HYP1 is 16

[pyad]

Here is the data for the year ended 12 November 2016, the sixteenth year of this non-tinker portfolio.

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                          Dividends             Value
Anglo American                0.00              5,482
BA Tobacco                1,345.42             37,109
BT Group                    795.48             20,473
Dixons Carphone             120.99              4,047
InterCon Hotels             320.98             13,813
Ladbrokes Coral              78.72              3,215
Land Sex                    258.12              7,116
Lloyds                       62.83              2,720
Mitch & But                  51.83              1,947
Persimmon                 1,162.70             17,821
Pearson                     463.32              6,611
RD Shell B                  542.30              7,977
Rio Tinto                   558.42             15,851
RSA                          57.24              2,550
United Utilities            306.06              6,989

Total  £                  6,124.41            153,721

Cost                                           75,000

Gain                                           78,721    105.0%

FTSE100 at start                              6,274.8

Now                                           6,730.4

Gain                                            455.6      7.3%

HYP1 capital outperformance                               91.1%

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Dividend History
2001                               3,451
2002                               3,474
2003                               3,197
2004                               3,205
2005                               3,546
2006                               4,131
2007                               4,452
2008                               5,040
2009                               3,187
2010                               3,297
2011                               3,843
2012                               4,289
2013                               5,828
2014                               5,601
2015                               6,093
2016                               6,124

Total to date     £               68,758


Events in year
InterContinental made yet another return of cash with a share consolidation. The yield on IHG was too low so I reinvested this money, £2,392, in Lloyds.

Ladbrokes merged with Coral to form the Ladbrokes Coral Group, but there was no cash effect of this.


Income
This is what HYPs are all about and the £6,124 for this year was another record, although it was up just 0.5% on last year and therefore a little behind inflation. From year one, the increase is 77.5%.

The income from an HYP is never going to show a smooth year on year rise, it will always be lumpy and even suffer the occasional fall. You have to accept this profile if you wish to invest this way.

Total income thus far is £68,758 over the 16 years, averaging some £4,297 per year which is 5.73% pa on the £75,000 cost.

BA Tobacco remains, as it has for years, the single largest income contributor with 22.0% of total income but Persimmon is not far behind in contributing 19.0% followed by BT Group third at 13.0%. At the other end, the smallest sums arose from Mitchells & Butlers on 0.8%, RSA 0.9% and Lloyds 1.0%. All of these are recovering from slashed or suspended payouts in earlier years.

There was one zero payer, Anglo American.


Capital
This is irrelevant or secondary depending on your viewpoint. If it's primary, you possibly shouldn't be in this strategy at all. As people who have followed me over the years will be aware, I've always advised that it be ignored. However I know that readers do want to see it.

As shown, the value of £153,721 has assassinated the FTSE100 over the 16 years, up 105.0% against an index up only 7.3% and thus outperforming it by 91.1%. This is without reinvesting dividends.

In the year the index has risen 8.9% whilst HYP1 is up 2.5% so, unusually, it has underperformed this year.

As with its dividends, BA Tobacco remains the largest holding by far at 24.1% with BT Group second at 13.3%.

[Breelander]

For reference, 'HYP1 is 15' is here http://boards.fool.co.uk/hyp1-is-15-13293278.aspx (for now, at least)
and archived here: https://web.archive.org/web/20161112145 ... 93278.aspx

[idpickering]

Thank you for taking the time to put this up Stephen. What an excellent advert for HYPing. Thanks for your continued guidance also.

Outstanding.

Regards,

Ian

[Raptor]

Nice to see HYP1 is still flourishing.

Take a "rec" pyad

Raptor.

[kempiejon]

A better comparison is to look at total returns (dividends reinvested) as that provides a more like for like comparison when the benchmark is also a more appropriate choice.

In fact the HYP doesn't really conform to any readily available indexes does it? It fishes in the FTSE 100 pool but only lands a small subset and as noted is equal weighted at outset at least. There is of course an equal weighted index but that's fairly new and rebalances regularly. Of course as we all know HYP is an income strategy not a total return strategy.

Looking at income alone FTSE250 provided a lower initial dividend value that grew quicker. Extended long enough and that trend would see HYP1 lagging actual dividend value, such that even 'ignoring capital' would have HYP1 relatively underperforming on the income front. Fine if your priority is for a larger initial income, but were accepting of lower income over the longer term.

Now that is interesting, I wonder for how many years that extended period needs to be until total income paid by HYP1 was over taken by a FTSE250 etf for example?

[toofast2live]

Good points Inv

But, capital value or TR value of HYP1 should not be compared to FTSE100. It was not set up as a competitor to FTSE100, and I suspect it is being benchmarked against FTSE100 because it happened to outperform it. (Quite rightly) there was no mention of benchmarking it against ANY index at its inception

HYP1 should be judged on its ability to deliver "a high and rising income". That AND THAT ALONE, was what is was designed to achieve.

I do wish that if pyad insists on comparing it to the FTSE100 that it is compared to the income delivered by FTSE100 over the last 16 years. I would suspect, that if that were done, HYP1 has slaughtered it. I would imagine it has also slaughtered the income delivered by the FTSE250 over the last 16 years. It could also be benchmarked against an annuity bought in 2000.

Many thanks for the update, PYAD, but please desist from the bragging rights of capital appreciation (which may one day wither) and focus on the very real bragging rights of income distribution.

It is an income strategy. Measuring against an index is silly, as it was never intended to beat the index. It is also encourages people to use HYP as an accumulation strategy, again it was never designed for this and the total return of FTSE250 may well beat it. This is not to say it should not be used as an accumulation vehicle, simply that it may not be the best method of accumulating funds.

The year by year income flow also emphasises the need for a reserve if one requires a smooth income flow and not, as pyad rightly observes, the inevitable "lumpiness" of equity dividend flow.

The splendid experiment continues. Well done!

[funduffer]

It is an income strategy. Measuring against an index is silly, as it was never intended to beat the index. It is also encourages people to use HYP as an accumulation strategy, again it was never designed for this and the total return of FTSE250 may well beat it. This is not to say it should not be used as an accumulation vehicle, simply that it may not be the best method of accumulating funds.

....and yet many posters do use HYP as an accumulation strategy, prior to taking the income (at retirement, or whenever).

HYP1 is a very useful benchmark, and it does show that the recommended non-tinkering strategy can yield a healthy rising income, albeit rather unbalanced after 16 years. It will be interesting to see whether the imbalance gets more extreme in time, or somehow 'reverts to the mean'. After 25 years it might look like a portfolio of BATS, Persimmon and BT alone, and any risk reduction from diversification may have eroded away.

Still, my own HYP is now into year 3, and so far so good, and I would be very happy if it follows the progress HYP1 has made.

FD

[toofast2live]

As I say, nothing wrong with using it as an accumulation strategy - it just wasn't designed for that and may not be the best accumulation strategy.

Although capital may be secondary, I do like the way HYP1 APPEARS to show the importance of running winners (importantly while not pruning losers).

Although it is impossible to say what the result would have been it would be so interesting to know the impact on capital values had BAT, BT, ICH, RIO etc been pruned and reinvested in some of the laggards, a la TJH's tinkering process.

Possibly a higher income and smaller capital gain? Who knows, and in a way who cares because we have TJH's portfolios that show how successful a policy of trimming winners and reinvesting in lower performers can be.

Anyway, I remain transfixed by this long term project. But the look of that HYP1 portfolio shape, now. It scares me stiff!

[Itsallaguess]

Although capital may be secondary, I do like the way HYP1 APPEARS to show the importance of running winners (importantly while not pruning losers).

---

Anyway, I remain transfixed by this long term project. But the look of that HYP1 portfolio shape, now. It scares me stiff!

Ah, the yearly 'Running your HYP1 winners is important, but bloody hell, look what happens when you do' conundrum....

It must nearly be Christmas then!

:O)

Itsallaguess

[Jon46]

A comparison with another well documented portfolio.

The IRR on HYP1 is in the region of 8.80%. So far so good. Not bad at all.

But 'Bearbull' too has been running an income taken portfolio on the Investors Chronicle since 1998, well documented. He is an active but I would say not hyperactive investor. Bear in mind too that over the last few years he has been seriously out of form, with what I personally consider strange calls, as any IC reader will be familiar with.

I have always considered from my personal experience running income portfolios for decades that by refusing any tinkering and in particular re balancing, pyad has lessened considerably the potential income resulting from HYP1.

If I scale down Bearbull's portfolio to the same £75000 start at the same dates, or as near as I can make it, and look at its performance over the same period, this year his income will exceed £10,186, a huge difference, portfolio value around £197,596 today. His XIRR over the period is 11.9%. His IRR since 1998 is in excess of 13%.

Now for the cost of an IC subscription, anybody could have just done that. These returns are not extraordinary if I look at quite a few portfolios I am familiar with, including our own, including some invested only in collectives.

So ok, by doing very little and follow this 'leave alone and hope that my original choices were good' strategy you can get reasonable results, but by at the very least re balancing the portfolio and making the odd switch, because things do change in investing, better can be achieved imo.

The great strength of pyad imho is that he got some people into investing, but the rigidity of approach I find a weakness.

Jon

[kiloran]

The great strength of pyad imho is that he got some people into investing, but the rigidity of approach I find a weakness.
Jon

I don't understand all of the discussion and questioning of HYP.
I may be wrong (and I probably am but that is not important to me) but I have never seen any claim that HYP is the best investing strategy of all and must be implemented rigidly.

My take is

1. HYP is pretty good for those who want to buy and forget.
2. There may be investing strategies with greater returns than HYP
3. Most other investing strategies probably require more time and analysis
4. To improve on HYP, you need to think you are better than the market, and be very clever or lucky, or both
5. HYP generally provides a better income than a cash interest account
6. HYP is likely (but is not guaranteed) to provide capital gain over a significant period of time

I don't see HYP as being rigid, but it's a pretty good process and guideline for those who don't think they are more clever than the market or lucky. Certainly for me. I think I am a Doris-like investor, with little (but some) tinkering, and I am very happy with the results, even though I don't implement any perceived rules with a fervour bordering on religious.

--kiloran

[Bubblesofearth]

My take is

1. HYP is pretty good for those who want to buy and forget.
2. There may be investing strategies with greater returns than HYP
3. Most other investing strategies probably require more time and analysis
4. To improve on HYP, you need to think you are better than the market, and be very clever or lucky, or both
5. HYP generally provides a better income than a cash interest account
6. HYP is likely (but is not guaranteed) to provide capital gain over a significant period of time

--kiloran

Interestingly, if you substitute the word 'index tracker' for 'HYP' in the above list you are pretty close to conventional wisdom.

[BT63]

What would be the total income and total capital value of an equal-weight portfolio of all the FTSE100 companies from the time HYP1 was created?
That would give an idea of how good HYP1 was.

[toofast2live]

Interesting post, 1nv, thanks. Always good to compare HYP with indexes. I would however pay no attention to capital comparison, or TR. HYP was designed specifically to generate a "high and increasing income". FTSE250 income may well have increased faster - that is to be expected from an index with more "growthier" stocks. What HYP has delivered is precisely a HIGH & INCREASING income from a selection of shares that were plodding dinosaurs in 2000, and remain dinosaurs now.

A more interesting example is with the income flow from the total universe of G&I ITs available in 2000.

[88V8]

Reiterating, comparing total returns with dividends reinvested provides a much simpler comparison, even though you might consider capital as irrelevant.

Depends.
Some worry about balance. Top-slicing.
Some want to leave a decent slug of capital, some don't care.
Psychologically, I guess we all prefer blue ink to red.
But as I keep pointing out to my wife when she bewails the current share price of some of my picks, we're doing this for the income the income the income.

My wife's portion of our HYP is stuffed with GSK, about a third of our income. She used to work there. Each year I prise a soupcon from her clutches for CGT purposes. When they cut their divi, it will perhaps become easier to loosen her leech-like grip.

It depends. What makes us feel comfortable as the years roll by.

V8

[BT63]

Worthy of note is John (Jack) Bogle's preferred choice is to buy the 50 largest companies and hold forever (no tweaking).

Watching the FTSE100 through the 1990s, 2000s and now 2010s, my suspicion is that the sector(s) dominating the FTSE100 at any given time tend to be those that have risen the most due to fashion/sentiment, are most overvalued (share price has risen faster than earnings) and most likely to suffer a disproportionate decline (mean reversion).
Some obvious examples include TMT shares in the late-1990s, financials in the mid-2000s, commodities in the mid-2010s.

Similarly, the bottom of the FTSE100 seems to often have former FTSE250 companies which have come into favour and often end up mean-reverting back down again into the FTSE250.

I would be inclined to avoid both the largest and the smallest market cap companies in the FTSE100. Maybe choose the second and third quartiles by market cap. That's just gut my feeling based on what I've seen of FTSE100 constituents in the last three decades.

[77ss]

Here is the data for the year ended 12 November 2016, the sixteenth year of this non-tinker portfolio.

.

Thanks for this pyad - and for including the capital performance - not primary for me, but important.

I took early retirement in 2002, and the underlying HYP approach has worked very well for me since then - my gratitude.

[pbarne]

The FT250 more recent income would be of the order £5706 (versus £1943 end of first year from original £75,000 invested in FT250); Versus the £6124 HYP most recent years income figure (up from £3451 first year figure). i.e. all of dividends being spent and original investment being left as-is.

FT250 income has grown at a 7.45% annualised rate (versus 6.45% capital growth rate) relative to the most recent year value and the 2001 dividend value. In comparison HYP had a 3.9% annualised dividend value growth rate (4.6% annualised capital growth rate) i.e (6124 most recent dividend / 3451 nov 2001 dividend value)^(1/15 years) rate = 1.039

Tally FT250 capital gain on the £75K original investment of £128.8K versus £78.7K for HYP, with the £52.6K of dividends received from FT250 compared to £68.8K from HYP = £181.4K (FT250) versus £147.5K (HYP) combined totals.

Assuming those dividend growth rates continue at the same rate, then another in another 2 years would see near comparable dividend values being provided by both, thereafter FT250 providing more yearly income. Compared to capital + dividends however and FT250 has already surpassed HYP i.e. some of capital could have been top-sliced to have provided a total 'income' that exceeded that of HYP. If you take your question literally then it would still be a number of years yet before the total amount of dividends received 'to-date' compared equally.

So very much a case of which way you want to compare things. Reiterating, comparing total returns with dividends reinvested provides a much simpler comparison, even though you might consider capital as irrelevant.

If you want to compare HYP1 with the FTSE 250, surely you have to allow for capital sales in the early years in order to exactly replicate the income stream HYP1 provides. The sequence of returns of capital performance will affect how this affects the final results. The sales will be higher in the early years when the income differential is greatest and will affect both future capital values and income. You can't just do the TR calc and then say because the end result was a lot higher you could have definitely replicated this income stream and come out on top - in my opinion.

[BT63]

Worthy of note is John (Jack) Bogle's preferred choice is to buy the 50 largest companies and hold forever (no tweaking).

Watching the FTSE100 through the 1990s, 2000s and now 2010s, my suspicion is that the sector(s) dominating the FTSE100 at any given time tend to be those that have risen the most due to fashion/sentiment, are most overvalued (share price has risen faster than earnings) and most likely to suffer a disproportionate decline (mean reversion).
Some obvious examples include TMT shares in the late-1990s, financials in the mid-2000s, commodities in the mid-2010s.

Similarly, the bottom of the FTSE100 seems to often have former FTSE250 companies which have come into favour and often end up mean-reverting back down again into the FTSE250.

I would be inclined to avoid both the largest and the smallest market cap companies in the FTSE100. Maybe choose the second and third quartiles by market cap. That's just gut my feeling based on what I've seen of FTSE100 constituents in the last three decades.

What would be the total income and total capital value of an equal-weight portfolio of all the FTSE100 companies from the time HYP1 was created?
That would give an idea of how good HYP1 was.

Replying to my own post.....

Total return of FTSE100 equal weight vs Cap weight, last ten years plus 2016ytd (data up to end-Oct):

Year.........Equal wt....Cap wt
2006...........+22%.......+14%
2007.............0%........+7%
2008...........-34%.......-28%
2009...........+42%......+27%
2010............+21%......+13%
2011............-7%.........-2%
2012...........+18%.......+10%
2013...........+20%.......+19%
2014............+5%........+1%
2015............+3%........-1%
2016(ytd)......+9%........+15%
Total return:...2.12x.....1.85x

[tjh290633]

Surely all this talk about comparing the portfolio value of HYP1 with one or other of the share indices misses the point.

What really matters is the growth of income, compared with inflation measured by the RPI or the price of a Mars Bar, or whatever.

I have data for my own HYP, calculated as income units, which dates back to 1987, showing the comparison:

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             Income Units                                                     
             Ordinary       Ordinary    RPI       Change      Change         
Year to      Divs/unit      Divs/unit   Rebased   Divs/Unit   RPI      FTSE100
05-Apr-88            2.87      100.00    100.00                               
05-Apr-89            2.75       95.71    112.28      -4.29%   12.28%    -4.82%
05-Apr-90            4.33      150.98    122.89      57.74%    9.45%    11.73%
05-Apr-91            5.75      200.34    130.75      32.69%    6.39%     7.78%
05-Apr-92            7.97      277.71    136.35      38.62%    4.28%    10.31%
05-Apr-93            7.33      255.30    138.11      -8.07%    1.30%    -0.68%
05-Apr-94            6.65      231.50    141.65      -9.32%    2.56%    16.51%
05-Apr-95            7.93      276.14    146.37      19.28%    3.33%    12.84%
05-Apr-96            7.81      272.15    149.90      -1.44%    2.42%    -2.01%
05-Apr-97            8.90      310.02    153.54      13.92%    2.42%    17.32%
05-Apr-98            9.35      325.60    159.72       5.02%    4.03%    16.57%
05-Apr-99            8.91      310.18    162.28      -4.73%    1.60%    37.71%
05-Apr-00           11.96      416.65    167.09      34.32%    2.97%     5.47%
05-Apr-01           12.44      433.38    170.04       4.02%    1.76%     4.41%
05-Apr-02           13.84      482.11    172.59      11.24%    1.50%   -13.86%
05-Apr-03           12.98      452.05    178.00      -6.24%    3.13%    -6.79%
05-Apr-04           12.50      435.38    182.42      -3.69%    2.48%   -31.17%
05-Apr-05           12.98      452.10    188.21       3.84%    3.18%    21.34%
05-Apr-06           14.11      491.55    193.03       8.73%    2.56%    11.60%
05-Apr-07           15.09      525.75    201.77       6.96%    4.53%    21.87%
05-Apr-08           25.39      884.45    210.22      68.23%    4.19%     5.76%
05-Apr-09           22.16      771.67    207.76     -12.75%   -1.17%    -9.61%
05-Apr-10           11.59      403.82    218.86     -47.67%    5.34%   -31.15%
05-Apr-11           16.71      582.13    230.26      44.15%    5.21%    44.66%
05-Apr-12           18.32      638.21    238.21       9.63%    3.46%     4.03%
05-Apr-13           20.89      727.68    245.09      14.02%    2.89%    -3.13%
05-Apr-14           21.48      748.29    250.29       2.83%    2.12%     9.19%
05-Apr-15           22.40      780.31    253.44       4.28%    1.26%     5.58%
05-Apr-16           22.77      793.06    256.78       1.63%    1.32%     2.65%


The third and fourth columns show the dividend (which is GBp/unit) and RPI rebased to a starting value of 100. You can see that the dividend per income unit has grown by almost three times the change in the RPI. The final three columns show the annual change in the dividend, RPI and FTSE100 index. The various ebbs and flows in income will be noted.

TJH