Essential Investment Trusts

[absolutezero]

I run a mostly HYP style portfolio (LSE listed shares, large cap, usual names) but I do fiddle about with it.
I'm new to using ITs and have bought Smithson (SSON), City of London (CTY) and Henderson Far East Income (HFEL) in the last couple of weeks.

I thought it might be interesting to pick people's brains and come up with a list of what people think are their essential ITs and their reasoning.
But with a limit of 3 and using the structure: Growth, Income, Other/Interesting/Free Choice.

So here are mine

Growth
Smithson (SSON)
Terry Smith's successful stock picking strategies but focussed on mid-cap firms and in a closed ended IT rather than the more open ended Fundsmith.

Income
City of London (CTY)
Stalwart, decent yielding trust mostly focussed on LSE listed shares. Solid and dependable with an increasing dividend.

Other/Interesting/Free Choice
Henderson Far East Income (HFEL)
High yielding income but not from London.

[Lootman]

a list of what people think are their essential ITs and their reasoning.
But with a limit of 3 and using the structure: Growth, Income, Other/Interesting/Free Choice.

I don't really do income ITs so I assume I just get two? I have to go by the numbers rather than feelings. So:

I have to pick the two ITs that have returned me between 800% and 900% in the last dozen or so years. That would be Scottish Mortgage for "Growth" and Lindsell Train for the wild card.

The next best performer would be BioTech Growth (BIOG) which is up between 500% and 600% in the same time. If instead you chose International Biotech then that has an "income" of about 4%, although from capital so that might be cheating.

[Dod101]

Growth? Certainly there are three candidates to me. I hold all of them. Scottish Mortgage, Alliance and Smithson. I suppose on the basis of past performance there can be no argument that Scottish Mortgage ought to win. I like its style, its very low cost and the management house.

Income? A more difficult one because almost inevitably it seems to mean income or growth not both. Candidates to me would be HFEL, Edinburgh IT and Murray Income. I will plump for Murray Income, a more modest yield but with a moderate growth. HFEL has in recent years anyway, sacrificed growth for its high yield and Edinburgh has a new and rather unproved investment manager.

Interesting/Free Choice? Finsbury Income and Growth and Caledonia would both be in the frame but I will chose RIT Capital Partners. It has a very interesting spread of investments which I could not access myself and it has a good record of growth.

Dod

[absolutezero]

Thank you both for this.
The collective hive mind on here is always worth tapping in to. For investment matters anyway!

Scottish Mortgage has a very impressive growth rate. Is that sustainable, do we think?
Definitely worthy of further research here. Though I am sceptical of the 'past performance is no guide to future performance' aphorism, I do wonder about it both ways.

I already own a small amount of RIT Capital Partners. It's one I always forget about RIT as it's a certificate in the filing cabinet. It's done pretty well though.

[mc2fool]

I run a mostly HYP style portfolio (LSE listed shares, large cap, usual names) but I do fiddle about with it.
I'm new to using ITs and have bought Smithson (SSON), City of London (CTY) and Henderson Far East Income (HFEL) in the last couple of weeks.

What is your reason for choosing City of London given that it most likely has very similar holdings to those you already have in your "HYP style portfolio"?

[Dod101]

Thank you both for this.
The collective hive mind on here is always worth tapping in to. For investment matters anyway!

Scottish Mortgage has a very impressive growth rate. Is that sustainable, do we think?
Definitely worthy of further research here. Though I am sceptical of the 'past performance is no guide to future performance' aphorism, I do wonder about it both ways.

I already own a small amount of RIT Capital Partners. It's one I always forget about RIT as it's a certificate in the filing cabinet. It's done pretty well though.

Well to pick up the challenge with Scottish Mortgage, no one can know whether its growth rate is sustainable. It has not done much during this year, but then its growth rate was such that it could not grow at that rate for much longer without taking over the world so no I do not think that its growth rate is sustainable. It might well be better than others though because I think the logic of its investment case is still intact and that, coupled with the low cost and general culture of BG, will I think give it a continuing edge.

Dod

[absolutezero]

I run a mostly HYP style portfolio (LSE listed shares, large cap, usual names) but I do fiddle about with it.
I'm new to using ITs and have bought Smithson (SSON), City of London (CTY) and Henderson Far East Income (HFEL) in the last couple of weeks.

What is your reason for choosing City of London given that it most likely has very similar holdings to those you already have in your "HYP style portfolio"?

It has many more holdings than I have (so adds diversification) to my semiHYP and continued to pay out (and increase) dividends when a lot of companies in the semiHYP cut or cancelled theirs "due to Covid".
Some of this may have been from selling shares or financial engineering (such as gearing etc) - things I am either not willing to do or cannot do, but am happy for the fund manager to do on my behalf.

I also sold some of my smaller and/or lower yielding semiHYP holdings and used the proceeds to buy CTY - thereby increasing my income.

I'm am questioning the HYP approach and thinking baskets of shares (ITs) might be a better way of managing my portfolio - from both a capital and an income viewpoint. I'm moving away from being income focussed and growing my wealth via total return.

My HYP is doing ok enough on capital values but some of the ITs I am looking at have much MUCH better records.
Plus it's all UK listed shares in 'old economy' companies. Where is the growth coming from?
The London Stock Exchange is not where the growth is going to be. Compare the FTSE with the S&P.

[absolutezero]

Thank you both for this.
The collective hive mind on here is always worth tapping in to. For investment matters anyway!

Scottish Mortgage has a very impressive growth rate. Is that sustainable, do we think?
Definitely worthy of further research here. Though I am sceptical of the 'past performance is no guide to future performance' aphorism, I do wonder about it both ways.

I already own a small amount of RIT Capital Partners. It's one I always forget about RIT as it's a certificate in the filing cabinet. It's done pretty well though.

Well to pick up the challenge with Scottish Mortgage, no one can know whether its growth rate is sustainable. It has not done much during this year, but then its growth rate was such that it could not grow at that rate for much longer without taking over the world so no I do not think that its growth rate is sustainable. It might well be better than others though because I think the logic of its investment case is still intact and that, coupled with the low cost and general culture of BG, will I think give it a continuing edge.

Dod

I do notice that the long-standing fund manager, James Anderson, is retiring in 2022...
But I do like the investment managers' thought processes in the most recent annual report. Especially the 'core beliefs' section on page 19 onwards.

[Avantegarde]

I my not-so-humble opinion, you first essential decision is to put 5-10% of your money into a cheap global tracker of some sort. Why? Because it is cheap; because it will give you whatever the global stock market has to offer, in terms of both "growth" and dividend income; and because it is the best possible benchmark against which to measure all your other investments.

[absolutezero]

I my not-so-humble opinion, you first essential decision is to put 5-10% of your money into a cheap global tracker of some sort. Why? Because it is cheap; because it will give you whatever the global stock market has to offer, in terms of both "growth" and dividend income; and because it is the best possible benchmark against which to measure all your other investments.

That's in the pension. Vanguard VWRL

[mc2fool]

I run a mostly HYP style portfolio (LSE listed shares, large cap, usual names) but I do fiddle about with it.
I'm new to using ITs and have bought Smithson (SSON), City of London (CTY) and Henderson Far East Income (HFEL) in the last couple of weeks.

What is your reason for choosing City of London given that it most likely has very similar holdings to those you already have in your "HYP style portfolio"?

It has many more holdings than I have (so adds diversification) to my semiHYP and continued to pay out (and increase) dividends when a lot of companies in the semiHYP cut or cancelled theirs "due to Covid".
Some of this may have been from selling shares or financial engineering (such as gearing etc) - things I am either not willing to do or cannot do, but am happy for the fund manager to do on my behalf.

I also sold some of my smaller and/or lower yielding semiHYP holdings and used the proceeds to buy CTY - thereby increasing my income.

I'm am questioning the HYP approach and thinking baskets of shares (ITs) might be a better way of managing my portfolio - from both a capital and an income viewpoint. I'm moving away from being income focussed and growing my wealth via total return.

My HYP is doing ok enough on capital values but some of the ITs I am looking at have much MUCH better records.
Plus it's all UK listed shares in 'old economy' companies. Where is the growth coming from?
The London Stock Exchange is not where the growth is going to be. Compare the FTSE with the S&P.

Um, ok, so you're moving away from being income focussed but two of your IT choices are income focussed, and you sold some lower yielding semiHyp holdings to buy one of those, CTY, to increase your income.

And you think that UK listed shares are 'old economy' companies and the London Stock Exchange is not where the growth is going to be but one of your IT choices, CTY, is 87% in UK listed shares and if you look at their top ten holdings they're pretty much all 'old economy' companies.

Moving from HYP to ITs, from an income focus to total return, and from a UK focus to more international diversification are all fair enough goals, but your choices don't quite seem to be consistent with all of them.

Also, your comment that CTY's continued pay out and increase of dividends "may have been from selling shares or financial engineering (such as gearing etc)" shows that you are indeed, new to ITs. I suggest you look up the terms "revenue reserves" and "gearing" (lots has been written on this board for the former), and I particularly recommend you look in CTY's last annual and half year reports to see how they actually did it.

[Dod101]

Thank you both for this.
The collective hive mind on here is always worth tapping in to. For investment matters anyway!

Scottish Mortgage has a very impressive growth rate. Is that sustainable, do we think?
Definitely worthy of further research here. Though I am sceptical of the 'past performance is no guide to future performance' aphorism, I do wonder about it both ways.

I already own a small amount of RIT Capital Partners. It's one I always forget about RIT as it's a certificate in the filing cabinet. It's done pretty well though.

Well to pick up the challenge with Scottish Mortgage, no one can know whether its growth rate is sustainable. It has not done much during this year, but then its growth rate was such that it could not grow at that rate for much longer without taking over the world so no I do not think that its growth rate is sustainable. It might well be better than others though because I think the logic of its investment case is still intact and that, coupled with the low cost and general culture of BG, will I think give it a continuing edge.

Dod

I do notice that the long-standing fund manager, James Anderson, is retiring in 2022...
But I do like the investment managers' thought processes in the most recent annual report. Especially the 'core beliefs' section on page 19 onwards.

Yes unfortunately no manager goes on forever but Tom Slater had been working alongside James Anderson for some years and I think will carry on in the same style.Their Annual Report has always been worth a read.

I should add that I entirely agree with mc2fool's later comments re City of London. Your wish to move towards a more total return approach is entirely inconsistent with your choice of CTY, although you have explained your reasoning for holding it earlier

Dod

[Padders72]

You guys are a hell of a lot more optimistic towards SMT than I am. My modest holding is up about 30% but only I think I because I caught the tail end of the glory days. Personally I wouldn’t be putting a big chunk of new money there at present as I think it may underperform in the short to medium term as some of the overheated tech stuff corrects or at least lags. Then again what do I know, I feel the same about Terry Smith’s offerings too and sold off all of that so that is 2 forum favourites I am pessimistic towards.

[Dod101]

You guys are a hell of a lot more optimistic towards SMT than I am. My modest holding is up about 30% but only I think I because I caught the tail end of the glory days. Personally I wouldn’t be putting a big chunk of new money there at present as I think it may underperform in the short to medium term as some of the overheated tech stuff corrects or at least lags. Then again what do I know, I feel the same about Terry Smith’s offerings too and sold off all of that so that is 2 forum favourites I am pessimistic towards.

I think it depends entirely on the period you are thinking about. SMT has always been volatile and it would not surprise me if it stuck around current levels for another year. Over the year 2020 and to the peak price in 2021 I extracted cash from SMT equivalent to its current value in my portfolio. It is still my biggest holding so I am not concerned. It owes me nothing. I have held it for about 25 years.

Dod

[Wuffle]

Others can come in with specialist growth and income choices.
I would like to advocate for a decent allocation to a mixed trust in part 3.
CGT would do, I have MATE because I am cheap and saw a discount.
(No, not the same thing but you can pick to suit circumstances).
Somebody else with an eye on the overall blend seems essential to me. Apparently I am 'dumb money' after all.
It saves on the low level adjustments as well - somebody is already doing it.

W.

[absolutezero]

What is your reason for choosing City of London given that it most likely has very similar holdings to those you already have in your "HYP style portfolio"?

It has many more holdings than I have (so adds diversification) to my semiHYP and continued to pay out (and increase) dividends when a lot of companies in the semiHYP cut or cancelled theirs "due to Covid".
Some of this may have been from selling shares or financial engineering (such as gearing etc) - things I am either not willing to do or cannot do, but am happy for the fund manager to do on my behalf.

I also sold some of my smaller and/or lower yielding semiHYP holdings and used the proceeds to buy CTY - thereby increasing my income.

I'm am questioning the HYP approach and thinking baskets of shares (ITs) might be a better way of managing my portfolio - from both a capital and an income viewpoint. I'm moving away from being income focussed and growing my wealth via total return.

My HYP is doing ok enough on capital values but some of the ITs I am looking at have much MUCH better records.
Plus it's all UK listed shares in 'old economy' companies. Where is the growth coming from?
The London Stock Exchange is not where the growth is going to be. Compare the FTSE with the S&P.

Um, ok, so you're moving away from being income focussed but two of your IT choices are income focussed, and you sold some lower yielding semiHyp holdings to buy one of those, CTY, to increase your income.

And you think that UK listed shares are 'old economy' companies and the London Stock Exchange is not where the growth is going to be but one of your IT choices, CTY, is 87% in UK listed shares and if you look at their top ten holdings they're pretty much all 'old economy' companies.

Moving from HYP to ITs, from an income focus to total return, and from a UK focus to more international diversification are all fair enough goals, but your choices don't quite seem to be consistent with all of them.

Also, your comment that CTY's continued pay out and increase of dividends "may have been from selling shares or financial engineering (such as gearing etc)" shows that you are indeed, new to ITs. I suggest you look up the terms "revenue reserves" and "gearing" (lots has been written on this board for the former), and I particularly recommend you look in CTY's last annual and half year reports to see how they actually did it.

Rather a condescending post, don't you think?
Anyone who starts with 'um, ok' and has liberal use of sarky emojis is not trying to be helpful...

For a start, my portfolio is "compartmentalised".
There is a growth side of things (hence the looking into ITs who can manage the portfolio more effectively than I and they can get exposure to things I can't) and there is an income side of things which exists to provide dividends (a substantial HYP type affair of which CTY and HFEL are two components along with a lot of the typical HYP shares).

And yes, I have read CTY's annual report and am familiar with gearing. It comes under my heading of 'financial engineering'.

[absolutezero]

Others can come in with specialist growth and income choices.
I would like to advocate for a decent allocation to a mixed trust in part 3.
CGT would do, I have MATE because I am cheap and saw a discount.
(No, not the same thing but you can pick to suit circumstances).
Somebody else with an eye on the overall blend seems essential to me. Apparently I am 'dumb money' after all.
It saves on the low level adjustments as well - somebody is already doing it.

W.

Thanks. CGT is on my list of things to look at.

[dundas666]

Here's mine, selected on the basis that others might not mention them!:

Growth:
Worldwide Healthcare (WWH) - 10 year average TR = 20% pa

Income:
European Assets Trust (EAT) - 10 year average TR = 13% pa, dividend policy of 6% of NAV

Other/Interesting/Free Choice:
International Biotechnology Trust (IBT) - 10 year average TR = 18% pa, dividend policy of 4% of NAV

[Urbandreamer]

You guys are a hell of a lot more optimistic towards SMT than I am.....

I share Dod's view, except that I suspect that the pause in growth may be more than 12 months.
SMT recently produced video's by Mr A, Mr S and Mr Lawrence Burns that are well worth watchung.
I picked them up here.
https://www.theaic.co.uk/

Of particular note is that they are all singing from the same hymn sheet. Hence I don't see it likely that they will be changing their investment approach any time soon.

Like Dod, I sold some over the last year. SMT was getting too be to big a holding in my portfolio. I invested the proceeds in Pacific Horizons (PHI) for growth and HFEL for income.

I would also argue that there is at least one catogary missing from our list of Essential Invest Trusts.

I think that we should all think of Non-correlated investments.

I hold the likes of Civitas (CSH) who do social housing attempting to fill that roll.

Others may argue that a one-stop-shop wealth preservation trust like Ruffer or Capital Gearing make sense, though I don't hold them.

[mc2fool]

Rather a condescending post, don't you think?
Anyone who starts with 'um, ok' and has liberal use of sarky emojis is not trying to be helpful...

My apologies if it came across as such, it wasn't intended to, and the use of 'um, ok' and the confused emojis were meant to reflect my confusion at what seemed to be inconsistencies in your post that I was replying to.

The rest of the happy, smile and wink emojis were meant in a genuine and warm way, as were the I thought constructive hints in that paragraph, and not meant to be sarcastic or condescending at all. Sorry it it all came across otherwise.