Tuesday 8 February 2011

Mr Bearbull's Income Portfolio (UK)

As this blog is based on investing for income, it is interesting to look at other examples of successful long-term income investing. Mr Bearbull (from Investor's Chronicle) has recently reported on the success of his income portfolio. 

The returns from the Bearbull Income Portfolio  have regularly beaten its benchmark, the FTSE All-Share index. During its 11-year life, the income fund has produced a compound annual growth rate of almost 9% - quite impressive when you consider that the All-Share index's compound annual growth rate over the same period was only 0.3%).

The best explanation for this success that Mr Bearbull can come up is:
  • The prices of high-yield shares are inherently relatively more stable than shares in growth or recovery situations, where investment success is likely to depend on hard-to-predict events.
  • For high yielders, future dividends comprise a bigger proportion of the share price than in growth and speculative situations and the reliability of their dividends is pretty good.
  • Good stock-picking (he's modest about this) 
The dividends themselves are obviously and important component of the growth in value - he calculates that 38% of value added has been via dividends distributed.

The number of shares making up the portfolio is relatively small but the holding are well diversified among different economic sectors:
  • GlaxoSmithKline (Pharmaceuticals)
  • Scottish & Southern (Electricity)
  • Chesnara (Life assurance)
  • Carr's Milling (Food processors)
  • Carillion (Construction)
  • Umeco (Aerospace)
  • Hill & Smith (Engineering)
  • Mitie (Support services)

I am not a financial advisor and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.

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