Many of the more innovative portfolios are less well-known among retail investors, which is where FE Trustnet’s data and rankings come into their own and allow us to highlight portfolios that may otherwise slip off the radar.
Back in February, we put together a dummy portfolio of investment trusts for growth, using a standard asset allocation split, and attempted to highlight some of the more obscure portfolios that our data shows are especially interesting.
The portfolio has had a decent start to its life so far.
Performance of portfolio vs indices since inception
Source: FE Analytics
We decided to put together a portfolio of yielding investment trusts following the same principles.
The Wealth Management Association’s [WMA] Growth Index gives us the asset allocation model favoured by the industry serving private clients, which we can use as the basis for ours.
Source: Wealth Management Association
FE Analytics’ portfolio-tracking tools will enable us to keep an eye on how the portfolio’s returns are progressing.
It should go without saying that the portfolios are not intended to be invested in, and are merely for educational and entertainment purposes.
For UK exposure, we are keen to get access to small and multi cap portfolios. These have a lot of momentum behind them, but are not just a fad.
The cancellation of BP’s dividend after the Gulf Horizon disaster reminded investors that having an income portfolio dependent on just a few stocks could leave them with serious problems.
With half the dividends on the UK market being derived from 10 large caps, many investors are more exposed to single stocks than they would like.
We have gone for Miton’s Diverse Income Trust, managed by Gervais Williams and Martin Turner. We will have to pay a 5.7 per cent premium for it, which we are not happy about, but for the long-term it is worth it.
On such a high premium, the yield is currently just 2.4 per cent.
Acorn Income is our other choice in this area. The fund is managed by FE Alpha Manager John McClure, best known for the Unicorn UK Income fund. Despite its excellent track record, it is trading on NAV.
The trust has beaten the returns of all UK Equity Income and Equity & Bond Income investment trusts over three and five years. Over the latter period it has returned 680.51 per cent compared with 231.08 per cent for its Numis Smaller Companies benchmark.
It is yielding 3.2 per cent.
Performance of trust vs sector and benchmark over 5yrs
Source: FE Analytics
McClure manages the 76 per cent of the portfolio that is devoted to small cap equities, but the fund also has 15.6 per cent in fixed interest, which goes towards our weighting in this area.
Source: FE Analytics
We have also included Lowland Investment Company.
This five crown-rated portfolio has more of a weighting to large caps than the other funds in this list. We like it for its focus on dividend and capital growth, although the yield of 2.26 per cent will bring down the current total payout.
We have also gone for Troy Income & Growth for very different reasons: the fund’s focus on large cap defensives should help us when markets correct. It is yielding 2.52 per cent.
For the international equities part of the portfolio we have gone for Scottish American, which is yielding 4.12 per cent.
Dominic Neary recently took over responsibility for this trust, but has been involved with it for five years previously. It also contains a decent property sub portfolio managed by Matthew Oakeshott at OLIM.
We like Murray International, but the current premium of 5.3 per cent is too much for us given that it seems quite possible that the blue chip defensive style could underperform this year.
We have also included a weighting to JP Morgan Global Emerging Markets Income.
This is useful for diversification purposes, and the recent share price falls have opened up a yield of 4.6 per cent.
In our bond section of the portfolio we have gone for options that offer us some less well-known assets and have a flexible mandate. TwentyFour Income buys into the asset backed securities market, and Henderson Diversified Income has 40 per cent in the loans market.
We have gone for Standard Life Property Income for direct exposure, which is unfortunately on a steep discount. However, it does offer exposure to property outside London and a yield of 6.23 per cent.
We are supplementing it with TR Property Trust, which buys international property securities. It is on a discount and has a yield of 3.27 per cent.
Both are recommendations of broker Winterflood.
Our dummy portfolio would have outperformed the FTSE All Share over the past year, returning 16.17 per cent to the index’s 11.67 per cent.
It has a yield of 3.41 per cent.
Performance of portfolio vs indices over 1yr
Source: FE Analytics
We have tried to follow the principles of diversification, picking funds that do different things and should hopefully outperform in different circumstances.
Please let us know what you think of our selections and what you have done with your portfolio, in the comments section underneath.
