Volatility has been prevalent over the 12 months to 30 September 2018 with substantial falls in the first three months of this year. But a strong recovery from April helped MSCI All Country World index rise 13 per cent over the 12 months to 30 September 2018.
Our two investment trust income portfolios also experienced volatility over the 12 months to 30 September. But they both made a positive return and maintained a good yield. Well-diversified asset allocations and strong performance from individual portfolio holdings helped them achieve this result.
The portfolios are put together by David Liddell, chief executive of online investment service IpsoFacto Investor, and Simon Moore, senior investment manager at Seven Investment Management.
Between 1 October 2017 and 30 September 2018, our reference period, Mr Liddell’s portfolio returned 1.54 per cent and with £100,000 invested in it would have provided income of £4,491 – a yield of 4.69 per cent. Mr Moore’s portfolio returned 3.85 per cent and £100,000 invested in it would have provided income of £5,716 – a yield of 5.72 per cent.
We have analysed the income portfolios by contribution to returns – the share price total return calculated according to the weighting of each trust in the portfolio. We have also looked at yield and total income contribution, again according to the weighting of each trust in the portfolio.
For example, a trust accounting for 10 per cent of a portfolio but only providing 5 per cent of the income might have a good total return contribution. But a trust providing 15 per cent of the income but accounting for 10 per cent of the portfolio does not need to make such a strong total return.
David Liddell's portfolio: 1-year performance
| Holding | Asset class | Allocation (01/10/2017 - 30/09/2018) (%) | Share price total return (01/10/2017 - 30/09/2018) (%) | Contribution to portfolio return (%) | Income paid (01/10/2017 - 30/09/2018) (£) | Contribution to income (%) | Yield (01/10/2017 - 30/09/2018) (%) | Average yield over five years | Capital value as at 30/09/2018 (£) |
| iShares UK Dividend UCITS ETF (IUKD) | UK equity | 15 | 1.12 | 0.17 | 892.50 | 19.02 | 5.95 | 5.95 | 15,168.00 |
| BMO UK High Income Trust (BHIU) | UK equity | 12.5 | 0.07 | 0.01 | 445.11 | 9.49 | 3.56 | 4.37 | 12,508.75 |
| Murray International Trust (MYI) | Global equity | 12.5 | -7.53 | -0.94 | 493.94 | 10.53 | 3.95 | 4.31 | 11,558.75 |
| NB Global Floating Rate Income (NBLS) | Bonds | 12.5 | 4.98 | 0.62 | 810.86 | 17.28 | 6.49 | 6.16 | 13,122.50 |
| HICL Infrastructure Company (HICL) | Alternatives | 12.5 | 3.35 | 0.42 | 631.80 | 13.47 | 5.05 | 5.84 | 12,918.75 |
| Edinburgh Investment Trust (EDIN) | UK equity | 10 | 1.05 | 0.11 | 382.46 | 8.15 | 3.82 | 4.30 | 10,105.00 |
| Temple Bar Investment Trust (TMPL) | UK Equity | 10 | -0.39 | -0.04 | 329.35 | 7.02 | 3.29 | 3.33 | 9,961.00 |
| Aberdeen Diversified Income and Growth (ADIG) | Multi-asset | 5 | 7.86 | 0.39 | 217.43 | 4.63 | 4.35 | 4.39 | 5,393.00 |
| Aberdeen Asian Income (AAIF) | Asian equity | 5 | -0.79 | -0.04 | 210.28 | 4.48 | 4.21 | 4.17 | 4,960.50 |
| BlackRock Commodities Income Investment Trust (BRCI) | Commodities | 5 | 16.92 | 0.85 | 277.78 | 5.92 | 5.56 | 4.73 | 5,846.00 |
| Overall portfolio | 100 | 1.54 | 4,691.51 | 4.69 | 4.90 | 101,542.25 |
Source: FE Analytics, as at 08/11/2018
How David Liddell’s portfolio performed
Mr Liddell’s portfolio is focused on core UK equity funds, but also has exposure to other equity markets, with global equities accounting for 20 per cent of it, alongside allocations to high-yield bonds, infrastructure and commodities trusts.
BlackRock Commodities Income Investment Trust (BRCI) was the star of the show, with a 16.9 per cent share price total return over the period. Mr Liddell only allocated 5 per cent of his portfolio to this trust, so its contribution to the overall portfolio return of 1.54 per cent was only 0.85 per cent. Its yield of 5.56 per cent was helpful and above its five-year average of 4.73 per cent. Mr Liddell expects commodities to bounce back over the year, given how badly the fund did between 2016 and 2017 when its return was 0.1 per cent. “Things that have performed badly quite often bounce back and vice versa," he adds. "BlackRock Commodities Income was quite cheap a year ago, so it doesn’t surprise me that it performed well. But it will always be volatile.”
This offset a loss for Murray International Trust (MYI). The trust's return was hindered by a lack of exposure to the US and some heavy bets in emerging markets, in particular Latin America. Despite losing 7.5 per cent and detracting from the overall portfolio return by -0.94 per cent , it still provided income worth £493.94, a yield of 3.95 per cent on the a £12,500 investment. And because Mr Liddell had reduced his allocation to Murray International in 2017, it limited the impact.
He says: “It’s been a bad performer this year, but last year had performed quite well, so I reduced the holding. It's now trading at a discount to net asset value (NAV), but its manager, Bruce Stout, is longstanding and experienced. The trust also has a good dividend record and an attractive yield.”
Another trust that performed well is Aberdeen Diversified Income and Growth (ADIG), a new entrant into Mr Liddell’s portfolio in 2017. This multi-asset trust invests in other funds and investment trusts, and has about 40 per cent of its assets in bonds, 5 per cent in property, 6 per cent in alternatives and the rest in equities. Its diversified strategy has worked as the trust made a share price total return of 7.86 per cent over the 12 months to 30 September. A 5 per cent weighting in Mr Liddell's portfolio meant it made a contribution of 0.39 per cent. Over the period, its yield was 4.35 per cent, in line with its five-year average of 4.39 per cent.
Despite equities accounting for a third of Mr Liddell’s portfolio, the allocation to alternative investments really helped over the period. Two of the highest performance contributions came from NB Global Floating Rate Income Fund (NBLS), which invests in bonds whose income rises in line with interest rates, and HICL Infrastructure Company (HICL), which mainly invests in government-backed infrastructure projects. These were added to Mr Liddell's portfolio last year and contributed 0.62 and 0.42 per cent respectively to the overall portfolio return, and 17 per cent and 13 per cent to the income.
iShares UK Dividend UCITS ETF (IUKD) also contributed a higher percentage proportion of the portfolio's income – 19 per cent – than its weighting in it of 15 per cent. The exchange-traded fund (ETF) had a yield over the period of 5.95 per cent. But it only made a total return of 1.12 per cent and a portfolio contribution of 0.17 per cent.
David Liddell's updated portfolio for 2018-19
| Holding | Allocation (01/10/2017 - 30/09/2018) (%) | Change from 2017 (%) | Contribution to portfolio (01/10/2017-30/09/2018) (%)† | Income paid (01/10/2017 - 30/09/2018) (£)† |
| BMO UK High Income Trust (BHIU) | 12.5 | 0.0 | 0.01 | 445.11 |
| Edinburgh Investment Trust (EDIN) | 12.5 | 2.5 | 0.13 | 478.07 |
| iShares UK Dividend UCITS ETF (IUKD) | 12.5 | -2.5 | 0.14 | 743.75 |
| Murray International Trust (MYI) | 12.5 | 0.0 | -0.94 | 493.94 |
| Aberdeen Diversified Income and Growth Trust (ADIG) | 10 | 5.0 | 0.79 | 434.85 |
| Temple Bar Investment Trust (TMPL) | 10 | 0.0 | -0.04 | 329.35 |
| NB Global Floating Rate Income (NBLS) | 10 | -2.5 | 0.50 | 648.69 |
| John Laing Environmental Assets (JLEN)* | 10 | 10.0 | 0.07 | 583.49 |
| Aberdeen Asian Income (AAIF) | 5 | 0.0 | -0.04 | 210.28 |
| BlackRock Commodities Income (BRCI) | 5 | 0.0 | 0.85 | 277.78 |
| Overall portfolio | 1.46 | 4645.31 |
Source: FE Analytics, *Replacement for HICL †Based on a new holding
Simon Moore's portfolio: 1-year performance
| Holding | Asset class | Allocation (01/10/2017 - 30/09/2018) (%) | Share price total return (01/10/2017 - 30/09/2018) (%) | Contribution to portfolio (%) | Income paid (01/10/2017 - 30/09/2018) (£) | Contribution to income (%) | Yield (%) | Average yield over five years | Capital value as at 30/09/2018 (£) |
| Picton Property Income Trust (PCTN) | Property | 15 | 7.42 | 1.11 | 611.44 | 10.70 | 4.08 | 6.04 | 16,113.00 |
| UK Commercial Property REIT (UKCM) | Property | 15 | -0.95 | -0.14 | 600.00 | 10.50 | 4.00 | 5.05 | 14,857.50 |
| NB Global Floating Rate Income Fund (NBLS) | Bonds | 15 | 4.98 | 0.75 | 973.04 | 17.02 | 6.49 | 6.16 | 15,747.00 |
| JPMorgan Global Emerging Markets Income Trust (JEMI) | Equity | 10 | 2.01 | 0.20 | 398.41 | 6.97 | 3.98 | 4.05 | 10,201.00 |
| Henderson Far East Income (HFEL) | Equity | 10 | 6.5 | 0.65 | 589.13 | 10.31 | 5.89 | 6.08 | 10,650.00 |
| International Public Partnerships (INPP) | Infrastructure | 10 | 0.29 | 0.03 | 437.62 | 7.66 | 4.38 | 5.21 | 10,029.00 |
| TwentyFour Income Fund (TFIF) | Bonds | 10 | 8.14 | 0.81 | 614.01 | 10.74 | 6.14 | 6.13 | 10,814.00 |
| BlackRock Frontiers (BRFI) | Equity | 5 | -3.01 | -0.15 | 241.61 | 4.23 | 4.83 | 5.13 | 4,849.50 |
| Fair Oaks Income (FAIR) | Bonds | 5 | 5.37 | 0.27 | 888.93 | 15.55 | 17.78 | *18.22 | 5,268.50 |
| SQN Asset Finance Income Fund (SQN) | Alternative | 5 | 6.44 | 0.32 | 362.52 | 6.34 | 7.25 | *6.31 | 5,322.00 |
| Overall portfolio | 100 | 3.85 | 3.85 | 5,716.71 | 5.72 | 6.22 | 103,851.50 |
Source: FE Analytics, *Over four years as at 08/11/2018
How Simon Moore’s portfolio performed
Mr Moore’s portfolio is very different to Mr Liddell's. It has a focus on high-yielding alternative assets and limited exposure to equities. He does not include any UK equity income trusts, but does have exposure to more esoteric assets such as leasing receivables via SQN Asset Finance Income Fund (SQN) and collateral loan obligations (CLOs) via Fair Oaks Income (FAIR). Overall, his portfolio only has 25 per cent in equities, with 30 per cent in property, 30 per cent in bonds and 20 per cent in alternatives.
The portfolio performed well, with a return of 3.85 per cent between 1 October 2017 and 30 September 2018. The focus on high-yielding less traditional assets gave this portfolio a good yield of 5.72 per cent, and in this period a better return than Mr Liddell’s portfolio. However, Mr Liddell’s portfolio is likely to do better when equity markets are doing well. Mr Liddell's portfolio also has more of a value focus.
The best-performing trust in Mr Moore's portfolio was TwentyFour Income Fund (TFIF), with an 8.14 per cent share price total return. But with only a 10 per cent allocation in the portfolio its return contribution was 0.81 per cent. The trust provided £614 of income from an allocation of £10,000 and had a yield of 6.14 per cent. This accounted for nearly 11 per cent of the income – slightly above its 10 per cent portfolio allocation.
The best portfolio contribution came from Picton Property Income (PCTN) at 1.11 per cent. It accounted for 15 per cent of Mr Moore's portfolio. However, its yield of 4.08 per cent was below its five-year average yield of 6.04 per cent. It made an income contribution of 10.7 per cent.
The highest income contribution came from NB Global Floating Rate Income Fund (NBLS), which invests in floating rate bonds. “Investors need to have a mix of different types of assets, but on the bond side you do not want fixed rate as yields rise, you want floating rate," says Mr Moore. "And as rates rise, the income from this trust will rise as well.”
NB Global Floating Rate Income Fund provided 17 per cent of the income, even though it only accounts for 15 per cent of Mr Moore's portfolio. It yielded 6.49 per cent over the period, slightly above its five-year average of 6.16 per cent. The trust made a 4.98 per cent share price total return over the 12 months to 30 September, and a return contribution to the portfolio of 0.75 per cent.
Mr Moore added Fair Oaks Income last year, which buys baskets of loans where the interest rates rise with central bank interest rates. This had the highest yield of all the portfolio constituents over the given period, at 17.78 per cent, although slightly below its four-year average of 18.22. It provided income of £889, which accounted for 15.55 per cent of the portfolio's income. It made a share price total return of 5.37 per cent over the period.
Henderson Far East Income Trust (HFEL) made a share price total return of 6.5 per cent and yielded 5.89 per cent over the period. It has a 10 per cent allocation in the portfolio. However, BlackRock Frontiers Investment Trust (BRFI) was down 3 per cent, and the biggest drag on the portfolio, inflicting a 0.15 per cent loss. The trust yielded 4.83 per cent over the period, below its five-year average of 5.13 per cent.
Another drag on returns and income was UK Commercial Property REIT (UKCM). The trust has come under pressure due to Brexit uncertainty and its share price fell 0.95 per cent over the period. It provided income of £600 – 10.5 per cent of the total – but its contribution is below its 15 per cent weighing in the portfolio. It yielded 4 per cent over the period, below its 5.05 per cent five-year average.
<BOXOUT>Simon Moore’s portfolio changes
Mr Moore was pleased with International Public Partnerships' (INPP) performance, which is a core holding, accounting for 15 per cent of his portfolio. It also provides asset class and geographic diversification. And although he has made some changes he has stuck with his focus on high-yielding alternative assets, alongside some equity trusts to boost returns, balance risk and diversify income.
He has removed UK Commercial Property REIT and partly replaced it with a 5 per cent weighting to Tritax EuroBox (EBOX). The trust only launched in July this year, but has a similar strategy to UK-focused Tritax Big Box REIT (BBOX) of which Mr Moore is a fan. Tritax EuroBox will invest in warehouse buildings in continental Europe.
“The UK commercial property market has risks associated with Brexit, and UK Commercial Property REIT also has exposure to retail, which is having problems," explains Mr Moore. “Tritax Big Box REIT has done very well, and Tritax EuroBox has started making acquisitions. It gives exposure to what has done well in the UK – warehouses near road networks. But in Europe there are 500m people, rather than 65m, and it has a larger motorway network. Tritax EuroBox hasn’t started paying dividends, so I am giving it a low weighting, but will consider increasing it in future when we have more confidence.”
He has also removed Picton Property Income, which converted to real estate investment trust (Reit) status earlier this year. Its 15 per cent allocation has been reassigned to LXI REIT (LXI) for better exposure to long-lease commercial property with inflation-linked rents. “We want to make sure that as interest rates and inflation rise, our income is secure," says Mr Moore. "Picton did not have as much ability to pay better dividends in line with inflation.”
Mr Moore also removed SQN Asset Finance Income, replacing it with GCP Infrastructure Investments (GCP), which has a weighting of 10 per cent. SQN Asset Finance Income had some issues with a solar manufacturing investment and Mr Moore thinks GCP Infrastructure's investments are more attractive. It provides loans to infrastructure projects that provide a more secure income.
Mr Moore has cut the allocation to NB Global Floating Rate Income by 5 per cent and added it to Fair Oaks Income, the portfolio’s highest yielder. He also increased the allocation to International Public Partnerships by 5 per cent.
The table below shows how Mr Moore's new portfolio would have fared over the 12 months to 30 September.<BOXOUT>
Simon Moore's new £100,000 portfolio
| Holding | Allocation (01/10/2017 - 30/09/2018) (%) | Change from 2017 (%) | Contribution to portfolio (01/10/2017-30/09/2018) (%)† | Income paid (01/10/2017 - 30/09/2018) (£)† |
| LXI REIT (LXI)* | 15 | 15.0 | 1.25 | 686.29 |
| International Public Partnerships (INPP) | 15 | 5.0 | 0.04 | 656.43 |
| JPMorgan Global Emerging Markets Income (JEMI) | 10 | 0.0 | 0.20 | 445.11 |
| Janus Henderson Far East Income (HFEL) | 10 | 0.0 | 0.65 | 478.07 |
| Fair Oaks Income (FAIR) | 10 | 5.0 | 0.54 | 1777.85 |
| NB Global Floating Rate Income (NBLS) | 10 | -5.0 | 0.50 | 648.85 |
| TwentyFour Income (TFIF) | 10 | 0.0 | 0.81 | 277.78 |
| GCP Infrastructure Investments (GCP)*** | 10 | 10.0 | 0.55 | 601.27 |
| BlackRock Frontiers (BRFI) | 5 | 0.0 | -0.15 | 329.35 |
| Tritax EuroBox (EBOX)** | 5 | 5.0 | 0.09 | 0.00 |
| Overall portfolio | 4.48 | 5901.00 |
Source: FE Analytics, *Replacement for Picton, **Replacement for UKCM, ***Replacement for SQN †Based on new holding
David Liddell's 2017-18 portfolio: 6-month to 10-year performance
| Holding | 6-month share price return (%) | 1-year share price return (%) | 3-year share price cumulative return (%) | 5-year share price cumulative return (%) | 10-year share price cumulative return (%) |
| Aberdeen Asian Income (AAIF) | -5.48 | -8.27 | 35.02 | 15.52 | 234.25 |
| Aberdeen Diversified Income and Growth Trust (ADIG) | 3.62 | 9.22 | 5.18 | 12.33 | 130.18 |
| BlackRock Commodities Income (BRCI) | -6.77 | -0.28 | 34.27 | -8.81 | 61.31 |
| Edinburgh Investment Trust (EDIN) | -3.68 | -5.94 | 2.59 | 36.56 | 208.02 |
| BMO UK High Income Trust (BHIU) | -4.55 | -7.58 | 15.15 | 24.71 | 121.48 |
| HICL Infrastructure Company (HICL) | 14.26 | 7.53 | 19.85 | 53.53 | 157.03 |
| iShares UK Dividend UCITS ETC (IUKD) | -4.55 | 0.39 | 7.3 | 21.35 | 131.06 |
| Murray International Trust (MYI) | -6.36 | -10.81 | 44.74 | 23.13 | 193.5 |
| NB Global Floating Rate Income (NBLS) | 2.06 | 2.5 | 29.42 | 34.13 | |
| Temple Bar Investment Trust (TMPL) | -4.52 | -2.85 | 26.16 | 20.14 | 216.35 |
Source: FE Analytics as at 07/11/2018
Table 6: David Liddell's 2018-19 new trust: 6-month to 3-year performance
| David Liddell's new trust: 6-month to 3-year performance (%) | |||
| 6-month total return (%) | 1-year total return (%) | 3-year cumulative return (%) | |
| John Laing Environmental Assets (JLEN) | 6.15 | 1.80 | 19.35 |
Source: FE Analytics as at 07/11/2018
Table 7: Simon Moore's 2017-18 portfolio: 6-month to 10-year performance (%)
| Holding | 6-month share price return (%) | 1-year share price return (%) | 3-year share price cumulative return (%) | 5-year share price cumulative return (%) | 10-year share price cumulative return (%) |
| BlackRock Frontiers (BRFI) | -15.5 | -10.62 | 47 | 41.47 | |
| Fair Oaks Income (FAIR) | -1.03 | -2.35 | 54.31 | ||
| International Public Partnerships (INPP) | 10.71 | 1.98 | 35.15 | 55.23 | 168.33 |
| Henderson Far East Income (HFEL) | -5.49 | -6.8 | 40.08 | 37.87 | 214.57 |
| JPMorgan Global Emerging Markets Income (JEMI) | -5.19 | -9.46 | 37.97 | 19.09 | |
| NB Global Floating Rate Income (NBLS) | 2.06 | 2.5 | 29.42 | 34.13 | |
| Picton Property Income Trust | -1.33 | 6.88 | 40.43 | 102.53 | 365.59 |
| SQN Asset Finance Income (SQN) | 7.77 | 8.38 | 13.22 | ||
| UK Commercial Property REIT (UKCM) | 0.02 | 4.74 | 14.91 | 46.07 | 161.95 |
| TwentyFour Income (TFIF) | 1.27 | 5.03 | 25.49 | 41.95 |
Source: FE Analytics as at 07/11/2018
Table 8: Simon Moore's new trusts 6-month to 10-year performance (%)
| 6-month total return (%) | 1-year total return (%) | 3-year cumulative return (%) | 5-year cumulative return (%) | 10-year cumulative return (%) | |
| GCP Infrastructure Investments (GCP) | 9.35 | 7.98 | 22.69 | 59.18 | |
| Janus Henderson Far East Income (HFEL) | -5.49 | -6.80 | 40.08 | 37.87 | 214.57 |
| LXI REIT (LXI) | 19.37 | 22.27 | |||
| Tritax EuroBox (EBOX)* |
Source: FE Analytics as at 07/11/2018, *launched in 2018
For all the features in our Investment Trust special, click below:
Around the world in 8 investment trusts
IC investment trust income portfolios: 12 months on
The most recommended investment trusts
Get the most out of UK smallers by picking the right investment trust
Investment trusts: Professional picks 2018
Win £5,000 to invest in an investment company
