Using income funds as part of growth strategy for pension portfolio
Comments
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bowlhead99 wrote: »I guess the question is whether it is better to buy something like that which has an affiliate run a specialist direct commercial property bit of the portfolio for them alongside the main equities bit.
Thanks for the customary detailed reply bowlhead. On the property front and the Value and Income Trust, I think I'm being overly swayed by their steady 29 successive years of increased dividends. All good and well, but on further reflection and further reading of their latest reports, the property element of the trust is probably too low of a proportion to offer a decent level of diversification.
With regard to more specialist property sub-sectors, as you said, that probably requires a more informed decision by me, so if anything I'm more inclined towards a generalist like Standard Life Investments Property Income Trust (SLI). Also, it's impossible (for me at least) to say what effect the post-Brexit outcome will have for commercial property, but SLI thinks they're well positioned with a bias to industrials and what they call both moderate and negligible exposure to City of London space (7% at the end of December), the City they feel will be most affected by the decision to leave the EU. So something like SLI might do the job.0 -
bowlhead99 wrote: »The phrase "even VLS funds have only 25% UK Equity" as if for you to imply that VLS funds are generically a low risk way of investing, is not something that makes sense to do, IMHO. As I mentioned in the earlier post, a couple of rival multi-asset funds with similar charges (L&G MI and Blackrock Consensus) have higher proportions of UK equity.
L&G MI is risk targeted while VLS is performance targeted in fixed ratios of holdings. You can see on the recent charts, VLS 60 and especially VLS 80 have had a very high relative recent performance in their mini league table of "mixed assets, 40-85% equities". Reasons for that include having a high overseas component within their equities, particularly US component, at a time where foreign markets performed quite well and sterling weakened significantly making the overseas holdings more valuable in pounds.
They have 75% of their equities overseas and the UK equities they hold are concentrated in companies with non-UK revenues. So, no wonder they are flying high in the charts when UK has a relative poor year. But something like a VLS80 with that exposure is relatively high risk. VLS80 has done almost 30% in a year and 40% in three. Funds performing like that do not necessarily fit with an 'average' risk profile.
Sure, many of us do hold that sort of ratio if it chimes with our risk appetite but if someone is not looking for that level of volatility (especially if they have hinted to us and perhaps their advisor that they are looking to hold lower levels of equities because they already have a separate pension crammed with smaller companies, emerging markets etc) it is easy to understand why the OP's advisor suggested higher exposure to domestic assets.
As I mentioned in an earlier post, yes half your equities domestic is pretty high, and many might put a greater proportion of them overseas.
However, the fact that one particular poster (MonroeM) - who only started looking into investments four months ago - is deliberately looking for a low exposure to the UK because of what she perceives as a "current climate of uncertainty" and as a result is targeting 15% home country equity is certainly not something that you can extrapolate and say that most IFA portfolios would only be 15-20% UK.
Generally if someone says they are concerned about a climate of uncertainty, they do not go and put a massive proportion of their money in a foreign country. So, she is perhaps tilting her portfolio out of naivety rather than you being able to infer that she is doing it out of insight borne of years of investing experience (we know she does not have much in the way of investing experience over the last few economic cycles - she has nil, having acquired her portfolio on divorce and only looked into it at the back end of last year). She has just read some things, agrees with them and is doing a low-UK equity plan, which might be the right thing to do or it might not.
This is not me being critical of MonroeM who has probably has learned a lot since being here about what she wants and how she might develop her knowledge and target her investments to create a solution that works for her.
It is just to add a counterpoint to your using her, or VLS, as an example of how an average person should create their portfolios, when you say that 15-20% UK equity is the sweet spot because 'even VLS is only 25% UK' and MonroeM prefers a low percentage so anything more is extremely high.
OK, the points you have made are all valid and it was nice of you to mention that I have 'probably learnt a lot' since coming on to the forum 4 months ago
Out of pure interest does anybody else on the forum currently have 41% in UK equities in their portfolio's?0 -
In the spirit of pure interest, I have around this level overall in a couple of my portfolios but it depends upon your objectives and mine are likely not the same as yours. They are income generating and by no means 100% equities. My growth investments have less UK equityOut of pure interest does anybody else on the forum currently have 41% in UK equities in their portfolio's?0 -
In the spirit of pure interest, I have around this level overall in a couple of my portfolios but it depends upon your objectives and mine are likely not the same as yours. They are income generating and by no means 100% equities. My growth investments have less UK equity
My S&S Isa' portfolio is 100% equities (mainly global) but it is a growth portfolio.0 -
I run separate natural income and growth portfolios. I have finally succeeded in decreasing the income portfolio to around 50% UK, but it's not easy because the UK must be the best market in the world for dividend income. The growth portfolio is around 15% UK, rather higher than the world index, because in the UK the behaviour of small companies and large companies is particularly different due to the large effect of the world market on UK large companies.0
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Out of pure interest does anybody else on the forum currently have 41% in UK equities in their portfolio's?
Not a chance, I've reduced mine to well under 10%, maybe it was 25% before, mostly as a result of Brexit. Of course it can be an interesting point as to what is a "UK Share" - I have a little bit of Vodafone in my income portfolio but is that "really" a UK equity? Same for BP and many other companies in the top of the FTSE100.0 -
I run separate natural income and growth portfolios. I have finally succeeded in decreasing the income portfolio to around 50% UK, but it's not easy because the UK must be the best market in the world for dividend income. The growth portfolio is around 15% UK, rather higher than the world index, because in the UK the behaviour of small companies and large companies is particularly different due to the large effect of the world market on UK large companies.
in my previous posts on this thread I should have made clear that I believe 15-20% in UK Equities is more than adequate for GROWTH portfolio's not income portfolio's.0 -
I'm looking at CQS New City High Yield (NCYF) and City Merchants High Yield (CMHY) in the UK Equity & Bond Income sector and Henderson Diversified Income (HDIV) and Invesco Perpetual Enhanced Income (IPE) in Global High Income sector.
Can any owners of the above confirm that the distributions of these 4 trusts are in the form of dividends as opposed to interest? It seems that the >60% bond holdings = interest rule either applies only to funds or doesn't apply in the above instances where they're domiciled in Jersey?
I note that HDIV is seeking to re-domicile to the UK but haven't been able to find anything that mentions whether the status of their distributions will change. Anybody know?0 -
You are right that the regime you're talking about is generally in place for UK funds. But these are Jersey based investment companies.Can any owners of the above confirm that the distributions of these 4 trusts are in the form of dividends as opposed to interest? It seems that the >60% bond holdings = interest rule either applies only to funds or doesn't apply in the above instances where they're domiciled in Jersey?
Under Jersey' s tax regime, they don't pay Jersey tax on their capital gains or on their interest income, so other than losing a bit of irrecoverable withholding tax at source on some of their foreign income from countries that don't have a tax treaty with Jersey, they will hopefully make a large amount of tax-efficient profit.
When they get to the end of their financial year, they will hopefully be able to afford to pay dividends out of their retained earnings, but to you that's a simple corporate dividend from an investment in their company. You pay your usual dividend tax rate on such dividends.
Their intention after the restructure/ redomiciliation is to operate under the "streaming" process where they pigeonhole their income sources and allocate expense categories appropriately, so that they can pay streams of "interest distributions" from one hand, qualifying for interest treatment to you as an investor, and from the other hand they can pay their remaining corporate profits as normal boring company dividends.I note that HDIV is seeking to re-domicile to the UK but haven't been able to find anything that mentions whether the status of their distributions will change. Anybody know?
If you look at the circular which talks about the redomiciliation process which they published this year, there's a whole section called "Taxation".0 -
bowlhead99 wrote: »If you look at the circular which talks about the redomiciliation process which they published this year, there's a whole section called "Taxation".
Brilliant, thanks bowlhead. I somehow managed to miss that HDIV circular:
https://az768132.vo.msecnd.net/documents/103804_2017_03_06_02_11_02_993.gzip.pdf
"The New Company is expected to designate a substantial proportion of its dividends as payments of interest for tax purposes."
That's the bit of detail I was after. There's a fair chance I'll qualify for all of the £5k 0% savings band next tax year and thereafter, whereas I'll have > £2k unwrapped divs next year (but less than £5k) but more importantly also > £2k unwrapped the year after. Goes against the grain but it's tempting to buy HDIV and the other bond 3 trusts unwrapped and use the ISA allowance for other intended dividend paying purchases and to wrap other existing holdings going forward. It's all down to earned income. Time to get the calculator out.0
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