My Biggest Holding - How Good Is It?

My DIY Income Investor portfolio is quite diversified and includes 28 securities, all (well, nearly all) producing income, either from dividends or from fixed-income instruments.

However my biggest holding accounts for 8.6% of the portfolio and is one of the few managed funds - as opposed to passive Exchange Traded Funds - that I own. Is this too big a holding? And has it been a good investment?

CQS New City High Yield Fund Ltd (LSE:NCYF) is a Jersey closed-end investment company quoted on the London Stock Exchange. CQS is a 'credit-focused multi-strategy asset manager' founded in 1999 by Sir Michael Hintze managing $21.0bn of global assets with offices in London, New York and Hong Kong. 

In the Wild West of investing, I would call them 'gunslingers for hire'. I generally avoid managed funds as their costs are much higher than Exchange Traded Funds, often with no evidence of superior performance. But perhaps I'm being a bit hard on them.

NCYF's latest Fact Sheet (March 2021) states their objective: "...to provide investors with a high dividend yield and the potential for capital growth by investing mainly in high yielding fixed interest securities".

The Company has exposure to 103 issues - the 10 largest investments make up nearly 41% of the portfolio. Nearly half the portfolio in September 2020 was in Financials and nearly 15% in Energy.

In their December 2020 presentation to Fund Managers, NCYF claimed a yield of 9.6% - probably the highest in its sector. Dividends have risen consistently over a decade, although only slightly in recent years. Dividend cover is reported at only 1.03 (which means they are paying out almost all the cash they receive). The Fund has traded at an average premium of 5.7% over period 30 March 2007 to 20 October 2020.

The ongoing costs, expressed as 'Reduction In Yield' amount to 1.55%. There are no entry/exit costs or performance fees. Citiwire think it is reasonable, although this is much higher than most Exchange Traded Funds.

Performance

Total Return performance over the past 10 years has exceeded that of the FTSE All Share and several other income funds but all took a Covid-related hit at the beginning of 2021.

How has NCYF performed for me? I have bought chunks at different times, but overall I am showing a capital loss of 8.5%. However, given the relatively high yield, this might be acceptable.

Since 2016 NCYF has paid out 22.08p per share. I paid 60p per share on a purchase in October 2016, which is now only worth 54.6p per share (a loss of 10.5%). That means that the total return was 22.08 - 5.4 = 16.68p or 27.8% or an average annual total return of around 5.5% (if my simple sums are correct). I'm guessing that similar calculations will hold for the other chunks of NCYF that I have bought since then.

Conclusion

To be honest, before doing this review I was not sure about NCYF, even though it is my biggest holding. However, I am now reasonably happy with it as it provides a well diversified collection of fixed-interest securities with an acceptable annual total return. Having said that, it may duplicate holdings in other fixed-interest ETFs, which are more geographically diversified. 

I shall continue to hold it as the share price seems to be recovering from the Covid drop - but I will not add to my holding.

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.