ISHARES PLC FTSE UK DIVIDEND (IUKD)

Ciprico

What are the communal experts views on this fund. I have held it for many years in ISA, and it has produced good dividends, but the price crashed in March, and being solely UK based, it hasn't recovered much since. I find it hard to see any good news on the UK horizon and very probably a weaker pound in the future.
If I apply the test "if I didn't own them would I buy them now?" my answer would be a resounding "no".
Maybe I have answered my own question. 
I have taken a sizeable hit (-40%) on them so reluctant to crystalise the loss as it possibly may be a recovery play, and on the whole I don't sell funds unless I see a very good reason to...
Should I dump them for a global tracker.

bowlhead99

123mat123 said:

If I apply the test "if I didn't own them would I buy them now?" my answer would be a resounding "no".
Maybe I have answered my own question. 

Presumably you hold this specialist UK fund as part of a broad portfolio of other specialist funds within the ISA, as it is not the sort of fund that's designed to be held on its own as an entire portfolio. If you didn't hold this one to get your UK stockmarket exposure, what would you have to give you exposure to the UK market instead?

Would you just be giving up on the idea of having any specific exposure to the UK, i.e. replacing this amount of money that was 100% UK-listed equity with a global equity fund that's only 5% UK, while still keeping all the other ex-UK funds you hold as well?   That does seem an extreme position to take.

I have taken a sizeable hit (-40%) on them so reluctant to crystalise the loss

You said you hold it in an ISA, so there are no tax consequences of selling it for a gain or a loss. You have already lost the money - today it is worth what it is worth, and that is a lower number than it was at the start of the year. So being stubborn and holding it when you don't want it, just so that you can pat yourself on the back and say you didn't 'crystallise the loss', seems silly.

as it possibly may be a recovery play

Lots of things may 'recover' by growing their value over time. Just because banks and oil companies and airline companies and pub companies etc are less valuable now than they were, causing the index to fall, doesn't necessarily mean that current UK dividend-focused stocks which would be held by this index will grow in value any faster than growth-focused stocks or international dividend or growth stocks.

 , and on the whole I don't sell funds unless I see a very good reason to...

Well, you explained your own 'very good reasons' to sell : you wouldn't buy it if you didn't have it, you don't want it as you don't see any good news on the horizon for the companies it holds, and you expect the pound to weaken.

Maybe it's worth pointing out on the currency side, a large proportion of the income of many of the companies making up large chunks of the index will come from outside the UK and not be denominated in pounds anyway - see for example in the index Evraz, Ferrexpo, Rio Tinto, Imperial Brands, BHP, BAT, Shell, BP, HSBC; just those 10 companies would make up almost 30% of the index and get nearly all of their income from outside the UK.  And of course you might be wrong about the currency - the pound could strengthen instead.

Personally, I wouldn't have been holding it anyway as I don't have a particular reason to hold a fund that focuses on the equity yield available from UK companies from time to time, as this would probably compromise my overall investment objectives unless I was also holding lots of other types of funds that generate returns in all the other different possible ways. If I did want to focus on UK equity income I would probably prefer it to be done by active management rather than allocating among the target companies by some index formula and skewing to certain high-payers. But if I did hold it because it was filling a particular niche in my strategy, it's not necessarily a no-brainer to sell it and replace it with a global tracker which has greater weighting to different types of companies in different parts of the world.  You don't say how much of your overall portfolio it represents, but moving from one extreme to another just after what you were holding has dropped in value by a lot, is not always a great choice.

If you are thinking of selling because the drop has focused your mind on what you want out of your portfolio, and realised that this is not the sort of fund that's useful to you, and consider there are better ways to achieve your objectives going forward from here - then fair enough, sell it. 

Whereas, if you are selling as a knee-jerk reaction because some other types of funds have gone up while this one has gone down, that doesn't seem particularly smart - there will always be funds that go up while others go down.  If it has gone down a lot while your other holdings have gone up much further in recent years then it has already reduced in weight compared to the rest of your portfolio, so perhaps there is no need to sell as it's not a large overall piece of the pie.

Linton

I love this ETF - it's the best example I know of that index funds do not necessarily provide the best option for investors with some level of safety from mid market performance not available from managed funds. It dropped 60% in the 2008 crash and with dividends reinvested recovered to its pre-crash level in 2013.  In the Covid crash it fell about 40% and is still below its pre-2008 value.  If you took the dividends, which is the only reason why any sane investor may consider this fund, you would have lost half your capital since 2007/8.
Simply basing your investments on the highest dividend payers without any human checking is total madness (IMHO).
Avoid.

dunstonh

I have taken a sizeable hit (-40%) on them so reluctant to crystalise the loss as it possibly may be a recovery play, and on the whole I don't sell funds unless I see a very good reason to...

How does it fit with your wider portoflio?   

If you portfolio is poorly set up then delaying the remedy will likely cost you more than waiting for recovery.  There is a good rule of thumb.  If you had the money today in cash, would you buy this fund?  If yes, then fair enough. if no, then why are you still in it?

A_T

Awful fund. It's a sort of FTSE100 ex Good Companies tracker - should such an index exist.

Ciprico

Ishares Div. accounts for about 5% of ISA (was about 10%), and is my only 100% UK fund. I was one of those who mostly sold out right at the begining of Covid (after the market had fallen around 4%), and bought heavily into SMT at more or less at the bottom and on the way up. The result is in pure £ terms I am slightly ahead where I would have been if I had done nothing at all, except I now have about 50% cash, a lot less in Vanguard trackers and probably too much in SMT. Currently I'm drip feeding into Bankers and more so into HSBC MSCI. I prefer cash over bonds, so now avoid VLS60/80, which was my preference.
The Ishares dividend fund stands out as biggest loser, and only investment never on an even slightly upward trajectory after holding for about 5 years.
Strategy ? None really, prepared to take on riskier investments (SMT ?), counterbalanced with holding cash. I apreciate I am too heavy in (US) tech, but don't see a viable alternative atm...

carry_on_saving2

Classic "should I sell low?" question. There's not much love for UK equity in the forum, so don't be swayed too much by the responses you'll get here. If you're thinking of swapping for a global or US fund that it literally the definition of buying high and selling low IMHO.
Here's my 2p on the matter, hopefully a bit of context too.
There's nothing wrong UK equity income as a sector because the dividends are so much higher than bond yields and global dividend yields, and of course we all want an income from our investments. But this particular etf was set up with a very strong focus towards high dividend yields and only dividend yields. Yhat said, the UK, and high dividend yielding stocks have done quite badly this last decade, much more so since COVID, so UK high dividend yield stocks have had a double whammy.
That could mean a value trap, it could be a buying opportunity. That's a matter of opinion.

With the UK, the general/normal/market cap weighted indices like the FTSE 100, 250 and All Share already have such high dividend yields (about 4.5% currently for 100 and all share, 3.5% for 250) compared to the general global markets 2.0%-2.5% that if you want to buy UK equity income you already plenty of income in a general UK index fund. The 100 and all share yields are comparable with the FTSE all world high dividend yield index, the global equivalent of your iShares etf.
A less extremely dividend focused alternative night be Vanguard's FTSE UK equity income index fund.

bowlhead99

123mat123 said:

Strategy ? None really

123mat123 said:

If I apply the test "if I didn't own them would I buy them now?" my answer would be a resounding "no".
Maybe I have answered my own question. 

123mat123 said:

I apreciate I am too heavy in (US) tech, but don't see a viable alternative atm...

123mat123 said:

Should I dump them for a global tracker.

Well, if you don't want it, it would make no sense for us to tell you that you should keep it, given you wouldn't buy it with your cash if you held cash instead of it... we can't say you should keep it because it fits with your strategy, because you don't have a strategy. 

And if you do want it, who are we to tell you that you shouldn't hold it or buy more of it - we can't say it doesn't fit with your strategy, because you don't have a strategy... and you have already identified that if you didn't have the money in this, your thought is to buy a global tracker. But a global tracker (such as iShares MSCI ACWI) is over 55% US, and about 30% information technology and communication, and you reckon you have already identified that you have too much in US tech.

I don't think you are going to get anyone telling you you should have more than 5% of your portfolio in this fund, especially if your portfolio is only 50% equities anyway because of your desire to hold 50% cash instead of bonds or other.  As previously mentioned, it's in an ISA so there are no tax or other consequences of selling it. Probably the best thing to do is to forget about the fact that you own it (and that you own some Scottish Mortgage, and some Bankers, and some HSBC, and a bunch of Vanguard trackers, and 50% cash), and imagine everything was sold and the money you were going to use for your investment portfolio was 100% in cash. 

Then, starting fresh, what should be in your portfolio to meet your objectives?  I doubt this particular fund has a place, but if you actually drew up a proper plan it is unlikely that the arbitrary historic allocations to HSBC developed world, SMT, BNKR, and a variety of Vanguard trackers, would coincidentally have the exact weighting that they currently have either. 

So, rip it up and come up with a plan. There is no point coming on here and giving us a thought experiment of solving one small problem of whether or not this fund should form part of your portfolio. The bigger issue is you do not know what should be in your overall portfolio, in what proportions, and why. So, looking at this 5% of it in isolation isn't very useful.

It's like saying you are going to create a pretty mosaic on the floor out of 1000 coloured tiles, and as part of the effort you have gone to the shop and bought 950 assorted tiles which are in a box, and also a bag of 50 red ones. The shopkeeper would accept all of them back and give you enough cash to replace them with any other combination of 1000 tiles. You are asking whether you should keep those 50 red ones, or take them back to the shop and exchange them for yellow, green, blue or perhaps a mixture?  The answer generally depends on what you want to create. If you don't have any sort of plan, then it's not inherently wrong to keep the red ones. But it would be better to imagine you had taken all 1000 of them back to the shop. Then work out some sort of a proper plan, and then go and buy the 1000 tiles you need in the proportion you want them to be.

A_T

Look at the value of your holding in this fund. If you didn't hold it and instead had the equivalent in cash would you use that cash to buy this fund tomorrow? You now have your answer.

bowlhead99

carry_on_saving2 said:

With the UK, the general/normal/market cap weighted indices like the FTSE 100, 250 and All Share already have such high dividend yields (about 4.5% currently for 100 and all share, 3.5% for 250) compared to the general global markets 2.0%-2.5% that if you want to buy UK equity income you already plenty of income in a general UK index fund. The 100 and all share yields are comparable with the FTSE all world high dividend yield index, the global equivalent of your iShares etf.
A less extremely dividend focused alternative night be Vanguard's FTSE UK equity income index fund.

I suppose the problem with going for the FTSE UK Equity Income via Vanguard instead of the FTSE UK Dividend+ Index via iShares, to get slightly less of a dividend focus, is that you actually end up with a more concentrated set of holdings at the top end - the Vanguard one has 45% of its money in its top ten holdings as of the most recent factsheet, while the iShares one only had about 35% on Friday and only about 33% at the end of last month, spreading the other 65-67% across the 'tail' of other holdings. In its approach of backing bigger, dividend-paying companies (rather than companies paying bigger dividends), the concentration of the Vanguard equity income product into just a few large corporates is heavier than for the FTSE-All Share in terms of the proportion of the money allocated to the top 10.

Generally more holdings can give you a more even spread across sectors and business styles, and beyond the top 10 holdings the Vanguard one does give exposure to a greater number of companies. On the face of it, more healthcare exposure (4.8% vs 1.6%)  sounds welcome, though when the iShares fund already has 15% allocated to raw materials, it's probably unnecessary to also increase that sector allocation by a third to 20% with the Vanguard product.

However when you look at the drivers of the sector allocation some of the differences are intuitive but others make a bit less sense, e.g. :

- The Vanguard fund has twice as much allocated to HSBC Holdings than the iShares fund, which is intuitive given HSBC have cancelled all dividends for this year so it wouldn't make sense for it to be in the top ten of a 'Dividend plus' fund. It's main reason for being in the Vanguard Equity Income fund top ten is simply that it exists and is large and it used to pay a dividend last year, while the iShares fund includes it at a much lower weight. 

-  If we look at healthcare, the iShares fund only has one holding, Glaxo, which gets a 1.6% allocation. The Vanguard fund has 4.8%, three times as much in the sector, so you might think it a bit more diversified at a glance. However, that extra sector allocation doesn't come from having more healthcare companies. They still have only one healthcare company, Glaxo, and simply invest three times as much into it. So while the iShares fund has 50 holdings with a little under a fiftieth of its money in Glaxo, the Vanguard fund has 100+ holdings with a little under a twentieth in Glaxo - a far bigger bet on Glaxo than just giving it a fiftieth or even a hundredth of the fund. 

While some people swear by using indexes to get a 'market' asset allocation with no scope for a human to mess it up with judgement calls, the idea of slavishly following the index for passive exposure to an 'income tilted' or 'extra dividend tilted' UK portfolio is a bit flawed given that two fund management companies have such different ways of allocating the money through the indexes that FTSE offer.

carry_on_saving2 said:

There's not much love for UK equity in the forum, so don't be swayed too much by the responses you'll get here. 

Generally I think there is not too much hate for UK equity either. The lack of love is just the fact that if you are a fan of investing through indexes, the FTSE 100 or All-share (whether a dividend-concentrated variant or not) is going to give you a relatively high allocation to a relatively small number of industries with a skew to certain sectors, due to the historic type of companies that dominate the top end of the UK stockmarket capitalisation,  while other sectors are conspicuous by their absence.   

The FTSE250 has fewer of the slow moving leviathans and a more even spread of exposure across other underlying sectors (due in part to having a bunch of investment trusts in there), as well as greater focus on the domestic market.  So if someone was looking for companies facing the UK economy - rather than simply UK-headquartered multinationals of the type that dominate the FTSE100 or All-Share and can already be found as part of a more diverse sectoral balance within other global indexes - then perhaps FTSE250 is a more useful product for OP to consider. 

Still, if they 'find it hard to see any good news on the UK horizon' and expect 'very probably a weaker pound in the future', a UK focused-index such as the 250 wouldn't align with their strategy. But the rationale to hold it would be, the mindset of people who don't expect a brilliant outcome is contributing to the lower prices that their shares currently command, therefore the shares might already be at a fair price, and no need to avoid them.

(welcome back, btw)

DireEmblem

I added IUKD as part of my ETF portfolio a couple months back, however its only worth 15%, and I plan to hold for the moment and reduce exposure by topping up others.

Not saying IUKD is a bad investment, as I see dividend stocks as very much unloved at the moment - so expect these to come back into fashion next year, but I want to increase my weighting in VWRP, as currently hold VWRP(65%), IUKD(15%), XDRT(10%), ESPO(5) and ECAR(5%).

Note this ETF collection is only 10% of my portfolio, and I would by no means recommend anyone else copy!