Income portfolio research + ideas

sixpence. · 18 March 2018 at 4:07PM

Hello hello

I am currently selecting some funds for an income portfolio ( looking 4% income + also some growth) and have done some research to draw up a list of how to chose them in a way that is informed, rather than slapdash.

Note: I already have a growth portfolio, built around a VLS 60 that is weighted to the UK as well as finance and tech sectors.

Please let me know if you have anything to add or detract from this list. The points are in no particular order:

1. There managers are the biggest shareholders
2. They are cheap: look for funds with low fees
3. Manager has a good reputation
4. Good morning Star rating/Trust.net rating
5. Look at past performance (taking into account that past returns do not indicate future success)
6. Managers who look for cash generative companies with strong balance sheets.

Some further questions:

Does the trust.net rating actually matter that much? I am interested in a fund at the moment (Blackrock listed below) but it only has a one crown rating. Should I run a mile?
Does anyone have any experience working with an IFA? I'm with Hargreaves and am thinking of using this service.

My current portfolio idea:

25% BlackRock Global Multi Asset Income
25% Jupiter Asian Income (Inc)
50% Kames Diversified Monthly Income

I will be starting out with a 15-20k investment (I then intend to invest 15-20k yearly for the next 5-7 years or so). These funds need to be looked into more by me, but would still appreciate any opinions from folks on here.

Thanks

dunstonh · 18 March 2018 at 4:14PM

What strategy are you using to meet your withdrawal requirements?

yield, growth with withdrawals, cash account covering 18 months, hybrid strategy, timesplit (short/medium/long)......

What tax wrappers are you intending to use?

<snip straight to following>

I will be starting out with a 15-20k investment.

In which case, multi-asset makes sense and forget the rest until you build up a larger amount where running a bespoke portfolio may make more sense. No point building a portfolio with just £20k.

sixpence. · 18 March 2018 at 4:42PM

- Looking for 4% income through yield. Will reinvest on years when I don't need the income.
- This will be invested in an ISA (it doesn't make sense for me to use a SIPP right now)
- Just edited OP to say that I want to invest 15-20k yearly after that.

Thanks for the reply

ColdIron · 18 March 2018 at 5:01PM

4% on £20,000 would be £800 or about £66 per month, hardly seems worth it to me at your age. If I was in your position I would put £19,000 into your VLS and use the remainder as 'income' if it's important

sixpence. · 18 March 2018 at 6:43PM

Okay guyssss I want to have an income and a growth portfolio. I have my own reasons for this (prefer not to go into them) but I totally understand that when one is young growth is a good idea

Now with all that in mind. Who wants to respond to my OP? :j

bostonerimus · 18 March 2018 at 7:25PM

If you're familiar with VLS60 already why change horses. Just take a total return approach to income generation.

Linton · 18 March 2018 at 8:42PM

sixpence. wrote: »

I am currently selecting some funds for an income portfolio ( looking 4% income + also some growth) and have done some research to draw up a list of how to chose them in a way that is informed, rather than slapdash.

....
Please let me know if you have anything to add or detract from this list. The points are in no particular order:

1. Th[STRIKE]ere[/STRIKE]eir managers are the biggest shareholders

irrelevent,

2. They are cheap: look for funds with low fees

Tie-breaker

3. Manager has a good reputation

Irrelevent

4. Good morning Star rating/Trust.net rating

Marginal, perhaps tie-breaker

5. Look at past performance (taking into account that past returns do not indicate future success)

If you are after income, past yield is important, overall performance fairly important

6. Managers who look for cash generative companies with strong balance sheets.

Yes
+
7. Diversification - overall portfolio should have income from as many different sources as possible, geographic, sector, asset type (eg bond vs equity vs property)

Some further questions:

Does the trust.net rating actually matter that much? I am interested in a fund at the moment (Blackrock listed below) but it only has a one crown rating. Should I run a mile?

Marginal tie breaker.

My current portfolio idea:

25% BlackRock Global Multi Asset Income
25% Jupiter Asian Income (Inc)
50% Kames Diversified Monthly Income

I will be starting out with a 15-20k investment (I then intend to invest 15-20k yearly for the next 5-7 years or so). These funds need to be looked into more by me, but would still appreciate any opinions from folks on here.

Thanks

Decent income comes from:
Equity: UK, Europe, Far East
Bonds: Global Corporate bonds, EM bonds
Property etc: Direct property funds
Infrastructure funds

Have you got all these covered?

sixpence. · 19 March 2018 at 1:56PM

bostonerimus wrote: »

If you're familiar with VLS60 already why change horses. Just take a total return approach to income generation.

- I have this in my growth portfolio and my portfolio is weighted towards UK, tech and finance sector
- therefore I want to weight this income portfolio to different sectors (such as property) and also include more US/Europe/Asia
- If there was a single multi-asset fund that was as trustworthy as the VLS range I would probably just use it though because I am not so enamoured with doing research

Thanks a lot Linton - I will add those to my list and use them!

The Blackrock funds has quite high fees and only a one crown rating on trust.net so not sure if I should be put off. There don't seem to be many income based funds that aren't weighted heavily towards the UK.

Looking for a mix of income and growth here (with a 4% yield)

:j

bowlhead99 · 19 March 2018 at 2:32PM

sixpence. wrote: »

- If there was a single multi-asset fund that was as trustworthy as the VLS range I would probably just use it though because I am not so enamoured with doing research

VLS has only been in existence for a few years so the idea that nothing's as trustworthy as VLS seems a bit far fetched. Maybe the reason you haven't found anything else has something to do with your distaste for research ?

The Blackrock funds has quite high fees and only a one crown rating on trust.net so not sure if I should be put off.

Although you don't like research - if you're going to use crown ratings or star ratings to guide your investment choices you should maybe first research what they mean, how you get stars and what data feeds into them.

Stars and crowns are quite biased to recent data and if you are looking for finds that are "trusted" you should be considering long track records so you can consider how they have fared through peaks and troughs of the market cycle. We have had pretty limited 'troughs' in the last three, five or seven years.

There don't seem to be many income based funds that aren't weighted heavily towards the UK

For a variety of reasons the UK indexes have higher yields than the global average, and fund managers offering income-focussed funds to UK investors (where those investors are often going to be in the decumulation rather than accumulation phase of their investment lives) are quite likely to use some "home bias" in both seeking the income and reducing the currency risk.

Granted it might not be what you want, but it's what many would traditionally be happy with, so you can't blame them for it. The customer's always right.

Looking for a mix of income and growth here (with a 4% yield)

So it's an income portfolio as distinct from your growth portfolio but you do still want both income and growth from it?

If you demand 4% yield there is not much room left for growth (unless we get lots more inflation). As you probably know, the natural yield of an average big balanced bag of global assets with a mix of income and growth, is below 4%.

username12345678 · 19 March 2018 at 3:16PM

For a variety of reasons the UK indexes have higher yields than the global average, and fund managers offering income-focussed funds to UK investors (where those investors are often going to be in the decumulation rather than accumulation phase of their investment lives) are quite likely to use some "home bias" in both seeking the income and reducing the currency risk.

Granted it might not be what you want, but it's what many would traditionally be happy with, so you can't blame them for it. The customer's always right.

I had this discussion with my DFM a few months ago after I x-ray'd the multiple UK Eq Inc funds that were sat in my portfolio. The same shares were popping up repeatedly and the concentration of risk was a bit concerning.

His accepted the point but said the reasoning was that (income aside) their UK investors (generally) liked to see lot of recognisable names.

Also, when I looked at the WMA guidance for portfolio construction it showed my DFM had almost slavishly followed their guidance which I would charitably assume was in the interests of best practice rather than a backside covering exercise.

I've had the chance to look at a few different DFM portfolios in the £1m-£3m range and they are definitely a mixed bag especially in fixed interest where some managers are totally avoiding bond funds and using higher dividend payers as a proxy it seems.

grey_gym_sock · 19 March 2018 at 5:04PM

sixpence. wrote: »

-- If there was a single multi-asset fund that was as trustworthy as the VLS range I would probably just use it though because I am not so enamoured with doing research

what about the L&G multi-index income range of funds? (not to be confused with the L&G multi-index range, which is mentioned more often on this board.)

it has a choice of 3 risk levels: 4, 5 or 6. each of them yields 3.4% or 3.5%, so not quite your 4% target, but close.

see
https://www.trustnet.com/factsheets/o/mqfx/lg-multi-index-income-4-i-inc
https://www.trustnet.com/factsheets/o/mqge/lg-multi-index-income-5-i-inc
https://www.trustnet.com/factsheets/o/mqgl/lg-multi-index-income-6-i-inc

Income portfolio research + ideas

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