Followers of our hypothetical £100,000 income portfolio have done very well since its inception but some major changes are now taking place.

Tony Yarrow of Wise Investment, who has taken over the portfolio’s management from Daniel Lockyer, decided to undertake a thorough spring clean on 28 January.

At the last quarterly review date in early December, the portfolio’s value had grown by more than 34 per cent since its inception in November 2008.

Yarrow has cut back on the fixed interest exposure by selling Artemis Strategic Bond, Cazenove Strategic Bond, M&G Optimal Income and Thames River Global Bond.  He feels the low yields on offer and potential inflation make corporate bonds unattractive, and while the Thames River Global Bond fund invests in sovereign debt, there is also exposure to this asset class through another of the portfolio’s holdings.  

He is not pulling all the proceeds out of bonds, however, as he had added to the existing holding in Axa US Short Duration and bought a stake in M&G UK Inflation Linked Corporate Bond.  He sees the former as a useful diversifier and the latter as an inflation hedge.

On the equity side, he sold Invesco Perpetual Global Equity, Utilico Emerging Markets and Aberforth Geared Capital & Income.  The Invesco Perpetual fund was sold because Yarrow believes there are better opportunities to gain higher yields from global franchises closer to home.  The other holdings have done well recently but he feels there is now more downside risk.

With the proceeds he has increased his holdings in Jupiter Japan Income and ING UK Real Estate, and added four more new holdings to the portfolio – Standard Life European Income, ISIS Property Trust, Wise Evenlode Income and JO Hambro UK Equity Income.

Yarrow believes valuations in Japan are attractive, and similarly he feels that while UK commercial property still faces some short-term problems, now is a good time to buy.  He also believes the outlook is good for equity income funds investing in good quality companies in the UK and Europe.  

The changes below will be reflected in the online representation of the portfolio as soon as possible. See our Income Growth Portfolio for details.

Portfolio changes

Sell:
Artemis Strategic Bond, Cazenove Strategic Bond, M&G Optimal Income, Thames River Global Bond Invesco Perpetual Global Equity Utilico Emerging Markets Aberforth Geared Capital & Income  

Increase:
Axa Short Duration, 3240 extra units at 102.3, total holding now: 12,493 units
Jupiter Japan Income, 4683 extra units at 59.23, total holding now: 16,183 units
ING UK Real Estate, 4457 extra shares at 52.50, total holding now: 16,257 shares  

Buy:
M&G UK Inflation Linked Corporate Bond. Units purchased: 9,384 at 102.14p
Standard Life European Income. Units purchased: 19,320 at 66.15p
ISIS Property Trust. Shares purchased: 9,085 at 105.5p
TB Wise Evenlode Income. Units purchased: 13,173 at 116.42
JOHambro UK Equity Income.  Units purchased: 11,354 at 1.35