The impact of the Macondo well disaster in the Gulf of Mexico has been trivial for me, unlike many for whom its effects have been catastrophic. Nevertheless it has had an effect, causing me to re-think part of my investment strategy.As I stated recently on this board, (http://boards.fool.co.uk/Message.asp?mid=11965934) in addition to ten investment trusts in my SIPP I had a portfolio which included three other ITs – Merchants (MRCH), Murray Income (MUT) and Securities Trust of Scotland (STS). Being retired, I depend upon pensions and investments for all of my income, and I invested in these three originally in order to provide monthly dividends – each pays out quarterly and between them there is a payment in every month of the year. Later I became interested in the HYP strategy, and began to add holdings in companies which seemed to be suitable. The end result of this was a hybrid portfolio which in addition to the three ITs had BP, Scottish & Southern Energy, Vodafone, Tesco, Tate & Lyle, HSBC and Standard Life. I was quite happy with this arrangement until BP hit the buffers and cancelled the remaining dividends for this year.At this point I re-thought my strategy and concluded that my hybrid portfolio was actually a bit silly as all the HYP shares would already be held by the ITs, and there were insufficient shares in the HYP part to give adequate diversification. In particular I was over-dependent on BP! I would be better off having a portfolio of ITs, or a proper HYP of at least 15 shares. Being a bit of a fan of ITs (conventional – I don’t do the splits), I decided to replace the HYP shares with more ITs and started another round of research using the TrustNet website and Money Observer IT supplements which I have collected.First though, I reviewed the performance of the three trusts I already held, using my own records. I was quite happy with MRCH and MUT, both of which have increased or at least maintained their level of payouts in recent years. STS however has been a disappointment, with a 1.8% cut in 2009 compared to 2008 and bigger cuts so far this year. I found that Perpetual Income and Growth (PLI) had a decent yield with ten years of income growth and when I looked at the portfolio I saw that three of the top ten holdings were tobacco stocks (one of which was American) and no BP! So a portfolio which looked a bit different with up to 10% in overseas companies and a new policy of paying dividends quarterly. Gearing was stated to be 20% which is perhaps a little on the high side but I must admit that I am not swayed by gearing which may or may not be a good thing. All in all it looked an excellent replacement for STS so I did the switch.Next I sold HSBC and Standard Life and bought shares in British Assets (BSET) with the proceeds. BSET, run by Foreign and Colonial, is the second-highest yielder in the global growth and income sector (I already had the highest yielder in my SIPP) and although the top ten holdings look like a classic HYP it does have a 25% exposure to overseas markets and 11% in bonds so I was broadening the asset base a bit. It is a very old trust (launched Jan 1898) and has a progressive dividend policy.Then I switched out of Tate & Lyle into Value and Income Trust (VIN). This has resulted in a drop in yield but a further widening of the asset base. VIN is a curious little trust run by OLIM which has approximately two-thirds of the portfolio in UK equities and a third in commercial property. It has an excellent record of increasing its dividend year after year. For my sixth IT in this portfolio I chose Bankers Investment Trust (BNKR), run by Henderson. This ancient trust (launched Apr 1888) sits in the global growth sector, but nevertheless boasts a yield of about 3.4% - fourth highest in the sector. Although BP was (is?) the largest single holding, only 44% is invested in the UK with most of the rest in North America, the Pacific area (including Japan) and Europe. Again, this trust has an impressive history of rising dividends. The purchase was funded by the sale of the remaining HYP shares except BP.So I now have shares in 16 investment trusts; as well as the ten in my SIPP these are MRCH, MUT, PLI, BSET, VIN and BNKR. I still have my BP shares which I intend to sell in tranches once the share price has recovered some more. I do think that they represent a good medium term investment, but I have decided that my need for reliable income is too important to risk exposure to shareholdings in individual trading companies, even those often considered suitable for widows and orphans. What will I do with the proceeds from BP? I have my eye on a new unit trust (the Artemis Global Income Fund) which I would like to add to some other funds I already have in an ISA. But I won’t bore everyone about that!Sorry for the length of this post which I hope is of interest to some. Of course, DYOR.Chris
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