As mentioned in the past, I use Investment Trusts in addition to direct equity investments to diversify my overall portfolio in terms of asset mix and sources of income. Mostly this is for overseas and alternative asset classes to sit along side my own UK equity holdings.
I do however hold a few UK focussed funds where they either do something a bit differently, like Temple Bar (TMPL) the value based approach that I bought when new managers were appointed a couple of years back. Or Law Debenture which is a well run UK fund with the addition of an operating business alongside, which helps to underpin the dividend in addition to the revenue reserves that they have built up over the years.
Talking of revenue reserves that is another reason that I like to invest in IT's as opposed to ETF's & OIEC's as this enables the managers to smooth out the dividend payments and continue them in difficult times as we saw during the Pandemic hit to dividends. As a result of this our overall income did not suffer as badly as the market in general at that time. With that in mind and having been sitting on some cash during the recent market decline, I decided to put some of that to work in a new IT holding that I have been tracking for a while as it usually trades close to NAV or at a premium. I am generally reluctant to pay up for IT's preferring to buy them when they are on a discount. In this case I finally got the chance to buy this one at a modest discount, but time will tell if I was too quick to pull the trigger and if it will become available at a bigger discount down the line.
The trust concerned in called The Diverse Income Trust (DIVI) which is run by the well respected Gervais Williams and Martin Turner at Premier Miton. I like their approach of being diversified across the market cap spectrum, which is similar to what I do, but in a slightly less diversified way, as they have around 130 holdings. This does mean they have suffered in relative performance terms (as has the Scores Portfolio) this year as the market has been led by the large cap commodity names. In the longer run it has done well, although not quite as well as the Compound Income Scores Portfolio, see the tables below (continues after):
So, I like the managers and their approach and it is unusually available at a small discount of around 6%. Aside from that it offers a dividend yield of 3.5% yield paid quarterly which is covered by current portfolio earnings and backed up by revenue reserves equivalent to over one year of dividends paid. On that basis I reckon the dividend looks pretty secure and should have scope to grow barring Armageddon in the World / Markets. In terms of growth they have achieved 7% growth since inception which is at the top of their expected 5 to 7% range. So at least I'd hope that they might be able to grow it 5% per annum going forward, which should take care of inflation once it has settled back down again. Thus I was happy to buy it from cash yielding 1.5% and wasting away each month as inflation continues to run hot for now. In any event I'll get the 1.2p Q4 dividend which goes XD on 29/9/22 and is paid towards the end of November which will be worth 1.3% yield on my purchase price recently of just under 93p.
Of course I don't know if the market will go down more from here or rally further, or if the shares might go to a bigger discount. Nevertheless I'm happy to invest in and hold this one for the long term to help me achieve my objective of growing my assets and income in real terms over the long term. See here for an in depth review on The Diverse Income Trust from Edison if that sounds of interest to you and you want to find out more.
Finally in terms of other IT ideas at a discount I also added over the summer holdings in Smithson (SSON) & North Atlantic Smaller Companies (NAS) to one of our personal portfolios. Smithson probably needs no introduction, but again it was one I have been tracking since it was launched, so again I took the opportunity to add a holding on a 10%+ discount as I like their quality approach which is also part of the Compound Income process. In this case it adds international diversification for us. However note it does not pay any dividends, but we're fine on that front so I'm happy to hold it for tax efficient total returns.
North Atlantic Smaller Companies (NAS) is a more specialized small cap / VC investor run by the well regarded Christopher Harwood, but as a result it comes at a whopping 30% discount despite a decent track record. It pays a small dividend but is mainly about the exposure to small / micro cap and venture capital so it may not be to everyone taste, but it suits us as a home for some more cash and as part of a diversified overall portfolio.
Obviously you should do your own research on these or any other trusts to make sure they are suitable for you. Or if you prefer to do it yourself and want some help in finding quality dividend growth shares in the UK then do check out the Compound Income Scores here or via the menu or on the landing page. Mind how you go & I'll leave you with a bit of music.
After a brief interlude of better performance & weather in July, things turned more mixed in August. Please see the table above for the full gory details. This seemed to be driven by a a fairly downbeat testimony from the US Federal Reserve Chairman, Jerome Powell, which dashed hopes of an early reversal of Fed tightening which the recent substantial rally had been built on.
Consequently the likely bear market rally came to an end even though it had recovered around half of the previous losses, leading some in the blue corner to declare a knockout for the bulls or that the bear market was over. Meanwhile in the red corner another Jeremy (dear old Jeremy Grantham) popped up to declare that even though some people were on the pitch, the super bubble was far from over in terms of deflating. Indeed as I alluded to last month he seems to think the recent rally fits the road map of previous rallies within unwinding of bubble conditions and a further leg down lies ahead as economic reality breaks in. You can read his full piece here.
Once again I present a fact sheet on the portfolio at the end of this post which details last months Top & Bottom 3 contributors, transactions, a breakdown of the Portfolio's Sector & Index exposures together with details of the Top 10 holdings.
There were fewer transactions in August as I gave the benefit of the doubt to two names where the Score was quite close to the sell threshold & the momentum based recommendation was not at sell. While a third name there was a trading update due which I decided to wait for. The one name that was sold, perhaps controversially, was Games Workshop (GAW) as the Score had fallen to 60 after they seemed to see downgrades despite better than expected results. The momentum based recommendation was also flagging a sell, so I followed the process in this instance, even though it seems like a decent quality Company which is well managed. So if you hold and you are comfortable with the outlook for them then I wouldn't put you off holding on for the long term.
Against that I added a higher scoring stock which topically makes equipment and systems for real warfare as opposed to little plastic bits for fantasy war games. This was BA systems (BA.) which Scored 90 at the time and has historically been a steady dividend growth stock. It now also sports a Pension fund surplus thanks to the recent rise in bond yields, which was something (pension deficit) which put me off the shares in the past.
Summary & Conclusion
So seemingly a return to bear market conditions as the recent bear market rally and decent summer weather was enjoyable while they lasted, but dare I say maybe they were both a bit too hot? It seems like we might be heading for the next leg down as we enter September and the dangerous month of October as Mark Twain was quoted as saying still lies ahead. So I'll leave it there as that is all a bit depressing, but don't get overly bearish, try and ride out the storm as best as you can in a way that works for you. Take care.
Just to note that the platform I use for the site / blog (Weebly) having been acquired by an e-commerce type Company (Square) is forcing me to move over to their interface by the end of September. As far as I understand it this is more of an e-commerce type framework designed for those selling products & services via the web.
Somewhat annoyingly it doesn't apparently include a Blogging section. Consequently at this stage I am unsure if the site will continue to appear in its current form and I may not be able to update it with post such as this. This will not affect current subscribers access to the Scores etc. as they are delivered separately. If any subscribers need to get in touch after the end of September should the site go down temporarily then please use the e-mail details you would have got when you signed up. Hopefully I will either work out how to use the new system or make alternative arrangements before then.