10 Investment Trusts for £100k SIPP pot?

philng

Looking to bring 3 of wife DC pension pots into a SIPP to enable a slow drawdown. I have done similar myself when I opened a Fidelity SIPP which holds 5 x Investment Trusts on which I pay just £45 a year in charges to manage.

Interested in any ideas for Investment Trusts? This is a small part of our overall finances & I do have a few ideas of my own such as Law Debenture/Henderson Smaller Companies.

I am always more attracted by low charges hence I currently hold Scottish Mortgage and Bankers which have both done well for me but just interested in any other possible ideas?

squirrelpie

https://moneyweek.com/investments/funds/investment-trusts/investment-trust-model-portfolio might be a good place to start?

AlanP_2

There is a lot of IT discussion on the Citywire forum, a lot more than you see on here where OEICs are more popular in general.

Alexland

philng said:

I am always more attracted by low charges hence I currently hold Scottish Mortgage and Bankers which have both done well for me but just interested in any other possible ideas?

This year the price growth on BNKR has been disappointing when compared to a global tracker, probably because they have been cautious over high US valuations (they may still be provided right, but moved too early), but still the NAV has done well and the dividend growth has more than covered inflation. Now trading at a slight discount BNKR would be my choice if I wanted smoothed increasing income and capital growth from a global IT. We hold passive VEVE and HMWO in our Fidelity SIPPs but having done so well I am tempted to switch some into Bankers for more balanced global exposure. The extra long term return from the leverage should cover the higher costs.

You might also want to consider putting some in the much unloved UK income sector using trusts that have an ESG filter to remove the dross with the remainder at reasonable valuations. DIG has been doing relatively well growing capital and dividends and to a lesser extent MUT for which the board has only given small dividend increases recently so is trading on a 7% discount but seems to be in a good position to give a more significant final dividend increase next year.

Thrugelmir

There's many options to choose from. If it's only a small part of your portfolio. Then consider frontier markets, micro companies,  European small companies, private equity, infrastructure,  renewables. Add to diversify. Research thoroughly first though. 

NannaH

Are there advantages to using ITs instead of other funds when it comes to drawdown?
We have SM in DH’s SIPP portfolio but it’s currently 5% of our total investments and the yield isn’t good,  if that matters? 

Thrugelmir

NannaH said:

Are there advantages to using ITs instead of other funds when it comes to drawdown?
We have SM in DH’s SIPP portfolio but it’s currently 5% of our total investments and the yield isn’t good,  if that matters? 

Why did you choose to invest in SM. What was your rationale? 

Linton

Rather than trying to cherry pick a random set of "good" ITs in my view you should focus on ensuring that the portfolio as a whole is broadly diversified.  If that requires buying a currently poor performing IT then you buy it.

You say that your objective is to enable a slow drawdown.  How slow? What sort of % is your wife thinking of taking?  Is the plan to finance drawdown from dividends or from selling shares?  If you are worried about costs, one advantage of using dividends is that there is no charge, at least on the patforms I use.

Be careful of holding too many high performing funds as they can can fall spectacularly when conditions change.  SMT fell by 60% in the 2008 crash.  Would a fall of that magnitude worry you or your wife?  Would it upset the drawdown plans?  What presumably you dont want is all your ITs falling together.

Alexland

NannaH said:

Are there advantages to using ITs instead of other funds when it comes to drawdown?

ITs can smooth the dividends such that they can pay a steady increasing dividend each year. They do this by creating an accounting entry called a revenue reserve in the good years to be distributed in bad years where the underlying holdings are unable to pay enough dividends to cover the whole trust's growing dividend. Even if that fails they can draw upon their capital reserve to pay income although the board and management know shareholders would not want to see this happen.

In current market conditions you can sustainably draw a nearly 2% smoothed yield from a global income IT and a nearly 4% smoothed yield from a UK income IT. Some trusts pay more but then you need to consider if they are likely to generate enough capital growth to keep up with inflation. You also need to consider if the dividend increases are likely to keep up with inflation.

NannaH said:

We have SM in DH’s SIPP portfolio but it’s currently 5% of our total investments and the yield isn’t good,  if that matters?

SMT is focused on growth so has a low yield although technically it has been increasing it's very modest dividend for 39 years so is an AIC dividend hero.

NannaH

Thrugelmir said:

NannaH said:

Are there advantages to using ITs instead of other funds when it comes to drawdown?
We have SM in DH’s SIPP portfolio but it’s currently 5% of our total investments and the yield isn’t good,  if that matters? 

Why did you choose to invest in SM. What was your rationale? 

To be honest,  at the time it was simply a case of looking for high growth and I liked the focus of it,  I did sell half (before the ‘covid crash’ ) when it had doubled in value to rebalance/reduce the risk.   I’m obviously a total amateur but I’m learning as I go and thankfully the portfolios are doing well,  probably more due to good luck than anything. 

[Deleted User]

I will give you mine - but it's not all ITs
I struggled to find a core IT that didn't do as good as VEVE (I chose VEVE because I didn't want exposure to China), I have thought about Mid Wynd which has done better than BNKR and FCIT but the spread and volatility has always put me off (yes I know its for the long term)

70% VEVE - ETF - developed world tracker (I have held BNKR and FCIT before, but this does the same job for less fees, BNKR for me is overweight China for my liking)
10% HVPE - IT - Harbourvest private equity with thousands of holdings (Guernsey based no stamp duty)
10% TPOU - IT - Third Point, gives access to Daniel Loeb's Venture capital and activist investor company (Guernsey based no stamp duty)
10% BHMG - IT - BH Macro, clever stuff (derivatives, trading strategies etc), totally went the other way during the March 2020 crash i.e. up (Guernsey based no stamp duty)