One of the functions of an income-generating portfolio is to provide a defence against market volatility. Fixed income, whether preference shares, permanent interest bearings shares or straight corporate bonds, should be slower to respond to run of the mill market gyrations, up or down.
High-yielding defensive shares, too, have a resilience borne of the firm cash flows on which payouts are based. The recent bout of market jitters, which at time of writing has trimmed more than 4 per cent from the FTSE 100 since the start of the year, has trimmed barely 1 per cent from the active income portfolio.
To view the active income portfolio's holdings and trading chronology, click here.
Of course, there are some events - like the prospect of an end to quantitative easing (QE) in the US - which are highly relevant to the price and value of all income-generating securities. Though they all took a knock back in the summer, when the prospect of 'tapering' of purchases was first mooted, prices have generally recovered.
Worth mentioning are the 13 per cent rise in Raven Russia warrants since purchase two months ago, and a 22 per cent rise in OneSave subordinated bonds since purchase in August. A hefty chunk of dividends in January helped too: £840 from Juridica and £560 from National Grid. What to do with that cash is the next question.
It is always tempting to further expand the portfolio, adding a new type of security, but there are often bargains to be had under our noses. One is Juridica, an Aim-listed investment trust which funds business litigation in the US. Following recent weakness, the shares at 126p now boast a historic dividend yield of 11 per cent, and still stand at a small discount to the 133p NAV.
Juridica's extraordinary yield
That yield is an extraordinary figure, and though the irregularity of future dividends is inevitable given its dependence on the results of litigation, there are good reasons to expect further positive news this year. The company in February said it has received $3 million (£1.83 million) on a $1 million investment in a commercial case, and all of its $4 million investment in a second case, in which it also expects to get a third share of an asset that is being sold.
It gave positive updates on its five anti-trust cases, mostly price-fixing, due to go to court this year. These cases are collectively worth $139 million, and make up the bulk of the company's investments of $161 million, based on 30 June figures. Though the update did not include any fresh dividend news, the portents for increased income are good. I have decided to buy another 1,000 Juridica shares at 127.5p.
The biggest laggard in the portfolio remains Henderson Far East, which as I said last time has failed to recoup the losses made when QE tapering was first announced. Though I reckon it to be reasonable value now, based on an expected rebound in emerging markets - and particularly China - I will hold off buying any more for now. I really want to see some signs of improving sentiment in emerging markets first.
There is just one dividend this time: 2.75p a share for Perpetual Income & Growth Investment Trust, a total of £135.
Nick Louth may have a long-term financial interest in some of the securities mentioned.
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