let the market sort it out

I’m 50/50 but I constantly wonder whether going 100% is the answer

[richfool]

I'm not into trackers. I am paying the IT managers to be active and take active positions.

[Lootman]

I'm not into trackers. I am paying the IT managers to be active and take active positions.

Yes you are, but that implies one of two possibilities. Either:

1) You are better at picking active managers than the average investor or

2) You believe that most active managers beat the index.

Which is it?

[LooseCannon101]

Lootman - If I had the choice of using a boring strategy to gain an extra one percent each year on my portfolio or experimenting (having 'fun'), then I would definitely prefer the boring route. I would much rather double my money in 8 years rather than 9 - assuming 9% growth rate for 8 years - Rule of 72.

My financial education has included the wisdom of Benjamin Graham, Warren Buffett, John Kay, Robert Shiller and Mervyn King - the last three having been seen giving public lectures at the London School of Economics. John Kay by the way is currently a director at Scottish Mortgage Investment Trust, but will be retiring next month.

Experimenting by the average retail investor IMHO pays the (outsize) wages of people in The City and on Wall Street.

[Lootman]

Experimenting by the average retail investor IMHO pays the (outsize) wages of people in The City and on Wall Street.

As someone who spent the majority of his career in the City or on Wall Street, I am grateful for the kindness of strangers.

That said my point was more that most people should avoid active strategies, except for fun around the edges.

[richfool]

I don't wish to enter into a discussion or argument about trackers, as I don't wish to use them. I see no point in tracking the bottom half of an index as well as the top half. I choose my asset allocation and asset managers to maximise my return (without undue risk) and also to indulge my interests.

Therefore I don't wish this thread to wander off topic. It is about a strategy using Investment Trusts and is on the Investment Trust board.

To summarise the changes to my portfolio, I have adjusted my strategy to embrace more growth stocks, with an eye to new technologies and new developments arising out of Covid, whilst still maintaining a strong focus on income trusts. I have also made some minor adjustments taking into account China's activities ( by reducing exposure to China, Hong Kong and Taiwan).

[G3lc]

I have ben gradually moving from HY individual companies into ITs over the past few year and intend to continue the process, while I am aware some people will say I hold far too many (28) and some duplicate one another it seems to work for me - my interest is income, dividends or capital, the reason I occasionally sell is to get my annual tax free capital gain and when I think the world has changed for my foreseeable future (commercial property) my most recent buys are HINT. TRIG, FGT, LTI and JGGI I take an overview on what I get from my investments accepting the ups and downs of businesses and life, one gets good years and bad years, so if the management team of the trust seem to be investing in the right businesses and seem honest and capable I will back them.

[richfool]

I have ben gradually moving from HY individual companies into ITs over the past few year and intend to continue the process, while I am aware some people will say I hold far too many (28) and some duplicate one another it seems to work for me - my interest is income, dividends or capital, the reason I occasionally sell is to get my annual tax free capital gain and when I think the world has changed for my foreseeable future (commercial property) my most recent buys are HINT. TRIG, FGT, LTI and JGGI I take an overview on what I get from my investments accepting the ups and downs of businesses and life, one gets good years and bad years, so if the management team of the trust seem to be investing in the right businesses and seem honest and capable I will back them.

G3lc, I too have c 30 IT's in my portfolio and don't feel too embarrassed about it. That does embrace renewable, infrastructure, utility and property trusts, as well as UK (larger & smaller coys), Global, USA, Asia Pacific & European ones, oh and a gold miner.

Of the trusts you mention, I hold them all except LTI. I am conscious the capital performance of HINT is inferior to JGGI, but JGGI does focus on technology and growth shares and subsidises its dividend from capital, so I accept they are different animals, giving different exposure. The REIT's are understandably performing less well currently, but the dividend income is still coming in, so far.

During the market falls, I increased my exposure to growth and quality trusts, topping up: JGGI, MWY & FGT and adding MNL and USA; and in the income sector topped up HFEL and added NAIT.

[G3lc]

Interesting stuff richfool, thank you. I keep looking at NAIT but missed the under £2 entry point, the US has been expensive, so still looking - but during the market falls added to CTY, HFEL and SHRS - I probably wouldn’t have bought TRIG IF I’d seen the low oil price coming but the dividend is still OK, so not thinking of selling. I keep thinking about property and the possible potential at these low prices, but nothing happens - what is your gold miner?
I feel one has to try look forward with investing, rather than back like an accountant.

[richfool]

Interesting stuff richfool, thank you. I keep looking at NAIT but missed the under £2 entry point, the US has been expensive, so still looking - but during the market falls added to CTY, HFEL and SHRS - I probably wouldn’t have bought TRIG IF I’d seen the low oil price coming but the dividend is still OK, so not thinking of selling. I keep thinking about property and the possible potential at these low prices, but nothing happens - what is your gold miner?
I feel one has to try look forward with investing, rather than back like an accountant.

Hi G3lc, I can't say I am particularly confident about NAIT, but it gives me exposure to the US with an income slant. I bought at a time when they were reorganising the portfolio, and the sentiments of their portfolio changes sounded sensible.

I have a small stake in gold miner POLY (Polymetal), which I took some profit from a couple of weeks back, but I am hoping still has further upside. It's SP is quite volatile.

Regards