Thursday, 7 January 2016

Collectives Income Portfolio - End 2015 Update

This started off as my investment trust income portfolio. Over the past year or so, it has morphed into a collectives portfolio as its scope broadens to include my low cost index funds and ETFs.

I last updated on my collectives income portfolio in August. The past year has seen a change in strategy to my individual shares portfolio and, to a lesser extent, my collectives portfolio as documented in my previous update.

Although this is demonstration income portfolio, it largely mirrors my own holdings. However, whilst with my real investments, I withdraw most of the income for living expenses, with this demonstration portfolio I will reinvest the income at the end of each year either into an addition investment trust - as with Blackrock Commodities Income trust last year - or recycle the income generated into one of the existing holdings - which is what I will do with this years income.

2015 Performance

So, how have the various investments fared over the past year - has the income risen - how do returns compare against my Vanguard trackers?

As I said in an earlier post, my benchmark against which I will measure performance will be the three Vanguard trackers -

1. All World High Yield ETF,
2. UK Equity Income fund, and finally
3. LifeStrategy 60 (acc) index fund.

Total returns including income over the past year are 1. -0.8%(UK adjusted)  2. -0.3% and 3. 2.5%
Therefore, taking an average of these three, the benchmark figure against which to assess the portfolio is 0.5%

The managed trusts have provided mixed returns - Aberforth Smaller +14%, Edinburgh +15% and Nick Train’s Finsbury Growth & Income + 12%. On the down side are Blackrock Commodities -32%, Murray International -14% and New City -5%.

Building on the positive returns of the past three years -

2012 +20.9%,
2013 +19.4% and
2014 +5.0%,

the portfolio has provided a total return of just 0.06% over the past year. The value of the portfolio at the start of 2015 was £35,106 compared to the current value of £35,129 - a rise of just £23. This takes into account dealing charges of ~£85 for the various sales and purchases over the year.


Income

As I continue to depend on the returns from my investments to pay the bills and put food on the table - at least for the next 3 years when the state pension will kick in, the objective of the portfolio is to produce a dependable income.

The aim is a positive total return rather than just focussing on natural income. This year my strategy has evolved to include the option of selling units from my Vanguard LifeStrategy index fund. Capital appreciation is always welcome but will largely follow the ups and downs of the general stock market. I have therefore put in place a 10% cash buffer equivalent to two an a half years ‘income’ to cover periods when market returns are negative.

Last years dividends of £1,222 were reinvested in the addition of BlackRock Commodities Income Trust (BRCI) . Although the income has continued to roll in from this trust, the share price has seen further weakness over the 12 months as global oil and commodity prices have taken a beating.

Income this year has increased to £1,280 - a rise of 4.7%, however the new addition of Vanguard LS is the accumulation version which does not pay out any income. If I were to factor in a notional £100 ‘income’ from this index fund, the total for the year would just exceed my target of £1,365 set at this point last year - this would represent an increase of 12.9% on 2014.

This gives a yield of 3.9% based on current valuations (maybe a little higher as markets fall early in the new year), so income requirements are very much on track.

The accumulated dividends of £1,280 will be reinvested in the Vanguard UK Income fund - a further 8.10 units making a total of 14.7. This fund tracks the FTSE 350 higher yielding shares and will have benefited from the holding of second tier smaller companies which have performed much better than the FTSE 100 this past year.

The main objective of the portfolio to date has been the generating a rising natural income to keep pace with inflation. This year, once again this has been more than achieved - inflation is currently running close to zero.

Looking ahead, the objective will need to change to reflect my new strategy and therefore as the balance shifts more towards VLS 60, income will become a combination of natural yield and sale of units or, withdrawal from the cash buffer where there is negative returns over the year.

Assuming combined growth in dividends and the acc. units of my index fund of around 5%, my target income by the end of 2016 is £1,430. Whilst its always very difficult if not impossible to forecast capital returns, I am fairly confident the income figure will be there or thereabouts by the end of December.

Here is the portfolio

(click to enlarge)

If I continue to wind down my individual shares portfolio over the coming 12 months, I will probably merge the two as the proceeds from my share sales are moving into collectives.

At the end of the day I aim to find the best fit of a strategy which matches my personality combined with low costs and more simplicity.

3 comments:

  1. Interesting post, DIY.

    I don't measure my investments against any particular benchmark or index.

    I use Monevator's method to unitise my portfolio and last year, saw an overall positive return of 3%, which I'm pretty happy about.

    I'll be continuing to invest in a mix of trackers and shares/ITs so it'll be interesting to see if I can at least maintain this.

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  2. weenie,

    3% is a decent return given the drop in the markets in the second half - not looking so good at the start of 2016! Hopefully it will turn around later in the year.

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  3. I took my pension at the start of this year, and moved to Hargreaves Lansdown. They charge 0.45% platform fee and of course you are charged whatever the Unit Trust charges, typically 0.5-1.0%. HL do not charge you anything to switch, which I especially like, as I switch a lot (still working on my strategy) and there are no initial fees for any funds. I also do not deal funds that charge a significant spread, as most do not these days. This way I am not penalised for switching funds. I only buy acc funds so I can compare (Excel spreadsheet) prices on a weekly basis and judge risk by the variances in price. The past ten weeks have been mostly upwards so I cannot really tell if my momentum strategy is working or not, but have been very surprised by the volatility of funds, which I had not expected, especially in Fixed Income funds. ps I would heartily reccommend HL as a platform, its full of good information and very user friendly. Watchlists are excellent.

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