In a previous post I reflected on the likelihood of future tax increases and the probable removal or reduction of various investor-friendly tax concessions.
Whatever the result of the June 2017 election, the rhetoric during the campaign makes such measures more likely in the coming months and years.
In view of this, and my impending retirement from full-time paid employment, the wise allocation of capital to the 2017/8 ISA takes on even greater significance.
I've allocated all the but the last £4000 (leaving that until after the result on June 8th) and reached my decisions on the first £16,000 in the light of these thoughts:
1. Don't isolate a single year's ISA from the rest of your investments.
In my case with part of the proceeds of a property sale to come later this year, the ISA funds have been deployed to high yielding investments with an overall income target of 5% (i.e. £1000 of tax free income).
2. Embed your ISA objectives within your overall investment objectives.
My first priority is to maximise tax-free investment income, hence the tilt to higher yields within the tax-free shelter.
3. Don't ignore investments you already have and that have proven their worth.
I've tried to resist adding several new holdings, instead deepening rather than widening my investment selections where possible.
4. Don't chase the very highest yielding investments without regard for capital growth.
My initial early retirement plans a few years ago envisaged a high allocation to 'enhanced income' funds such as the Schroder Income Maximiser family. Closer analysis, and the experience of a near relative whose immediate income needs override all other investment goals, have made me realise that high current yield can come at the expense of capital growth, so I have tempered my projected allocation to these funds.
5. Remember that it's possible to transfer funds within a Stocks and Shares ISA.
Although I don't invest in ISAs with a view to actively trading them, like all parts of a portfolio they can be amended if investments fail to meet their objectives. I have switched some positions to good effect in past ISA years, so although this year's investments are meant for the long term, they will not escape scrutiny.
So what have I invested in?
My 2017/8 ISA selection
1. European Assets Trust (EAT)
I've added another £4000 to last year's investment in this European small and mid-cap investment trust. Having struggled for much of 2016, this year has seen an uptick in performance as the European recovery starts to gain traction. The yield of 6% of each year's starting net asset value paid out over the following year means that the dividends can fluctuate: 2017 looks like being 67p for the full year against 73p in 2016, 55p in 2015.
2. Central Asia Metals (CAML)
An AIM-registered copper mine in Kazakhstan...hmm...
In fact CAML was one of my switched ISA holdings that worked in 2016, and wanting to raise my allocation to the mining and commodity area as the portfolio grows, I decided to add to my holding. This year's investment is down a few per cent thus far (partly as a result of the 10p dividend recently declared) but with a healthy balance sheet and generous dividend yield, this is one for the long-term.
3. XL Media (XLM)
I like to have one somewhat speculative 'play' in each year's ISA. Last year was Caledonia Mining (CMCL), this year in a desire to gain some exposure to the world of online publishing and media marketing, I invested in another cash-rich AIM stock, this Israeli media marketing firm. Already a few per cent to the good...
4. Premier Optimum Income (C Income)
To attain my 5% yield target at least one of the components had to have a yield in excess of 6%. Less well known than some of its fellow enhanced income funds that employ call options to boost their dividend payments, Premier's fund has the best capital growth performance of the set (over 5 years to 2nd June 2017 the capital value of the Income units has grown by 44%, compared to 32% for Schroder Income Maximiser) and a similar yield of about 7%. The Premier fund does not have some of the usual dividend suspects in its Top 10 holdings (e.g. B.P. and Shell).
5. Chelverton Small Companies Dividend Trust (SDV)
This is where the £4,000 I have yet to invest this year will be directed.
I am holding back for the moment, partly because of the narrowing of this trust's discount in recent weeks, partly in case we see a surprise UK election result denting the rise in UK small cap valuation which has been such a feature of the first half of 2017.
The strong performance of this trust over the last five years (net asset value up 221% in the 5 years to June 2nd 2017) - some of which I've enjoyed in previous years' ISAs - merits a further investment.
Near misses and candidates for my non-ISA investments
Had it been launched a few weeks earlier, I might have included the newly established Jupiter Emerging and Frontier Income trust (JEFI).
My long search for a global income trust yielding 4% and not at a high premium (perhaps ruling out Murray International) has led me to JP Morgan Global Growth and Income (JPGI) which in 2016 changed its investment policy to pay 4% of each year's 30th June net asset value in the following twelve months. I will explore this trust in a future post as it may provide a home for some of my property sale proceeds.
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