Shares Magazine

How all-weather global equity fund Brunner has rewarded our faith

The diversified dividend hero has beaten its benchmark once again and the shares are testing new highs

Brunner Investment Trust (BUT) £12.75

Gain to date: 19%

We highlighted investment trust Brunner (BUT) at £10.71 in April 2023 on the basis a 7.1% discount to (NAV) net asset value provided an opportunity to purchase a balanced global portfolio for less than the value of the underlying assets.

Our bullishness reflected the fact that the quarterly dividend-paying trust has delivered consistent returns across the market cycle and had particular appeal during the prevailing uncertainties at the time.

WHAT’S HAPPENED SINCE WE SAID TO BUY?

Shares in Brunner have trekked almost 20% higher, helping the discount relative to peers begin to narrow, boosted by the global equities rally witnessed towards the back end of 2023 as well as portfolio outperformance and well-received full year results (14 February).

Brunner beat its benchmark once again in the year ended 30 November 2023, delivering an NAV total return of 8.7%, ahead of the 5.5% increase in the composite benchmark. This reflected strong stock selection from the managers and standout performances from the likes of tech titan Microsoft (MSFT:NASDAQ), Greek-listed retailer Jumbo SA (5JB:FRA), Danish pharma star turn Novo Nordisk (NOVO-B:CPH) and insurer Munich Re (MUV2:ETR), which chair Carolan Dobson said demonstrates ‘the variety of companies and sectors the manager selects to meet the company’s performance and risk objectives’.

WHAT SHOULD INVESTORS DO NOW?

Stick with Brunner, a reassuringly diversified trust providing exposure to high quality companies with high market shares and pricing power, as well as strong balance sheets and a sustainable competitive advantage, that are expected to perform well over the long term. This all-weather fund should hold up well in 2024, a year of countless elections around the world and with the geopolitical landscape remaining dangerous.

Brunner also proposed a 5.6% hike in the total dividend to 22.7p, meaning it has now reached 52 years of consecutive dividend increases. 

Chelverton UK Dividend Trust plc

Declaration of Interim Dividend

The Company has today declared a third interim dividend in respect of the year 1 May 2023 to 30 April 2024 of 3.15p per share (2023: 2.9425p). This dividend represents an increase of 7.05% compared to the equivalent amount declared in the previous year.

The interim dividend of 3.15p per Ordinary share will be paid on 19 April 2024 to the holders of Ordinary shares on the register at 5 April 2024, with an ex-dividend date of 4 April 2024.

It is the Board’s intention that this payment will be the third of four equal core dividend payments of 3.15p each, being a total of 12.60p, for the year ending 30 April 2024.

Triple Point Social Housing REIT plc

(the “Company” or, together with its subsidiaries, the “Group“)

DIVIDEND DECLARATION

The Board of Directors of Triple Point Social Housing REIT plc (ticker: SOHO) has declared an interim dividend in respect of the period from 1 October 2023 to 31 December 2023 of 1.365 pence per Ordinary Share, payable on or around 29 March 2024 to holders of Ordinary Shares on the register on 15 March 2024. The ex-dividend date will be 14 March 2024.

The dividend will be paid as a Property Income Distribution (“PID”).

Following payment of this dividend the Company will have paid an aggregate dividend of 5.46 pence per Ordinary Share in respect of the financial year ended 31 December 2023, in line with the Company’s target for the financial year.

Strategy

Gimme Shelter

William Heathcoat Amory

Kepler

Disclaimer

This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. This material should be considered as general market commentary.

Sometimes it feels safer to run with the herd. Like it or not, you will likely be doing exactly this with your investment portfolio. On a global basis, it has been such a feature of equity markets that the biggest have got significantly bigger, increasingly driving overall performance, and at the same time becoming a greater and greater proportion of market-cap-weighted indices. In fact, this has mainly been a feature in US equity markets, the effect of which has spilled over into global indices, because of the sheer size of the US’s biggest companies which means they make up a huge part of global benchmarks.

According to statistics from JPMorgan, within the S&P 500, the market-cap share of the largest ten stocks relative to the broader market—is at the 86th percentile relative to history and stands at 29.4%. As we show below, this has led to a significantly divergent performance of the weighted vs the unweighted version of the index. According to JPMorgan the “Magnificent Seven” (of which more below) delivered returns of 101% over 2023, whilst the equal-weight index delivered a return of 2.5%. In other words, if you were a stock picker or aimed to have a vaguely diversified portfolio, it was an impossible year in which to deliver outperformance.

Whilst this isn’t necessarily of concern to investors, it will be of concern to active fund managers, who need these sorts of market phenomena like a hole in the head. With pressures on fees and the rise of cheap passives, looking at the graph below it is hard to argue that investing in an S&P 500 tracker hasn’t been the right thing to do.

WEIGHTED VS UNWEIGHTED

Investing in a market-weighted US or Global ETF during 2023 would have resulted in the outperformance of active managers at a low cost. On the other hand, indices are not “intelligent” capital allocators as such, but they are allocating capital for you—not based on anything other than what other people are investing in. This is reassuring in some way. No one likes being out on a limb, particularly when the downside of doing so is acute. Imagine a swimmer noticing the previously bustling shoreline full of other swimmers who are now all standing on the beach. Is it possible to imagine them being able to continue to enjoy their swim? Of course not. Humans are (generally) programmed to ask—what have I missed? Why am I here on my own? What awful predator has everyone else seen, but I haven’t? Irrespective of the very remote likelihood of being shark food, 99.9% of swimmers will get out of the water—sharpish!

Investors in an ETF of either the MSCI World or the S&P500 will find that, after many years of startling returns, a material part of these holdings is now represented by the seven stocks we show in the table below. More and more people are now standing on the same patch of beach!

£1,000 INVESTED TODAY IN AN ETF

STOCK	ISHARES MSCI WORLD ETF (£)	ISHARES S&P 500 ETF (£)
Microsoft	45.60	71.10
Apple	44.90	62.20
Nvidia	30.60	45.40
Amazon	25.60	37.10
Meta	16.90	25.10
Alphabet (Class A and C)	25.40	36.80
Tesla	8.60	12.40
£ Total	197.60	290.10

Source: iShares, as at 23/02/2024
Past performance is not a reliable indicator of future results

It takes a brave investor to peel away from these darlings of global stock markets and get back in the water. However, in our view, it makes absolute sense from a risk management perspective, to rebalance, take profits, and reallocate elsewhere. 2022 provides a good illustration (see below) of what can happen when the tide goes out. All of these companies underperformed world indices by a considerable margin, and it is hard to argue that the same could not happen again should sentiment turn.

2022: NOT SO MAGNIFICENT

Source: Morningstar
Past performance is not a reliable indicator of future results

Find me shelter!

Swimming against the tide is hard when you are investing. It takes tenacity, self-confidence and a willingness to be wrong until you are (eventually) proved right. As such, turning away from the Magnificent Seven will take a certain level of fortitude. But we all know that nothing lasts forever.

Aside from mitigating stock-specific risks, which as we show are increasingly prevalent in indices, adding less correlated returns to a portfolio adds to risk-adjusted returns. That said, given the financialisation of everything, the level of connectedness amongst investors globally, and the globalisation of capital flows, it is likely that if the Magnificent Seven hit turbulence, then stocks everywhere will feel the effect from a sentiment perspective. However, after the initial shock, we think fundamentals will eventually re-assert themselves, and so in our view, it makes sense to look within equity markets for other areas of growth which potentially offer very different drivers to those of the biggest listed companies in the world. We therefore examine various complimentary growth opportunities, which might make sensible avenues to explore for re-investing those magnificent profits into.

The Motley Fool

How I could live off dividend income alone ?
Story by Dr. James Fox

Like many investors, I receive dividend income from the stocks I own. In my case, dividend-paying stocks represent the core part of my portfolio. But just how much would I need to earn from dividends to live off this income alone? And would it be possible?

Let’s take a close look.

Well, I’d want to build a portfolio of dividend stocks that collectively pay me enough money to live from. Let’s say this is £30,000, but I appreciate this might not be possible in London.

And I’d want to be doing this within an ISA wrapper. That’s because any capital gains, dividends, or interest earned within the ISA portfolio is tax-free.

So, if I was earning £30,000 from dividends, I’d actually be taking home more money than someone on a £45,000 salary — including student loan repayments.
Of course, unless I picked specific stocks, I wouldn’t expect this income to be spread evenly across the year. At this moment, the majority of my portfolio’s income comes around April and May, shortly after the end of the financial year. So that’s something to bear in mind.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

What would it take?
Well, to earn £30,000, I’d need to have at least £375,000 invested in stocks. That’s because I believe the best dividend I can achieve is around 8%. This would involve investing in companies, like Legal & General, that don’t offer much in the way of share price gains.

But what if we don’t have £375,000? And let’s face it, the majority of us don’t.

Well, I’d need to build a portfolio over time. And I could do that using a compound returns strategy. This involves reinvesting my dividends and earning interest on my interest. It’s very much like a snowball effect.

Naturally, there are several key variables here. The starting figure, the yield I can achieve, and the amount of money I contribute from my salary every month.

If I started with £10,000 and stocks yielding 8%, in theory I could reach £375,000 in 19 years. But this would require me to contribute £400 a month and increased this contribution by 5% annually throughout those 19 years.

And by contributing £400 a month, I’d fall way under the maximum annual ISA contribution of £20,000.

Compound returns isn’t a perfect science, and as with any investment, I could lose money. But it’s certainly safer than investing in growth stocks.

PHP

Current share price 92p latest dividend for year 6.7p

yield 7.3%

Shares Magazine

Rental growth drives long-term income at Primary Health Properties

As well as a growing dividend stream the shares offer upside potential

Primary Health Properties (PHP) 90p

Market cap: £1.2 billion

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As the National Health Service continues to struggle under the weight of an ageing population and increased demand for treatment, resulting in growing waiting lists, there has never been a greater need for primary healthcare services outside of hospitals.

Primary Health Properties (PHP) is a UK real estate investment trust and a leading investor in modern, purpose-built primary care facilities.

The group owns the freeholds or long leaseholds of flexible modern properties built specifically for the purpose of providing local primary care, and at the end of last year its portfolio was valued at £2.78 billion while its market cap was less than half that amount.

HOW DOES PHP OPERATE?

The UK population is growing, but at the same time it is ageing and more people are suffering more instances of chronic illness, particularly since the pandemic.

This means demand for health care is growing, affecting service provision, levels of patient care and patient outcomes.

Despite the roll-out of digital services like myGP, close to 70% of consultations are now face-to-face which is the same level as pre-Covid.

Yet a third of the NHS estate is obsolete and cannot cope with demand, added to which the Government strategy is to move services away from hospitals towards modern primary care premises.

By letting out its purpose-built modern properties on long-term leases, backed by secure underlying covenants where the majority of rental income is funded either directly or indirectly by a government body, PHP is able to generate a secure income and pays a progressively rising dividend.

HEALTHY FINANCIAL SITUATION

2023 marked the 28th year of the trust paying an increased dividend, which was once again fully covered by earnings thanks to a total property return of 3.5% as rental growth offset a decline in valuations.

The company doesn’t make speculative investments, and only invests in new facilities if they are accretive to earnings meaning it is disciplined with respect to its development pipeline.

It currently has over £320 million of cash and undrawn loan facilities which it can use to make acquisitions or invest in its existing portfolio, and after recently placing a 10-year note with a fixed rate of just under 4.2% to repay more expensive variable-rate borrowing – in order to finance expansion in Ireland – it has an average cost of debt of just 3.3%.

Some 97% of net debt is fixed or hedged for a weighted average period of just under seven years.

RECORD RENTAL GROWTH

The portfolio consisted of 514 properties as at the end of last year, with the majority in England and Wales, 40 in Scotland and 21 in Ireland, which is a new market for the group with plenty of potential to grow.

Occupancy is 99.3%, and with almost 90% of income coming from government bodies and upward-only rent revisions earnings visibility is extremely high.

In 2023 the firm generated rental income of £151 million, an increase of 4%, thanks to record rental growth with reviews generating £4 million of additional income, up from £3 million in 2022 and £2 million the year before that.

‘The strong rental growth has been reflected in our total property return, which was significantly ahead of the wider property market’, said chief executive Harry Hyman.

ANALYST VIEWS

House broker Peel Hunt flags PHP’s ‘super-secure income’ thanks to its almost 100% occupancy rate, upward-only rental revisions and the fact its rent roll is almost wholly government funded.

The analysts also point to the fact the shares are trading at multi-year lows, leaving the company on an undemanding 21% discount to NAV with an attractive 7.7% yield.

Jefferies describes PHP as ‘Dividend Royalty’ and also flags the low risk associated with its cash flows together with its low cost ratio, helped by falling input costs.

The Motley Fool

Retirees are paying frightening amounts of tax. Don’t join them

Story by Malcolm Wheatley

The other day, my annual tax code notice arrived.

And my personal allowance — which, as with most people, is £12,570 — is now very largely swallowed up by the state pension. (Yes — I’m that old…)

So in the coming tax year, if my total earnings and unsheltered investment income exceed a sum just over £2,000 — and they will — then I’ll be paying income tax on them.

Frozen figures create a bigger tax take

It’s no mystery what’s happening here.

The personal allowance hasn’t changed since the 2021-2022 tax year, and neither has the higher rate threshold — the point at which individuals pay tax at 40%, instead of 20%.

Nor will either of them change until 2028, successive chancellors have said.

So consequently, many more people are being caught in the tax net with each passing year, until allowances and income thresholds — hopefully — rise again.

People who didn’t pay tax at all are now paying tax. People who paid basic rate tax are now paying higher rate tax, because their pay rises have taken their earnings above the higher rate threshold of £50,270.

Economists call it ‘fiscal drag’.

Fiscal drag in action

The other day, the Office for National Statistics published some figures — well, quite a lot of figures, really — in a lengthy and detailed annual publication called Personal Incomes Statistics 2021-2022.

But the data already amply illustrates successive chancellors’ miserly approach raising them in the past.

There were 800,000 thousand more basic rate taxpayers than the year before. 400,000 higher-rate taxpayers. And around 70,000 more additional rate taxpayers.

And over the next few years, experts expect that those numbers are going to increase quite significantly.

Squeeze the old

Most troubling is what’s happening with older taxpayers — those individuals above state pension age.

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, sums up the situation well:

“Pensioners continue to make a huge contribution to the nation’s tax bill. They now account for over 20% of all taxpayers and almost 15% of total income. One in ten taxpayers is over the age of 75 — this is up from 7% in 2011/12 in a reflection of our ageing society.”

There were 6.74 million taxpayers of state pension age. 409,000 were self-employed, and 1.2 million received employment income. Sure, some people might want to carry on working after the state pension age — me, for instance — but, like you, I know of plenty of people who have jobs on the side because they actually need the money.

And quite a lot — the majority, in fact — are in receipt of non-state pension income, from either past employment or private pensions.

Taxation in retirement

What are the implications of all this for your retirement investment planning?

For those investing through SIPPs, then your pension income is taxable, full stop. And if your state pension and your SIPP income together exceed the personal allowance, you’ll pay tax.

ISA income? Under present tax rules, ISA income is free of tax. This is very handy when you’re building your retirement ISA pot (as is the fact that ISAs are also free from capital gains tax), but is absolutely crucial in retirement.

Because otherwise, you’ll pay dividend tax — a tax that didn’t used to exist, and in my view represents a double tax-grab on corporate earnings. In fact, says Hargreaves Lansdown, this year dividend tax is expected to rake in £17.4 billion for the chancellor.

For basic rate taxpayers, dividend tax (after the £1,000 allowance) is currently 8.75%. For higher-rate taxpayers, it’s a whopping 33.75%. Ouch.

Run for shelter

The bottom line?

In my view, things are only going to get worse.

This coming tax year, the dividend allowance shrinks to just £500 — a mere one-tenth of the £5,000 it stood at when introduced in the 2016-2017 tax year. Any investment income above £500, then you’re liable for income tax.

Yet large numbers of us continue to hold investments in brokerage and investment accounts — with fund supermarkets, for instance — that aren’t tax-sheltered.

Granted, it’s difficult, as you can — under present ISA rules — only shelter £20,000 a year. Limits also apply to SIPP contributions, at least in terms of the allowed tax rebates.

We’re almost at the end of the current tax year. From April 6th, we’re in a new tax year. Over the next month or so, you could shelter £40,000, if you have it sitting in unsheltered accounts. As many of us do.

Do it today. Your retired self will thank you for it.

In March the blog portfolio will earn £1,045 of dividends, most probably earmarked for FSFL as they don’t go xd until next month.

There is an old Scottish saying.

‘Many a mickle makes a muckle’.

Stick to your plan

Until it sticks to you.