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Income Portfolio
Big boy
Posted: 18 June 2017 17:33:58(UTC)
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Do you know the portfolio yield and how exs are split so we can understand the dynamics of fund. We can then make better comparisons between each fund. Not sure but think the "ongoing charge" is 1.61% so they need portfolio yield of 4.61% if charges go to the revenue a/c.
john_r
Posted: 18 June 2017 21:15:36(UTC)
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Tyrion Lannister;47991 wrote:

....I did look at ITs but concluded that none of them were better than the above....

1Y 3Y 5Y Yld
Margetts Ardevora Inc 18.3, 28.3, 103.2, Yld 4.00%
Finsburyt Inc & Growth IT 33.1, 51.1, 147.5, Yld 1.88%

Source: Trustnet
2 users thanked john_r for this post.
Tyrion Lannister on 19/06/2017(UTC), dlp6666 on 26/06/2017(UTC)
Jon Snow
Posted: 18 June 2017 22:35:44(UTC)
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Tyrion,

I wouldn’t dismiss CTY, they’ve paid an increasing dividend for 50 years and have raised it by 4% pa over the last four years and have just increased the dividend by 6.1% (on an annualized basis!).

I was in a similar position to you (and at the time for the UK element of my pf) I went 50/50 CTY and Insight equity income booster (same concept as Schroder Maximiser). That was a good decision.

I looked at a lot of UK equity income and came to the conclusion they hold most of the same stuff apart from their pets (Royal Mail, Galliford etc etc) and the pets are the ones that determine under/over performance, so it’s just luck over a decent timespan. Or reversion to the mean, AKA you can’t beat the market.

I’m an income investor though, horses for courses as usual.



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Tyrion Lannister on 19/06/2017(UTC)
Mr Helpful
Posted: 19 June 2017 07:21:39(UTC)
#29

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Tyrion Lannister;47991 wrote:

1. I’m looking to invest £200K in income funds.

2. At present I’m going for 4 global funds and 6 UK funds into which I’d put £20K each:
These are all open ended funds, I did look at ITs but concluded that none of them were better than the above.

3. I don’t have any faith in the prospects for bonds in the near future. Also, I’m already investing in Vanguard Investment Grade Bond Index.

4. I’m aiming for an overall income of no less than 4% with a good total return.

I’d be grateful for any ideas or comments.


1. Stock valuations are IMHO generally expensive.
Has the phased investment of these funds over a period of time been considered?

2. There are a number of advantages to ITs over open-ended funds. See inter-alia John Baron's book.

3. Nor us. Nevertheless we do need 'dry powder', so are using short duration Gov't or Investment Grade plus Alternatives and Cash.

4. Good luck with that in today's environment !!!
3% to 3.6% yield is more realistic, with maybe some capital set-back impending.
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Tyrion Lannister on 19/06/2017(UTC)
King Lodos
Posted: 19 June 2017 07:52:49(UTC)
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Technically stocks and bonds are poised for an average of 1% real returns over the next 10-15 years, considering where valuations are .. Some markets are cheaper, but they may be that much more risky.

The problem with phasing an investment in (cost-averaging) is timescale .. How long do you need to do it to give you adequate time-diversification? If markets keep rising for the next 5 years, you'll have given up most the gains you could've had before the fall came – and making money is one of the best defences against losing money.

If you're only phasing in over 1 or 2 years, the chances of hitting the next crash are pretty remote (statistically) .. It might be a 5 years bear market, in which you'd hope to still be buying in 5 years time .. So either way, I think you should just figure out sensible asset allocations, and stick to them by rebalancing .. I wouldn't be more than 50% stocks with valuations this high myself – even perma-bull Warren Buffett's only 55% stocks (and not often above that).
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Tim D on 25/06/2017(UTC)
Richard Proctor
Posted: 19 June 2017 08:19:40(UTC)
#34

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KL

If you are only 50% stocks, but trying to target a particular return (or yield for income), then presumably this means that you are targeting a higher than average return with an attendant above average volatility with the equity component?

Out of interest, how does your non-equity component breakdown?

Thanks
Mr Helpful
Posted: 19 June 2017 10:24:17(UTC)
#32

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King Lodos;48047 wrote:

..... So either way, I think you should just figure out sensible asset allocations, and stick to them by rebalancing .. I wouldn't be more than 50% stocks with valuations this high myself .........


Suppose valuations were not so high; then what ?
Keith Cobby
Posted: 19 June 2017 11:13:40(UTC)
#36

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Valuations are on the high side if compared with historical figures However If interest rates remain low, and with global debts increasing inexorably, then valuations should be well supported. There may be corrections along the way but I can see the FTSE100 at 8,000 or slightly higher by Christmas.
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Mr Helpful on 19/06/2017(UTC), Mickey on 19/06/2017(UTC)
Suzie B
Posted: 19 June 2017 11:39:23(UTC)
#38

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I like some of the investment trusts for their ability to pay out dividends from reserves during a downturn eg city of London. Fluctuations in capital are less worrying when the income is consistent.
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Mr Helpful on 19/06/2017(UTC)
Mr Helpful
Posted: 19 June 2017 14:02:39(UTC)
#37

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Keith Cobby;48052 wrote:
Valuations are on the high side if compared with historical figures However If interest rates remain low, and with global debts increasing inexorably, then valuations should be well supported. There may be corrections along the way but I can see the FTSE100 at 8,000 or slightly higher by Christmas.


FTSE 100 at 8,000 is an upside potential of about 7% leaving PE1 at about 30 less interim earnings growth
(= Earnings Yield circa 3.3%, unless the earnings from Banks and so forth bounce back, which could happen!).

Worst case maybe, is a downside risk in the region of about 45% ?

Neither is a prediction bearing in mind that insightful advice
"It's Difficult to Make Predictions, Especially About the Future".

The least satisfactory outcome, for any investor poised to take advantage of Stock volatility, would be a flat market.
Mickey
Posted: 19 June 2017 14:42:55(UTC)
#39

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Suzie B;48054 wrote:
I like some of the investment trusts for their ability to pay out dividends from reserves during a downturn eg city of London. Fluctuations in capital are less worrying when the income is consistent.

This paying out of reserves worried me a little when Personal Assets decided to do this awhile back. However in their latest Newsletter they say that they have repaid the money taken from reserves in 2016 and the 2017 dividend is fully covered from earnings. https://www.patplc.co.uk/sites/default/files/documents/84.pdf
dyfed
Posted: 19 June 2017 15:39:33(UTC)
#40

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Mickey;48057 wrote:
Suzie B;48054 wrote:
I like some of the investment trusts for their ability to pay out dividends from reserves during a downturn eg city of London. Fluctuations in capital are less worrying when the income is consistent.

This paying out of reserves worried me a little when Personal Assets decided to do this awhile back. However in their latest Newsletter they say that they have repaid the money taken from reserves in 2016 and the 2017 dividend is fully covered from earnings. https://www.patplc.co.uk/sites/default/files/documents/84.pdf


I think that's what the reserves are there for, to cover the odd poorer year. So long as it doesn't become a habit....
King Lodos
Posted: 19 June 2017 16:11:45(UTC)
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Richard Proctor;48048 wrote:
KL

If you are only 50% stocks, but trying to target a particular return (or yield for income), then presumably this means that you are targeting a higher than average return with an attendant above average volatility with the equity component?

Out of interest, how does your non-equity component breakdown?

Thanks


I'd say I'm targeting absolute returns – but in principle it would be that I'm targeting higher volatility and returns with stocks.

Right now my stocks portfolio is 25% Emerging Mkts (with a Value tilt), 25% European Small and Micro-caps, 25% Private Equity and UK micro-caps, 25% regular areas of the market (US tech stocks and consumer staples).

I did a 40% return in stocks since June 2016 – with a high turnover .. Volatility's actually been very low – low enough that I could've had a much higher equities allocation .. A lot of it's psychological .. The investor most similar to me seems to be Michael Platt (of Bluecrest) who also hates losing money.

My favourite fund outside stocks has been GAM Star Credit Opportunities for a while .. But I do have a policy of selling down as soon as something starts to trail off in performance .. It's rare I'm still holding anything on a >5% loss (unless there's a really strong value case – I give Russia leeway), and I use a time-stop too, so anything going sideways gets sold down.

I also like RIT Capital Partners, Ruffer Total Return and (although the fee's high) Hawksmoor Vanbrugh – I'm a bit more buy-and-hold with them, and think of it as outsourcing part of my portfolio .. Otherwise quite a lot of short-duration bonds and loans .. I'm having a hard time deploying cash at the moment.



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Mike L on 20/06/2017(UTC), Guest on 22/06/2017(UTC)
King Lodos
Posted: 19 June 2017 16:22:10(UTC)
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Mr Helpful;48050 wrote:
King Lodos;48047 wrote:

..... So either way, I think you should just figure out sensible asset allocations, and stick to them by rebalancing .. I wouldn't be more than 50% stocks with valuations this high myself .........


Suppose valuations were not so high; then what ?


Personally, my asset allocations wouldn't change much, but I'd aim to hold less cash if valuations were more in line with historical averages.

It's difficult finding valuation-based tactical asset allocation models that really add value – the best I've found used CAPE relative to the risk-free rate (a combination of CAPE and the Fed Model) .. But I don't put huge stock in things I can't measure working over the short-term – because these rules are prone to change.

I know (as crazy as it seems) stocks could be very cheap today, if inflation and interest rates never really pick up – and predicting rates has proven to be a fool's game.

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Tyrion Lannister on 19/06/2017(UTC), Tim D on 25/06/2017(UTC)
Tyrion Lannister
Posted: 19 June 2017 16:32:36(UTC)
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Mr Helpful;48046 wrote:
Tyrion Lannister;47991 wrote:

1. I’m looking to invest £200K in income funds.

2. At present I’m going for 4 global funds and 6 UK funds into which I’d put £20K each:
These are all open ended funds, I did look at ITs but concluded that none of them were better than the above.

3. I don’t have any faith in the prospects for bonds in the near future. Also, I’m already investing in Vanguard Investment Grade Bond Index.

4. I’m aiming for an overall income of no less than 4% with a good total return.

I’d be grateful for any ideas or comments.


1. Stock valuations are IMHO generally expensive.
Has the phased investment of these funds over a period of time been considered?


2. There are a number of advantages to ITs over open-ended funds. See inter-alia John Baron's book.

3. Nor us. Nevertheless we do need 'dry powder', so are using short duration Gov't or Investment Grade plus Alternatives and Cash.

4. Good luck with that in today's environment !!!
3% to 3.6% yield is more realistic, with maybe some capital set-back impending.



This is a big part of my thinking just now and for sure I'll be phasing the investments.

Like a lot of people, I think that some sort of correction is inevitable, it's just a question of when. I'm going to keep 25% in cash whatever happens so I can take advantage of a future correction, also I'm intending to drip feed the money into whatever funds I go for. This is another reason I'm in favour of open-ended funds at present, trading in these is free with HL. I'm not sure I'll have the patience but my ideal is to drip feed over something like a 2 year period or until we get a significant correction.

What I haven't mentioned is that I'm also intending to invest an equivalent amount in growth, roughly 50/50 between ITs and OEICs, an equal mix of small/mid and large cap, of which about 30% would be UK.

Thanks to the many helpful comments on here, I've got a lot to think about.

The cash is from a pension transfer into an HL SIPP. As I don't expect the transfer to happen for at least a month so I do have time.
King Lodos
Posted: 19 June 2017 17:18:08(UTC)
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If you read Meb Faber's Global Asset Allocation, it really makes little difference to returns whether you're 70% stocks or 100%.

Whatever you gain by being 100% tends to be a trade off with more severe losses (as we know: a 50% loss requires a 100% return to get even; an 80% loss requires a 400% return, etc.). So keeping 25% cash is sensible.

But never wait for a correction .. It's a complete dice roll .. In 1990, stocks were historically expensive, yet the next 10 years saw one of the strongest bull markets in history .. Most of the time, stocks and bonds are correctly priced .. People aren't buying companies they're not expecting to make positive returns on (given all the information we have) .. They might be lower than average, but it takes something else to make stocks actually lose value.

Like tossing a coin, it doesn't matter how many heads you land in a row, it never changes the chance of getting a tails on your next flip.

The problem with low inflation and rates is, as long as the risk free rate is below 3%, any small drop in stocks tends to make them a buying opportunity (stocks on P/E 20 are still 5% earnings yields) .. If rates don't pick up, then it's going to take something that impacts earnings to make stocks fall .. And you just can't predict that – it doesn't get any more likely over time. It can happen when valuations are high, or when they're low. It's more a constant risk of being invested in stocks. Which means there's no mathematical reason to wait.
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Tyrion Lannister on 19/06/2017(UTC), Guest on 22/06/2017(UTC), Tim D on 25/06/2017(UTC)
Tyrion Lannister
Posted: 19 June 2017 18:07:30(UTC)
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john_r;48038 wrote:
Tyrion Lannister;47991 wrote:

....I did look at ITs but concluded that none of them were better than the above....

1Y 3Y 5Y Yld
Margetts Ardevora Inc 18.3, 28.3, 103.2, Yld 4.00%
Finsburyt Inc & Growth IT 33.1, 51.1, 147.5, Yld 1.88%

Source: Trustnet


I own Lindsell Train UK Equity, the Finsbury IT looks very similar to this so no point holding both. Would you agree?

I'm starting to rethink my whole portfolio thanks to comments on here, starting with a fundamental question - is thinking about growth and income separately the right way to go about portfolio construction?

My initial reasoning was that just taking the natural yield when I retire would be nice and easy, but that could be 10 years away.


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Joe Soap on 19/06/2017(UTC)
TJL
Posted: 19 June 2017 20:31:25(UTC)
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I am a complete amateur, but my investment strategy has always been about trying to increase our wealth - I don't care whether that comes from growth or income (it's all growth to me).
If I was wanting to make a contribution to this year's Isa allowance tomorrow, it would be into JEO or TRG (both of which I already hold), but I'm already 20% invested in Europe so that would be a bit (more) of a gamble (but I'm thinking about it).
Good luck with the decision making process - it's difficult.
Don't overthink it.
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Tyrion Lannister on 19/06/2017(UTC), Colin Deakins on 19/06/2017(UTC), Mickey on 20/06/2017(UTC), Jeff Liddiard on 20/06/2017(UTC), c brown on 27/06/2017(UTC)
Alan Selwood
Posted: 19 June 2017 21:22:04(UTC)
#43

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The way I see investing is to start with setting aside cash to meet your expected needs in terms of access to cash to meet bills and for contingencies. Then try to create a balance of risk v reward that you can live with financially and psychologically.
Then try to target total return from the longer term investments, with the income element aimed at a rise in income to keep up with or ahead of inflation.
If the total income generated is insufficient, weaken the total return mandate by seeking enough extra immediate income to meet your target.
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Mickey on 20/06/2017(UTC), john_r on 20/06/2017(UTC)
King Lodos
Posted: 19 June 2017 23:30:20(UTC)
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Tyrion Lannister;48067 wrote:
I'm starting to rethink my whole portfolio thanks to comments on here, starting with a fundamental question - is thinking about growth and income separately the right way to go about portfolio construction?

My initial reasoning was that just taking the natural yield when I retire would be nice and easy, but that could be 10 years away.


I really like the idea of income – but I tend to think (and I think Terry Smith mostly agrees) that it's a bit of an illusion.

Dividends are earnings a company's paying out rather than reinvesting .. So arguably it makes more sense to focus on those earnings (or how much a company can make by reinvesting those earnings), and take an income from capital.

There are arguments that most companies don't reinvest money as efficiently as if they just paid out dividends instead .. That may also be true .. In Smith's case, he's focusing on companies that can reinvest at a high rate of return – so whether it comes from dividends or not, he's maximising his total return .. My own concern would be that in a world of stretched valuations, having a yield target may limit what a fund manager can invest in, and may leave you overexposed to a bit of a potential bubble.
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john_r on 20/06/2017(UTC), Guest on 22/06/2017(UTC)
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