The Sunday Times - UK (2021-12-19)

The Sunday Times December 19, 2021 15

MONEY

So it seems Christmas has come early

for passive-aggressive types who argue

that all any investor needs is to stick

everything in a tracker fund. This year,

that beat the 50-odd investment trusts

and other shares I hold in my forever

fund.

I intend to keep trying for several rea-

sons, however, starting with how unusual

2021 was. There was no soaraway success

for my portfolio this year, unlike earlier

9.4%

Total return on Cowie’s forever

fund in 2021, lagging behind the

iShares FTSE 100 Exchange

Traded Fund’s 13.6 per cent

What a dreadful year— I was beaten by

investors who did absolutely nothing

Ian Cowie Personal Account

behind the ten-baggers of yesteryear.

Looking forward, I hope to see some

share prices soar. The Danish pharma-

ceutical giant Novo-Nordisk (NOVO) has

not yet had the recognition it deserves for

a new weight-loss drug that can help

obese people to lose a fifth of their body-

weight. Shares I bought last June for

DKr509 cost DKr764 on Friday.

Most fundamentally, I believe that a

big privilege of being a DIY investor is that

I can make my money matter. In practice,

that means backing activities I wish to

encourage — such as pharmaceutical

research or clean energy — and shunning

stuff I dislike — armaments, gambling and

tobacco. You will find all three in most

tracker funds.

Another consideration is that my main

aim with the forever fund is, as its name

suggests, to make my life savings outlast

me. So sustainable returns from a mix-

ture of income and growth are more

important to me than maximising per-

formance in any short period.

During the eight years since I began

writing about my forever fund its cash

value has risen more than 50 per cent.

This was after six-figure cash withdrawals

to pay for the cottage I am sitting in now,

help our son buy his first house in Lon-

don and refurbish a 58-year-old wooden

sailing boat — plus paying the tax bills

those deductions triggered.

After all these factors are taken into

account, the total return is more than

90 per cent. To be candid, I never

expected the forever fund to do as well as

this and will be pleasantly surprised if it

can sustain such performance. Bear in

mind that the average annual return from

shares over the past century is about

7 per cent.

So it may be worth repeating that the

purpose of this column is not to boast

about how good I am at investing. I never

made any such claim.

Instead, now that most people in the

private sector must pay for our own pen-

sions, my aim is to report the rough and

smooth of stock market investment. This

is the personal account of one man’s

struggle to avoid poverty in old age. If a

humble hack can do it, anybody can.

Investment returns take many forms but

few taste as good as Fuller’s London

Pride. Shares in the former brewer

Fuller Smith & Turner (FSTA) have had

rather a sober year for all the obvious

reasons, but I am still propping up the

bar because of tax-free perks it provides.

The most valuable is its

“Inndulgence” card, which knocks 15 per

cent off the price of food and drink

bought from FSTA’s pubs and hotels.

Given the price of a pie and a few pints

these days, that discount soon adds up.

While there is nothing I can do about

the yield, or lack of it, from most other

shares, I like to think I am actively

managing the return on this portion of

my portfolio every time I get a round in.

Spend to save has never been such fun.

True, you have to hold 500 FSTA

shares to qualify and they trade at 660p,

so this involves tying up £3,300 capital.

But that should not represent too big a

portion of a pension fund for anyone

nearing retirement, unless you are

planning to brew your own during your

final decades.

Other great pub groups, including

Adnam’s (ADB), Shepherd Neame

(SHEP) and Young & Co’s Brewery

(YNGA), offer similar perks in return for

minimum shareholdings of one, 100 and

one respectively.

Obviously, you need to like at least

one of their pubs near you to make the

perk work. First time round, it is also a

good idea to flag up the discount in

advance, rather than trying to explain

this to tired staff at closing time.

Even so, amid this bleak midwinter,

pub shareholders’ perks are one good

reason to take a glass half-full view of

investment returns.

Perks that

help me pay

for a round

15%

Discount in Fuller Smith & Turner

pubs if you have at least 500 shares

I

f this column had a motto, it would

say: I can’t always be right but I can

always be different. Well, at least it

means you haven’t read it all some-

where else before.

So it is fitting, if uncomfortable

in a surprisingly strong year for the

stock market, that my modest “for-

ever fund” should have delivered

relatively weak returns of 9.4 per

cent. That was after all expenses, includ-

ing dealing costs, platform fees and

taxes, plus a few major mistakes on my

part.

First — and worst — was bad timing

when I boosted my exposure to renewa-

ble energy. Paying top prices for solar

and wind power reduced returns and

showed that it is often an expensive mis-

take to follow financial fashion. The

world’s biggest offshore wind farm oper-

ator, Orsted (stock market ticker: ORHE)

was my standout stinker: shares I bought

for DKr953 in October last year fetched

DKr821 on Friday.

Second, doing the right thing can

sometimes produce the wrong results.

Diversification diminishes risk — because

it means we won’t have too many eggs in

too few baskets — but it can also reduce

returns. Selling some of my shares in the

technology giant Apple (AAPL) meant I

missed part of the 34 per cent gain they

enjoyed this year. Although AAPL

remains my most valuable holding,

worth about 7 per cent of the total portfo-

lio, this diversification proved more like

diworsification.

Third, every occupation has its haz-

ards and writing about investment every

week raises the risk of overtrading. Look-

ing back over 2021, I was often busy when

it would have been wiser to buy and sell

less. This added to costs and cut returns

when, for example, I sold some Royal

Dutch Shell (RDSB) to fund the first mis-

take listed above (ramping up renewa-

bles) but reduced my exposure to RDSB

before its remarkable 20 per cent recov-

ery since the start of the year.

All of which added up to single-digit

returns that lagged behind the British

blue chips tracked by the iShares FTSE

100 Exchange Traded Fund (ETF), which

rose 13.6 per cent. I was even further

behind the global benchmark set by iSh-

ares MSCI All-Countries World Index

(ACWI) ETF, which soared 18 per cent.

Both percentages allow for platform fees

levied by Hargreaves Lansdown, Britain’s

biggest investment platform.

ST DIGITAL

Read a full list of Ian Cowie’s

‘forever’ fund

thesundaytimes.co.uk/cowieholdings

winners such as the London tonic-maker

Fever-tree Drinks (FEVR), and Sheffield’s

green hydrogen firm ITM Power (ITM).

Even this year’s highest-profile stock,

the vaccine-maker Pfizer (PFE), where I

bought shares at $37 and $34 in January

and February, still traded at $61 and

yielded 2.7 per cent dividend income on

Thursday, when I bought some more.

PFE is now my fifth most valuable share-

holding but, sad to say, it lags a long way

when the companies in which

they invest are cutting or

cancelling their dividends,

because they can hold back

up to 15 per cent of the

income that they receive in

good years to distribute in

bad years, such as 2020. By

contrast, other types of funds

must pay out all the income

they receive in any year,

making their payouts lumpy.

When assessing dividend-

paying investment trusts, it is

important to dig down

further than the headline

yield. Scottish Mortgage,

which invests in fast-growing

companies, features on the

list, having increased its

dividend by 13 per cent on

average over the past five

years, yet it yields a minimal

TOP FOR DIVIDENDS

A sharp rise in the cost of

living will have forced many

people to accept more risk in

how they take investment

income in retirement.

To ensure that their

income keeps pace with their

spending, many will be

looking for investments that

yield more than the present

5.1 per cent rate of inflation —

no easy task considering that

the rate is at a ten-year high.

A high yield is not always

an attractive trait to look for

in an investment because it

can mean adding risk.

Sometimes it can even be a

sign that the payout is

unsustainable and may be cut

soon. Temple Bar Investment

Trust, which invests in big UK

companies, for instance, was

yielding 7.8 per cent but

slashed its payout by a

quarter last year.

Focusing on yield alone

can be problematic. The

dividend yield — calculated by

dividing a company or fund’s

share price by its dividend

per share — represents the

payout that you will receive

this year alone. If inflation

remains above 4 per cent

next year but your dividend

stays the same, it will have

lost value in real terms.

It is worth checking your

investment’s track record of

increasing its dividend: have

they consistently put it up by

an inflation-busting amount?

Investment trusts are a key

component for many income-

seeking investors because

they can give you a ready-

made, diversified portfolio of

share investments that pay

dividends. Eighteen have

increased their dividend for

more than 20 consecutive

years. They can do this, even

David Brenchley

Investment

trust

Yield 10-year compound

annual growth rate

Minimum

annual uplift

Henderson

Far East Income 7.91% 5.07% 1.7%

Aberdeen Standard

Equity Income 5.97% 6.39% 0.5%

Chelverton

UK Dividend 5.12% 5.46% 3.1%

Value and Indexed

Property Income 5.07% 5.19% 1.7%

City of London 4.94% 4.19% 0.5%

Murray International 4.8% 6.09% 1.9%

Lowland 4.44% 9.28% 0.8%

JPMorgan Claverhouse 4.09% 5.97% 1.7%

Athelney 4% 7.51% 1%

Schroder Oriental

Income 3.93% 5.75% 1.9%

Aberdeen Asian

Income 3.91% 4.99% 0.5%

Law Debenture

Corporation 3.64% 8.96% 3.1%

0.3 per cent. There are a

dozen investment trusts with

yields above 3.5 per cent that

have increased their dividend

by an average of 4.19 per cent

or more over the past decade.

Chelverton UK Dividend,

for example, has increased its

dividend by at least 4.2 per

cent for seven successive

years. In the four years before

that, its payout had increased

by more than 3 per cent.

The smallest yearly

increase in dividend for

Aberforth Smaller Companies

over the past ten years,

meanwhile, was 4.1 per cent

last year, although it does

yield just 2.2 per cent.

Last year was one of

famine for income investors:

one in three companies

around the world cut their

dividends and payouts fell by

an average of 8 per cent,

according to Janus

Henderson, the fund

management house that

tracks global dividends.

UK dividends were

particularly hard-hit, falling

44 per cent to £61.9 billion,

according to the fund data

provider Link. As a result,

many trusts could only afford

to top up their dividends by a

modest 2 per cent or below.

There remain some areas

of interest for income-seeking

investors. Mick Gilligan from

the wealth manager Killik

holds City of London, which

invests in large UK companies

and yields about 5 per cent.

The trust is “the gold

standard for progressive

dividend policies”, having

raised its dividend for 55

consecutive years, he said.

However, James Carthew

from QuotedData, a research

firm, pointed out that the

trust, managed by Janus

Henderson’s Job Curtis, has

often lagged behind its peers

in the dividend growth

stakes. Last year it managed

only a 0.5 per cent increase,

which followed a 2.2 per cent

bump the year before.

Carthew prefers its peers

Lowland and Law Debenture

for income from UK equities.

These sister trusts are

managed by Laura Foll and

James Henderson, colleagues

of Curtis at Janus Henderson.

Both trusts invest in large and

small UK companies and

Carthew said that he likes

their investment approach.

Law Debenture combines

a similar equity portfolio to

Lowland but also runs a

professional services

business. This contributes

around a third of its annual

dividend and includes a

division that does trustee

work for pension funds.

Carthew said that it seemed

to be going from “strength

to strength”.

Outside the UK, Asia is a

popular pick. Gilligan likes

Schroder Oriental Income,

which yields 3.9 per cent and

raised its dividend by about

2 per cent in each of the past

two years but had five years

of inflation-beating bumps

before that. He said:

“Maintaining a progressive

dividend policy in Asia is

more difficult than in the

west as dividends are often

paid as a set percentage of

profits, which can fluctuate

from year to year. However,

SOI has still been able to

increase its dividend for 16

consecutive years, helped by

utilising its revenue reserves.”

Carthew warned investors

tempted by Henderson Far

East Income’s mammoth

8 per cent yield. It has a good

record of increasing its

dividend, but has been a poor

share price performer

compared with similar trusts:

shares are up just 6.6 per cent

in the past three years.

Inflation

worries? Not

if you chose

these funds

Source: AIC