Consistent Dividend or Growth – a conundrum?

portfolio-stock-growthIn the article “How to Live Well in Retirement?“, I favoured a dividend approach with some growth stocks to beat inflationary effects. Of course, this is just one strategy to provide a monthly income. Alternatively, you might favour a more conservative approach to growth with some dividends. If you are not a stock picker, then a more comfortable approach is to rely on fund or investment trust managers who have more experience. But even these managers do not always beat the proverbial monkey with a pin! For example, Neil Woodford’s star has not been shining brightly in the last 12 months or so! He has picked some catastrophic stocks.

Dynamic Investing

One theory of investing says that it is impossible for investors to succeed consistently. Fund Expert looks at that theory and alternatives. Instead they favour the Dynamic Fund Ratings system and show it is a proven alternative which means you can buy funds and achieve extraordinary success – based on just 2 hours work a year! Essentially, FundExpert.co.uk rates each fund from 1 Star to 5 Star. This “Momentum Rating” tells you if a fund should be bought. A 5 Star Momentum Rating should mean a high probability of extra growth. This is based on a form of momentum investing, which means buying an investment (in this case a fund) which is already performing well on the likelihood that it will continue to perform well. This process is called “Dynamic Fund Selection.” Historically, this strategy has worked extremely well. Of course, this is not necessarily a guide to the future.  Every six months you review your funds, and re-adjust your portfolio to contain 5 star funds only. You can take income from dividends and top up income by selling some fund holdings. Fund Expert offers a free download explaining their system.

Conservative Growth

Another strategy is to follow Fund Managers who are consistent and leaders in their field.  Perhaps not so exciting as following shooting stars with ups and downs. But for retirees a more conservative approach to fund selection could be based on consistent Fund Managers.

In this article, “Investment Week and Morningstar’s latest look at the most consistent fund managers across the unit trust and OEIC universe”. The data covers the three years to 20 April 2018. They highlight that Gervais Williams’ £1.1bn LF Miton UK Multi Cap Income fund held onto the top spot for an eighth week.

They refer to this table “The Consistent 50”.  Here is an extract from the results ….

Rank Fund name Consistency 3-yr return 5-yr return Rating General Sector Portfolio Manager Fund size £m
1 LF Miton UK Multi Cap Inc B Acc Instl 1 32.41 91.88 ★★★★★ UK Equity Income Gervais Williams 1125.35
2 Aviva Investors Euro Eq MoM 2 2 GBP Inc 3 45.23 79.67 ★★★★ Europe Excluding UK Not Disclosed 56.08
3 Man GLG Continental Eurp Gr Prf Acc C 3 64.93 141.6 ★★★★★ Europe Excluding UK Rory Powe 1466.61
4 JPM Em Mkts Small Cap A (dist) perf GBP 3 38.71 66.06 ★★★★ Global Emerging Markets Amit Mehta 1536.13
5 Aberdeen European High Yield Bond I Acc 3.5 16 29.63 ★★★★ High Yield Not Disclosed 67.67
6 T. Rowe Price Japanese Equity Q EUR 3.5 59.23 91.11 ★★★★★ Japan Archibald A. Ciganer 306.61
7 MI Hawksmoor Distribution B Acc 3.5 23.95 46.42 ★★★★★ Mixed Investment 40-85% Shs Daniel Lockyer 118.2
8 MI Discretionary Unit Inc 4 62.85 135.52 ★★★ UK Smaller Companies Melwin Mehta 49.38
9 Liontrust European Growth I Inc 4 44.88 77.17 ★★★ Europe Excluding UK James Inglis-Jones 154.77
10 Threadneedle Eurp Smlr Coms Z Acc GBP 4 63.13 106.58 ★★★★ European Smaller Companies Mark Heslop 4578.82
11 T. Rowe Price Eurp Smlr Coms Eq Q GBP 5 72.78 121.92 ★★★★ European Smaller Companies Ben Griffiths 174.61
12 Legg Mason MC Greater China A USD Dis(A) 5 43.53 87.35 ★★★★ China/Greater China James Chong 12.58
13 Sentinel Universal B Acc 5 21.37 45.57 ★★★★★ Mixed Investment 40-85% Shs David Hambidge 96.56
14 L&G UK Property Feeder I Acc 5 20.31 51.37 Property Not Disclosed 3136.94
15 Baillie Gifford Global Inc Growth B Inc 5 37.84 70.11 ★★★★ Global Equity Income James Dow 493.27
16 Marlborough Nano Cap Growth P Acc 5.5 67.64 ★★★★ UK Smaller Companies David Walton 165.82
17 Liontrust UK Smaller Companies I Inc 6 76.48 137.76 ★★★★★ UK Smaller Companies Anthony Cross 856.54
18 L&G UK Property I Acc 6 20.36 51.39 Property Matt Jarvis 3136.94
19 VT Greystone Conservative Managed R Acc 6 9.13 18.06 ★★★ Mixed Investment 0-35% Shs James Menzies 6.72
20 MI Hawksmoor Vanbrugh B Acc 6.5 20.98 38.64 ★★★★★ Mixed Investment 20-60% Shs Richard Scott 132.66
21 Kames Global Equity Income USD C Inc 6.5 35.55 66.29 ★★★★★ Global Equity Income Mark Peden 419.57
22 Marlborough High Yield Fixed Int P Inc 6.5 16.69 29.37 ★★★ High Yield Steven Logan 79.73
23 Rathbone Strategic Bond Instl Inc 7 12.88 20.92 ★★★★ Strategic Bond Bryn Jones 112.52
24 Veritas Asian A GBP 7 52.94 102.77 ★★★★★ Asia Pacific Excluding Japan Ezra Sun 1209
25 Kames Global Equity Income EURH B Acc 7.5 48.12 61.98 Global Equity Income Mark Peden 419.57

A possible strategy is to select 10 funds across different sectors with fund size > £100m and review every six months. Collect dividends and top up income by selling some holdings as required.

From this list – here is a suggested portfolio!

Fund name General Sector Portfolio Manager Fund size £m Price
LF Miton UK Multi Cap Inc B Acc Instl UK Equity Income Gervais Williams 1125.35 203.85p
Man GLG Continental Eurp Gr Prf Acc C Europe Excluding UK Rory Powe 1466.61 568.00p
JPM Em Mkts Small Cap A (dist) perf GBP Global Emerging Markets Amit Mehta 1536.13 1026.00p
T. Rowe Price Japanese Equity Q EUR Japan Archibald A. Ciganer 306.61 €17.92
MI Hawksmoor Distribution B Acc Mixed Investment 40-85% Shs Daniel Lockyer 118.2 180.35p
Threadneedle Eurp Smlr Coms Z Acc GBP European Smaller Companies Mark Heslop 4578.82 113.19p
L&G UK Property Feeder I Acc Property Not Disclosed 3136.94 88.98p
Baillie Gifford Global Inc Growth B Inc Global Equity Income James Dow 493.27 685.20p
Marlborough Nano Cap Growth P Acc UK Smaller Companies David Walton 165.82 182.58p
MI Hawksmoor Vanbrugh B Acc Mixed Investment 20-60% Shs Richard Scott 132.66 157.58p

Prices: 30/04/2018

Basis of the Consistent 50

The Consistent 50 is based on an assessment of all IA funds in the UK as monitored by Morningstar. Each fund is assessed for its consistency against other similarly invested vehicles as classified by IA sectors.

In the first step, all funds without a three-year track record are excluded. In order to ensure statistical validity, sectors with less than 20 funds are also excluded, as are those that do not allow like-for-like comparison, such as Specialist, Guaranteed/Protected and Money Market.
The three-year consistency score is then calculated by measuring a fund’s average decile ranking (ADR) of quarterly performance periods rolling back on a month-by-month basis over three years.
The better a fund performs against its peers over a single period, the higher up the ranks it sits and the lower its decile rank. An average of a fund’s decile rank as measured over the multiple time periods provides an indication of how much it moves up or down the ranks relative to its peers.
The bottom 60% of the funds across all sectors are then excluded based on the average decile rank. The remaining 40% of funds across all qualifying IA sectors are then sorted according to how they rank against their peers in terms of volatility and Gain/Loss Profile (with those funds with lower volatility being rewarded and equal weighting given to both measures). The top 50 funds are shortlisted to make the Consistent 50.

All data is calculated on a bid-to-bid, net income re-invested, sterling basis.

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