Income Portfolio L&G UK Index
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fred246
Posts: 3,620 Forumite
L&G UK index is a low cost tracker with a yield of 3.5-4%. I have never seen it in any sample income portfolios. Have I just not seen enough income portfolios? Is there any reason why you wouldn't include it in an income portfolio?
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Why should anyone mention this one? It is just a standard UK FTSE AllShare tracker of which there are many. Have it in an income portfolio if you want, I wouldnt bother since:
1) there are plenty of funds which offer a higher yield.
2) the FTSE in general has been a pretty low performance investment for many years thanks to its poor coverage of growth sectors.0 -
It tracks the UK all-share index with the money allocated based on free float market capitalisation of the companies listed in London. This means that 80% of it is the FTSE100 index, which is not very diversified and is dominated by certain types of giant companies in specific sectors, with other industry sectors missing entirely.
Over a third of your money would just be in the nine biggest companies that happen to be listed in the UK, with less than two thirds in the other couple of thousand. The sector allocation means that over a quarter of the money overall is allocated to banks and financials, 15% in oil and gas etc - it isn't as diversified a set of sector allocations as people might choose to build for themselves.
Typically you find that people who want a high level of natural income from their holdings will buy a fund which specifically buys companies with those income-generating characteristics - they would buy a fund that's more dedicated to the task, and would not want a lot of the other holdings that the index gives them. While other people do not want a sector allocation that's so skewed to certain industries or to 'extra extra large cap' companies to be the basis of their UK equities allocation.
So even though the FTSE has always had a decent yield compared to other country indexes where dividends are not considered to be so important - people don't generally want to use the index as the cornerstone of their high income portfolio. Basically they can get higher income by eliminating some lower yielding companies within the index, and they can get better diversification for the same level of income by including a greater weight to smaller companies and different industries. So it's not a great tool for the job for most income seekers.
But in terms of tools for the job, it depends what exact job you want it to do. You might be happy with it. An IFA wouldn't pick it as the bedrock of an income portfolio, for the reasons above, but I know you don't respect their views
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I understand. So I'd be better investing in a fund where a top fund manager can pick the shares most likely to provide a good income. Something like Woodford Equity Income fund?0
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I understand. So I'd be better investing in a fund where a top fund manager can pick the shares most likely to provide a good income. Something like Woodford Equity Income fund?
Thats possibly a good choice, but I think you should check with an IFA first before making such a big decision.0 -
I understand. So I'd be better investing in a fund where a top fund manager can pick the shares most likely to provide a good income. Something like Woodford Equity Income fund?
My IFA tells me that Woodford Equity Income is in the UK All Companies sector, not UK Equity Income. IIRC its yield was not high enough. It is now.0 -
I think something like City of London IT is more suited to an income portfolio as it yields over 4% and has a record of increasing dividends paid every year for over 50 years.0
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I have got money in City of London Investment Trust. I also have a small amount in L&G UK index trust ACC from when I started out passive investing. My main UK income fund is AXA Monthly Income. So I am paying Axa to pick 91 of the best income producing shares. L&G UK index has 644 holdings. The outcome is almost exactly the same. Axa yield 4.31% L&G 4.2% Axa Total return 5 years 37.46% L&G 37.88%. I think I just trust passive investments more. What is the point of paying for a fund manager when they can make a total mess of it like Woodford? Whenever you say what active fund you have someone will always says it's the wrong one this is better.0
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I have got money in City of London Investment Trust. I also have a small amount in L&G UK index trust ACC from when I started out passive investing. My main UK income fund is AXA Monthly Income. So I am paying Axa to pick 91 of the best income producing shares. L&G UK index has 644 holdings. The outcome is almost exactly the same. Axa yield 4.31% L&G 4.2% Axa Total return 5 years 37.46% L&G 37.88%. I think I just trust passive investments more. What is the point of paying for a fund manager when they can make a total mess of it like Woodford? Whenever you say what active fund you have someone will always says it's the wrong one this is better.
Since the total returns are so close over 5 years it would seem you arent paying for the fund manager. The fund manager is paying for himself from a slightly higher underlying return of his fund.
If you look over 10 years the AXA fund is showing a retorn of about 186% and the L&G Tracker 151%, the exact numbers depending on which class of the funds you are using. So perhaps one can conclude the manager is worth his fees.
But to be fair, you arent comparing like with like. In general as a member of the Equity Income sector you would expect the AXA income fund to have a higher yield than the Index Tracker and it would be investing in a rather different set of companies. However the largest members of the FTSE100 are currently also good dividend payers. This is not always the case.0 -
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