So I recently jettisoned my holding in the Invesco Perpetual High Income Fund for a variety of reasons (March 2012: Portfolio Update.), but I did suggest that I would start a little experiment and try to develop an alternative strategy based upon the same fund (New proposed investment strategy based upon Neil Woodford's top 10.).
So having taking the first step and selected 3 shares that are present in the High Income Fund, one from each of the fund's 3 biggest sector weightings:- Pharmaceuticals, Tobacco, and Telecoms.
I have retrospectively applied the starting prices as at the 14 March (as suggested by a reader), and then applied 3 sets of dealing charges and stamp duty to 3 equal tranches by value in order to backwards calculate a starting quantity in whole numbers for each holding.
I have retrospectively applied the starting prices as at the 14 March (as suggested by a reader), and then applied 3 sets of dealing charges and stamp duty to 3 equal tranches by value in order to backwards calculate a starting quantity in whole numbers for each holding.
At this point the Invesco fund starts with a little advantage here as I have calculated its starting point as if it was purchased via a fund supermarket i.e. 0% charges upfront and also allowing for partial units.
An annual management fee will be automatically adjusted in the calculation of the unit price.
As suggested I have also added a 3rd option, the Edinburgh Investment Trust, which is also operated by Invesco, and managed by Neil Woodford, but has a lower expense ratio (equivalent to management fees), and is traded directly in real time like shares, hence my adjustment in the initial holding for dealing charges, stamp duty, and whole numbers as per the 3 picks.
In all 3 cases I have started with a notional £6,000 which gives us the following starting point:
In all 3 cases I have started with a notional £6,000 which gives us the following starting point:
| 14/03/2012 | |||||||
| Price | Funds | Stamp | Dealing | Invested | Residue | Check | |
| Inv. Perp. High Income | 5.4047 | 6000 | 0 | 0 | 6000 | 0 | 6000 |
| Edinburgh Inv. Trust | 5.04 | 6000 | 29.786 | 12.5 | 5957.28 | 0.434 | 6000 |
| BAT | 32.37 | 2000 | 9.873 | 12.5 | 1974.57 | 3.057 | 2000 |
| Glaxo | 14.33 | 2000 | 9.888 | 12.5 | 1977.54 | 0.072 | 2000 |
| Vodafone | 1.66 | 2000 | 9.885 | 12.5 | 1999.06 | 0.555 | 2000 |
| 6000 | 29.646 | 37.5 | 5929.17 | 3.684 | 6000 |
So from the start the 3 picks: Glaxo; BAT's; and Vodafone, have the weakest starting position by virtue of there being 3 sets of dealing charges and stamp duty.
Note that there is also a residue of funds that are insufficient to purchase whole shares so have been detailed and retained within the investment as cash until enough cash is present, through dividends or sales, to purchase new shares/holdings (I also need to think about setting rules for the re-investment of cash and/or changing holdings should they no longer be a part of the Invesco Fund's top 10).
The Edinburgh Investment Trust also suffers from one set of dealing charges but a similar amount of stamp duty as the 3 picks.
Which leaves the High Income Fund as having had the best start due to zero upfront charges and the full amount invested due to the allowance of partial units.
Also worth noting is that, as both Glaxo and BAT's are recent ex. dividends, there might be a small advantage to both the fund and the Trust when these are received.
A further difference between the High Income Fund and the Investment Trust is that the Trust is managed much like a company giving it access to fund raising through increased borrowings (gearing the balance sheet with debt), which might give it an opportunity to outperform the comparable High Income Fund albeit with more risk.
So what does it look like after 6 weeks:
So what does it look like after 6 weeks:
| 30.04.12 | ||||||
| Shares | Price | £ Total | % Perf. | |||
| Inv. Perp. High Income | 1110.14 | 5.31 | 5898.755 | -1.69% | ||
| Edinburgh Investment Trust | 1182.00 | 4.94 | 5833.17 | -2.78% | ||
| Residue | 0.434 | 0.00% | ||||
| Dividends | ||||||
| Total | 5833.604 | -2.77% | ||||
| 3 Picks | ||||||
| BAT | 61.00 | 31.59 | 1926.99 | -3.65% | ||
| Glaxo | 138.00 | 14.25 | 1966.5 | -1.68% | ||
| Vodafone | 1191.00 | 1.71 | 2030.655 | 1.53% | ||
| Residue | 3.684 | 0.00% | ||||
| Dividends | ||||||
| Total | 5927.829 | -1.20% | ||||
And the chart:
 |
| Click to enlarge, close to return. |
Very interesting already then as I can see from the chart that, despite having the best start in this experiment, the High Income Fund has since fallen below the level of the 3 picks.
The Investment Trust has also followed a similar downward trend to the High Income Fund leaving the 3 picks as the only investment here that has broken the downward trend starting on the 14 March 12, by turning upwards in April.Earlier posts:
- March 2012: Portfolio Update.
- New proposed investment strategy based upon Neil Woodford's top 10.
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