Selecting investment companies for income portfolios. Nick Britton Head of Training AIC

Transcription

1 Selecting investment companies for income portfolios Nick Britton Head of Training AIC

2 Key information 2

3 What we ll cover 3

4 What we ll cover 4

5 What s most important to you? Attractive yield Infrastructure, debt, property Dividend heroes Strong income growth Smaller companies Consistent income growth 5

6 What s most important to you? Attractive yield Infrastructure, debt, property Dividend heroes Strong income growth Smaller companies Consistent income growth 6

7 Yield vs dividend growth rate Dividend yield (%) City of London Edinburgh Merchants Temple Bar Alliance Trust Scottish Mortgage Murray International PIGIT Bankers Foreign & Colonial Witan Lowland Dividend growth over last five years (%pa) Standard Life UK Smaller Cos F&C Global Smaller Cos Blackrock Smaller Cos Source: AIC using Morningstar (31/8/16) 7

8 Dividend heroes in detail Investment company City of London Investment Trust Sector Dividend raises Yield / 5yr divi growth UK Equity Income 50 years 3.9% / 3.0% Bankers Global 49 years 2.4% / 4.5% Alliance Trust Global 49 years 1.9% / 3.9% Caledonia Investments F&C Global Smaller Companies Global 49 years 2.2% / 4.2% Global 45 years 1.0% / 13.7% Foreign & Colonial Global 45 years 2.0% / 6.5% Brunner Global 44 years 2.6% / 3.6% Source: AIC (31/8/16) 8

9 Dividend heroes in detail (2) Investment company JPMorgan Claverhouse Sector Dividend raises Yield / 5yr divi growth UK Equity Income 43 years 3.7% / 3.3% Murray Income UK Equity Income 42 years 4.4% / 1.5% Witan Global 41 years 2.2% / 8.7% Scottish American Global Equity Income 36 years 3.6% / 3.0% Merchants Trust UK Equity Income 34 years 5.7% / 1.0% Scottish Mortgage Global 33years 1.0% / 2.6% Temple Bar UK Equity Income 32 years 3.6% / 2.6% Source: AIC (31/8/16) 9

10 Next generation of dividend heroes Investment company Perpetual Income & Growth BlackRock Smaller Companies Henderson Smaller Companies Aberdeen New Dawn Sector Dividend raises Yield / 5yr divi growth UK Equity Income 17 years 3.4% / 4.2% UK Smaller Companies UK Smaller Companies Asia Pacific ex Japan 13 years 2.0% / 15.8% 13 years 2.4% / 22.2% 12 years 2.1% / 3.4% Murray International Global Eq Income 11 years 4.2% / 4.7% Henderson EuroTrust Europe 11 years 2.0% / 2.3% Source: AIC (31/8/16) 10

11 Dividend frequency Monthly Quarterly Triannual Biannual Annual 2 Source: AIC, ex VCTs and splits (15/2/16) 11

12 Example portfolio Investment company Sector Gearing 5-year dividend growth Dividend yield City of London UK Eq Inc 8% 3.0% 3.9% Henderson Smaller Cos Murray International UK Smaller Cos 7% 22.2% 2.4% Global Eq Inc 13% 4.7% 4.2% Average 9% 10.0% 3.5% Source: AIC (31/8/16) 12

13 Example portfolio 2 (higher yield) Investment company Sector Gearing 5-year dividend growth Dividend yield Merchants UK Eq Inc 18% 1.0% 5.7% Murray International Global Eq Inc 13% 4.7% 4.2% Scottish American Global Eq Inc 20% 3.0% 3.6% Average 17% 2.9% 4.5% Source: AIC (31/8/16) 13

14 Example portfolio 3 (highest yield) Investment company Sector Gearing 5-year dividend growth Dividend yield Merchants UK Eq Inc 18% 1.0% 5.7% Henderson Far East Income F&C Commercial Property Asia Pacific ex Japan Property Direct - UK 4% 5.9% 5.9% 26% 0.0% 4.8% Average 16% 2.3% 5.5% Source: AIC (31/8/16) 14

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16 Tools for boosting yield Gearing Use of illiquid assets Converting capital to income 16

17 Assessing gearing Current gearing (borrowings/net assets) Highest and lowest gearing over past three years From AIC website Minimum and maximum gearing expected in future 17

18 Yield and gearing Above-average yields supported by gearing Dividend yield (%) Temple Bar Murray International Murray Income Edinburgh PIGIT Current gearing (%) Merchants Value & Income Scottish American Source: AIC using Morningstar (31/8/16) 18

19 Enhancing income via illiquid assets Investment company (Sector) Nature of illiquid assets Yield Law Debenture Corporation (Global) Scottish American (Global Equity Income) Value and Income (UK Equity Income) Fiduciary services business (c40% of income generated) UK commercial property portfolio (c12% of assets) UK commercial property portfolio (c30% of assets) 3.3% 3.6% 4.3% Source: AIC (31/8/16) 19

20 Paying dividends from capital Mainly private equity/vcts, with a few exceptions: Investment company Sector Yield European Assets European Smaller Cos 7.1% Invesco Perpetual UK Smaller Companies UK Smaller Companies 3.7% Personal Assets Flexible Investment 1.4% RIT Capital Partners Flexible Investment 1.8% Securities Trust of Scotland Global Equity Income 3.8% Utilico Emerging Markets Global Emerging Markets 3.1% Source: AIC (31/8/16) 20

21 Revenue reserves: now on AIC website 21

22 Dividend cover (years) Source: AIC using Morningstar (31/8/16) 22

23 Dividend cover (years) 3 2 UK equities Global equities 1 0 Source: AIC using Morningstar (31/8/16) 23

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25 Effect of discounts/premiums on yield Discount/premium you buy at Yield of underlying portfolio 10% disc No discount 10% prem 3% 3.33% 3.00% 2.73% 4% 4.44% 4.00% 3.64% 5% 5.55% 5.00% 4.55% Yield you get 25

26 Current (discount)/premium Investment company average Source: AIC using Morningstar (31/8/16) 26

27 Total returns (share price vs NAV) Ten year total returns % annualised FTSE All Share Share price NAV Source: AIC using Morningstar (31/8/16) 27

28 Research checklist Dividend yield & payment dates Is income being paid from capital profits? Gearing (current, historic, gearing range) 5-year dividend growth Track record of dividend increases (dividend heroes) Level of revenue reserves Discount/premium and discount control policy (if any) Total returns (share price / NAV) 28

29 Sister funds 3 Fund outperforming investment company Investment company outperforming fund NAV outperformance over 5 yrs (% p.a.) Source: Canaccord Genuity (five years to 31/12/15) 29

30 Alternative income sources

31 Diversifying income sources Infrastructure Specialist debt VCTs Commercial property 33

32 Purchases of investment companies on adviser platforms ( m) Equities Property Other 2015 Source: Matrix Financial Clarity (ex VCTs) 34

33 Attractive yields VCT Generalist Sector Specialist: Leasing Sector Specialist: Debt Infrastructure: Renewables Property Direct UK Property Specialist Infrastructure UK Equity Income Source: AIC (31/8/16)

34 Low correlation with equities Share price total return (%) Infrastructure Debt Property Direct - UK UK Equity Income Source: AIC using Morningstar (12 months ending 31 July) 36

35 Keep up to date with the sector Register on as a financial adviser and receive our monthly bulletin, Spotlight. 39

36 Stay in touch Nick Britton Tel:

37 Disclaimer Any information contained in this presentation has been prepared for information purposes only. Whilst the AIC / AIC Information Services Limited has taken all reasonable steps to verify such information, it does not accept responsibility for any errors or omissions or for losses of any nature incurred by any person howsoever caused. The information contained in this presentation does not constitute investment advice or personal recommendation and it is not an invitation or inducement to engage in investment activity. You should seek independent financial and, if appropriate, legal advice as to the suitability of any investment decision. This presentation may not be printed, reproduced or further distributed to any other person or published, in whole or in part, for any purpose. Please refer to /aic/terms-of-use/ for further information relating to our disclaimer policy. The Association of Investment Companies (AIC) is a company limited by guarantee whose registered office is 9th Floor, 24 Chiswell Street, London. EC1Y 4YY. Its trading and registered office addresses are identical. The AIC is a company registered in England and Wales and its company registration no. is The AIC is registered for VAT and its registration no. is AIC Information Services Limited is a company registered in England and Wales with registration no