Monday 10 July 2017

Income Portfolio Using Cheap 'Tracker' Funds

Investment charges

The Daily Telegraph has published an interesting article about using cheap 'tracker' funds to create an income-oriented portfolio.

Over time, I have sought to automate and diversify the DIY Income Investor portfolio by using Exchange Traded Funds, which are a cheap and easy way to 'buy' a (fairly) sustainable income, as well as accessing world markets.

'Active' funds - which fund managers fiddle with and refresh - usually come with a hefty management fee, plus more hidden costs associated with the 'churning' of the holdings. By contrast, 'tracker' funds are based on a specific index and are relatively easy to manage, resulting in a lower cost.

I personally prefer Exchange Traded Funds over 'tracker' funds, as ETFs are easy to buy and sell - and have no entry or exit charges.

The Telegraph Money portfolio is split into three parts:UK equities, bonds and worldwide equities:

UK shares - 32%

  • L&G UK 100 Index (10%) – 3.3% yield, 0.1% charge
  • HSBC FTSE 250 Index (10%) – 2.5% yield, 0.18% charge
  • Vanguard FTSE UK Equity Income Index (12%) – 4.5% yield, 0.22% charge

 Bonds - 32%

  • iShares Global High Yield Corporate Bond (12%) – 4.9% yield, 0.5% ongoing annual charge
  • L&G Sterling Corporate Bond Index (10%) – 2.2% yield, 0.14% charge
  • Vanguard Global Bond Index Hedged (10pc) – 1.6% yield, 0.15% charge

 Global shares - 36%

  • WisdomTree Europe Equity Income ETF (12%) – 5.3% yield, 0.29% charge
  • Schroder US Equity Income Maximiser (12%) – 5.1% yield, 0.4% charge
  • Vanguard Pacific ex Japan Stock Index (6%) – 3.9% yield, 0.23% charge
  • iShares Emerging Markets Dividend ETF (6%) – 4% yield, 0.65% charge

The portfolio yields 3.6% overall.

By comparison, the DIY Income Investor portfolio is split approximately 50/50 between dividend shares and fixed-income (including bonds), both of which are diversified globally. Nearly half (45%) is held in ETFs and other funds. The DIY portfolio yields 5.7% but is more risky - as highlighted by the Carillion holding, LSE:CLLN, which has just cancelled its dividend!

I am not a financial adviser 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.


  1. So, do you think carillon is now a buy - based on the fact the bad news is built in and share price falls are usually over-blown?

    1. Haha! That's true, but as there's no income I wouldn't look at it now. Despite the bad news, I'm sitting tight for now - as you say, the price is likely to recover in a few months.

  2. Is the WisdomTree Europe Equity Income ETF (12%) – 5.3% yield, 0.29% charge, EEI or EEIP ... and what's the difference? Thanks

  3. Seems to be the listing currency - EEI is GBx whereas EEIE is Euro

  4. Carillion collapsed again today. I count myself lucky to have got out at 1.34. After holding for 5 years and collecting dividends I am only 12% down. Happy to move on and find another investment.