Thursday, 22 October 2015

New City HY Trust - Final Results

NCYF had been a part of my SIPP portfolio for a number of years however, it was one of several investment trusts to be sold as part of my drawdown release. One reason for selecting this for a sale was that earlier this year, I added the trust to my ISA portfolio.

It invests in high-yield fixed-interest securities and has produced positive NAV total returns and increased dividends in each of the past six years. The trust has a widely diversified portfolio, including some high-yielding convertibles and equities, with useful exposure to floating-rate notes to guard against inflation.

They have today issued full year results to 30th June 2015 (link via Investegate)

Building on the previous years 3.1% uplift, the Company's net asset value has again seen a modest adjusted increase of 1.0% although the share price return has fallen back due to a reduction in the premium to NAV - this is always a possibility with investment trusts bought at a premium to their underlying asset value. Investment returns were muted due to Eurozone concerns and the strength of the US dollar.

Dividends have been increased to 4.31p for the full year (paid quarterly) giving a yield of  around 7.3% based on the current share price of 59p. The dividend is more than covered by earnings of 4.51p per share and revenue reserves are 113.5% - the equivalent of 13 months current dividends.

As in previous years, the trust continues to trade at a premium to net assets and the management have place new shares raising £50m.  This has helped to reduce the percentage of ongoing charges for the year.

The management fee of 0.8% p.a. was reduced to 0.7% per annum on total assets in excess of £200m with effect from 1st January 2015. Ongoing charges for the year have reduced to 0.95%.

With a great deal of turbulence hitting the equity markets in recent weeks, its reassuring to have the steadying effect of the fixed interest constituents in my portfolio.

As ever, slow and steady steps…

Thursday, 15 October 2015

SIPP Flexi-Drawdown Portfolio Changes

As we know, there was quite a radical shake-up of pensions announced by the Chancellor in his 2014 Budget.

These changes took effect from April 2015. I have completed the forms and converted my pension from income drawdown to flexi drawdown which basically means I am now free to take ad hoc payments from my pension for whatever sum I decide as and when needed.

Under these new freedoms, I am now able to drawdown as much or as little as required. As my pension is my main source of taxable income, I can withdraw up to £10,600 tax free this year. As I have little taxable income, it appears to be a no-brainer to siphon off some of my taxable sipp over the coming few years and reinvest in my ISA as the income in the future will be tax free.

When I reviewed my sipp earlier in the year, I was a little surprised to note how favourably the Vanguard Lifestrategy60 fund would have compared over the corresponding 3 yr period since June 2012.

At the end of my 3 yr review period in June, the average annualised returns (adjusted for platform fees of 0.20%) for the Vanguard fund have been ~10.5% p.a. Assuming I sold some of units at the end of each year to provide an equivalent income, my starting sum of £62,000 would now be worth ~£74,000 had I adopted this route to manage my sipp drawdown.

Obviously, the investment trusts have delivered a steadily rising income stream which means I do not need to touch the capital. The overall CAGR at the 3 years review point was 12.9%p.a. - without the boost from smaller companies specialist Aberforth, I suspect this figure would have been nearer to the 10% offered by the Lifestrategy 60 fund.

Portfolio Sales

This revised strategy to remove the value from my sipp up to my personal allowance each year was more or less the decision I reached following the announcement 18 months back. I have mulled over the decision in the intervening period and can see no real downside. My recent walking holiday break in Pembrokeshire gave me some quality time away to reflect on things and I came back with a settled decision to go ahead with this changes to my sipp.

The main consideration therefore was merely to decide which investments to sell.

In the end, I decided to dispose of some of the investment trusts which are duplicated in my ISA. Also, I wanted to keep the Aberforth smaller companies trust and also the more globally diversified Law Debenture trust.

I have therefore sold the following :

New City High Yield
Dunedin Income
Murray Income

As the LS index fund can provide the balance and diversity I need with lower costs and a comparable, if not better, returns than the investments sold, I have decided to stick with it moving forward rather than the investment trusts. It just seems very simple.

Although the proceeds will be withdrawn and then reinvested in the Vanguard LS outside of my sipp, for the purposes of maintaining continuity of a demonstration drawdown, I will retain the investment within the sipp. The proceeds are therefore shown to purchase 79.7 units in Vanguard LifeStrategy60 (acc).

The next drawdown decision will be next July following the anticipated redemption of my Coventry BS pibs which currently account for ~ 1/3rd of the portfolio value.

Here is an updated portfolio.
(click to enlarge)
As ever, slow & steady steps...

Tuesday, 13 October 2015

Smoothing the Emotional Rollercoaster.

This past year has brought about a few changes to my investing strategy which I am hoping will dampen down some of the volatility of my investing journey.

This has involved selling some of my individual shares and replacing them with collective investments - notably Vanguard UK Equity Income fund and the more diversified Lifestrategy funds which formed the basis for my latest bookDIY Simple Investing’.

So far this year I have sold half of my portfolio - a dozen or so individual shares, which means 12 fewer annual reports, 24 fewer dividend receipts to monitor and less to write up for the blog - hence it has been a little quiet recently.

I have taken advantage of the lovely settled weather over the past couple of weeks to enjoy a return trip to Pembrokeshire and enjoy walking the coastal footpath - this time near to Strumble Head (just below Fishguard) - highly recommended!

Strumble Head Lighthouse
I am slowly trying to get away from my daily addiction of following the markets (it helps to overlook packing the laptop!) - easy when you are physically removed from it all in a remote cottage in Wales - less so in my familiar routine at other times!

I was reminded of the benefits of not checking on your portfolio every day when I re-read ‘Smarter Investing’ and also my article on some aspects of successful investing from July following the recent market turbulence. Nobel prize winning psychologist Daniel Kahneman found that a loss yields roughly twice the psychological effect of an equivalent-size gain ....mmmm.

The chances my portfolio of shares will be up on any particular day is around 50/50 - every other day therefore I am likely to get a double whammy - not good for my emotional equilibrium.

Interestingly, the longer the gap between reviewing my portfolio, the lower the chances of registering a loss.

Daily is ~48%
Weekly ~44%
Monthly ~40%
Annually ~30%
Every 10 years is ~20%

So, the intention will be for me to move from my daily fix to a weekly review and from there to establish a once-per-month regime. Lets see how it goes!

With less shares to monitor combined with a much less frequent viewing of my investments I will need to find a new hobby to fill all the extra time - maybe something more physical and then the coastal walks will be a little easier!

As ever, slow and steady steps…