mc2fool wrote:
one of the attractions of "traditional" income ITs is the income "smoothing", which provides a reliable and predictable income for the investor.
The % of NAV ITs, by the very nature of their dividend policy, lack that feature, which I am suggesting is a negative for "income" investors, it would have been for me when I was one.
Sure, you can DIY that part, but that's why I say they're a half done job for income investors; 'cos the investor has to DIY the smoothing bit.
I think you've got a point, but I don't personally think it's as big an issue as you might be making out, depending on the wider income strategy being used.
If we might agree that it's likely that there'll be some level of 'income float' in any given income-strategy, where the actual yearly income taken from an income-strategy is
less than the yearly dividends delivered from it, and there's some level of re-investment going on with any additional dividends received over and above those used for spending, and if we agree that it might be likely that the '% NAV' dividends are only
part of the overall dividends being received, with the others from dividend-sources that do involve their own 'dividend smoothing' processes, then we might get to a point where any of the 'income fluctuation' that you're rightly highlighting, that might come from these types of '% NAV' elements, might largely be affecting the 'float' element of some income strategies, and not
necessarily be affecting the actual 'payment' side of things too much, perhaps, with a fair wind over a number of years...
So if we might see an income-strategy that
does involve an element of re-investment allowing these '% NAV payment' elements to largely influence that 're-investment' side of things, rather than the 'payment' side of things, then we might come to ask if that potential downside (and we must acknowledge that there
is a downside to that process, even if it largely might not even affect the taken payments themselves..) is
acceptable, given that taking that potential downside on board then opens up a section of the investment market that's otherwise been difficult to access for those investors who see some benefit in
maintaining a largely 'hands-off' approach to income-delivery, and personally, I think it does begin to do that....
You're right though - it does introduce a potential element of variability that needs to be taken into account, to see if such variances in '% NAV' payments might bleed over into what might well be very important 'income delivery areas' of any given income-strategy, but I think that so long as these types of '% NAV' elements are a relatively small
sub-section of a larger
overall income-portfolio, and so long as there's enough 're-investment float', over and above any 'payment requirements' in an income-strategy that might use them, then I think there's perhaps less of an overall
income-strategy-level problem than you might be making of it....
Cheers,
Itsallaguess