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  • FIRST POST
    • sorcerer
    • By sorcerer 9th Jan 18, 1:32 PM
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    sorcerer
    Woodford Equity Income
    • #1
    • 9th Jan 18, 1:32 PM
    Woodford Equity Income 9th Jan 18 at 1:32 PM
    So after holding Woodford Equity Income since the start I have decided to sell it and move on. Two reasons it poor dividend for this year and its poor performance.

    I am thinking of replacing it was Merchants Trust, and despite having to pay stamp duty on top, I think in the longer term it will hopefully be better. I will save about £22 a year in Platform fees, the dividend is nearly double of woodfords, and performance over the last year is about 14% ish, compared to woodfords 0% ish.

    With it being a trust, it can also hopefully grow the dividend each year, currently dividend growth is about 1.4% a year.

    What do you guys think?
Page 3
    • sorcerer
    • By sorcerer 10th Jan 18, 1:18 PM
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    sorcerer
    Why do you see growth as high risk and income as low risk? I donít think there is any correlation if you are measuring total return.
    Originally posted by coyrls
    Perhaps risk is not the right word, I am referring to volatility , off course any investment has risk. It's a case of how much volatility can my little brain cope with.
    • bostonerimus
    • By bostonerimus 10th Jan 18, 1:25 PM
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    bostonerimus
    I try to do both my Pensions are focused entirely on Growth stocks, with the view to try grow the money as fast as possible. However my ISA is focused entirely on Income, with the view to live off this money until the Pensions can kick in 10-15 years time.


    I realise this is not the "Normal" thing that people do, but it works for me from a psychological point of view. This balance gives me a 50/50 break between high risk investments and low risk investments, and a I wear different hats, so to speak depending if I am investing for my ISA or Pensions.
    Originally posted by sorcerer
    The 8% yielding product you once owned was probably pretty risky and I would not class either Woodford Equity Income or Merchant's Trust as low risk. In fact Merchant's Trust does not inspire me much.....high fees, poor returns over recent years. You would be buying at a discount, but I the trend has been for that to increase over the last few years.
    Misanthrope in search of similar for mutual loathing
    • bostonerimus
    • By bostonerimus 10th Jan 18, 1:26 PM
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    bostonerimus
    Perhaps risk is not the right word, I am referring to volatility , off course any investment has risk. It's a case of how much volatility can my little brain cope with.
    Originally posted by sorcerer
    Volatility ie standard deviation of price etc is used as a measure of risk
    Misanthrope in search of similar for mutual loathing
    • sorcerer
    • By sorcerer 10th Jan 18, 1:34 PM
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    sorcerer
    ok what I am thinking now instead of buying Merchants to go for MedicX instead, but only half of it, the other half I would spread across my other funds I already hold. I have followed them for a few years now, and I see their NAV premium has dropped a lot. So might be worth a bit of a punt.
    • bostonerimus
    • By bostonerimus 10th Jan 18, 3:10 PM
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    bostonerimus
    MedicX looks really risky. Very high Premium/discount range in the last year, it's certainly cheaper than it was last year, but a performance fee and ongoing charge of almost 4% and pretty terrible performance over the last 5 years scares me.
    Last edited by bostonerimus; 10-01-2018 at 3:37 PM.
    Misanthrope in search of similar for mutual loathing
    • TBC15
    • By TBC15 10th Jan 18, 3:35 PM
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    TBC15
    On going charge 4% :

    What do these people buy?
    • firestone
    • By firestone 10th Jan 18, 3:55 PM
    • 106 Posts
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    firestone
    MedicX looks really risky. Very high Premium/discount range in the last year, it's certainly cheaper than it was last year, but a performance fee and ongoing charge of almost 4% and pretty terrible performance over the last 5 years scares me.
    Originally posted by bostonerimus
    think it may be the yield that appeals to them
    • bostonerimus
    • By bostonerimus 10th Jan 18, 4:01 PM
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    bostonerimus
    think it may be the yield that appeals to them
    Originally posted by firestone
    If you like yield look at this US closed end fund, PHK, its 12.4%. I have a friend that bought it in September because the premium had fallen so much. I imagine there are similar things in the UK. Too exciting for me though.

    https://www.cefconnect.com/fund/PHK
    Misanthrope in search of similar for mutual loathing
    • firestone
    • By firestone 10th Jan 18, 4:08 PM
    • 106 Posts
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    firestone
    If you like yield look at this US closed end fund, PHK, its 12.4%. I have a friend that bought it in September because the premium had fallen so much. I imagine there are similar things in the UK. Too exciting for me though.

    https://www.cefconnect.com/fund/PHK
    Originally posted by bostonerimus
    think the premium may make them blink!
    • Linton
    • By Linton 10th Jan 18, 5:41 PM
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    Linton
    MedicX looks really risky. Very high Premium/discount range in the last year, it's certainly cheaper than it was last year, but a performance fee and ongoing charge of almost 4% and pretty terrible performance over the last 5 years scares me.
    Originally posted by bostonerimus
    Medicx owns property, it's a landlord. What do you think the charges should be? A property index tracker would be paying the same charges, just via one or two levels of indirection.

    For the same reason the NAV will behave oddly as properties arent continuously revalued.
    • bostonerimus
    • By bostonerimus 10th Jan 18, 6:01 PM
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    bostonerimus
    Medicx owns property, it's a landlord. What do you think the charges should be? A property index tracker would be paying the same charges, just via one or two levels of indirection.

    For the same reason the NAV will behave oddly as properties arent continuously revalued.
    Originally posted by Linton
    Sorry my US bias again. I'm use to US REITs with expenses of say 0.12% and no performance fee and wouldn't touch something with MedicX charges with a bargepole.....whatever the justification for those charges. The small number of rental properties and the fact that it' isn't a more diversified property fund would make me nervous. The recent performance of the fund shows that it isn't doing enough to over come its fees.
    Last edited by bostonerimus; 10-01-2018 at 6:10 PM.
    Misanthrope in search of similar for mutual loathing
    • Linton
    • By Linton 10th Jan 18, 6:04 PM
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    Linton
    Sorry my US bias again. I'm use to US REITs with expenses of say 0.12% and no performance fee and wouldn't touch something with MedicX charges with a bargepole.....whatever the justification for those charges.
    Originally posted by bostonerimus
    What is the 0.12% a % of? Surely you cant manage a set of mortgaged properties with a charge of 0.12% of the NAV.
    • JohnRo
    • By JohnRo 10th Jan 18, 6:37 PM
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    JohnRo
    What is the 0.12% a % of? Surely you cant manage a set of mortgaged properties with a charge of 0.12% of the NAV.
    Originally posted by Linton
    Expense ratio of 0.12% sounds like VNQ
    'We don't need to be smarter than the rest; we need to be more disciplined than the rest.' - WB
    • Linton
    • By Linton 10th Jan 18, 6:42 PM
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    Linton
    Expense ratio of 0.12% sounds like VNQ
    Originally posted by JohnRo
    But VNQ isnt a REIT, it doesnt own any properties. It's a fund of REITs.
    • bostonerimus
    • By bostonerimus 10th Jan 18, 9:27 PM
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    bostonerimus
    But VNQ isnt a REIT, it doesnt own any properties. It's a fund of REITs.
    Originally posted by Linton
    Surely you know by now that I'm an index investor, so VGSLX (a REIT index) would be how I'd fill the property segment. MedicX (or a US equivalent) wouldn't be on my radar. I don't see the rationale for the OP selling Woodford Equity Income and buying MedicX though.
    Misanthrope in search of similar for mutual loathing
    • Linton
    • By Linton 10th Jan 18, 9:48 PM
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    Linton
    Surely you know by now that I'm an index investor, so VGSLX (a REIT index) would be how I'd fill the property segment. MedicX (or a US equivalent) wouldn't be on my radar. I don't see the rationale for the OP selling Woodford Equity Income and buying MedicX though.
    Originally posted by bostonerimus
    Sure, but the point is that the Medicx charges may not be any different to the VNQ charges, we dont know. It's just that the the charges for running a set of properties arent included in the VNQ charges because they are covered by the operations of the constituent REITs. Running a set of properties is a lot more expensive than running a set of share holdings and you as an investor are paying for it somehow.

    But I agree that exchanging Woodford for Medicx is playing with totally different investments, it doesn't make much sense to sell one and buy the other.
    • bowlhead99
    • By bowlhead99 11th Jan 18, 1:18 AM
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    bowlhead99
    I agree of course that MedicX is nothing like Woodford. It's an income producing asset but a portfolio of UK medical facilities is not comparable to a portfolio of dividend-paying businesses across a wide swathe of industries with an international component. Hopping from one to the other as if they were comparable products seems somewhat strange, but each to their own and if it's only fun money or it achieves your objectives better, no harm done!

    However, in response to...
    MedicX looks really risky. Very high Premium/discount range in the last year, it's certainly cheaper than it was last year, but a performance fee and ongoing charge of almost 4% and pretty terrible performance over the last 5 years scares me.
    Originally posted by bostonerimus
    At a glance, the 'pretty terrible performance over the last 5 years' you're talking about seems to be a share price total return of 60% and a NAV total return of something like 82%. You might not like the swing in premium but anything over 10% annualised for five years seems difficult to dismiss as "pretty terrible performance over the last five years"

    Secondly, not sure where you got your "4% ongoing charges" from. The ongoing charges including direct property costs, published at the time of the September 2017 annual results, were a little over 2% of EPRA Nav. The expense ratio per the factsheet was running at about 0.9% of gross assets which is probably reasonable for investment vehicles with portfolios of their size and complexity.

    The reason for the discrepancy between expenditure as a ratio of gross assets (1%) and as a ratio of net assets (2%) is because it's highly geared and its gross assets are double the net assets. Obviously, holding a property portfolio that is about twice the size of your NAV you are going to have more management cost and other direct property cost as a proportion of that NAV than would be the case if you only had a smaller portfolio. But fortunately you are also going to have a lot more income and scope for gains than if you only had a much smaller portfolio.

    Whether it is wise to use gearing when building a portfolio of real estate or infrastructure assets such as a big pile of medical centres, is a question for another day, but the 1% of gross assets, 2% of net assets do not look surprising once you understand that they include direct property costs, and they are far from being the only REIT in the FTSE EPRA/ NAREIT index to use gearing in their structure.

    Sorry my US bias again. I'm use to US REITs with expenses of say 0.12% and no performance fee and wouldn't touch something with MedicX charges with a bargepole.....whatever the justification for those charges.
    Originally posted by bostonerimus
    That's a nonsense, because you're comparing apples to oranges. It's not the case that US REITs can typically buy, develop, manage and let out property with operating costs of an eighth of a percent of the value of that property.

    What *you* are doing is paying a fund manager your eighth of a percent to go and robotically buy some shares in companies, and then you are putting your head in the sand about how much money each year those companies spend on buying, developing, managing and letting out their properties.

    A tracker of global Real Estate Investment Trusts will buy up shares in a load of REITs. Those REITs will include property vehicles such as British Land who annually spend £90m to run a £9bn portfolio, or Boston Properties Group Inc who spend $100-200m to run a $20bn portfolio, or MedicX Fund Limited who spend £6m to run a £600m portfolio. As someone taking exposure to all those companies through a REIT tracker, you are exposed to their assets, costs and incomes.

    The 0.12% you pay to Vanguard for a US REITs index or the 0.22% you might pay to Blackrock for their global property securities tracker is a fee for helping you buy in to all the actual investment vehicles that hold the assets. It's a convenience fee - you are "paying to play" the game of allocating money down into property vehicles. It's easier to pay it than to construct your portfolio by hand yourself - buying lots of shares in the individual vehicles - so fair enough. But not a penny of that goes to running the investment vehicles. You've ignored the fact that year in year out, British Land and Boston Properties and MedicX are spending a percent of your asset value to manage all your properties for you.

    It's pretty disingenuous to say to someone who holds a direct REIT, "wow, the running costs of that portfolio of properties seems high, over in the USA I'm used to paying an eighth of a percent". Really your costs are probably a percent or more, you are just looking at the high level convenience fee for running the fund-of-REITs only and forgetting that the property businesses you hold through that fund are charging you every year.

    What Sorceror is doing is saying I am going to pay zero convenience fee for your 'fund-of-REITs' because I don't want someone to scatter my money across all the REITs in the world, I just want to buy the REITs I like. I will take exposure to their assets and their incomes and their costs. Whereas what Bostonerimus is doing is saying I do want to pay the convenience fee *on top of* taking exposure to the assets and incomes and costs of whatever my fund-of-REITs wants to hold for me.

    the small number of rental properties and the fact that it' isn't a more diversified property fund would make me nervous.
    Yes, that's a completely understandable concern and it is a very niche product, not designed to be a large part of ones portfolio. An investment vehicle with a few hundred million worth of geared investment in a niche segment is not at all comparable to buying into a fund that has exposure to companies with many billions of market capitalisation with some diversity across business sectors.

    There are others operating in a similar, though not identical, space - Primary Health Properties or Target Healthcare REIT for example would likely be on the radar of MedicX's shareholders. Not for widows and orphans despite being in a 'defensive /infrastructure-type' sector. You have to know what you're getting into.

    But to say "hmm, look at the fees and run a mile, wouldn't touch it with a bargepole mate, because of those fees that I haven't tried to understand", seems to miss the point. Many people are happy to enquire about the fees and then they can buy in once they understand what's offered, or walk away if they don't like it or still don't understand it. The trackers which hold MedicX certainly won't have tried to enquire about the fees or worry about whether it's 1% or 2% or 4% expense ratio - they will just blindly buy it because the index tells them they should.
    • sorcerer
    • By sorcerer 11th Jan 18, 9:00 AM
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    sorcerer
    Very interesting Bowlhead, I did in the end buy MedicX, read through the financials and a few other things. Interesting, I actually also own Target Healthcare and have done for a couple of years. MedicX will make up about 4% of the total portfolio. I try to make a mix of higher and lower yield investments, property counts for about 10% in totals across the portfolio, the rest is bonds, equities and things like Infrasture, renewable energy etc.


    I determined some risks with MedicX as being high gearing in a high interest rate world could be an issue, and Labour getting involved and bringing assets back into government control (although I think it's unlikely they can either afford it or will be willing to bring in everything).


    Because the dividend is not fully covered by income, their is also a danger that yield will drop. The hope is that when new income streams come online this can be covered.
    • sorcerer
    • By sorcerer 11th Jan 18, 9:07 AM
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    • 397 Thanks
    sorcerer
    Surely you know by now that I'm an index investor, so VGSLX (a REIT index) would be how I'd fill the property segment. MedicX (or a US equivalent) wouldn't be on my radar. I don't see the rationale for the OP selling Woodford Equity Income and buying MedicX though.
    Originally posted by bostonerimus


    The rationale comes in the form of reducing risk to UK Equities, I already own City of London and Schroder Income Max, Woodford's portfolio has many of the same shares, by buying MedicX it reduces exposure to UK Equities, and give me an alternative income stream. City of London has preformed much better and has produced a more stable income, and has a defensive aspects to it.
    • TheTracker
    • By TheTracker 11th Jan 18, 10:52 AM
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    TheTracker
    When I read threads like this I quietly despair that Iím tracking the effects of your ill informed ill judged and fundamentally random trades.
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