Investment Trust Income Portfolio - year 2 review

[mickeypops]

This is a second year review of my Investment Trust Income portfolio, as of 31 July 2020. The objective at the outset was to provide income which helps to fund our retirement, which can keep pace with inflation, and to protect the capital value in real terms in the long term.

The initial report upon the portfolio's completion two years ago, and the year 1 review, are here:

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viewtopic.php?f=56&t=18816

The portfolio consists of 20 income focused ITs, consisting of:

4 UK equity trusts; Dunedin Income Growth, Merchants, Shires Income, Henderson High Income
5 International equity trusts: Murray International, Europeans Assets, Blackrock North American, Middlefield Canadian, Henderson Far East
2 Private Equity Trusts; Apax Global Alpha; Princess Private Equity
2 Bond/Deb trusts: Twentyfour Income, CQS New City High Yield
3 Property trusts: Standard Life Property, Real Estate Credit Investment; Regional Reit
4 Infrastructure based Trusts: Renewables Infrastructure, John Laing Environmental Assets, GCP Infrastructure, Sequioa Infrastructure.

I've rebased the portfolio's starting value to £100,000 for these reports, so all the figures below are pro rata to that amount. This is a buy and hold portfolio and there has been no trades since its inception. All income is removed and put to use.

Income

It's been quite a tumultuous few months hasn't it? Somewhat surprisingly though my income has held up despite the turmoil in the markets and the very sharp downturn in global economic activity caused by the pandemic.

The ITs have produced £5,781 in income, slightly up from last year's £5,743. So far, there have been no cancelled dividends and only one cutter - Princess Private Equity which halved its anticipated interim dividend. (PPE has actually pushed the payment of this dividend into early August for administrative reasons - this places the payment into my next financial year which would mess up the reporting, so I'm pretending it was paid in July as expected.) The yield therefore on the original capital is 5.78%

Clearly the advantages of ITs in terms of reserving earning from prior years to smooth out payments, plus perhaps the ability to use capital in some cases, has been in evidence here. I have seven dividends declared already for August and there are still no other cuts in evidence. I don't know how long this can continue, but I'm pleased with the consistent delivery of income thus far. In terms of supporting our retirement, we do have guaranteed income sources that keeps the wolf from the door, so the income produced here is the jam on our bread and butter. We have ample scope to cut our expenditure. In fact the lack of travel just now has had this precise effect.

Capital

Oh dear, not a pretty story here. The capital value has deteriorated by 16.4% since its start, having been up nearly 3% at the end of year one. The initial £100,000 is now worth £85,843. In comparison, the FTSE100 is down 22% over the two years. Worst impacted are the property trusts, down 30% on average. The equity trusts are down 14%. The infrastructure trusts are actually in profit; up 7.2% in total, the star being Renewables which is up about 25% over the two years. The only two other trusts in profit are John Laing Environmental Assets and Apax Global Alpha

I'm quite sanguine about all this. I have no intention of selling any assets for the foreseeable future and am quietly confident that the world will return to normal sometime and the portfolio's capital value will recover, eventually.

Thanks for reading. Comments etc. are very welcome.

MP

[JohnW]

Thanks, very informative.
I wonder if it would be good for me. I did a quick check of an alternative; so my check could be inaccurate and has a lot of rounding, and although I only tested one choice it is something chosen 'after the fact' - so open to fair criticism. As well, one year of return data doesn't mean much either.

How did 60% stocks, 40% bonds, both globally diversified in ETF's compare with your portfolio (last year only)?
Vanguard offers VWRL for stocks: if you'd taken its distributions out you'd have got approx 1.8% yield, with 4.76% growth in capital.
Vanguard offers VAGP for bonds: if you'd taken its distributions out you'd have got approx .32% yield, with 5.55% growth in capital.
Applying the 60/40 balance to the growth would have seen a capital growth for the year of 5.07%, which you could withdraw as living expenses; and yield of 1.2%.
So I could have taken 6.27% from that portfolio for the last year and it would have the same capital value that it started the year with.
Your portfolio could only take 5.8% without affecting the capital. That's a small enough difference to mean nothing over one year. But your capital is down 19% for the year. Not sure if that means anything if we haven't sold original capital.

[Dod101]

Thanks mickeypops.

It will be interesting to see how the portfolio continues to fare over the next couple of years when the effect of the dividend drought will be more evident although you seem to have a well spread portfolio.

Dod

[Rituximan]

Thanks – this is interesting. By the end of last year I had made up my mind to retire. Some of the funding for this was going to come from investing an inheritance in a basket of ITs - mainly income producing, but with the addition of a couple of growth ITs. Due to the general election, I had sat on the inheritance for a while but when the new year arrived, I had no more excuses to delay and by mid February I had made my investments, just in time to catch the full force of the COVID downturn. The ITs I bought were:

UK equity: Shires*
International equity trusts: North American Income, European Assets Trust, JP Morgan Asia Growth & Income, JP Morgan Japan Smaller Companies, and Utilico Emerging Markets**
Private equity: Standard Life Private Equity
Bond/debt: Twenty Four Select Monthly Income, CQS New City High Yield, Invesco Enhanced Income
Property: AEW UK REIT, Regional REIT
Infrastructure: GCP Infrastructure Investment Trust, HICL, Bluefield Solar Income, JLEN
Growth: Edinburgh Worldwide Trust, Scottish Mortgage Trust

*I hold various dividend-generating shares in a stocks and shares ISA, so I didn’t want to put too much into this area
**about this time last year, I used accumulated dividends in my Stocks and Shares ISA to buy into Murray International Income and Henderson Far East Income as my first foray into IT investing

In January, I told my employers that I wanted to retire, but they surprised me by asking me to stay on and consider going down to a three-day working week. After some consideration, I decided to try that and so haven’t needed the income from the basket of ITs. I have used the income received so far to top up a couple of holdings and to start a new one (Allianz Technology Trust). The capital value has declined by about 15% (probably a bit more if top ups were taken into account). The performance of Edinburgh Worldwide and Scottish Mortgage, and to a lesser extent Bluefield Solar Income, JLEN & HICL have helped to keep feelings of depression about my poor sense of timing at bay. It has also helped that the basket of ITs has fared better than my stocks and shares ISA, which is currently about 21% down in capital value.

[Charlottesquare]

Whilst possibly now being too late some of the property Reits/ITs that invest in logistics/supply chain warehousing have done fairly well as an alternative to the more traditional property companies/funds, and might be worth considering.

I have:

Aberdeen Standard European Logistics yielding 4.72% and a 25.8% gain since May,
Urban Logistics REIT with 2.5% yield (it was a tad higher when I bought) and a 18.85% gain since May
Warehouse REIT yielding 5.4% with a 17.98% gain since April (plus a May top up)

So whilst property has taken a hit a chase around more niche players may be worthwhile.

As I work in the property industry I was reading about the death knell of high street retail and leisure and shifts in likely office demand ( in light of home working) possibly slightly ahead of some, so it may be the upside has been already banked re these sorts of property plays, however a bad end to transition with the EU and an increasing demand for warehousing to support previous JIT supplies may add more impetus later in the year.