Mike Higgins, a retired company director, is looking for a steady income stream from his SIPP and ISA portfolios.
Higgins has been retired for just over five years, and has invested both his SIPP and ISA allocations in a range of investment trusts, equity income funds and bond funds. To date, he has been happy with the performance.
“I’ve get a reasonable income from these funds,” he said. “I’m lucky in that I have a good company pension, but this additional income helps cover day-to-day costs and ensures we don’t have to scrimp on luxuries, such as holidays.”
“I Don’t Want the Market Fallout to Hit my Pension”
But it has not been all plain sailing. For the first few years of his retirement the value of his investments grew, which boosted the income he took from these plans. But over the last 18 months, he has started to see a number of funds shrink in value, due to market volatility.
“I’m worried about what this might mean for my income in future,” he says. “I could take out some of the capital - but as I’m still in my early 70s I don’t really want to start doing that just yet.
“I’d rather just take the income produced from these funds for the time being. But I also don’t want to see my money cut back either.
“I’m just keeping my fingers crossed for the time being that markets improve again. Whatever way the vote on Europe goes, I don’t want a market fall out to hit my pension.”
Equity Income Funds Losing Status
Higgins was also concerned that a couple of funds he invests in have been ejected from the Investment Association’s Equity Income Sector. “To be honest I wasn’t particularly aware about these sectors to start with. But since retiring I’ve taken more of a hands-on approach with my finances, rather than leave it to an adviser. I was informed by a couple of funds about this change in status. It did alarm me to start with, as I wasn’t sure what this really meant. I was worried that this would lead to the income being cut as a consequence.”
But Higgins says after finding out more information, he is not as worried. “The fund managers affected seem to be saying that this change has come about because they don’t want to take too much risk with my money – I guess that’s a good thing.”
Fund Holdings for Everyday Income
One of his biggest holdings is Invesco Perpetual High Income. This is one of the UK’s biggest income funds but was jettisoned from the Equity Income sector almost two years ago.
However, this hasn’t dented its performance, nor its credibility among investment analysts. This income fund has a four-star rating from Morningstar and its manager Mark Barnett has a Bronze Rating.
An analyst at Morningstar says: “We consider Mark Barnett to be a skilled UK equity investor and although team changes in 2014 [where he replaced departed manager Neil Woodford] and his workload temper our conviction in this fund, we think it worthy of a positive rating.”
They point out that as the fund is focused on total returns for investors – that is capital growth plus income – it should continue to deliver long-term returns.
Another of Higgins’ income funds is Newton Global Income. This has a five-star rating from Morningstar reflecting its strong performance in recent years, relative to its peer group.
However this is another fund that has also recently had a change of manager. The previous manager James Harries, who had managed the fund since it launched in 2005 left at the end of last year. The fund is now managed by Nick Clay. Morningstar had previously given Harries a Silver Rating, but this is currently Under Review, while analysts talks to Clay about his future plans for this fund.
Investment Trust ISA Holdings
Higgins also uses his ISA to invest in a number of investment trusts. He says: “I get a lot of my information online these days. I use sites like Morningstar, as well as The Motley Fool. I find the discussion forums useful - and can swap ideas with other retired investors.
“This has encouraged me to look at investment trusts alongside my SIPP funds.” He says he has been interested in investment trusts that have a long-term track record of paying rising dividends. These include Witan (WTAN), Murray Income (MUT) and City of London Investment Trust (CTY).
Witan, the global investment trust, has a four-star rating from Morningstar and its manager Andrew Bell has a coveted Silver Rating.
Morningstar analysts say: “Witan Investment Trust is a very solid choice for investors seeking core global equity exposure. The process of transition from largely passive to active management has been successfully implemented, and the resultant strategy is now established and executed to good effect for investors.”
Murray Income has a Bronze Rating from analysts. It has been a steady and reliable income payer, without trying to “shoot the lights out” when it comes to capital growth.
Higgins says these characteristics have made it a good investment for him in recent years.
Why I Prefer Funds to Shares
Higgins says he’s always preferred investing in funds, rather than individual shares. “I worked for a couple of larger companies in the past - before setting up by own consultancy business. I did have shares in one or two of these companies, but these were mainly through the share save schemes that were offered at the time.”
He adds: “These generally worked really well, although at the end of the fixed period I did spend most of the profits I’d made on these, rather than reinvest the money into a pension. But they’ve helped towards holidays, moving house and even paying towards university costs for my eldest. It did start to make me more interested in investing generally I guess. This has been useful as I neared retirement and had to look in more detail at where my pensions and ISAs were invested.”
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