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NCYF vs IPE

Closed-end funds and OEICs
yieldhog
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NCYF vs IPE

#334693

Postby yieldhog » August 20th, 2020, 3:45 pm

I'm currently re-organising my SIPP portfolio in light of the COVID situation and other events. To improve the income element I'm considering adding to existing holdings of NCYF and/or IPE. According to current information here's how they are looking on some basic measures:
Price Yield Prem/Disc. Gearing
IPE 68 7.46% -7.07% 22.4%
NCYF 48.5 9.23% +1.78% 13.68%

For NCYF a yield over 9% looks unsustainable and yet this month's declared dividend of 1.46p is slightly higher than last year's (1.45p) and apparently the gearing has been reduced to a lower level than
that of IPE.
On the face of it, the top holding for IPE look better quality than those of NCYF.
On initial analysis I'm inclined more towards IPE because of the quality of it's holdings and discount to NAV, but intend to do some more research before topping up. As many on this board have pointed out, it may be some time before the full impact of COVID is felt on the income/dividends of ITs, so it may be better to keep my powderdry for a few more months.

Any constructive comments on these two ITs would be welcome.

Hariseldon58
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Re: NCYF vs IPE

#336229

Postby Hariseldon58 » August 26th, 2020, 11:27 pm

These two trusts have high yields, given the charges are circa 1% and the yields of the underlying portfolios before charges are around 8% and 10%, we can probably say that many of the holdings are of low credit quality.

The underlying yield to maturity of sterling investment grade bonds is 1.6% ( SLXX etf from iShares)

That is a pretty significant difference and given the Covid crisis, I would be concerned that such a high yield comes with a significant possibility of capital loss....

yieldhog
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Re: NCYF vs IPE

#336567

Postby yieldhog » August 28th, 2020, 11:43 am

Hariseldon58,

As you point out, SLXX is an investment grade corporate bond fund, a different animal to IPE and NCYF. The yield differences reflect this. I owned some SLXX until a few years ago, when it was yielding around 4-5%, but my objective then, as it is now, was to build a portfolio that generates an annual income of at least 6 - 7% and so SLXX no longer suited my objectives.

Over the past ten years, a quick look at the stats suggests IPE has generated a cumulative return of 135.9% compared with SLXX's 85.69%. It's helped me achieve my investment objectives over the past ten years and hopefully will continue to contribute in future years. I accept that IPE may at some point need to trim it's dividend due to COVID 19, but I doubt it will drop much below 6%. Some fluctuations in the market prices of my investments don't keep me awake at night.

We all invest according to our risk preferences, personal circumstances, investment experience, investment objectives and so on.

Y

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Re: NCYF vs IPE

#336588

Postby Wuffle » August 28th, 2020, 1:06 pm

I went for IPE the other week at a tiny bit more discount.

Four things are being priced here.
Bonds within both and both collectives, presumably by a few of the same sorts of people.
Either the singular pricing of IPE is wrong, or all of the constituents.
One seemed more likely and thus the anomaly.
As a nobody outside the industry, that is all I am ever going to know.

I got some HDIV on a broadly similar principle but they are positioned slightly higher quality/lower dividend.
What can I say, it is going ok so far...

W.

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Re: NCYF vs IPE

#338071

Postby yieldhog » September 4th, 2020, 11:39 am

Having taken a closer look at the bond portfolios of IPE and NCYF, I'm more inclined to increase my IPE holding rather than NCYF, despite the fact that NCYF appears to offer a higher yield.

From the annual reports, it looks as though IPE has 21% Investment Grade bonds whereas NCYF nas none. NCYF has 46% non-rated bonds compared with IPE's 8% and although non-rated doesn't necessarily mean lower quality, having a rating at least means greater transparency.
NCYF appears to have a much greater exposure to the financial sector, 56% compared with IPE's 27%, again not necessarily a bad thing but for my money I'm happier to see the much broader sector spread of IPE's portfolio.
In terms of diversification I'm also more comfortable with the greater number of holdings in the IPE portfolio, 158 compared with approximately 103 for NCYF even though IPE is a significantly smaller fund.

On the negative side for IPE, it's gearing appears to be higher than for NCYF and, in my view, it's borrowing strategy may be more risky (repos with multiple partners vs revolving credit with a single party).

With the second wave of COVID beginning to build in Europe, I feel more comfortable with IPE but, as I've said already, it might be wise to hold off before committing more funds.


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