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Comparing Income and Growth Strategies

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
tjh290633
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Comparing Income and Growth Strategies

#311569

Postby tjh290633 » May 23rd, 2020, 7:12 pm

In post viewtopic.php?p=310802#p310802

MrFoolish wrote:
tjh290633 wrote::
There is nothing wrong with having two or more portfolios side by side. It's like having a Growth Fund and an Income fund, both as accumulation units. You can then tell which is the better bet after a decent time has elapsed.
TJH



Let me know when you have the answer :D

I was unable to respond because the thread was locked. This may be a good place to comment on what is essentailly a Total Return topic.

Back in the 1970s my main vehicle for investment was Unit Trusts. I had a number running on monthly subcription plans, plus the odd lump sum purchase. At that time there were much higher yields available from Commodity trusts of one sort or another, compared with the less specific trusts aiming for growth plus some income. My first investment was in the then Investment Trust Units (ITU), and began in 1959 with a £3 per month subscription. In 1969 I took out a unit-linked life assurance plan with Prudential, investing £5 per month in their then Prutrust units (PRU). In 1970 I bought a block of Ebor Capital Accumulator fund (ECA) and a block of Ebor Commodity units (ECU), now JP Morgan Natural Resources. These were followed in 1971 by blocks of Jessel Plantations & General Trust (JPG), Jascot Commodity Units (JCU) and Jascot Compound Fund (JCF - Which had a philosophy not unlike that of the HYP or High Yield Portfolio well known on these boards). The latter was a block purchase, followed by a monthly subscription plan in their accumulation units.

I don't have all the calculations available, as it was a pen and ink job in those days, and there was the matter of tax on distributions. Yields that I have noted include 3.82% for ITU, 3.15% on PRU, 2.41% on ECA, 7.45% for ECU, 9.65% for JPG, 10.50% for JCU and 5.61% for JCF. Those yields were gross (pre-tax) on the purchase price. Note that all distributions were reinvested in the same units.

By late 1973 I had decided to dump ECA, as it was an obvious laggard, and invested in some shares of my then employer, Babcock & Wilcox. In 1975 I bought a block of M&G Dividend Fund (MGD), yielding 10.52%. Meanwhile Jessel had sold out to Slater Walker, and in 1976 the Plantations & General fund was merged with their Commodity share trust (SWCST). In 1977 I need some cash for a deposit on a house, in advance of our current house being sold, so ITU, JCU (by now taken over by Arbuthnot) and JCF income units (Likewise taken over) were sold to provide the wherewithal. ITU realised about 45% more than their cost after 17 years, JCU 105% more after 6 years and JCF about 40% more after 6 years.

We now roll on to 1984, when I became computerised. JCF had become Arbuthnot High Income, (AHI) and the value was now about 65% above the total invested and reinvested.Slater Walker had gone to Britannia, and the now BCU was up about 75% on the original cost. MGD was now 121% above the original cost. PRU was almost double its cost. ECU was now S&PCU, and was about 85% of cost, i.e. down 15%.

in 1987 I started moving into a PEP, Arbuthnot had gone to Royal Trust as RTHI, PRU was now Holborn Equity Trust (HET). Now RTHI was up 134%, M&G was up just 2%, but I had done a Bread & Breakfast, so in fact it was up nearly 8-fold, SPCU was up 107% and HET was up 201%.

I see that I sold RTHI in 1989 and it was about 200% above the cost. The PRU/HET policy matured in 1997, and gave me an XIRR of 12.5% over nearly 29 years. That is just on the net premiums paid, because I got LAPR. The rest continue to this day. MGD has given me an XIRR of 7.9% over 55 years, but I withdrew dividends until 1994, then moved it into a PEP and reinvested until 2005, so complications there. JPMNR has given me profit on 4 occasions, which I used to top up my PEP or ISA, in 1993, 2002, 2004 and 2007 and the XIRR is 10.82%. Distributions effectively ceased in 1995.

Yields in 1998 were MGD +3.39%, SPCU was zero and HET was 1.35%. My 19-strong HYP PEP was yielding 2.25%. Move on to 2002 and the yields were: MGD 5.5%, JPMNR 1.13% and my PEP 4.02%. The HYP has given an XIRR of 8.85% over 33 years, having been up to 13% at times in the past.

You cannot draw any firm conclusions from these figures, except to say that things vary with time. I decided that the funds which gave me better returns were those paying higher distributions, and concentrated my efforts that way. The only pure growth fund was the PRU/HET, which had a tax advantage. I paid less than £5 per month because of LAPR and invested £5 each month. Reinvested distributions were approximately 6 times the premiums paid in teh last year before maturity, which shows the power of compounding.

TJH

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Re: Comparing Income and Growth Strategies

#311591

Postby dealtn » May 23rd, 2020, 8:10 pm

tjh290633 wrote:. Reinvested distributions were approximately 6 times the premiums paid in teh last year before maturity, which shows the power of compounding.



Good for you. Before my time, and I don't invest via investment vehicles, so don't recognise the history or names, but interesting.

All I would say, in case it isn't clear, is that compounding also works with earnings not distributed via dividends, but retained earnings invested within a company. (I appreciate you are talking about collective investments and the relative distribution made by them.)

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Re: Comparing Income and Growth Strategies

#311594

Postby Lootman » May 23rd, 2020, 8:19 pm

dealtn wrote:
tjh290633 wrote:. Reinvested distributions were approximately 6 times the premiums paid in teh last year before maturity, which shows the power of compounding.

Before my time, and I don't invest via investment vehicles, so don't recognise the history or names, but interesting.

I didn't start investing until the 1980s, when I also started working in the business. I was not allowed to trade individual shares for compliance reasons, and so started out with funds. First open-ended, then investment trusts.

TJH's post reminded me of how many fund names back then are gone and, in my case anyway, forgotten. A few I recall from back then are M&G, Save and Prosper, Touche Remnant, Kleinwort Benson, Warburg/Mercury, Fleming, Perpetual. As far as i know they all still exist in some form, but merged into other entities. A few from back then still exist such as Schroder and Fidelity.

And my jobs often went the same way. I was with BZW for a while, which ended up as BGI, then Blackrock. Whilst my time at Paine Webber morphed into UBS. A fund manager i worked for was taken over by Dresdner Bank. And so on.

The fund industry is subject to more consolidation than almost any other. The fund manager CEO I knew the best was far more interested in doing deals than managing money.

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Re: Comparing Income and Growth Strategies

#311597

Postby MrFoolish » May 23rd, 2020, 8:32 pm

Thanks for your answer, tjh.

I started out investing with an M&G Managed Growth unit trust PEP. But I noticed their Managed Income trust was giving a better total return so I switched to that.

I also noticed M&G's best fund by far was their Recovery trust, but it had a 5% initial charge, so I never bought into it.

Longer term, who knows. I've done all sorts of random things since, often buying bombed out shares to follow the recovery theme. It gives wildly interesting results - but it's not for those who fear volatility!

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Re: Comparing Income and Growth Strategies

#311601

Postby MrFoolish » May 23rd, 2020, 8:37 pm

Lootman wrote:The fund industry is subject to more consolidation than almost any other. The fund manager CEO I knew the best was far more interested in doing deals than managing money.


I've been wondering about buying a UK fund manager for the possibility of them being bought out by a US company. Any views on the best candidate?

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Re: Comparing Income and Growth Strategies

#311605

Postby Lootman » May 23rd, 2020, 8:47 pm

MrFoolish wrote:
Lootman wrote:The fund industry is subject to more consolidation than almost any other. The fund manager CEO I knew the best was far more interested in doing deals than managing money.

I've been wondering about buying a UK fund manager for the possibility of them being bought out by a US company. Any views on the best candidate?

I think it is a bit late for that game. In any event many fund managers are privately held. Even giants like Vanguard and Fidelity are private. Baillie Gifford is a partnership, etc. So difficult to invest in. It's primarily an insiders' game.

LTI provides an entry into Linsdell Train managers and I hold that in the hope that they decide to cash in at some point.

Schroders is probably the most investable UK fund manager in my view.

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Re: Comparing Income and Growth Strategies

#311606

Postby MrFoolish » May 23rd, 2020, 8:53 pm

Lootman wrote:Schroders is probably the most investable UK fund manager in my view.


Thanks, I'd been wondering about Schroders.

I hold Legal & General, who do unit trusts. Do you think they could be a takeover target?

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Re: Comparing Income and Growth Strategies

#311607

Postby Lootman » May 23rd, 2020, 8:55 pm

MrFoolish wrote:
Lootman wrote:Schroders is probably the most investable UK fund manager in my view.

Thanks, I'd been wondering about Schroders.

I hold Legal & General, who do unit trusts. Do you think they could be a takeover target?

I do not follow insurance shares and do not own any, sorry.

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Re: Comparing Income and Growth Strategies

#311611

Postby Alaric » May 23rd, 2020, 9:11 pm

MrFoolish wrote:I hold Legal & General, who do unit trusts. Do you think they could be a takeover target?


Legal & General are also very big in annuities, so in the insurance sector as well.

For purer specialist fund managers there's M&G, newly demerged from the Pru. and also Aberdeen Standard who have only retained the fund management parts of the old Standard Life.

Fund management is a business where the barriers to entry aren't so great as to prevent start ups with a limited number of employees. Woodford was one of the more recent if unsuccessful. Fundsmith is also quite small in staff terms.

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Re: Comparing Income and Growth Strategies

#311615

Postby MrFoolish » May 23rd, 2020, 9:27 pm

Alaric wrote:Fund management is a business where the barriers to entry aren't so great as to prevent start ups with a limited number of employees. Woodford was one of the more recent if unsuccessful. Fundsmith is also quite small in staff terms.


But presumably it must be hard to ramp up their customer numbers? Which is why I wonder if they'll buy out their competitors.

I've never understood why the major UK banks don't do more fund management. They could then flog these funds to their customers, could they not?

In the past, I've bought funds (and done sharedealing) using schemes from banks - but they always seemed to be an afterthought, barely promoted.

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Re: Comparing Income and Growth Strategies

#311616

Postby Alaric » May 23rd, 2020, 9:33 pm

MrFoolish wrote:I've never understood why the major UK banks don't do more fund management. They could then flog these funds to their customers, could they not?


For a while, they were very big or attempting to be. I think they ran into at least two problems. The first was the conflict between having in house funds and also independent platforms. The second was the likely scope for mis-selling by under-trained or inexperienced bank staff.

LLoyds Bank bought Scottish Widows. Nat West owned Gartmore for a while.

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Re: Comparing Income and Growth Strategies

#311618

Postby Lootman » May 23rd, 2020, 9:34 pm

MrFoolish wrote:I've never understood why the major UK banks don't do more fund management. They could then flog these funds to their customers, could they not?

No good fund manager would want to work for a large high street bank because the pay would be bound by bank rules. In fact banks are glorified over-regulated utilities at this point. Which is why they are lousy investments.

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Re: Comparing Income and Growth Strategies

#311622

Postby MrFoolish » May 23rd, 2020, 9:46 pm

Alaric wrote:The second was the likely scope for mis-selling by under-trained or inexperienced bank staff.


I can well believe this. Can't remember the details but many years ago an HSBC staff member allowed me to open a stocks and shares ISA and a separate cash ISA, saying they were the same scheme. But it turned out this wasn't allowed and the whole thing became a big mess.


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