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Two portfolios for income

We check in with our two investment trust income portfolios to see which one has paid the most, which one has performed best and what changes have been made
Two portfolios for income

In the 12 months since September 2016 Donald Trump has been elected president of the US and the UK has moved inexorably closer to its exit from the European Union. But both our investment trust portfolios have weathered turbulent markets and delivered positive total returns over that time. 

Our portfolios were put together by David Liddell, chief executive of online investment service IpsoFactor Investor, and Simon Moore, senior investment manager at Seven Investment Management (7IM). Between 30 September 2016 and 30 September 2017, Mr Liddell’s portfolio returned 12.9 per cent and Mr Moore’s returned 9.2 per cent, over which time the FTSE All-Share returned 11.9 per cent.

The trusts in Mr Moore’s portfolio have delivered a higher level of income and his portfolio yields 4.8 per cent. But due to a lack of capital growth his portfolio has underperformed Mr Liddell’s. If you had invested £10,000 into each of the 10 trusts in Mr Moore’s portfolio on 30 September 2016 one year later you would have received dividends worth £5,207.72. Mr Liddell’s portfolio yields 3.6 per cent and if you had invested £10,000 into each of the 10 trusts in it on 30 September 2016 a year later you would have received dividends worth £3,908.77.

How David Liddell's portfolio performed

The  best performing trust in Mr Liddell's portfolio between 30 September 2016 and 2017 was JPMorgan European Investment Trust – Income (JETI) with a return of 35.42 per cent, followed by Temple Bar investment Trust (TMPL) and London and St Lawrence Investment Company, which has now wound up.

JPMorgan European – Income was buoyed by the strong performance of European equities which, although depressed at the start of 2017, have since rallied strongly. “European markets have been strong and you’ve seen a big recovery in the eurozone, which took many people by surprise,” says Mr Liddell. “This time last year many people were underplaying the European recovery.”

Factors causing European stocks to perform well included better-than-expected economic data from countries such as France and Germany, and relief rallies following elections in the Netherlands and France, in which populist candidates were defeated.

JPMorgan European – Income has a dual mandate to deliver income and growth from pan-European equities, and has large positions in France and Germany. It has recently gained authorisation to pay income out of capital and increased its dividend in its financial year ending March 2017.

“The depreciation of sterling following Brexit has benefited trusts with international equity exposure,” says Mr Liddell. “Equity markets have been far stronger than expected.”

Temple Bar Investment Trust benefited from a value-oriented rally during the second half of 2016 following two years of underperformance in 2014 and 2015. Temple Bar returned 22.4 per cent between 30 September 2016 and 30 September 2017, compared with the Association of Investment Companies (AIC) UK Equity Income sector average of 12.6 per cent.

The trust’s manager, Alastair Mundy, buys unloved stocks on cheap valuations. When we reviewed these portfolios last year, Mr Liddell believed Mr Mundy’s investment style would return to favour if interest rates rose and expensive income-generating defensive stocks fell back. In 2016 this trust returned 20.73 per cent, against 16.75 per cent for the FTSE All-Share, as a sharp value rally in the latter half of 2016 in banking and oil stocks benefited the trust. 

London and St Lawrence, an investment trust that bought other funds, also delivered strong returns until it wound up earlier this year. “It’s a great shame that the trust was wound up, but you did get a good narrowing of the discount, and the performance and dividend for the last six months were actually pretty strong,” says Mr Liddell.

The trust generated a return of just under 20 per cent between 30 September 2016 and 2017.

The worst-performing trust in Mr Liddell's portfolio was BlackRock Commodities Income (BRCI),

The worst-performing trust in Mr Liddell’s portfolio was BlackRock Commodities Income (BRCI), despite a bounce-back in the sector over the past 12 months. The trust returned just 0.05 per cent between 30 September 2016 and 30 September 2017, but was the best income payer in his portfolio. If you had invested £10,000 in this trust on 30 September 2016 it would have paid out £527.18 over the following 12 months. But a lack of share price growth means it is the worst performer in terms of its total returns.

Mr Liddell says: “The trust’s underlying performance is considerably better than its share price performance. We knew this time last year that the trust would cut its dividend – its full-year payout is set to fall to 4p in its current financial year, from 5p in the previous year and 6p in the year before that. We held it knowing this would happen but that you would still get a decent yield of around 5 per cent. And if the net asset value (NAV) continues to drive forwards then I would expect the share price to start to respond. Mining stocks generally are still cheap – look at Rio Tinto (RIO), for example, on 12 times earnings with a yield of over 5 per cent and good cash flow yield."

However, analysts at Numis Securities believe BlackRock World Mining (BRWM) is a better alternative for investors seeking exposure to a recovery in mining shares. The broker highlights the fact that BlackRock Commodities Income generates a significant chunk of its earnings from options writing rather than underlying dividends.

Mr Liddell says his portfolio’s performance was hurt in relative terms because it was underweight US equities, which led global markets throughout 2016 and 2017, but are more growth-focused and less suited to an income portfolio. He says: “I deliberately had relatively little exposure to US equities, which have performed very well this year. I had not expected them to continue to perform as well as they had when I reviewed the portfolio last year. I thought interest rates would have risen more by now and that the dollar would have been stronger, so that we might have experienced a bit of a pullback. I’ve been surprised that the US market has continued to forge forwards in the way that it has. With hindsight, I might have had more exposure to US equities, but this is an income portfolio and it is quite hard to find decent income stocks in the US.”


How Simon Moore's portfolio performed

Mr Moore has a greater chunk of his portfolio in emerging markets, Asian and frontier market equities than Mr Liddell. Emerging and frontier markets emerged from a period of recession in 2016 having spent several years lagging behind global markets, and have been strong areas of performance throughout 2016 and so far in 2017 helped by a commodity price pick-up, the hunt for yield across the world and political change in many emerging countries. In 2016 the MSCI Emerging Markets index returned 32.6 per cent and the MSCI Frontier Markets index returned 22.5 per cent. So far in 2017 the MSCI Emerging Markets index is up 23.45 per cent. However, these areas tend to be more associated with growth investing than with dividends due to the earlier stage of development of the companies in those regions.

Mr Moore includes JPMorgan Global Emerging Markets Income (JEMI), Henderson Far East Income (HFEL) and BlackRock Frontiers Investment Trust (BRFI) in his portfolio. The best performing of these was BlackRock Frontiers, which returned 19.7 per cent between 30 September 2016 and 30 September 2017. It is also the best performing of all Mr Moore's trusts over one, three and five years to 26 October 2017.

BlackRock Frontiers offers an attractive yield of about 3.4 per cent, as well as delivering capital growth. Its largest country exposure is Argentina, a market that has surged ahead in 2017 on the back of political change and the country’s return to the international debt market, and MSCI Argentina index is up 59.3 per cent in the year to date. Other key country exposures include Vietnam and Romania.

Frontier markets can help to diversify portfolios as they tend to be less correlated with the rest of the world. And because there are fewer analysts covering frontier market stocks it is an area in which active managers can outperform. Over the long term BlackRock Frontiers has beaten its benchmark, MSCI Frontiers Index, and delivered strong returns.

“Many of the themes in frontier markets are the things that people used to look for in emerging markets,” says Mr Moore. “Frontier markets are generally far less developed in terms of infrastructure, for example hospitals, telecoms and roads, which means that they have much further to grow. Many emerging markets are looking more mature now, but with frontiers you can get a high rate of capital growth and a good rate of income.”

Henderson Far East Income has also performed well and is one of the higher-yielding trusts in Mr Moore’s portfolio. The trust has returned 12.60 per cent over the 12 months to 30 September 2017 and is yielding 5.65 per cent. It would have generated income of £603.22 between 30 September 2016 and 2017 on an investment of £10,000.

Henderson Far East Income invests in stocks traded on Asia Pacific, Australian, Japanese and Indian stock markets, and has a large weighting in China. Its top 10 holdings include Bank of China (601988:SHH), which accounts for 2.5 per cent of assets, and its largest sector allocation is to financials, which make up 33.3 per cent of assets.

The trust in Mr Moore’s portfolio that made the best total return is UK Commercial Property Trust (UKCM), with a return of 21.7 per cent between 30 September 2016 and 30 September 2017, defying bearish concerns about UK property following the Brexit vote. Its NAV also did well over that period, during which retail warehouses were among the best performing assets in its portfolio and offices the weakest.

The trust that made the worst total return in Mr Moore's portfolio was SQN Asset Finance (SQN), which lost 4.12 per cent between 30 September 2016 and 30 September 2017. The trust invests in business-essential equipment and project financing on those assets, and has been hit recently by the bankruptcy of US solar cell manufacturer Suniva which was one of its largest investments at just under 7 per cent of assets.

This is not the only problem loan on its books – SQN reported in its latest annual results that two other borrowers were not making repayments. SQN has fallen from a premium to NAV approaching 18 per cent to a discount over the past six months. Despite these problems, SQN is the highest income payer of all the trusts in both Mr Moore’s and Mr Liddell’s portfolios, and its dividend is protected by earnings, according to Alan Brierley, director of the investment companies team research at Canaccord Genuity. It has a yield of about 7.4 per cent, and over one year to 30 September 2017 would have paid out £649.51 on an investment of £10,000.

Mr Brierley says: “While the recent results highlight the inherent risks of this specialist asset class, a dividend yield of 7.6 per cent has obvious attractions if sustainable and covered. The company has confirmed that even with income from Suniva suspended the dividend is covered, and the weighted average yield of the portfolio is in excess of 9.5 per cent. And following growth in the company the ongoing charge has fallen to 1.18 per cent.”

Other strong income generators include Invesco Perpetual Enhanced Income (IPE), which invests in bonds and has a yield of over 6 per cent. It would have paid out dividends worth £646.20 on an investment of £10,000 between 30 September 2016 and 30 September 2017.

TwentyFour Income Fund (TFIF) also has a high yield of 5.8 per cent and would have paid out more than £600 in income if you had invested £10,000 over the year to 30 September 2017.


David Liddell's performance and changes 

TrustAllocation as at October 2016 (%)Total return 30.09.16-17 (%)Total return adjusted for allocation (%)Lump sum invested (based on % allocation) Lump sum total return 30.09.16-17 Allocation as at October 2017 (%)
JPMorgan European - Income (JETI) (replaced with Aberdeen Dividend and Growth (AGID)535.421.771£5,000£6,771.010
F&C UK High Income Trust (FHIU) (formerly Investors Capital Unit) 12.510.291.29£12,500£13,786.4912.5
Edinburgh Investment Trust (EDIN)10-0.55-0.06£10,000£9,944.8812.5
Temple Bar Investment Trust (TMPL)1022.402.24£10,000£12,239.9710
Aberdeen Asian Income (AAIF)512.530.63£5,000£5,626.735
iShares UK Dividend UCITS ETF (IUKD)154.150.62£15,000£15,623.1515
Murray International Trust (MYI)12.517.662.21£12,500£14,707.1310
Acencia Debt Strategies (ACD) (Replaced with NB Global Floating Rate Income (NBLS) 12.513.901.74£12,500£14,237.6310
BlackRock Commodities Income (BRCI) 50.050.00£5,000£5,002.645
London & St Lawrence Investment Company* (Replaced with HICL Infrastructure company (HICL))12.519.532.44£12,500£14,941.7510
Total  12.9£100,000£112,881 

Source: FE Analytics 

*Delisted on 18 April 2017 


Simon Moore's performance and changes 

TrustAllocation as at October 2016 (%) Total return 30.09.16-17 (%)Total return adjusted for allocation (%)Lump sum invested (based on % allocation) Lump sum total return 30.09.16-17Allocation as at October 2017 (%)  
Edinburgh IT (EDIN) (Replaced with Picton Property Income) 15-0.55-0.1£15,000£14,917.3215
JPMorgan Global Emerging Markets Income (JEMI)1010.281.0£10,000£11,027.6610
Henderson Far East Income (HFEL)1012.601.3£10,000£11,259.6510
BlackRock Frontiers (BRFI)519.721.0£5,000£5,986.005
UK Commercial Property Trust (UKCM)1521.723.3£15,000£18,257.3010
International Public Partnerships (INPP)107.500.8£10,000£10,749.9115
Invesco Perpetual Enhanced Income (IPE) (Replaced with Fair Oaks Income (FAIR))510.470.5£5,000£5,523.255
NB Global Floating Rate Income (NBLS)153.390.5£15,000£15,508.8715
TwentyFour Income (TFIF)1011.661.2£10,000£11,166.3810
SQN Asset Finance Income (SQN)5-4.12-0.2£5,000£4,793.975
Total  9.2£100,000£109,190 

Source: FE Analytics 


David Liddell portfolio performance 

TrustYield (%) 6m (%)1yr (%)3yr (%)5yr (%)10yr (%)
JP Morgan European Investment trust Income2.9512.429.666.0141.3144.7
London & St Lawrence* na0.219.527.773.6118.3
Temple Bar Investment Trust 3.184.819.324.459.4140.0
Murray International Trust3.824.816.239.754.7179.1
F&C UK High Income Trust 4.653.410.034.265.573.6
Aberdeen Asian Income
Acencia Debt Strategies 3.480.15.129.475.640.4
iShares UK Dividend (IUKD)4.95-
Edinburgh Investment trust3.61-
BlackRock Commodities Income5.410.2-6.0-5.5-17.6-12.4

*Data to last quarter end, Sept 2017.

Source: FE Analytics, share price cumulative total returns as at 26.10.17. 


Simon Moore portfolio performance

TrustYield (%) 6m (%) 1yr (%)3yr (%) 5yr (%)10yr (%)
BlackRock Frontiers Investment Trust3.437.0116.6348.18126.31 
Henderson Far East Income5.657.1712.7742.0068.79137.93
Standard Life Investments UK Commercial Property 4.23-1.2212.7617.1369.87100.97
TwentyFour Income Limited 5.843.7412.5812.43  
Invesco Perpetual Enhanced Income6.246.288.8533.4292.2791.97
JP Morgan Global Emerging Markets Income Trust 3.708.707.9127.5940.63 
International Public Partnerships4.246.796.0335.1864.01149.07
NB Global Floating Rate Income 3.64-2.193.0110.6213.69 
SQN Asset Finance Income7.46-4.97-7.328.74  
Edinburgh Investment Trust3.61-

Source: FE Analytics, share price cumulative total returns as at 26.10.17


Income earned on portfolios 

David Liddell  

TrustIncome earned 
BlackRock Commodities Income £527.18
Acencia Debt Strategies £515.11
iShares UK Dividend UCITS ETF£490.86
Aberdeen Asian Income£465.41
Murray International Trust £434.40
JP Morgan European IT Income£390.70
Temple Bar Investment Trust £368.74
F&C UK High Income Trust £366.23
Edinburgh Investment Trust£350.14
London and St Lawrence Investment Companyna
Average payout

Source: FE Analytics. Assumes same amount invested in each for purposes of illustration. Dividends paid between 30.09.16-30.09.17 on £10,000 invested


Simon Moore 

TrustIncome earned 
SQN Asset Finance Income £649.51
Invesco Perpetual Enhanced Income £646.20
TwentyFour Income£624.11
Henderson Far East Income £603.22
BlackRock Frontiers £519.38
NB Global Floating Rate Income £495.68
UK Commercial Property Trust £466.12
International Public Partnerships£439.42
JPMorgan Global Emerging Markets Income £413.94
Edinburgh IT£350.14
Average payout

Source: FE Analytics. Assumes same amount invested in each for purposes of illustration. Dividends paid between 30.09.16-30.09.17 on £10,000 invested 

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