I plan to fund my retirement with the income generated by a portfolio of top dividend stocks plucked mainly from the FTSE 100. I buy individual equities, yet could save time and trouble by sticking my money in an investment fund that does a similar job.
Or rather, two funds. There are two excellent investment trusts that target the same stocks that I do, only on a grander scale. They’re run by pros, not an amateur stock picker like me, and have a track record of success. So why won’t I buy them?
I rate these trusts
The first is the hugely popular City of London Investment Trust (LSE: CTY). This equity income fund, established way back in 1861 and managed by Janus Henderson, invests mainly in UK equities with a bias towards multinational blue-chips.
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It’s a true Dividend Aristocrat, with a staggering record of increasing its dividend payouts for each of the last 56 years.
The £2bn trust currently yields 4.66% a year, more than the lead index at around 4%, and has a low management fee of 0.325% a year.
City of London’s share price has grown 10.5% in the last troubled year, against growth of just 2.4% on its benchmark.
Its top 10 holdings include familiar FTSE 100 dividend heroes, including Rio Tinto, (which I recently bought), Diageo and Unilever (both of which I’m planning to buy).
If a friend asked my view, I’d say buy it. Provided they were looking for conservatively managed long-term income and growth. So why don’t I?
I’ve asked myself the same question about the Merchants Trust (LSE: MRCH), managed by Allianz Global Investors.
This investment trust runs a focused portfolio of large UK companies for rising income and long-term capital growth. This £850m fund yields 4.58% and boasts 40 consecutive years of dividend growth. Its annual charge is 0.35% and the share price is up 10.2% over one year.
What’s not to like? Especially since its top holdings include Rio Tinto (again) and two more stocks on my shopping list GSK and BAE Systems.
Despite their solid track records, capital invested in these investment trusts is still at risk, and there will be times when their net asset values fall, as with any fund.
I buy my own shares, thank you
Again, I’d recommend Merchants to a friend looking for exposure to UK dividend stocks via a fund, but that’s not what how I invest.
I run a small portfolio of around 12-15 stocks, picking out the companies I think can really do a job for me. Few fund managers offer such concentration when investing hundreds of millions for other people. City of London typically holds around 100 stocks.
I also want the freedom to buy stocks when they look great value, as I thought Lloyds Banking Group, Persimmon, Rio Tinto and Rolls-Royce did last autumn. I target those with the greatest dividend potential, to generate maximum income.
Also, stock-picking is fun. I do my research and I know the risks. Today, for example, Rio Tinto halved its dividend. Last year, Persimmon did the same. I’ll survive, because I’m investing for the long term, and I’m sure both shareholder payouts will recover over time.
City of London and Merchants are great investment trusts, but I’m going my own way.
