Income portfolio opinions

[NotSure]

In answer to my own question above, just found this: https://research.ftserussell.com/products/downloads/FTSE_UK_Equity_Income_Index_Ground_Rules.pdf

Looks like it takes (I would guess) about the the 40% higher yielders from FTSE350 based on forecast, not trailing yield. ITs etc. are excluded (edit: as are non dividend paying shares). It then weights by float adjusted market cap. So not quite as 'dogs of the FTSE' as iShares appears to be.

[mc2fool]

In answer to my own question above, just found this: https://research.ftserussell.com/products/downloads/FTSE_UK_Equity_Income_Index_Ground_Rules.pdf

Looks like it takes (I would guess) about the the 40% higher yielders from FTSE350 based on forecast, not trailing yield. ITs etc. are excluded (edit: as are non dividend paying shares). It then weights by float adjusted market cap. So not quite as 'dogs of the FTSE' as iShares appears to be.

Yes, I found that too, but curiously I can't find anything else about it on the FTSE Russell site, it's not even included in their lists of indices, which makes me wonder/suspect that it's a custom index made for Vanguard.

However, I gotta say, it looks a lot like the FTSE350HY index, just on forecast vs historic yields. As you say, it basically ranks the 350 by forecast yield, takes the highest "specified fixed percentile", which isn't specified anywhere in the document, and weights by mkt cap. The weighting and the higher number of stocks are the main differences from the FTSE UK Dividend+ Index used by IUKD.

[NotSure]

In answer to my own question above, just found this: https://research.ftserussell.com/products/downloads/FTSE_UK_Equity_Income_Index_Ground_Rules.pdf

Looks like it takes (I would guess) about the the 40% higher yielders from FTSE350 based on forecast, not trailing yield. ITs etc. are excluded (edit: as are non dividend paying shares). It then weights by float adjusted market cap. So not quite as 'dogs of the FTSE' as iShares appears to be.

Yes, I found that too, but curiously I can't find anything else about it on the FTSE Russell site, it's not even included in their lists of indices, which makes me wonder/suspect that it's a custom index made for Vanguard.

However, I gotta say, it looks a lot like the FTSE350HY index, just on forecast vs historic yields. As you say, it basically ranks the 350 by forecast yield, takes the highest "specified fixed percentile", which isn't specified anywhere in the document, and weights by mkt cap. The weighting and the higher number of stocks are the main differences from the FTSE UK Dividend+ Index used by IUKD.

I couldn't find anything last time I looked - hence the question. It should say the unspecified fixed percentile...... . If you look at the top ten or twenty shares by weight, looks much like a (TLF-style) HYP. It has a rather high turnover, but low OCF. I'm happy with my small allocation for now.

[Dod101]

I followed the fortunes of IUKD for several years. It's initial downfall was the high level of banks and financials leading up to 2008. It had 6 banks and 5 insurers, which included the banks:

Lloyds TSB
Alliance & Leicester
Bradford & Bingley
HSBC
Royal Bank of Scotland
Barclays

and as Insurers:

Brit Insurance
Jardine Lloyd Thompson
Legal & General
Royal Sun Alliance
Catlin

There were 9 retailers:

JJB Sports
Woolworth
DSG International
Kingfisher
Carpetright
Topps Tiles
Kesa Electricals
Halfords
HMV Group

They had 8 utilities:

United Utilities
Severn Trent
Drax
Northumbrian Water
Scottisn and Southern
National Grid
Pennon
Centrica

That is 28 out of 52 holdings. The number of changes in the portfolio at semi-annual reviews was enormous.

The methodology changed when the fund changed ownership, which helped a bit, but it never inspired confidence.

TJH

That could be called the unthinking man's portfolio (another expression could be the ignorant man's portfolio.)

Dod

[Alaric]

I'm wary of veering off topic, but does anyone know much about the Vanguard UK equity income fund? It is a tracker, but clearly a different index to the iShares as it has 116 holdings.
https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-uk-equity-income-index-fund-gbp-acc/overview

From your link

The Fund is a passive fund.
The Fund seeks to track the performance of the FTSE U.K. Equity Income Index (the “Index”).
The Index consists of common shares of companies listed on the London Stock Exchange’s main market, that are expected to pay dividends that generally are higher than average.
The Fund attempts to: 1. Track the performance of the Index by investing in all constituent shares of the Index in the same proportion as the Index. 2. Remain fully invested except in extraordinary market, political or similar conditions

From the factsheet about the index

The FTSE UK Equity Income Index comprises stocks that are characterized by higher than-
average dividend yields, and is based on the FTSE 350 Index, which is part of the FTSE UK
Index Series.
Real estate investment trusts (REITS) (ICB Sectors 8630 and 8670) and investment trusts (ICB
Subsector 8985) are removed from the index, as are stocks that are forecast to pay a zero
dividend over the next 12 months or have no forecast data available. The remaining stocks are
ranked by annual dividend yield and the top 50% (accounting for buffers) are included in the
index. The constituents are then weighted by float-adjusted market capitalisation.

The use of forecast data in the decision to include/exclude would appear to introduce an element of judgement into the index content.

[ukmtk]

I think Dod's description of IUKD fits my mindset having bought so much of it.

It seems that since March 2021 the index methodology IUKD has been changed to "reduce turnover" and "ensure consistency of constituents".

My rationale behind the portfolio was something that I could buy and hold to generate income.
Doing this instead of buying an annuity. I needed something that could provide an income for my wife that wouldn't be reduced if I died.
She is a few years younger than me and this impacts annuity rates.

I have avoided buying funds that attract "management/holding" charges (in my case 0.45%)
The Vanguard FTSE UK Equity Income Index is either accumulation or income (yield 5.49%).
So this would be reduced to just over 5% after deducting the management charge.

[PrefInvestor]

The OP has 3 commercial property holdings in his portfolio amounting to over 20% of the portfolio, a very significant sector exposure IMV. Commercial property is somewhat of a troubled sector ATM an effect which got started in the middle of this year and was accelerated by the fateful Truss/Kwarteng mini budget which caused a spike in gilt yields and interest rates on debt.

Quite a lot of share price damage has already occurred in this sector but I suspect NAVs to fall further with falling property valuations and for share prices to fall even from their current depressed levels myself. I am not familiar with two of the commercial property holdings API or CLI, however I have held RGL myself previously. RGL has opted to focus only on office type properties which I consider a highly questionable strategy in todays world of significant working from home, it’s dividend yield is very high (over 10% a red flag level in my opinion) and the dividend is not well covered. I fear that in the coming recession we may see tenants going bust and/or unable to pay their rents causing problems for commercial property companies who may then have to cut their dividends as happened during the pandemic – could be wrong as always !.

With so much damage already done I guess some might consider it too late to take any action wrt these commercial property holdings. But my view is that shares can always go lower and personally I would be taking a long hard look at these holdings, especially RGL, and consider swapping them for more solid income earning assets with better immediate growth potential ideally in different market sectors. Personally I particularly like the green infrastructure trusts for example which have solid yields and some are still trading at somewhat depressed levels following the windfall tax scare (the threat from which has now largely passed following the publication of the Electricity Price Levy IMHO). But that’s just my view and the OP should “do his own research” in selecting alternative investments.

ATB

Pref

[gnawsome]

The OP has 3 commercial property holdings in his portfolio amounting to over 20% of the portfolio, a very significant sector exposure IMV. Commercial property is somewhat of a troubled sector ATM an effect which got started in the middle of this year and was accelerated by the fateful Truss/Kwarteng mini budget which caused a spike in gilt yields and interest rates on debt.

Quite a lot of share price damage has already occurred in this sector but I suspect NAVs to fall further with falling property valuations and for share prices to fall even from their current depressed levels myself. I am not familiar with two of the commercial property holdings API or CLI, however I have held RGL myself previously. RGL has opted to focus only on office type properties which I consider a highly questionable strategy in todays world of significant working from home, it’s dividend yield is very high (over 10% a red flag level in my opinion) and the dividend is not well covered. I fear that in the coming recession we may see tenants going bust and/or unable to pay their rents causing problems for commercial property companies who may then have to cut their dividends as happened during the pandemic – could be wrong as always !.

With so much damage already done I guess some might consider it too late to take any action wrt these commercial property holdings. But my view is that shares can always go lower and personally I would be taking a long hard look at these holdings, especially RGL, and consider swapping them for more solid income earning assets with better immediate growth potential ideally in different market sectors. Personally I particularly like the green infrastructure trusts for example which have solid yields and some are still trading at somewhat depressed levels following the windfall tax scare (the threat from which has now largely passed following the publication of the Electricity Price Levy IMHO). But that’s just my view and the OP should “do his own research” in selecting alternative investments.

ATB

Pref

[/i]
Pref[/quote]

Hi Pref and thanks for that post, it touched a few nerves for me.
I'm more than a bit heavy on properties and am trying to decide on some further top-ups from maybe a shortlist of WHR,LXI,Ebox. I have several others including API but that is one I will stear well clear of with confidence shattered by the nonsense of the ABRDN name change.
WRT those that hold modern build warehousing I hold the view that new construction to compete/replace will be a lot more expensive and that demand will largely hold up. That's not to say the occupants will be able to always pay the rent.
My recent buy - SEIT (space for tech coys) is no better but it fits my mindset.
A year or three back I bought several IPOs residential related, all now underwater and likely to be further depressed by the mold attention but what to do -- 'who rides a tiger may never dismount'...

[Dod101]

The title talks about options. I have an income portfolio made up of 24 individual shareholdings of which 4 are investment trust. I also have 3 Bond funds which did very well for a long time but obviously recently have done very poorly in terms of capital but the income has held up well.

I make few changes to it and the overall yield is somewhere around 4.3%. I rely on this for income to live off because apart from my State Pension (which I do not use for day to day income purposes) I have no other income. It is not a HYP but is HYPish and works for me. That is an option worth considering. I have no retailers, no miners and no housebuilders and this year the income will be about 10% higher than 2021.

Dod

[88V8]

The title talks about options. I have an income portfolio made up of 24 individual shareholdings....

... which are?

Or is this like The Mousetrap... do we have to guess?

V8

[dealtn]

The title talks about options. I have an income portfolio made up of 24 individual shareholdings....

... which are?

Or is this like The Mousetrap... do we have to guess?

V8

What is your interest in other people's portfolios?

You asked about mine the other day in responding to a post on another thread. On providing details it generated no response or even a "thanks".

[ukmtk]

Many thanks for all the comments.
I like seeing what others are doing.

I decided to avoid single shares and funds as I have suffered because of these in the past.
This is why I prefer funds that invest a large number of companies - so that I can't suffer a large loss.

I haven't actually crystallised many losses over the years.
I just recently doubled my real loss by dumping HMCH at a 30% loss and switching the money to CLI.
Some of my buys have been influenced by the Telegraph's Questor column (e.g. CLI was a hold as it had dropped so much - that's why I bought it. It also invests in France & Germany as well as the UK). API & RGL were also from Questor.

The reason that RGL has an apparent yield of 10% is because its price has dropped so much.

The only bonds I hold are HDIV. These are my current major paper losses:

Code: Select all

API  -34%
HDIV -10%
HFEL -19%
IUKD -20%
RGL  -41%

I think that only IUKD will never recover what I paid for it.
The paper losses don't overly concern me.
The portfolio was only down 4% earlier in the year.
The portfolio is on track to generate 1/3 of my income when I retire in about 2 or 3 years (age 62/63).

[Dod101]

The reason that RGL has an apparent yield of 10% is because its price has dropped so much.

It either has a yield of 10% or not, there should be no 'apparent' to it. The use of 'apparent' sounds like a bit of kidology. So the yield of 10% is because the capital value has dropped a lot. The next question is why has that happened? Is it likely that there will be a dividend cut? That is the usual reason.

Are you happy with that or at least prepared to accept that?

Dod

[Alaric]

It either has a yield of 10% or not, there should be no 'apparent' to it. The use of 'apparent' sounds like a bit of kidology. So the yield of 10% is because the capital value has dropped a lot. The next question is why has that happened? Is it likely that there will be a dividend cut? That is the usual reason.

RGL is Regional REIT. The dividend history is
https://www.regionalreit.com/~/media/Fi ... 2-2022.pdf

It pays dividends as Property Income Distributions, so it is required to pay dividends to maintain REIT status. That doesn't preclude suspending dividends.

Presumably there's a belief some combination of tenants defaulting on rents, vacant property becoming difficult to let, market values of properties being deflated etc is spooking the market.

Looking at the HL chart, the share price has become disconnected from the NAV. Three years ago, pre COVID, they were about the same.
https://www.hl.co.uk/shares/shares-sear ... are-charts

[PrefInvestor]

Paper losses become real enough if you add forced into crystallising them for some reason or your losing holdings never recover. Personally I find the best way to make money is to not lose a big chunk of it in the first place. I use various techniques to minimise any losses incurred by my portfolio, which is also income oriented, yields about 6.5% per annum and is currently down ~0.6% calendar YTD (that’s capital + reinvested dividends).

ATB

Pref

[ukmtk]

The reason provided in the financial press that the property funds have been hit so badly is that they are being treated as proxy bond funds.
I suspect that the market has over reacted and that the values will eventually recover closer to their NAV. The funds have paid out dividends throughout Covid and so far this year. There is no indication that they won't continue to do so. I like property funds as they hold tangible assets that have some value.

[Bagger46]

The OP asks for opinions.

Well I think that this is not a solid portfolio to give a flow of income through decades of retirement, because it looks capable of doing that by paying a good part of that income from its own capital, as it has done so far.

I would sell the lot NOW, take the pain, and rebuild with the help of the contributors. Long term it would be well worth it.

However the OP seems defensive to me and happy about his choices, so fine, it is his money.


Bagger

[dealtn]

The reason that RGL has an apparent yield of 10% is because its price has dropped so much.

It either has a yield of 10% or not, there should be no 'apparent' to it. The use of 'apparent' sounds like a bit of kidology. So the yield of 10% is because the capital value has dropped a lot. The next question is why has that happened? Is it likely that there will be a dividend cut? That is the usual reason.

No. That is rarely the reason. It is often a consequence of the real reason though.

[Dod101]

The reason that RGL has an apparent yield of 10% is because its price has dropped so much.

It either has a yield of 10% or not, there should be no 'apparent' to it. The use of 'apparent' sounds like a bit of kidology. So the yield of 10% is because the capital value has dropped a lot. The next question is why has that happened? Is it likely that there will be a dividend cut? That is the usual reason.

No. That is rarely the reason. It is often a consequence of the real reason though.

I agree that with property companies you are probably correct but for many trading companies that is very often the reason.

Dod

[dealtn]

The reason that RGL has an apparent yield of 10% is because its price has dropped so much.

It either has a yield of 10% or not, there should be no 'apparent' to it. The use of 'apparent' sounds like a bit of kidology. So the yield of 10% is because the capital value has dropped a lot. The next question is why has that happened? Is it likely that there will be a dividend cut? That is the usual reason.

No. That is rarely the reason. It is often a consequence of the real reason though.

I agree that with property companies you are probably correct but for many trading companies that is very often the reason.

Dod

I strongly disagree.

Dividend payments are dependent on the cashflows of the underlying business. They are also under the control of Directors who are reluctant to cut them.

Having a belief that it is a dividend cut, or a predicted one, that results in a falling share price is the wrong way round. Dogs wag tails. Tails don't wag dogs.