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Investor Views: “I’m Making Investments for Life”

Closed-end fund investor David Petrie tells Morningstar why a portfolio of investment trusts is at the heart of his retirement plans

Emma Simon 9 September, 2015 | 2:06PM

This article is part of Morningstar’s Guide to Your Financial Education, providing our readers with the tools they need to become a successful private investor.

David Petrie, a retired IT manager, invests a significant part of his pension portfolio in investment trusts. While some of these are higher yielding trusts, the rest are focused on capital preservation.

He is sticking with the trust, on the hope that performance will turn around

He says: “The aim is that these are long-term holdings - where I buy and hold these investments for the rest of my life, providing of course circumstances don't change.”

With his brother he researched appropriate trusts, fund and stocks to invest their retirement savings. As well as looking at the investment performance of potential holdings, Petrie says they also calculated the most cost-effective ways to hold these investments, in terms of charges and tax.

“We make use of our SIPP, drawdown plans and ISAs.”

He says: “As part of this research we identified a range of invest trusts which have a proven track record of growing dividends, a low-charging structure and a strong manager at the helm. These form the core part of our portfolios.”

Most considered to be in the lower risk category, yielding between 2 and 3.5%.

Petrie adds: “Around 3% seems to be the sweet spot. Ideally I’d like to be getting 3.5%, but at this level there is a slightly higher risk to capital.”

Petrie holds a range of trusts managed by Invesco Perpetual. This includes Edinburgh Investment Trust (EDIN), Perpetual Income and Growth (PLI) - both managed by Mark Barnett - and Invesco Growth Trust (IVI), managed by Ciaran Mallon.

Both trusts run by Barnett have a five-star rating from Morningstar, reflecting their outstanding performance track record. Barnett’s trusts, formerly under the management of Neil Woodford, have a Bronze Rating. Invesco Growth has a Neutral one.

Morningstar analysts say: “Barnett is a highly capable manager who has proved his skill at running UK Equity Income funds. He is a safe pair of hands for investors. Although he is a new face at these trusts he has been part of the Invesco Perpetual stable for 18 years.”

But Morningstar adds it has “reservations” about the scale of assets Barnett now has to manage in the absence of Woodford.

Petrie is also a fan of Woodford, and while he’s kept his money in these trusts he also has a significant holding in his newer open-ended fund, Woodford Equity Income.

Petrie also invests in a suite of Henderson trusts, including City of London (CTY) - which has grown its dividend for more than 40 years - Bankers (BNKR) and more recently Lowland (LWI).

Morningstar rates all three trusts highly. Lowland and Bankers have both been awarded a Silver Rating, while City, which has been run by Job Curtis for more than 20 years, has a coveted Gold Rating. These ratings reflect analysts’ confidence that these funds will continue to outperform their peers over the medium term.

Adding Holdings for a Diversified Portfolio

Petrie points out that the Lowland has been more volatile but it is stronger on mid-cap stocks. “A lot of my holdings were focused on larger cap stocks. This enabled me to have a more diversified portfolio.”

As well as beefing up his investment in Lowland he has also put more money into Finsbury Growth & Income (FGT).

“In my mind the manager of this trust, Nick Train, is up there with Neil Woodford,” Petrie said.

Morningstar analysts clearly agree. Train’s fund also has a Gold Rating from Morningstar, and a five star performance rating.

Finsbury Growth & Income has a lower yield than others in Petrie’s portfolio - paying around 2% - but like the City of London trust he says this is a good core holding; both have coped well with the recent market volatility.

Latin America Drags Down Global Trust

Less successful has been his holding in Murray International (MYI), the global trust managed by Aberdeen Asset Management.

He says: “I’ve lost a lot of nominal capital in this trust. Looking at the trust reports it’s clear there has been a large outflow of funds.”

Over the past year the fund is down 22%, and over five years has posted just a 2.61% return, according to Morningstar, compared to a benchmark of 9.21%. Petrie says: “It’s performance has been dragged down by a decision to stick with Latin American stocks and not increase exposure to the US.”

He says for now he is sticking with the trust for now, on the hope that performance will turn around, although his brother has already sold out.

“It is currently yielding around 5.44%, which is not sustainable, in my view, over the longer term. The only silver lining is that I am reinvesting this good dividend at a discount - which will boost returns if it does recover.” The trust, which was relatively recently trading at a 10% premium has now fallen to a 1.42% discount.

Petrie, who is 65, has yet to draw an income from his investments. “I get a modest company pension so am living off that for now. I am reinvesting dividends and hope when I need to start drawing an income from these holdings I will be able to live off the natural yield.”

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
City of London Ord417.64 GBX-0.21
Edinburgh Investment Ord594.09 GBX-0.98
Invesco Income Growth Ord273.00 GBX0.37
Murray International Ord1,206.40 GBX-0.30
Perpetual Income & Growth Ord313.00 GBX-0.32

About Author

Emma Simon

Emma Simon  is a financial journalist, specialising in investment and consumer issues, writing for Morningstar.co.uk

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