I am slowly positioning my largest (but by no means only) SIPP towards investment trusts [1].
Why? You can read the full reasoning in my previous articles that:
- Put forward investment trusts as one solution [2] for retirement income.
- Made the case for active management [3] in deaccumulation.
- Explained the traits [4] I look for in such trusts.
Basically it boils down to a combination of in-built diversification, (mostly) reasonable charges, and a proven investment model that in many cases goes back over a hundred years.
That said, investment trusts differ widely in their suitability for income-focused retirees.
Fitness for purpose
Take, for instance, Scottish Mortgage. While I’m a huge admirer of Scottish Mortgage (and a holder, in another portfolio), its miserly yield is of little use once an investor moves from a strategy of accumulation to one of deaccumulation [5].
Likewise, as with index trackers and investment funds in general, costs are everything. Why pay virtually double, for a more or less identical performance? For the unwary, it’s easily possible.
Which is why, this time last year, I published a table [6] of retiree-focused data on a selection of investment trusts.
And now, I’ve updated it.
Yearly review
One year on, not much has happened – which is exactly as it should be in the (mostly) slow and steady world of investment trusts.
[6]Click to see the full-sized investment trusts for retirees table
There are however some points worth making about a few of these trusts. (In the discussion that follows I’ve marked with an asterisk those I personally hold).
- Yields are up, right across the board. No surprise there, what with the FTSE 100 down some 800 points since May 2015, having hit an all-time high of 7104 on April 27th, just days before. Generalist trust Murray Income* now offers a yield of 4.78%, for instance, while Asian specialist Aberdeen Asian Income* yields 5.07%.
- Some trusts that I judge of interest to income-seeking retirees have reduced their charges – most notably the two Invesco trusts managed by Mark Barnett, after Neil Woodford decamped to run his own outfit.
- Two contrarian trusts led by well-established, highly-regarded managers (Temple Bar* and Murray International*) are now characterised by a discount, not a premium [7]. Temple Bar, for instance, has a 12-month average discount of 5.07%.
- Costs remain a differentiator. Schroder Income Growth has this year increased its ongoing charge from 0.94% to 1.00%. But six of its top ten holdings are the same as the lowest-charging investment trust in the selection – the much-admired Job Curtis managed City of London* – where charges have been reduced from 0.44% to 0.42%.
Personal account
Finally, how has my own SIPP performed over the period?
The capital is down in line with the market, as you would expect. But income has risen by an appreciable amount, and has been reinvested in further purchases of investment trust shares.
Gradually, the proportion represented by trackers, ETFs, and direct shareholdings is reducing, and the proportion represented by income-centric investment trusts is increasing.
On retirement – still slated for nine years away, when I’m 70 – I shall simply switch the income from reinvestment to funding the cost of living.
Note: As mentioned, while not in any sense a recommendation, Greybeard’s own holdings among the investment trusts are indicated by an asterisk. You might want to read the rest of his posts about deaccumulation [5] and retirement.