Sunday, 18 March 2018

RL Sustainable Managed Growth - An Ethical Option

Last year I was helping a friend to construct a diversified multi-asset portfolio. She wanted a low volatility, low cost, diversified asset mix and decided on a blend of Vanguard Lifestrategy (20 & 40) as a core of the portfolio with a smaller allocation between Personal Assets Trust, HSBC Global Strategy Cautious and Royal London Sustainable Managed Growth.

I have followed the fortunes of this portfolio. I already hold the Lifestrategy funds - 40 & 60, however I have been impressed with the RL fund in particular and decided to add it to my own portfolio earlier this month. The decision was prompted by the Coventry BS cutting my savings rate this month...just two months after they increased it.

This is another 'Steady Eddie' fund which is listed in the IA Mixed Investments 0 - 35% Equity category. The breakdown of asset mix is :

Fixed Investments 71%
UK Equities    12%
US Equities      5%
Euro Equities   4%
Cash & Other   8%

Top 10 holdings include Amazon, Microsoft and Alphabet (Google) which have probably helped to boost returns over the past few years.


The fund has delivered a return of 8.3% in 2017 and 35% over the past 5 years which works out at an annualised average of  6.4% p.a. The fund is ranked top out of 39 funds in the sector over this period. By comparison, the Vanguard Lifestrategy 20 fund has returned 25% over the past 5 years and is ranked 10th/39.

5 Yr Comparison v VLS20
(click to enlarge)

The fund has paid out 3.6p in dividends over the past year which at the current price translates to a yield of 2.6% paid quarterly and has ongoing charges of 0.69%.


This fund is part of a range of ethical options which were previously managed by the Co-operative Asset Management Group and which were taken over by RL in 2013.

The sustainable range of funds may be attractive to the more ethical-minded investor as the investment process involves screening for environmental, social and governance issues.

The funds will try to avoid holdings involved in animal testing, arms trade, pornography, tobacco and nuclear power for example and there will be many investors who share these ethical considerations and who do not want to be a part of exploitative industries.

All funds in the range have a good track record for investor returns. For example in 2017, returns were :
RL Sustainable World    18.0%  (40 - 85% shares sector)
RL Sustainable Diversified  12.9%  (20 - 60% shares sector)
RL Sustainable Managed Growth  8.3%  (0 - 35% shares sector)

So, I can get a reasonable return and invest with a clear conscience with these funds.

If you have views or dilemas about ethical investing feel free to share them and leave a comment below.

Finally, this article is a record of my personal investment thoughts/decisions and is not a recommendation - as always, please DYOR.

Monday, 12 March 2018

Vanguard UK Equity Income - Yr 3 Update

It is now 3 years on since my initial purchase of this UK income index fund.

The Vanguard fund tracks the FTSE UK Equity Income Index. The concept is fairly simple - to give investors access to a broad range of dividend-paying securities from across the FTSE 350, while reducing the risk of being overly invested in a small number of high-yielding shares or particular industry sectors by limiting the percentage of the index invested in any one company or industry.

The Vanguard fund holds around 120 companies - the top ten holdings include all the usual suspects - Vodafone, Glaxo, Lloyd Bank, BP, BATS, National Grid etc.

Ongoing charges are 0.22% and also a one-off dilution levy of 0.40% on purchase. In addition, my broker AJ Bell levy an annual platform charge of 0.25% of the total value of the fund.


My initial purchase price in May 2015 was £177.50 - by last March it had risen to £181. However, it has retreated over the past couple of months and is back to just below my entry price, currently £174 and a total return of just 1.0% over the past year (incl. income).

By way of comparison, the total returns for some of my UK income trusts over the past year -

City of London  2.2%, Edinburgh -7.1%, Finsbury Growth & Income  10.6% and Temple Bar 2.5% (average 2.0%).

At the start of the year I took the opportunity to sell off part of my Vanguard holding as I am looking to reduce my UK equities and moving down the risk scale with more globally diverse multi-asset funds being introduced to my portfolio. I have invested the proceeds between HSBC GlobalStrategy Balanced and Royal London Sustainable Growth fund.

3 Yr Comparison v HSBC Global Strategy
(click to enlarge)


The fund has so far provided me with income payments of 776.92p in 2015, 775.65p in 2016 and a nice 10% increase to 857.87p in the past year - which gives a current yield of 4.8%. However, the income was inflated by the weak level of sterling in 2017 so I am expecting a reduction this coming year. Dividends are paid out half yearly in June and December. 

The income distribution represents the combined dividends received from all holdings in the fund (less costs and fund charges) so, unlike investment trusts which hold reserves to smooth out the income payments, I do not know exactly what payment will be received in my ISA until it actually arrives.

It’s early days - just three years since purchase but I am happy to continue with the remaining holding of this income fund which seems to be doing the job required for my income portfolio.

As ever, this article is a record of my personal investment thoughts/decisions and is not a recommendation - as always, please DYOR.

Wednesday, 7 March 2018

Tritax Big Box - Full Year Results

This commercial property REIT was added to my income portfolio in October 2016 following a placing of shares at 132p.

Tritax Big Box is the only Real Estate Investment Trust dedicated to investing in and funding the pre-let development of very large logistics facilities in the UK. The company believes these properties, known as Big Boxes, are one of the most exciting and highest-performing asset classes in the UK real estate market.

Big Boxes offer tenants economies of scale and cost savings not available from smaller, older buildings. They are also crucial to the efficient and effective operation of retailers, and in particular the fulfilment of e-commerce orders. Because the nature of what the companies use these buildings for is so fundamental to their very existence, Tritax is unlikely to suffer from unexpected vacancies.

BBox have sought to distinguish themselves through the quality of location and modernity of their real estate assets let to high calibre tenants, which provide long term income and attractive prospects for growth.

The group hold a portfolio of distribution assets which are located close to motorways and are let to tenants including some of the leading supermarkets - Sainsbury, Tesco, Morrisons as well as M&S and Next. Some other tenants include:

Amazon - the world’s largest electronic and e-commerce retailer

Argos -  the UK’s leading multi-channel retailer, offering more than 33,000 products both on-line and in-store.

Brake Bros -  the number one food service distribution company in the UK

Ocado -  the world’s largest dedicated online grocery retailer.

Wolseley - the world’s number one distributor of heating and plumbing products

The UK has been one of the fastest global adopters of online retail and continues to exhibit significant growth in the sector, driving new demand for logistics real estate including Big Box assets. Successful large-scale retailers (online and conventional) and logistics providers are increasingly relying on the Big Box asset and demand is evident from companies up-scaling to such facilities.


Tritax Big Box was first listed at the end of 2013 at an initial floatation price of 100p. During 2016 it raised £550m of equity through two substantially oversubscribed share issues. In May it raised a further £350m which was invested over the rest of 2017 and brings the market cap to £2bn.

They have today issued 
results for the 12 months to end December 2017 (pdf via website). Total Shareholder return for the period was 15.2%. The company target a total return (being the increase in EPRA NAV + dividends paid) of 9.0% per year - the figure for 2016 was 9.6%.

Profits came in at £247m (2016 £92m) and total portfolio assets are valued at £2.6bn across 46 assets (2016 £1.9bn across 35 assets).


Building on payouts for the previous three years of 4.15p in 2014 and 6.0p in 2015 and then 6.2p, the declared dividend for the full year 2017 is 6.40p rising to 6.70p in the coming year. At the current share price this provides a fwd yield of ~4.7%.

The company have now moved to quarterly dividend payments. The Group's dividends are not quite covered by adjusted earnings of 6.37p, which are underpinned by strong rental stream and low cost base.

Commenting on the results, chairman Richard Jewson said:
“We have a sector-leading portfolio of UK Big Box assets that are benefiting from structural change driven by increasing e-commerce penetration, and the operational and financial benefits which they can provide to our Customers. The fundamentals of our market remain positive and are largely unaffected by current geopolitical and economic uncertainties. Despite the uncertainties it brings, Brexit may provide a silver lining, since with increased border controls our Customers will require more warehousing domestically, further supporting our business case".


I like what I have seen so far and I believe the model offered by Big Box which is basically tapping into a part of the online revolution, has potential for growth as well as a fairly secure dividend underpinned by the long leases and upward-only rent reviews. The share price has gained 8% compared to my purchase price of 132p. In addition, I have received a dividend of 6.4p and the prospect of an additional 4.7% increase to 6.7p for the coming year.

The way we shop has changed quite significantly over the past decade and internet sales are forecast to account for over 20% of total sales by 2020. To remain competitive in this environment, retailers need to have large, highly efficient distribution facilities that can fulfil orders quickly and accurately. This need is only becoming more acute as customers demand ever-shorter delivery times.

The demand for the BIG boxes offered by this REIT is likely to remain strong which means the dividend is reasonably secure and should easily keep pace with inflation.

This article is a record of my personal investment thoughts/decisions and is not a recommendation - as always, please DYOR.

Thursday, 1 March 2018

A Diverse Portfolio

This is an update of an article first published in 2013 and forms part of my 'basics' investing series.

I guess most investors will have read somewhere that its generally good to hold a diversified portfolio. As with many aspects of life, it's not generally a good idea to put all your eggs in one basket. 

Therefore, investing in a broad mix of assets such as equities, bonds, property etc. in many regions around the world will protect investors from a downturn in any single sector or region and also reduce the volatility associated with an over-reliance on for example equities or emerging markets. The aim will be to create a mix which can provide an acceptable level of return for the degree of associated risk undertaken.

Novel Investor (US-based) has created a nice asset quilt visual chart which clearly shows the returns for several types of asset over a 15 year period. I hope it will demonstrate how difficult it would be to select the best performing asset class year after year and why the better strategy is to hold a good mix of all assets.

Creating a simple yet diverse portfolio can be very straight forward. Pooled investment vehicles like investment trusts, exchange traded funds and OEICS are a good way for the small investor to build a diversified portfolio. Indeed with the broadly diversified Vanguard LifeStrategy fund you have the option of a one-stop investment vehicle providing all the diversity and balance that may be required.

A Simple Option

Let's just take a look under the bonnet of the Lifestrategy 60 fund which represents my largest portfolio holding. It is a blend of several underlying Vanguard funds - some hold equities and some hold bonds
Equity Funds - 60%

FTSE Developed World (ex UK)
FTSE UK All Share Index
US Equity Index
Emerging Markets Index
FTSE Developed Europe (ex UK)
Japan Index
Pacific (ex Japan) Index

Bonds - 40%

Global Bond Index Sterling Hedged
UK Government Bond
UK Inflation Linked Gilt Index
UK Investment Grade Bond Index
Euro Government Bond Index
US Investment Grade Credit Index
US Government Bond Index
Japan Government Bond Index
Euro Investment Grade Bond Index

So, in one single multi-asset fund there are 16 sub-funds which between them hold around 18,000 individual securities from all corners of the world. Vanguard frequently rebalance the funds to maintain the equity proportion at 60%. For running such a fund they charge the investor 0.22% which works out at £2.20 per year for every £1,000 invested. Investing does not come much more diversified.

Since its launch in June 2011, the fund has provided an average annualised return for investors of 9.0% per year which would certainly be 'good enough' for me.

Advantages of a Diversified Portfolio

It's all about the balance between risk and reward. Some assets such as equities will provide a better return than bonds over the long term. However, they are more volatile than bonds. For example, during the economic meldown of global markets in 2008, the FTSE lost over 30% in a matter of just two short months. The following year it was up 30%...this was a very testing time for anyone purely invested in equities and many investors were emotionally unprepared for the rollercoaster ride.

FTSE 100 Tracker July 2008 to June 2009

For those who held a more balanced mixed portfolio of say 50% eqities/bonds, the most they would be down in 2008 was nearer to 12% with a corresponding rise of 16% in 2009...still a little volatile compared to previous years but much less of a stomach-churning ride of the 100% equities and I believe most investors would be much less unnerved during a severe downturn.

Here's a link to Vanguard's asset mixer tool which provides a useful visual graph of the annual rise and fall of various allocations of equities/bonds/cash over any designated timeframe. It can be very useful for those wanting to explore asset allocation and their individual risk profile.

In addition to my Lifestrategy funds, I hold several investment trusts - some from the UK growth & income sector such as City of London and Finsbury Growth & Income, some for global growth such as Scottish Mortgage as well as others focussed on infrastructure and fixed income and for exposure to UK smaller companies I hold Aberforth.

Personally, I would never place all my investments with one fund or even several funds with just one provider. I like to spread the risk - some index funds, some professionally managed investment trusts. I like exposure to different sectors of the economy and prefer global rather than confining my investments to the UK-listed investments .

However, some would argue it is possible to be over-diversified. Legendary investor Warren Buffett suggests that if you diversify too much you might not lose much but equally, you won’t gain much either. His approach is to concentrate on companies he knows inside out and select a few well researched options out of which there is the expectation of some big ‘winners’.

As can be seen in the chart, the benefits of diversifying a portfolio tail off as more investments are added to the mix.

Buffett is exceptionally experienced, skilled and disciplined in his approach to investing - many try to emulate his success but no one has come close. A return of just under 20% cagr over the past half century is a phenomenal achievement.

For the average small investor therefore, I would think the better strategy would be to focus on a good mix of assets which should closely match your temperament and appetite for risk. The diversified and balanced portfolio will always miss out on the very best possible returns but equally will avoid the terrible car crash whist delivering what should hopefully be acceptable and a 'good enough' return.

Feel free to comment below on how you go about maintaining a diverse portfolio.