Investment Trust Income Portfolio - Year 4 review

[mickeypops]

This is the fourth annual review of my real life Investment Trust Income portfolio, as of month end July 2022. The objective at the outset was to provide income which helps to support our retirement which can keep pace with inflation, and to preserve the real capital value over the long term.

My wife and I retired in May 2018. We'd been building this portfolio in our SIPPs with Hargreaves Lansdown for some years, and it was completed in July 2018 upon the transfers-in from DC funds from our final employers. For reporting purposes I use close of business 31/07/2018 as the cut off point.

This income supplements income from guaranteed sources, i.e. legacy DB pensions and the State Pension and it is about 45% of our total income. I think of it it as an annuity substitute, accepting the trade off between lack of guarantee versus the prospect of retaining and growing the capital.

The portfolio consists of 20 income focused ITs, diversified across markets and themes, 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/Debt trusts: Twentyfour Income, CQS New City High Yield
3 Property trusts: Abrdn Property,Income Trust (formerly Standard Life,) 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 (not necessarily spent.)

The initial investments weren't quite evenly balanced: the equity trusts were a little overweight so as to achieve a 60/40 equity/others balance.

Income



This portfolio is first and foremost an income generator, and to be fair, it has done a decent job of providing a consistent and growing supply of cash through what has been an extraordinary and challenging period for markets. This year, there has been a couple of minor dividend cuts (GCP, Twentyfour income) but some decent gains from Apax, European Assets and others. Inflation, regrettably, is running ahead of the income growth, but I suspect very few income strategies have kept pace with this year's unusual leap in RPI. Of the 20 trusts, 18 pay out quarterly and 2 bi-annually, making 76 payments into the SIPP accounts annually. Not a single payment has ever been missed in the four year history of the portfolio's completion.

I believe there is evidence here of the suitability of such a portfolio of Investment Trusts for income in retirement and I am quietly pleased with its performance. Four years is not a lengthy period for such an opinion to be formed, but considering the turmoil we've been through...

Capital

Code: Select all

Inv Trust Income Portfolio | Capital  | Year on Year | From Start
Start (31.07.2018)         | £100,000 |              |           
Year 1 (to 31.07.2019      | £102,712 |         2.7% |       2.7%
Year 2 (to 31.07.2020)     |  £85,843 |       -16.4% |     -14.2%
Year 3 (to 31.07.2021)     | £103,081 |        20.1% |       3.1%
Year 4 (to 31.07.2022)     |  £99,817 |        -3.2% |      -0.2%
                         


The capital value of the portfolio has fallen 3.2% this year, to leave it almost exactly where it started. in an environment of accelerating inflation, this is not a good result, but considering the economic, political and societal shocks we have endured, perhaps this is not as bad as it could have been. I don't think expect many portfolios have made significant capital growth over the last four years. I don't do benchmarks, but the FTSE100 is down 6% over the life of the portfolio.

This year (to end of July) the worst performers have been European Assets, Seqouia Infrastructure, Apax Global Alpha, and Regional REIT. The best performers were John Laing Environmental Assets, Middlefield Canadian, Blackrock North American, Murray International.

Over the entire four year life cycle, the worst performers are Henderson Far East, Seqouia, Regional REIT and European Assets. The best gains have come from The Renewables Infrastructure Trust, Middlefield, Apax Global, Blackrock North American and John Laing Env. Assets.

I have detailed records of all the data, so will be happy to ask any questions.

Cheers

MP

[monabri]

Capital more or less unchanged & 23% returned in dividends....less stress than some other income methods.

[Shelford]

A helpful list, and a good summary of why investment trusts make sense for those who are doing it themselves. 20 ITs is ample.

[moorfield]

A great read mickeypops thankyou.

[Itsallaguess]

• This is a buy and hold portfolio and there has been no trades since its inception.

• Not a single payment has ever been missed in the four year history of the portfolio's completion.

• I believe there is evidence here of the suitability of such a portfolio of Investment Trusts for income in retirement and I am quietly pleased with its performance.

A great review, and the above points reiterate again how suitable such a broadly-diversified, income-IT based portfolio can be for those of us who are looking for a minimum-fuss income-delivery strategy.

Cheers,

Itsallaguess

[mickeypops]

Thanks everyone

Itsallaguess - I started this before your regular and very helpful extracts from the AIC. It’s comforting to see that all my picks pretty much feature in your lists each month. I made my selections from a mix of the John Baron website, Money Observer mag, and the AIC website.

[forrado]

I don't do benchmarks, but the FTSE100 is down 6% over the life of the portfolio.

Neither do I having chosen to go down the dividend income route. Rather, I focus on hanging onto inflation. Which I find is easier to do on the capital side than it is on the income side.

While I have no observations to make on the portfolio mix, other than it looks sound. 20 holdings are a shade too many for my taste. In all my years of fund investing I’ve never gone above 12. That’s about as much as I can stay on top of, when it comes to all the reports I’m obliged to read and analyse, while still doing other of life’s ‘things’ that need doing.

This portfolio is first and foremost an income generator, and to be fair, it has done a decent job of providing a consistent and growing supply of cash through what has been an extraordinary and challenging period for markets.

Yes, I’ve also noticed how well income sources, and in particular equity income, have held up.

Four years is not a lengthy period for such an opinion to be formed, but considering the turmoil we've been through...

Stick at it, it does work out over market cycles, even though it can often be pedestrian.

[Dumbo]

Dear MP,

"This is a buy and hold portfolio and there has been no trades since its inception."

I am amazed at your discipline. Don't think I could go more than a year without tinkering with the Portfolio.

Good luck.

Eddie

[mickeypops]

Dear MP,

"This is a buy and hold portfolio and there has been no trades since its inception."

I am amazed at your discipline. Don't think I could go more than a year without tinkering with the Portfolio.

Good luck.

Eddie

I spent a long time selecting these ITs. I would only be tempted to switch investments if the income strategy - or dividend payment delivery changed for some reason. In the absence of which, I’m just hanging on in for the ride kind of like a HYP.

[ADrunkenMarcus]

Year-on-year nominal dividend growth is anaemic. However that is no mean accomplishment in the current times! It is doing what it was set up to do. Thanks for sharing.

Best wishes


Mark.

[Myfyr]

I posted on another thread that I have 42 investment trusts in my ISA - and not in homage to the Hitchhiker’s Guide to the Galaxy.

I do wonder if it would be better to replace with VHYL and, say, another 4 similar ETFs with different investment companies for simplicity.

I am half way replacing investment trusts with ETFs in my SIPP - going for a total returns approach with VWRL and IWRD amongst others.

[rhys]

Myfyr,
The only disadvantage that I see, is that the global ETFs are invariably biased towards USA. THat may be an advantage, given its consistent gains over years, but perhaps it's not what is desired for income from across the globe.

Taking VHYL:
United States 43.6%
Japan 8.2%
United Kingdom 8.1%
Switzerland 4.7%
Canada 4.5%
Australia 4.0%
France 3.1%
Germany 3.0%
China 2.8%
Taiwan 2.2%
Korea 1.8%
Brazil 1.3%

Furthermore, there's sector bias.
Financials 24.8%
Consumer Staples 12.1%
Health Care 11.3%
Energy 10.2% 10.3%
Industrials 10.0%
Consumer Discretionary
Technology 6.5%
Utilities 5.9%
Basic Materials 5.7%
Telecommunications 4.8%
Real Estate 1.0%

Personally, I'm overweight on VUSA and IUSA to split between Vanguard and iShares. Also spread across three brokers. And spouse.
30 yrs ago I was all UK focussed. What a bad idea that was.

[1nvest]

Reinvesting your dividends and I see great similarity in total returns to VT (Total World, with data sourced from PV and £/$ data sourced from FRED) BUT with the exception of 2019/2020 (end of July years) where your total return of -11% is distinctly different to VT's +5% gain.

Set that exception to equal the other and the broader four year total return lines near-as perfectly overlay each other. Would be interesting to identify the cause of that exception.

[Charlottesquare]

If they are all roughly equal weight not sure I would want 15% (3 out of 20) in property, but that is probably just me.

[mickeypops]

If they are all roughly equal weight not sure I would want 15% (3 out of 20) in property, but that is probably just me.

With hindsight, I tend to agree!