Investment Trust Question

Croeso69

Apodemus said:

I have 13 ITs including MYI and CTY, but these are spread across growth, income and wealth preservation, with a couple of infrastructure ITs that are ultra-boring and will probably give a bond-like profile of reliable income but struggle to have capital values keep pace with inflation. 

Pah, I have 36 in my ISA which will increase to 38 when the new tax year starts. Some have done well, SAIN and BNKR, some badly, ASEI and ADIG. Not sure what to get next yet.

Building a portfolio that pays out regular monthly dividends to supplement my pension when I finally get the courage to retire.

Bravepants

Thanks for all your answers so far. I get the feeling then that there is no one answer!

In some cases a single IT would be fine to supplement other non-IT investments, others still consider diversity to be as important given the typical concentration of individual ITs in particular sectors.

I think the answer also depends on how one intends to use the ITs, for example, whether growth is equally important to the holder.

I guess the ultimate question I have to ask myself is whether just throwing £50k at a single IT for the better than 3% yield is what I really want to do.

BuildTheWall

Bravepants said:

Thanks for all your answers so far. I get the feeling then that there is no one answer!

In some cases a single IT would be fine to supplement other non-IT investments, others still consider diversity to be as important given the typical concentration of individual ITs in particular sectors.

I think the answer also depends on how one intends to use the ITs, for example, whether growth is equally important to the holder.

I guess the ultimate question I have to ask myself is whether just throwing £50k at a single IT for the better than 3% yield is what I really want to do.

As they say, don’t put all your eggs in one basket. 

At the same don’t add dozens of trusts - you are wasting money on dealing fees. 

Apodemus

Croeso69 said:

Apodemus said:

I have 13 ITs including MYI and CTY, but these are spread across growth, income and wealth preservation, with a couple of infrastructure ITs that are ultra-boring and will probably give a bond-like profile of reliable income but struggle to have capital values keep pace with inflation. 

Pah, I have 36 in my ISA which will increase to 38 when the new tax year starts...

I was just stating a fact to help respond to the OP's query... it's not a "willy-waving" contest!

ivormonee

I use ITs as a diversification vehicle if the asset class is not easily or suitably available using alternative options. As a good example, an IT is a way of holding direct property and acts as a useful diversifier in a portfolio.

Alexland

Bravepants said:

I think the answer also depends on how one intends to use the ITs, for example, whether growth is equally important to the holder.

If, in your example, you are looking to invest for 30+ years it's really worth considering the growth prospects of the underlying portfolio as there's no point paying a premium to NAV for a high dividend yield if the trust is going to generate poor or negative capital returns from the manager buying beaten up companies with poor prospects. Some of the recent failures such as PLI might have been due to a long period of the growth style doing better than value investing but unless you want to take a punt on which style will do better in future it might be better to take a more balanced approach of using a trust with lower yield but with a better mix of growth and value.

Bravepants

Alexland said:

Bravepants said:

I think the answer also depends on how one intends to use the ITs, for example, whether growth is equally important to the holder.

If, in your example, you are looking to invest for 30+ years it's really worth considering the growth prospects of the underlying portfolio as there's no point paying a premium to NAV for a high dividend yield if the trust is going to generate poor or negative capital returns from the manager buying beaten up companies with poor prospects. Some of the recent failures such as PLI might have been due to a long period of the growth style doing better than value investing but unless you want to take a punt on which style will do better in future it might be better to take a more balanced approach of using a trust with lower yield but with a better mix of growth and value.

PLI may have failed but PLI's shareholders did OK, right?

From: https://citywire.co.uk/investment-trust-insider/news/goodbye-perpetual-income-former-barnett-trust-folds-into-murray-income/a1427247

"Although Perpeutal [sic] Income investors largely welcomed the merger [with MUT], 2020 has been a tough year with their stakes slumping 31% up to October. This reduced their average return over 10 years to 4.9%, below the 5.75% of the FTSE All-Share index, according to Morningstar."

Average return over 10 years of 4.9% isn't bad considering I only need/want 3%. Horses for courses huh.

Alexland

Bravepants said:

PLI may have failed but PLI's shareholders did OK, right?

Yes it wasn't a total wipeout or anything and the discount reduced when it became clear the NAV was going to be incorporated into MUT but it's still not exactly a good result for the shareholders relative to the overall market performance. It was good news for MUT shareholders as we will benefit from greater liquidity, a broader apportionment of the board costs and lower average management charges as ASI have tiered charges so will only charge 0.25% on the extra assets and took a fee holiday to help with merger costs.

If you are only after 3% pa total return why take the risk of holding the more unbalanced portfolios found in trusts offering the 5% dividends? I am only looking for at least 2% total return above inflation so probably 1% more than you assuming inflation at 2%. Unless you are looking for 3% above inflation ie 5% so maybe less than PLI would have provided.

The nice thing about the UK market is that even the good companies are still relatively inexpensive so you are not paying through the nose for having some quality growth in the portfolio.