This trust wasn’t cheap. It was trading on a premium, which I usually try to avoid paying
Matthew Pertici, a data analyst from North Wales, has been investing seriously for the past five years with an aim that his portfolio success allows him to retire early.
Despite being some way off retirement age at 42 Pertici has concentrated on income-based securities. He says: “Obviously, I’d like some capital growth too, but I’ve focused primarily on income. I realise that this type of strategy is primarily used by investors who are considerably older than me. But I’ve found that it sits well with my level of risk. I’m not a high-risk investor and prefer steadier long-term investments.”
At present Pertici reinvests the income received, harnessing the power of compound interest. “Hopefully, I am building up a long-term portfolio so as and when I do retire I’ll be able to divert some of this income to cover day-to-day living expenses,” he explains.
Pertici currently holds a portfolio of around 15 open end funds and 15 investment trusts. He prefers investing in these collective funds as they offer wider diversification. These are held through an ISA account with AJ Bell, who he chose for their online services.
Two of his more successful investments in recent years have been Scottish American Investment Company (SCAM) and Jupiter Strategic Bond.
Scottish American has a four-star rating from Morningstar reflecting its strong outperformance in recent years. Analysts have given it a Bronze Rating, reflecting their confidence that the managers will continue to outperform.
David Holder, an analyst at Morningstar says: “The emphasis here is on the provision of a high and rising real level of income, and in that regard the fund has met its objective. The board has paid a rising dividend for 37 consecutive years.
“The portfolio is predominantly global-equity-focused, but the manager Dominic Neary does hold some UK commercial property and fixed-income distributions to augment income and provide diversification.”
Jupiter Strategic Bond is another four-star rated fund, but this one has a coveted Silver Rating. As the name suggests, this fund invests across the fixed income spectrum. Morningstar points out that this fund takes a “barbell approach” balancing the capital preservation features of high-quality government bonds with the income-generation of high-yield debt. Both halves of this equation are activity managed by the fund’s experienced manager Ariel Bezalel, who has run the fund since it launched in 2008.
Pertici says that this bond fund is one of “his more defensive holdings”.
Infrastructure for Income
Although Petrici is primarily focused on income does not mean he is averse to taking risks. He has holdings in some emerging market income funds, and one of his more recent investments has been into HICL Infrastructure (HICL).
This investment trust invests in a range of infrastructure projects: from schools and hospitals to home office accommodation and high-speed rail links. It does not currently have a Morningstar Rating.
Pertici said: “In the last few years I’ve started to hear a lot more about infrastructure funds. I think this is a good way for me to diversify away from similar equity holdings. These infrastructure funds appear to pay reliable income streams. This trust particularly appealed because it had a reasonable dividend history.”
However, he pointed out that renewed interest in such investments means that as an asset class infrastructure is relatively expensive at present. He adds: “This trust wasn’t cheap. It was trading on a premium, which I usually try to avoid paying. But hopefully in this case it will be worth paying the higher cost.”
The trust continues to be popular, and is currently trading on a 10% premium. According to Morningstar data the average premium over the past 12 months has been nearly 14%. The trust pays an attractive 4.8% yield.
Woodford Proves Top Performer
Petrici’s other holdings include the Silver Rated Woodford Equity Income. This fund has a five star rating, reflecting its strong performance against peers.
Petrici says: “In recent years this has been one of the best performing funds in my portfolio. It doesn’t pay the biggest dividend but the capital growth has been good. Overall I can see this been a good long-term holding.”
Peter Brunt, an analyst with Morningstar says: “This fund remains one of our higher-conviction ideas in the UK equity-income space. The approach is best described as high-conviction, long-term, and contrarian in nature.
“It is managed with a total-return mind-set: the objective to grow capital and income, with a keen eye on capital preservation. As such, investors should be aware that there may be periods where the fund is not always the highest-yielding relative to peers.”
Petrici aims to buy and hold for the long term when he invests. But he adds that as a data analyst, it is perhaps in his nature to keep checking on his holdings to ensure they are still meeting objectives.
“I don’t sell very often. It can be expensive if you keep buying and selling a investments. However, if it looks as though there is the chance that the dividend might be cut, then I will look to sell.”
