£15,000 income from an Isa: What happened next

Richard McBride is 53 and wants to attain his income objective by the time he reaches 60. Prior to his review, he told us: "I am concerned that I am probably over-diversified, and at this stage in my life I should probably start behaving increasingly more conservatively, so any guidance here would be helpful."

Our experts thought the portfolio was well diversified but that Mr McBride should think about reducing the risk of the portfolio by making gradual adjustments in the direction of higher yielding and more conservative holdings.

Mrs McBride says he has made several changes as a result of the review. He says: "Thanks for providing the stimulus for many of the ideas. Having my portfolio examined did very much meet my hopes for the process - a sanity check that I wasn't too far off track, plus some useful ideas about how best to move forward. A really useful exercise. "

Richard McBride's original portfolio

Source: Investors Chronicle. Price and value as at 17 September 2014.

$1 = £0.61 €1 = £0.79

Mr McBride's first action was to sell British Empire Securities and General Investment Trust (BTEM) and add to his existing cash balance. Our expert David Liddell, the founder of online investment advisory service IpsoFacto Investor had recommended selling this alongside RIT Capital Partners (RCP), in order to add to the portfolio’s UK mid-cap exposure. British Empire is a global investment trust that aims to achieve capital growth through a focused portfolio of investments, particularly in companies whose share prices stand at a discount to estimated underlying net asset value. However, it has underperformed over the year to 31 October 2014, posting a share price return of 5 per cent in contrast to 8.5 per cent from the FTSE World Index and is trading at an 11 per cent discount to its underlying NAV.

Mr McBride then added to plus-sized clothing retailer N Brown Group (BWNG) as the price seemed a good entry point, offering a good yield. On 9 October N Brown issued a shock profit warning on the back of its interim results, just weeks after declaring that "we are on track to deliver our full-year forecast." Chief executive Angela Spindler slashed the company's pre-tax profit guidance for the full year by 11 to 15 per cent to between £88m and £92m, citing unseasonably balmy autumn weather that caused sales in September to fall 18 per cent year-on-year. The last IC recommendation on N Brown Group shares was 'hold' at 296p on 13 Oct 2014 – the shares have since recovered to 342.5p on 14 November 2014.

Against the advice of our experts to move to less risky assets, Mr McBride has added to his silver holdings. He says: "Silver has been a commodity tipped by the IC and I am following a strategy of building up my holding over time, taking advantage of market weakness in the hope of a longer-term recovery.” Investors Chronicle published an article in July that pointed out that the price of silver had almost halved since it soared above $30 (£19.17) per ounce two years ago, standing at around $18 per ounce as at 3 June 2014. Silver now costs $15.40 an ounce as at 14 November 2014.

However, following the advice of Mr Liddell, Mr McBride has started a holding in Edinburgh Investment Trust (EDIN) which was recommended alongside Temple Bar Investment Trust (TMPL) for his portfolio. He felt the yield and discount on Edinburgh IT gave it the edge over Temple Bar. Edinburgh Investment Trust invests primarily in UK securities with the long-term objective of beating the growth in the FTSE All-Share Index, and growing dividends by more than the rate of UK inflation. It is managed by Mark Barnett of Invesco Pepetual and has a yield of 3.68 per cent.

He says: "Overall this first step should have increased the UK exposure and boosted the yield, so I think it works strategically."

Prior to his review, Mr McBride had hoped to shift out of his Isa open-ended fund holdings while the market was strong, with the possibility of a correction in the air. However, the September market correction beat him to it. As a result he says he will probably delay selling his fund holdings until either the market improves or things are more settled. In the meantime, he will look to cash in some of the Far East and emerging markets holdings in order to move into JPMorgan European Income Investment Trust (JETI), which was recommended by Mr Liddell. JETI has a yield of 3.98 per cent.

Mr McBride also intends to buy Mr Liddell’s recommendation of the new iShares MSCI USA Dividend IQ UCITS ETF (HDIQ). He also aims to use some of the money to add to his holding in Worldwide Healthcare (WWH).

"BlackRock World Mining Trust (BRWM) did not do well for me the first time I invested in it and once again it has taken a tumble,” he says. “However, I will watch its progress, continue with my holding and possibly add to it in the future if an appropriate opportunity presents.”

Last month, BlackRock World Mining wrote off two investments, the Marampa Royalty Contract and a convertible bond, both issued by iron ore producer London Mining (LOND). The investments were among the trust’s larger holdings, respectively accounting for 6.5 per cent and 1.3 per cent at the end of June. Following the announcement BlackRock World Mining's share price nose dived, taking it from trading at around par or a slight premium to net asset value (NAV) in recent months to a discount to NAV of more than 11 per cent.

"I will also keep an eye on mid cap trusts and look for suitable bond investments as longer term I need to increase my exposure in fixed interest," he says.

INVESTORS CHRONICLE READER VIEWS:

Three Investors Chronicle readers have added their comments on our website, explaining what they would do with Mr McBride’s portfolio.

Martin31 says: “There are several equity holdings which could bump up the yield immediately. Consider Carador Income Fund (CIFU). Rising US rates will be a big boost to returns." Carador aims to produce attractive and stable returns with low volatility compared with equity markets by investing in a diversified porfolio of senior secured leveraged loans through participations in senior, mezzanine and equity tranches of cashflow collateralised loan obligations (CLO). It was the best performing investment trust on the basis of total shareholder return over the five year period to the end of September 2014.

Old Grumpy says: “There is no need to bump up the yield for quite a while. Years in fact. The portfolio does not look too bad, but there are way too many holdings, 20-25 would seem good. Getting rid of most of the funds, while keeping the investment trusts, would be a good start. There are some cracking good investment trusts to put a large slice into for the long term. Look at the portfolios run by Investors Chronicle's investment trust columist John Baron. Maximise the amount invested in your Isa over the next seven years. This way your long term aim becomes easy."

Jvehodgson says: "I suggest you reduce your portfolio to around no more than 25 items as watching that lot even in retirement is very time consuming, unless you find a broker on a client advisory basis but that costs money which hypes up your return needs. That said, I would restructure your portfolio by taking any capital profits as and when doable with the objective of having £50,000 in one or two corporate bonds with redemption yield of 5.5 per cent or greater.

I would then put the remainder into higher dividend yield shares, say 12 shares at £8,250 in each, and shares that are more capital growth targeted but with dividends around 2.5 to 3 per cent a year, again 12 investments of £8,250 in each. If it’s financially realistic you could re-invest your dividends in the capital growth stocks. If your income target is net of any taxes on interest, it gets even harder to meet your desired return without the potential risk of big capital erosion."