ZingPowZing v bowlhead challenge

beamyup

Some fair points above. Except my knowledge is not low. I do understand.

Recently they have been propping up their dividends with reserves.
Last year's approx 33p per share dividend was approx 1p natural and 32p propped up from reserves. That kind of action is made to show yet another dividend growth and to reduce the volatility that would be caused by a cut in the dividends.

Most investors (maybe not including those clever people on this forum) are completely unaware of the risks and think that the positive return each year is pretty much guaranteed.

If the premium is cut down to 0 above nav (which could easily happen in a downturn) this would be a significant reduction in share price (maybe 7%?) on top of any falls caused by the underlying investments and the reduction in value due to the approx 3.9% pa in charges.

cloud_dog

beamyup wrote: »

Recently they have been propping up their dividends with reserves.
Last year's approx 33p per share dividend was approx 1p natural and 32p propped up from reserves. That kind of action is made to show yet another dividend growth and to reduce the volatility that would be caused by a cut in the dividends.

But, that is one of the reasons for holding an IT, over an OIEC for example, they have the ability to retain income and 'smooth' distribution over good / bad years.

beamyup wrote: »

Most investors (maybe not including those clever people on this forum) are completely unaware of the risks and think that the positive return each year is pretty much guaranteed.

It is generally acepted that ITs can (and do) carry higher risks due to the potential for increased leverage but I think your comment should be more reasonable associated with all investments over the last 10 / 11 years, a lot of people just assume the good time will continue to roll.

DairyQueen

cloud_dog wrote: »

But, that is one of the reasons for holding an IT, over an OIEC for example, they have the ability to retain income and 'smooth' distribution over good / bad years.

Beaten to the post by cloud_dog

bowlhead99

beamyup wrote: »

Some fair points above. Except my knowledge is not low. I do understand.

Recently they have been propping up their dividends with reserves.
Last year's approx 33p per share dividend was approx 1p natural and 32p propped up from reserves. That kind of action is made to show yet another dividend growth and to reduce the volatility that would be caused by a cut in the dividends.

Per the HMRC tax rules for qualification as an investment trust, ITs only need to pay out 85% of their natural income; investors recognise that dividends from investment trusts are likely to be smoothed.

In 2017, looking at both capital and income together, they had 142p of earnings per share; in 2018, only 17p; in first six months of 2019, 158p. So, paying an annual 32p or 33p dividend to put some of those earnings into the hands of their investors seems fine to me.

Note the EPS was low - but positive - for calendar year 2018, after all management fees, operating costs, transactions costs, borrowing costs, performance fees paid by the vehicles into which they invest, etc etc.

Whereas looking broadly across the funds management industry, the "IA Mixed Asset 20-60% shares" sector lost 5.1% and the "IA Mixed Asset 40-85% shares" sector lost 6.1%. If you look at the Vanguard Lifestrategy 80, or 60, or 40 products (mixed asset funds popular with passive investors) they all lost a few percent for 2018 (though still paid dividends).

Most investors (maybe not including those clever people on this forum) are completely unaware of the risks and think that the positive return each year is pretty much guaranteed.

You are right that the clever people on this forum are likely better-informed than the average man on the street.

But most investors are not so naive as to think positive returns are guaranteed each year, because 'investments can go down as well as up' is something we can all remember hearing since we were five years old in TV and radio advertisements for financial products. We have heard it as often as we have heard 'your home is at risk if you do not keep up repayments'. Based on such warnings, I have known not to expect only-positive returns since I was in primary school, well before I knew what an investment or a mortgage was. There is no magic solution which removes risk.

If the premium is cut down to 0 above nav (which could easily happen in a downturn) this would be a significant reduction in share price (maybe 7%?) on top of any falls caused by the underlying investments and the reduction in value due to the approx 3.9% pa in charges.

Yes, it is on a premium, and I suggested in a previous post that some of the premium exists due to it being a diversified product which has attractions in times of market uncertainty. If the sky starts falling in, people may look for shelter in a well-managed diversified investment trust which is known to sometimes do better than rivals in negative markets, and the premium may not erode to the extent you expect.

I would prefer to buy it at a discount or nil premium, but haven't been able to do that since before 2015.

The 'reduction in value due to the approx 3.9%pa in charges' did not seem to harm it too much in calendar year 2018 when it made a positive return despite the charges while many other equities-only and mixed asset funds lost money.

You will be aware from the accounts that a large part of the charges over and above the management fees and basic operating costs comes from performance fees or carried interest on the underlying investments they make. Unlike some, I am not entirely averse to fees for outperformance of targets as long as there is a suitable hurdle rate, high watermark etc. A feature of such fees is that if the investments which might attract the fees are going down in value, the fees generally do not get charged. Likewise, most of the fees for borrowing costs are contingent on money being borrowed, and RIT may decide not to borrow if they feel a downturn is ahead or worsening.

So if you are describing a 'downturn' situation, perhaps it is disingenuous to say that they would be paying 3.9% of fees.

atush

DairyQueen wrote: »

Note that one of the primary objectives of RIT is "to deliver long-term capital growth, while preserving shareholders’ capital". The management charges have not impeded that objective. This trust doesn't aim to maximise growth. It aims to preserve the real value of capital over the long-term. Slow-and-steady is the maxim I would apply. The average annual share price return over the last three decades exceeds 12%.

Historically, this trust has performed well (against relevant indices) across all types of market conditions. Given that we are entering a turbulent market period I suspect that BH has chosen this as an each-way bet against market falls over the short term.

I invested for precisely that reason.

I use it for the capital preservation part of our Sipps.

beamyup

I've been trying to work out the risk exposure to the strength of the pound for RIT. Does anyone have a good analysis? Do they hedge? I see only 5% is UK exposure but 56% GBP exposure.

bowlhead99

beamyup wrote: »

I've been trying to work out the risk exposure to the strength of the pound for RIT. Does anyone have a good analysis? Do they hedge? I see only 5% is UK exposure but 56% GBP exposure.

The most recent accounts I linked are only the interim half-year ones so they don't have the full disclosure made in a set of annual financial statements. You could take a look at note 14 in the annuals (https://www.ritcap.com/sites/default/files/Annual%20Report%20December%202018.pdf) to get an idea.

AnotherJoe

I'd forgotten about this bet.
Currently I'm up in "raw" numbers 67% but currency adjusted, which is what counts 53%.

That is with each of my 4 shares taking up 25% the original portfolio.
One of them, Orsted though up 15% in Kroner, due to the rise of the pound vs DKK is flat.

(as it happened August was also a peak month for Orsted and it didnt recover until very recently)

The other three being in US dollars, have fallen about 10% over where they would have been. Pound was at a low when this was done, 1.21, its currently about 1.32.
So all the gains were due to Tesla, Apple and Google.I do hold all these shares. Didn't buy enough Tesla back in the summer unfortunately.

FWIW my "passive" SIPP entirely in 3 global trackers, is up 4% over the same period.
Again that is Sterling - Sterling, currency changes and broker charges included.

EDIT; Just realised i didnt account for dividends so add a few % on the four share portfolio.

SECOND EDIT Other portfolio 47.3% up (INRG,SMT,TSLA,SSON)


And the BH has too much money (BUR & WPCT/SUPP) option is ........ down 26%

[Deleted User]

Chapeau, AnotherJoe.

Tesla was a great shout.

Btw, how did your fund picks perform?
Burford Capital and, er, Woodford Patient Capital Trust?

How are those experts doing for you?

AnotherJoe

ZingPowZing wrote: »

Chapeau, AnotherJoe.

Tesla was a great shout.

Btw, how did your fund picks perform?
Burford Capital and, er, Woodford Patient Capital Trust?

How are those experts doing for you?

Well I posted that, down 26%. But I don't hold those, far from it, as you can see I called it the "Bh has too much money" portfolio and was making a friendly joke at bh's expense on the grounds he previously posted he bought these. (And he bought WPCT much higher than the 45 I posted here. 60 IIRC