The Lemon Fool

I am having another look at this Trust (formerly BMO UK High Income BHI) which has fallen to a nearly 13% discount. It's mainly in FTSE100/FTSE250 companies and yielding an amazing 6.8% , compared to the more well known Merchants (MRCH) which is invested similarly and yields about 5%, trading at a small premium. The only snag I can see is a large spread, but the first dividend payment would compensate for that.
Anyone else looking at this one?

Parky wrote:I am having another look at this Trust (formerly BMO UK High Income BHI) which has fallen to a nearly 13% discount. It's mainly in FTSE100/FTSE250 companies and yielding an amazing 6.8% , compared to the more well known Merchants (MRCH) which is invested similarly and yields about 5%, trading at a small premium. The only snag I can see is a large spread, but the first dividend payment would compensate for that.
Anyone else looking at this one?

Yes I have recently bought some of this. Part of my portfolio reboot into ITs.

Dividend history last 5 years, through Covid: 4.88p, 5.04p, 5.21p, 5.30p, 5.45p

Parky wrote:I am having another look at this Trust (formerly BMO UK High Income BHI) which has fallen to a nearly 13% discount. It's mainly in FTSE100/FTSE250 companies and yielding an amazing 6.8% , compared to the more well known Merchants (MRCH) which is invested similarly and yields about 5%, trading at a small premium. The only snag I can see is a large spread, but the first dividend payment would compensate for that.
Anyone else looking at this one?

Thanks for that. Was it a originally a Foreign and Colonial IT?

It's worth a quick read of the annual report to understand some of what is going on under the covers.

The IT (not unlike many others) uses both covered call options to print additional income and draws on borrowing facilities to cover its dividends.

See https://www.columbiathreadneedle.co.uk/ ... trust-plc/

34 holdings, its largest being BAT (7%ish), highest sector concentrations split fairly evenly between Financials and Consumer Goods/Services.

moorfield wrote:It's worth a quick read of the annual report to understand some of what is going on under the covers.

The IT (not unlike many others) uses both covered call options to print additional income and draws on borrowing facilities to cover its dividends.

See https://www.columbiathreadneedle.co.uk/ ... trust-plc/

34 holdings, its largest being BAT (7%ish), highest sector concentrations split fairly evenly between Financials and Consumer Goods/Services.

I have just looked at the last five years performance against Law Debenture and Merchants. Both of which trounced CHI for total return. LWDB and MRCH have provided a decent enough income and have grown the capital too. CHI looks to me like another case of sacrificing total return at the cost of income resulting in a nasty loss of capital at CHI. There's no free lunches when it comes to generating income. Despite what some might have us believe.

BullDog wrote:
I have just looked at the last five years performance against Law Debenture and Merchants. Both of which trounced CHI for total return. LWDB and MRCH have provided a decent enough income and have grown the capital too. CHI looks to me like another case of sacrificing total return at the cost of income resulting in a nasty loss of capital at CHI. There's no free lunches when it comes to generating income. Despite what some might have us believe.

Quite so, although LWDB and MRCH presumably are holding/reinvesting more of their dividend income than CHI does ?

moorfield wrote:

BullDog wrote:
I have just looked at the last five years performance against Law Debenture and Merchants. Both of which trounced CHI for total return. LWDB and MRCH have provided a decent enough income and have grown the capital too. CHI looks to me like another case of sacrificing total return at the cost of income resulting in a nasty loss of capital at CHI. There's no free lunches when it comes to generating income. Despite what some might have us believe.

Quite so, although LWDB and MRCH presumably are holding/reinvesting more of their dividend income than CHI does ?

I don't know. But the outcome is obvious to me. After the sweet tasting sugar rush of a high yield comes the depressing low of a loss of capital. I really don't want to pay trust msngers a fee to effectively turn my capital into income and pay it back to me. Of course, others think differently and that's just fine and dandy.

BullDog wrote:Thanks for that. Was it a originally a Foreign and Colonial IT?

Yes and no. FCIT was separate but was also owned by BMO and is now owned by CT.

BullDog wrote:

moorfield wrote:

BullDog wrote:
After the sweet tasting sugar rush of a high yield comes the depressing low of a loss of capital. I really don't want to pay trust msngers a fee to effectively turn my capital into income and pay it back to me. Of course, others think differently and that's just fine and dandy.

CHI paid part of it's dividends in the year ending 31st March, like many other trusts, from revenue reserves, but not from capital, as far as I can see from the annual report.
One hopes that with the price dropping and the NAV rising that the discount will revert to the mean (only a short term view of course, but it's impossible to see very far ahead at the moment i.e tomorrow ). Nevertheless, I take your point about total return.