Ray Dawson is an experienced investor who over the years has devised his own system for assessing different investment trusts.
Ray, who works in IT within the financial services sector, enjoys keeping an active eye on his investment portfolio and analysing data, and this has helped him maximise returns over the years.
“I think research is very important if you are looking at building an investment portfolio. I spend a lot of time reading the financial press and looking at reviews and potential ‘buy’ tips.
“I also read quite widely about the economy. It’s interesting to think about potential risks and opportunities in different sectors and look at which companies, or which trusts could potentially benefit.”
Alongside the financial press Ray also looks at the ratings and reviews of different trusts and funds available on sites like Morningstar.
He takes these into account when deciding what to buy – and also what current holdings he might sell. “Alongside these ratings I’ll look at other factors such as any discount or premium to the Net Asset Value (NAV), the dividend record, fees and of course the trust’s track record.”
While he knows that past performance is no guarantee of future returns, Ray prefers to invest in trusts with a management team that have delivered through different economic cycles.
Dividend Record
Ray, who is in his late 50s and lives in Bedfordshire with his wife and step-daughter, tends to favour trusts that have a good dividend record. “When you look at it there are a number of trusts that have outstanding records when it comes to paying dividends and have maintained these even through difficult market circumstances.
“You do tend to pay a premium for many of these trusts. But if I notice an opportunity to buy then I will top up my holdings in some of these trusts.”
Ray has been a long term investor in City of London (CTY), Law Debenture (LWDB), Murray Income (MUT) and Henderson Far East Income (HFEL).
“All these trusts pay good levels of income and most have excellent long-term records when it comes to maintaining these dividend payments.”
He adds: “I also have quite a few holdings in large FTSE companies alongside these various trusts. It was noticeable that many companies have reduced dividend payments in recent years. But in most cases these trusts have maintained these payments to shareholders.”
City of London invests primarily in UK stocks and aims to deliver a combination of income and capital growth. It has a Silver Rating from Morningstar, whose analyst Robert Starkey says: “The combination of an exceptionally experienced and long-tenured manager, consistent process, low fees, and a focus on dividend generation makes City of London Investment Trust a compelling option for investors seeking a core UK equity income option.”
The trust is managed by Job Curtis, who has been at the helm of this trust now since 1991, the length of the tenure which Morningstar says is extremely rare. It is currently yielding around 4.8%.
High Yield Trusts
Law Debenture is a global equity trust that also has a good long-term track record when it comes to paying dividends. It is currently yielding around 3.5%, and is also, according to Morningstar data trading at a slight discount (0.15% relative to its net asset value). It also aims to grow capital as well as delivering a healthy yield and over the past five years has delivered total annualised returns of 14.32% according to Morningstar data, outperforming its benchmark.
As the name suggests Henderson Far East Income is a trust that is invested in assets in this region. Ray points out that the income from this trust has been particularly high in recent years, with a current yield of around 7.5%, however Ray says that the overall returns have been lower. For example Morningstar data shows that over the past five years investors, have had total annualised returns of 3.94%.
At the moment Ray invests in both trusts and direct shareholdings through his Sipp and Isa. “I am not taking any benefits at present, but I am hoping to retire a couple of years early, hopefully by my 63rd birthday.
“At this point I will probably take my tax-free cash and use some of this to supplement my work pension until the state pension kicks in. If I am short I can also take some of this dividend income from these investments. I have tried to keep many of these investment trusts holdings in an ISA so there won’t be any tax to pay when taking benefits.”
