Further to the last post about the possible benefits of Investment Trusts I see or rather heard the FT Money Show Podcast is talking about this too this week. The episode covers Family Trust where wealthy families like the Rothchilds hold a large stake so you can invest along side them. Coincidentally it also covers the Dividend Heroes and also the benefits of the IT structure and independent boards etc.
Along the way it also touches on investing for income and see the closed end structure as an ideal way to do this via alternative assets like property and infrastructure or Green energy etc. They did mention though that many of these (like the Green energy funds) stand on big premiums. If that sounds of interest you can listen to it here.
With premiums and discounts in mind I did notice some results from an interesting looking Property REIT yesterday, called Residential Secure income (RESI) which in common with many other REIT's is standing on a discount, around 15% in this case and offering a decent yield of around 5.4% with the price at 92p and the NAV having moved up to about 108p from launch. Unusually it invests, as its name suggests, in Residential Property let to Housing Associations, part rent part buy owners and in the main Retired folk. They are just about fully invested after coming to the market just over two years ago and are now paying their target dividend of 5p which they hope to grow in real terms over time and achieve an 8% total return. So while overall it may not be that exciting and could I guess go to a bigger discount it does seem like a reasonably attractive way of becoming a social landlord without all the hassle.
While housing is quite a battle ground in the election presumably this type of operation could face some political or regulatory threat or opportunities depending on the shape of the next government. So maybe dull and not without it's risks but seems an interesting play on residential property and the housing shortage at the affordable end at a discount with a decent and potentially index linked yield, unless I'm missing something.
I saw some good article in Money Observer recently which highlight the benefits of Investment Trusts or IT's over their open ended cousins. The table above highlights this, although worth noting that the 10 year period covered was obviously positive which will have helped those IT's with gearing. You can read the full article from which this table is extracted here if that is of interest.
You may be sceptical about this and I know that many are keen on either Indexing to avoid the risk of picking and paying for an active fund manager who then goes onto under perform. I'm sure that many hit by the Woodford fall out will be feeling that way. Indeed even the IT structure of his Patient Capital Trust didn't save investors from his poor strategy, highlighting the need to understand the risks that managers are running when selecting a fund to invest in.
Talking of risks, others I know prefer to go it alone and go their own way, often with very focused or concentrated portfolios, which is fine when things go well but could be painful when things don't. Indeed I have done that successfully myself in the past (although I'm more diversified these days) but I have been doing it in recent years with the Compound Income Scores Portfolio. This has out performed well over 4 and half years or so that it has been going (see here for details) but that has not been without some volatility along the way, although the rewards have been more than adequate to compensate for that. If you're interested in trying that yourself you can read how you can gain access to the Scores here if you'd like to use them to help you run your own income portfolio.
Aside from that the other way to go, apart from Index Trackers, would I suggest be a portfolio of quality IT's to give you a diversified and less volatile ride (than a concentrated portfolio) with a decent chance of income growth on top from a selection of the well know Investment Trust Dividend Heroes as they are known as they have grown their dividends for decades. Again see the image below from Money Observer for details of these and you can read the full article here if that is of any interest. Again you would need to investigate the strategy pursued by the manager and the markets they invest in to make sure you are comfortable with the risks they are taking.
Whatever you are doing or if you decide to go your own way or invest in Heroes, however you decide to invest in the future, watch how you go in these interesting times.
The month passed without too many alarms but with a few surprises and political shenanigans along the way. This included an unexpected deal which seemed at one point to have a chance of going through, before being scuppered by the remain favouring majority in the houses of parliament.
Market & Portfolio Returns Comments.
For UK equities this meant a pick up for the more domestically sensitive sectors and indices like the Mid 250 and Small Cap which delivered positive returns in the month. While the broader more international larger indices the FTSE All Share, FTSE 350 & FTSE 100 all saw negative returns as the effects of a relief rally in Sterling hit sentiment on some of the larger stocks and sectors. For the Compound Income Scores Portfolio, with its bias toward Mid & Smaller stocks, this meant a better month relative to the broader market as it clawed back some of the under performance from last month. The small positive return left it up by 14% YTD which is 1.2% ahead of the FTSE All Share. If it is of any interest you can see the full performance history since inception in April 2015 here and detail about the Scores which help with the stock selection here.
Market Timing Indicators & Outlook Comments.
Despite this the Market Timing indicators that I produce for the UK markets remained in positive territory to varying degrees with the 250 being the most bullish & the Small Cap Index the least with FTSE 100 in between. Given this and despite a small tick up in the US unemployment rate, no sell signal has been generated again this month. So despite all the political worries domestically over BREXIT and the forthcoming election and the on going trade dispute and global economic slowdown one should probably remain invested.
Worth bearing in mind though that the US Manufacturing ISM index remained below 50 this month (recession territory) and the US yield curve went negative a few months back (an advance warning of recession). Thus far though, despite the economic slowdown, a robust employment and wages background seems to have been sufficient to keep things ticking over kept consumers spending. Corporate spending however seems to have turned quite cautious with investment spending tailing off quite dramatically and not just in the UK due to BREXIT, while share buy backs and dividend have continued to support markets.
This has however left UK equities looking pretty unloved and good value compared to both their history and other asset classes. This also suggests it is probably worth remaining invested as if a few things turn out better than expected then there could be quite a decent rise in sterling based assets including equities. If not then at least the lower valuations than elsewhere mean they might offer more downside protection than some other markets.
Summary & Conclusion.
So we survived the often tricky October without too much harm despite all the scares along the way. Timing indicators and valuations suggest that in the UK at least one should remain invested for now. While in the UK we also have the General Election and associated BREXIT bullshit to look forward to. We are also entering a seasonally stronger period with the potential for some resolution of the political log jam, if any party can come out of the election with a working majority, big if I know. I must admit for about 5 minutes there I thought that might have been possible if the Tories had done some kind of leave pact with the BREXIT party, but Nigel Farage seems to have ruled that out now. This seems to make a split of the leave vote more likely while remain favouring parties seem to still be talking about some kind of rebel alliance and many are already talking about tactical voting (sigh).
To me it looks like a hung parliament or or perhaps some kind of remain coalition might be the end result but who knows?!