Tuesday, 28 June 2016

Final Thoughts on Brexit and Democracy

The dust is starting to settle after the result of the referendum was announced last Friday and everyone is starting to come to terms with the new reality - in a little over two years, Britain will cease to be a member of the EU.

Of course, it’s tough to accept, or even believe for the millions of people who voted for and fully expected Remain. Large areas of the UK voted Leave - indeed some areas in the Midlands and North were over 70%. However, equally many areas voted in swathes to Remain - most of London, all of Scotland and Northern Ireland as well as some cities such as Liverpool and Manchester.

Some breakdown of the data with more detailed analysis has been done and reported recently on the BBC.

Of the 30 areas with the fewest graduates in the UK, according to the 2011 census, 28 backed Brexit.

By contrast, 29 out of the 30 areas with the most graduates voted Remain, including the City of London (where 68.4% are graduates)

Of the 30 areas with the most elderly people, 27 voted leave and of the 30 areas where most people identified as English, 30 voted leave


In the aftermath of this historic vote, some people are calling foul - surely it should have been a 2/3 majority needed to leave; some people voted leave as a protest but did not really mean it so there should be another referendum; young people who have to suffer the consequences longest have been denied a future in the EU by the older voters, London/Scotland did not vote to leave etc.etc.

Well thank God we live in a democracy - every adult has one vote, wherever they live, whatever their social background or level of intelligence (assuming this is measured by whether you have a degree or not).

The magical thing about democracy is that it doesn’t give some people extra voting power if they are rich or well-educated or live in a particular part of the country. It’s the ultimate great leveller.

I live up north, I did not have the benefit of a university education, left school with a few ‘O’ levels at the age of 16 and worked hard for the next 40 years. I do not regard myself as better or more deserving compared to anyone else. I am not an intellectual as any readers of my blog will surely have gathered. But equally, whilst I may be foolish at times, I am not stupid.

I have read some comments recently branding Brexit voters as confused individuals who do not realise what they are doing. The older voters are self-centered and have no thought for the youngsters.

Whist I can accept that much of this comes from a feeling of disappointment and despair, I also think it is misguided and unfair. There are surely many complex reasons for coming to a decision of such importance. Yes, some people - maybe many, would not fully understand the consequences (either way) but for me what is most important is not so much the outcome of the vote but the process called democracy by which we resolve such issues.

It is democracy which underpins the entire fabric of our society and preserving this is far, far more important and precious to our way of life than any particular vote.

The day the vote of the common man or woman, however disadvantaged, low intellect, poor or just unlucky in life's lottery, counts for less than others would be a very sad day indeed.

Although I voted to leave last Thursday, I have no sense of pleasure or joy at the result. I expected it would go the other way and I would have accepted that outcome if it was Remain.

At the end of the day, whichever side we supported, whatever the merits, the nation has spoken and I was pleased to hear David Cameron say yesterday in parliament that the will of the people must be accepted. The argument between leave or remain is now settled and it’s time for everyone to move on, accept the decision and trust that the majority 17 million people have made the right choice for the nation.

We will not know for sure for quite some time but whilst the future may be uncertain outside of the EU, I know with certainty that we are all better off living in a robust and healthy democracy - I hope we never take it for granted.

This is essentially a blog about my investment journey so this will be the final post about the referendum! Back to business as usual next article.

Friday, 24 June 2016

A Momentous Decision is Made!

Well, having cast my vote to leave the EU yesterday, although I thought the outcome would be close I genuinely believed the majority would choose to remain. As the night of the results unfolded I was really stunned to see the level of support for Leave up and down the country - well except Scotland which was no surprise.

The final figures were 52% Leave and 48% Remain which is clearly decisive. The turnout was over 72%.

Of course, this is not the outcome predicted by the polls - we really should not be surprised - and the markets have seen a sharp decline with the FTSE 100 down around 5% at lunch and the pound losing around 8% against the dollar.

The result has seen our prime minister David Cameron announce his intended departure in the Autumn - he clearly misjudged the strength of feeling for Leave - and we will now be heading into unchartered waters as we negotiate our departure from the EU with a new PM (and probably chancellor) over the coming couple of years.

There will be lots of uncertainty and challenges over this period and beyond. Longer term, I am optimistic that the UK can do better for itself free from a failing EU. I suppose the question I ask is, if one member out of 28 choosing to leave the club is such a disaster, what does that say about the resilience of the club and the rules it follows?

I suspect the decision by the UK will accelerate the demise of the project and that other countries such as Sweden, Holland and France may well seek to offer a similar referendum to their people.

My Investments

There is no doubt my portfolio has taken a hit this Friday morning - my shares in house builder Berkeley are down 20%!

If I needed my capital next week, I would be feeling a bit sick right now, but I do not so I am not overly concerned. These sort of events and the resulting volatility have to be accepted as part of the deal for every small investor.

For me its all about time frame for investing - hopefully another 20 years or so, and then selecting the most appropriate asset allocation to keep me in the game at times like this.

Over the past 18 months or so, I have been adjusting my strategy and taking on board the likes of Vanguard Lifestrategy 60 and this has helped to smooth out some of the volatility associated with my individual shares and other equities. I also have a significant weighting in fixed interest securities such as building society PIBS which provide a lot of stability (as well as income).

Hopefully, in the coming months, this episode will just be a blip on the landscape - the markets and the pound will bounce back as we all adjust to the new realities.

Be patient, stay in the game and keep it simple.

What did you make of the EU result? What about your portfolio? Feel free to share any thoughts in the comments below.

Monday, 20 June 2016

EU Referendum - In or Out?

Everyone is talking about it, the media has been covering it for months and there can be little doubt the referendum vote this coming Thursday is a once in a generation event for everyone to have their say whether they want Britain to remain or leave.

They say most younger people want to remain but are less likely to vote. Older people are more likely to want out and are more likely to vote.

The opinion polls sway one way then the other - at present they seem to be saying it will be a very close call - but are they accurate, they got it very wrong for the general election last year.

I really do not feel very well informed on the EU and for all the media coverage and debates in recent months, there is much spin and rhetoric and few reliable facts. I am possibly less clear on many issues now than before it kicked off.

I must say however that I have been dismayed by the campaign of fear - house prices will plummet, every household will be £4,000 worse off, state pensions will be affected etc.

I suspect a great many people remain confused and for me the decision therefore boils down to a gut feeling about Europe.

For me, the three biggest issues are democracy, immigration and the economy.


Most people haven’t a clue who their Euro MEP is or what they do. On average, 2 out of 3 people vote in the general elections but only 1 in 3 vote in the Euro elections. Most people do not relate to the EU, they do not think their vote makes any difference and therefore simply do not bother to vote.

We can hold our MPs to account and ultimately vote for a change of government every 5 years if we don’t like the one in power. In 2010, people were getting a bit fed up after 13 years of Labour. The coalition came to power. In 2015, the public in their wisdom decided they did not want the Lib Dems and returned an outright majority Tory government.

Since the 2008 crash of Lehman Brothers, there has been a general tendency to put aside democratic procedures or to change them into pseudo-democratic processes. The “too big to fail” policy of bank rescue has become a permanent but barely discussed feature. The Troika is another structure living its own life in isolation from democratic procedures - an expert committee composed of representatives of the Commission, ECB and IMF – and no democratic oversight whatsoever.

In the EU laws are proposed by the unelected civil service called the EU Commission and are later approved by the unelected Council of Ministers. Do our so called representatives decide what laws are implemented or is this more the role of the unelected commissioners?

We cannot hold these people to account at the European level and this is profoundly undemocratic. The only way for the UK to regain our sovereignty is by leaving the EU.


Net migration to the UK is running at ~300,000 per year - up from 100,000 in 2004. The government wants to reduce this to ‘tens of thousands’ but has failed to make any inroads into the rising influx. Whilst we remain in the EU we must allow free movement of people from other EU counties to come and live and work here.

This is putting a big strain on services such as our NHS and schools as well as infrastructure, transport and housing. I believe we, not the EU, need to have the final say on numbers of people coming here so that they can be set at a level we need and can assimilate and also where applicants from non-EU countries around the world have an equal opportunity to live and work here.


It seems to me the original ideals of the EEC were noble but they have been overtaken by the inevitable push towards its stated objective of ever closer union - what feels like a wannabe superpower United States of Europe. For this to become a reality, it needs a common currency controlled by a central bank which can control debt and interest rates in relation to every member state.

Unfortunately, the global credit crunch of 2008 exposed the structural flaws in the euro resulting in the near collapse of  some of the weaker economies of southern Europe. Those countries had become weaker because they had access to cheap money when they were admitted as members. Greece, Portugal and Ireland could borrow money at the same rates as Germany.

Real estate bubbles were just one of the consequences. Cheap money enabled countries to run up big debts, pay high wages to government employees, and create false prosperity that encouraged consumers to spend and borrow beyond their means.

We all know the consequences when the bubble burst - high unemployment leading to many young people leaving to seek employment elsewhere, and a legacy of huge debts owed to the European banks which will probably never be repaid.


For me, I am convinced project EU can never work. The EU is creaking at the seams - it is a failed experiment. In the lon run, whether we vote to leave or remain will proably not make a great deal of difference. However if the vote turns out to be leave, I imagine the demise will be all the swifter.

Like an animal with some incurable sickness, the kindest act would be to put it down as humanely as possible.

I will be voting to leave on Thursday and will very likely stay up into the early hours to learn of the result which should become clear by around 4 am - I suspect remain may just have it!

Feel free to share any thoughts in the comments below.

Friday, 17 June 2016

SIPP Drawdown Review - 4th Anniversary

It's mid June, another 12 months has rolled by and time to review my SIPP portfolio at the end of its fourth anniversary. Here’s a link to the previous update last year.

The original plan was to maintain a rough split of 60% equities from which to generate a rising return/income which would hopefully keep pace with inflation. This plan has now been revised following the pension freedoms introduced in April 2015. The new strategy is to remove the value from my sipp up to my personal allowance each year and to transfer this into my tax-free ISA.

The net effect of the changes resulted in the sale of 3 investment trusts last October with the proceeds withdrawn tax free and later reinvested in the Vanguard LS 60 index fund outside of the SIPP. However, for the purposes of continuity, I will show the value of the Vanguard fund as if it were still held in my SIPP.


As can be seen from the portfolio below (end column), I have calculated the 4 yr average annualised return (including income) for each of my investments. Sometimes it can be a little misleading focussing on the income yield alone whereas what really matters for me over the longer term is total return - capital appreciation + income combined.

Returns have been checked in recent weeks as the markets are spooked by the looming EU referendum and the possibility of Britain leaving - all will be revealed next Thursday.

My holding in smaller companies specialist Aberforth has pulled back a little over the past year which is to be expected however the average return remains high and over 17% p.a. in each of the past four years. The larger trusts, Edinburgh and City of London have been very solid however I have been a little disappointed with a few of my Aberdeen stabled ITs over the past couple of years and Murray Income and Dunedin Income were sold. Murray International seem to be showing some signs of recovery this past few months.

The total return including income after 4 years is 43.1% (last year 43.8%) which is a little down on last year but still very satisfactory and works out at an average annualised return of 9.4% p.a..

Here is the portfolio (not actual amounts but roughly reflecting weighting for each holding)

(click to enlarge)


In June 2012, the FTSE 100 was 5,500 and has risen to 6,020 - a gain of 9.5%. If we add in average dividends of say 3.8%, this gives a rough total return of 24.7%

In June 2012, the Vanguard LS 60 (acc) price was £105.02 and today stands at £144 - a gain of 37% or annualised average of 8.2% p.a.

The overall CAGR of the SIPP portfolio after 4 years is 9.4%p.a. - without the boost from smaller companies specialist Aberforth, I suspect this figure would be nearer to the 8% offered by the Lifestrategy 60 fund.


The original aim of the sipp drawdown was to generate a steadily rising income from my investments to keep pace with inflation.

Under the new pension freedoms which took effect from April 2015, I am no longer restricted by the GAD rules and I am now able to drawdown as much or as little as required. As my pension is my main source of taxable income, it makes sense to reduce the pot by transferring the capital tax free to my ISA. This year I intend to withdraw a further £11,000 which will be taken from the redemption of my Coventry BS PIBS at the end of this month. The balance will be reinvested within my SIPP.

I am reasonably happy with my four years of self-managing a drawdown sipp portfolio. For the first 3 years, the dividend income has predictably rolled in and importantly, increased each year a little ahead of inflation. Now I am able to withdraw significant lump sums tax free and place these in my tax free ISA.

If you are managing your SIPP or you are planning to do this, feel free to share your experience in the comments below.

Thursday, 16 June 2016

Invesco Income Growth Trust - Final Results

This trust has been managed by Ciaran Mallon since 2005 and is part of the UK income sector. The investment objective is to provide shareholders with long-term capital growth and real long term growth in dividends from a portfolio yielding more than the FTSE All-Share Index.

It is one of a basket of income trusts held in my SIPP flexi-drawdown portfolio. It is one of the smaller trusts in my collection with total assets of £172m. I generally like to hold the larger trusts as the expense ratio tends to be lower due to economies of the larger operation. Having said that, the expenses for IVI are not too bad for an actively managed trust - 0.90% incl. transaction charges.

The trust has issued its annual report for the 12 months to 31st March 2016 (link via Investegate).

On a total return basis, net asset value (incl. dividends) declined by -2.1% over the year - ahead of the benchmark FTSE All Share -3.9%. The trust has outperformed its benchmark index over 1, 3, 5 and 10 years - obviously, if this can continue, its worth paying a little extra in charges compared to the lower cost trackers.

The zero weighting in the mining sector, where share prices have been negative and very volatile, was a positive for the trust over the 12m period.


Earnings increased to 11.5p per share from 10.9p over the year, helped by some special dividends received. This has boosted the dividend reserves which now represent just over 100% of dividends paid out in the past year.

The board are recommending a final dividend of 3.8p which will make a total of 10.3p (2015 10.1p) an increase of 2% on the previous year. The current yield is around 4.1%.

The balance of the portfolio is weighted towards FTSE 100 large caps comprising 70%, FTSE 250 23% and the rest made up of smaller companies and some fixed interest. The top 10 holdings have a significant weighting in the traditional big hitters; tobacco - 8.4%, pharma - 7.3% and utilities - 5.5%. 

Commenting on outlook, the trust manager says:
"Notwithstanding its recent volatility, the UK stock market has risen strongly over the last six years. Market valuations, in terms of historic dividend yields and price earnings ratios, are near long term average levels, suggesting that that the long term outlook for returns from investing in the stock market are still attractive. However, there remains the possibility of further dividend cuts, while earnings growth for many companies and sectors remains elusive, or even negative, against a back drop of subdued economic growth and other uncertainties.

I believe it is sensible to remain conservative in my investment approach and seek to invest in companies whose prospects are not dependent on an improving economic outlook. I remain confident in the long term return potential of the holdings in my portfolio".

For those looking for a predictable, steadily rising income, investment trusts can be a good option however, they are not without risk - especially the more highly geared trusts. This trust fared reasonably well in my recent post comparing  my basket of investments trusts -v- index funds.

I am happy to continue with the trust in my sipp drawdown portfolio.

As always, please DYOR.

Tuesday, 14 June 2016

Lars Kroijer - Free Seminar

I have enjoyed many of the articles by Lars on the Monevator site over the past couple of years. In November I finally got around to reading "Investing Demystified" and wrote a brief review.

Following on from a successful seminar in March, Lars will be giving a second seminar at Shaftesbury Place, London next Thursday 23rd June from 6.30pm

He will speak on:

  • The hedge fund industry and hedge funds as an asset  class. What may the future hold?
  • Starting and scaling hedge fund business, critical success factors and facing the unexpected.
  • What is investing edge? Do you have it? What should you do if you don’t (like most people)?
  • The long term financial benefits of investing knowing that you can’t outperform markets.
Maybe a good antidote to the EU referendum!

Free tickets on a first come first served basis.

Wednesday, 8 June 2016

Vanguard All World High Yield ETF - Yr 3 Update

It is now 3 years since my initial purchase of this global income ETF for my ISA. I’m always on the look-out for ways to diversify my portfolio. I also like to keep costs to a minimum - the annual ongoing charges are 0.29%.

The All World High Dividend Yield (VHYL) holds over 1,100 higher yielding large cap companies listed all around the world. The largest sector at 40% is USA followed by UK 11%, Switzerland 5.6%, Japan 5.6%, Australia 4.3% - other significant countries are France, Canada, Germany, China and Taiwan.

Top 10 holdings are Exxon Mobil, Microsoft, Johnson & Johnson, General Electric, Wells Fargo, Nestle, JP Morgan Chase, Novartis, Procter & Gamble, Verizon and AT&T.


As with funds, all income is distributed so can be lumpy and unpredictable. For example, during the year to end June 2014, the distribution was $194.63 whereas in 2015 the distribution reduced to just $156.60 - 19.5% less in dollar terms. Unlike my investment trusts, I am never quite sure what income to expect at the end of each quarter - also there are FX considerations as the dollar distribution is converted to GB pounds. The original target yield was 4.0% and in my first year, this is close to what I received but it seems that was always going to be a tall order to meet - the current yield has fallen to ~3.0%.

My original purchase price in June 2013 was £31.60 and last year I topped up my holding giving an average price of £33.30. The current price is £34.00 and I have received income of  £4.47. My 3 year annualised returns todate are ~4% p.a. In my previous post I compared my basket of inv. trusts to my index funds over the past 5 years and was a little surprised to see the VHYL index annual returns at just 3.65%.


I had a look at the All World ETF (VWRL) returns for the past 3 years and they are 5.29% p.a. also Vanguard’s FTSE All World (ex UK) index fund has returned 8.4% p.a over the same period - this is more what I would expect given the S&P 500 is up 28% since June 2013. OK it excludes UK listed companies which will have some bearing but the VHYL has only 11% weighting so I would not think it should drag back returns by over 4% per year!

3 yr chart VHYL v FTSE Developed World (ex UK)
(click to enlarge)

I have also monitored progress to see how this ETF compares to my equity/bond Vanguard LifeStrategy 60. This has returned 5.37% p.a. over the past 3 years combined with less volatility….mmm pause for thought!

One advantage of holding this ETF within my Youinvest ISA is the avoidance of the 0.20% per annum platform charges levied on Vanguard funds. Also, there is no 0.5% stamp duty to pay on purchase.

However, with 3% natural yield and just 1% capital appreciation each year, I am missing out on an average 1.5% - 2.0% return each year - maybe 4% on my basket of investment trusts.

Given the natural yield is not great and the total return figures are lower than comparable global funds, I may consider a sale of this ETF and switch the proceeds to my lower volatility VLS60 fund at some point. I am just awaiting the quarterly dividend announcement for payment at the end of June and will then make a decision.

Thursday, 2 June 2016

Compare Investment Trusts to My Index Funds - Past 5 Years

Looking back to early 2013 when I started this blog, it is clear there has been quite a significant change to my investing strategy. Back then I was focussed on a portfolio of individual higher yielding UK shares combined with a ‘basket’ of investment trusts to generate the natural income I required in retirement.

Today, the individual shares are much reduced, some of the investment trusts have been sold in both ISA and SIPP drawdown and have been replaced by Vanguard index funds and ETFs.

I realised at some point that I was limiting my investing options by restricting my chosen investments to those that provided an adequate natural yield - say 3% minimum. This had ruled out looking at the likes of Vanguard LifeStrategy funds with a natural yield of under 1.5% for example.

Individual shares have been interesting but they are volatile and I have not noticed any greater return to my portfolio for the additional risk and volatility so I will wind down the rest of my shares portfolio in the coming months and move the proceeds into collectives.

My managed investment trusts have provided mixed returns in recent years. Some have done very well - Nick Train’s Finsbury Income, smaller company specialist Aberforth, Edinburgh, City of London - others have struggled - Murray Income, Murray Intl. and Dunedin Income for example.

Of course it is impossible to know in advance which investments will do well - all I have to go on at the time of purchase is past performance which is not a very good indicator. Therefore I decided to spread the risk between several diverse trusts in the hope that the average returns combined would outperform the market.

I find investment trusts less volatile than individual shares however, they do use varying amounts of gearing and can trade at a premium or discount to their NAV so they are a little more complex. Against this is the advantage for the investor who requires income of their ability to pay a steadily rising income steam due to their being able to hold back excess income in reserves during good years.

I like the concept of withdrawing a rising natural income from my investments. However, the acid test for me will always be long term total return. It can be seductive to harvest a natural yield of 4% or 5% but if the share price is stagnant or falling away, I may as well hold the money in a no-risk cash account and deplete the capital for ‘income’ each year.

The fortune of the trusts are always dependent on the managers making consistently good calls - some appear to be reasonably competent and some a little more average.

Performance Compared

As I have held my investment trusts for at least 5 years, I thought it may be an opportune time to compare the returns against some of my index funds.

Here is my basket of 12 investment trusts showing returns over the past 5 yrs to end May 2016
(click to enlarge)
The 5 yr annualised average total returns for my 3 benchmark funds are

Vanguard UK Equity Income  6.64%

Vanguard All World High Yield ETF  3.65%

Vanguard LifeStrategy 60  7.51%

The average for the 3 is 5.93%

Admittedly 5 years is not such a long period to compare but I am pleased to see the basket of managed investment trusts are doing the business and have delivered almost 2% extra return each year compared to my Vanguard funds. Of course, had I chosen fewer trusts or different trusts, the outcome may have been very different.

For example, if I did not hold Edinburgh, Finsbury and Aberforth the return for the basket would drop to just 6.1% p.a. On the other hand, if the basket did not include Murray Income, Dunedin and Aberdeen Asia the returns would be 9.1% p.a. Maybe luck plays a big part in the investing process!

So far, the basket of investment trusts continue to add a little extra value to my portfolio returns. There is not really much maintenance once purchased - just wait for the quarterly dividends to roll in and read the annual final results. Also, with my broker AJ Bell Youinvest, there are no platform charges for holding my trusts which is an added bonus.

I am happy to continue with my combined managed and passive mix for the time being although I may lose one or two of my underperforming UK income trusts if there is little sign of improvement soon.

As ever, slow and steady step….