Re: TJH Portfolio adjustment

[moorfield]

Hello TJH

I've taken the liberty of awarding you an inflation smashing +52.1% pay rise - congratulations! - by replacing your lower yield holdings with higher yield equity income IT, in this case AEI (an AIC "dividend hero"). This is essentially what I have been doing in my portfolio during the last 18 months (into a portfolio of ITs) to ratchet up and stabilise income from lower yield holdings. Since you don't publish yields I've had to do some legwork here, source: dividenddata @ cob 24th (I haven't checked these).

+52.1% is the largest pay rise I have collated so far (+32.8% here, +15.6% here). More samples will be tested and I already suspect they will show that large HYPs (20+ holdings) can be turned over in this way to generate comfortably more income overall. Or put differently, small concentrated HYPs work best (max. 15 holdings, perhaps even 12 or fewer).

This is not intended to be an inflammatory trolling of your HYP. The contrary - I know you would not take this up - but I think it's an illuminating exercise for those considering the HYP approach and seeking a high and robust income from their hard earned and saved.

The edits below are my own.

My portfolio now looks like this:

Value                           
Rank    EPIC   Weight   % Median   Yield
    1   BHP     3.78%     128.1%   6.02%
    2   S32     3.30%     111.7%   3.93%
    3   TW.     3.29%     111.3%   9.00%
    4   SMDS    3.20%     108.4%   6.69%
    5   AV.     3.20%     108.3%   8.06%
    6   BP.     3.20%     108.3%   4.48%
    7   DGE     3.19%     108.1%   2.56%
    8   BLND    3.16%     107.1%   7.63%
    9   IMI     3.15%     106.9%   1.82%
   10   LGEN    3.15%     106.8%   9.54%
   11   BA.     3.12%     105.6%   2.61%
   12   IMB     3.11%     105.4%   8.23%
   13   NG.     3.11%     105.2%   5.72%
   14   KGF     3.08%     104.3%   6.14%
   15   AZN     3.07%     103.8%   2.28%
   16   SSE     3.02%     102.3%   3.76%
   17   IGG     2.99%     101.3%   7.34%
   18   WDS     2.95%     100.0%   11.81%
   19   ADM     2.94%      99.7%   3.08%
   20   BATS    2.93%      99.2%   9.45%
   21   UU.     2.89%      98.1%   4.38%
   22   SHEL    2.89%      97.9%   4.01%
   23   RIO     2.85%      96.7%   6.53%
   24   PHP     2.70%      91.6%   7.64%
   25   PSON    2.69%      91.2%   2.40%
   26   GSK     2.60%      88.0%   3.78%
   27   HLN     2.59%      87.7%   1.26%
   28   LLOY    2.58%      87.3%   6.21%
   29   TSCO    2.58%      87.3%   4.00%
   30   VOD     2.47%      83.6%   10.39%
   31   TATE    2.33%      78.8%   2.97%
   32   ULVR    2.18%      73.7%   3.73%
   33   BT.A    2.09%      70.6%   2.61%
   34   SGRO    1.97%      66.6%   3.84%
   35   RKT     1.68%      57.1%   3.16%

        AEI     80.19%             7.89%

        Overall Yield              5.39% 8.20%

[chris]

Moorfield

Whilst I am no defender of TJH as I am not a follower of his selling methods, I think that this is such a poorly thought out post that it deserves to be debunked.

Why on earth would you invest in such a 'poor yielding' IT when you could put all of the money that you have liquidated into a much higher yielder such as Legal & General? They are a good solid company, aren't they? and the yield on them is 9.54%, 1.65% higher.

You may also want to write to Aberdeen and ask them why they don't sell their holdings in BHP, BP, BA., NG., SSE, SHEL and RIO since they are all in their top 30 investments and are dragging down their yield! I've not looked at the yield on their other investments but you may find that this doesn't give a yield that would suggest that 7.89% is sustainable. However, it may be that in the current climate, you are buying at a discount to NAV, but then again, there may be a good reason that their discount is higher than other ITs...

Anyone can look through a list of ITs and select the one which currently has a high yield and has a good dividend history, pick the best yield of those and then say that because it has done well in the past, it will obviously do well in the future. I'm sure that those investing in the fund managed by Woodford thought the same.

It is dangerous to place too much confidence in past results and in fact one of my issues with the TJH method is that sometimes you are in danger of selling reliable dividends in companies whose share price goes up because they are getting good results, for higher dividends with companies who may not continue to give such high yields in future. However, at least TJH recognises that he needs diversification in his portfolio and does try to maximise his yield in the short-term. Therefore he is protected from a Woodford scenario and whilst I am sure that your post is somewhat tongue in cheek to provoke a rebuttal, it may tempt less wary investors to follow your 'bet the farm' method of choosing shares.

I am reminded of an old TMF poster could JimSusan who had all his investments in Lloyds because they were a bank and banks never fail. We haven't heard from him since the 2008 banking crisis.

Chris

[tjh290633]

Hello TJH

I've taken the liberty of awarding you an inflation smashing +52.1% pay rise - congratulations! - by replacing your lower yield holdings with higher yield equity income IT, in this case AEI (an AIC "dividend hero"). This is essentially what I have been doing in my portfolio during the last 18 months (into a portfolio of ITs) to ratchet up and stabilise income from lower yield holdings. Since you don't publish yields I've had to do some legwork here, source: dividenddata @ cob 24th (I haven't checked these).

+52.1% is the largest pay rise I have collated so far (+32.8% here, +15.6% here). More samples will be tested and I already suspect they will show that large HYPs (20+ holdings) can be turned over in this way to generate comfortably more income overall. Or put differently, small concentrated HYPs work best (max. 15 holdings, perhaps even 12 or fewer).

This is not intended to be an inflammatory trolling of your HYP. The contrary - I know you would not take this up - but I think it's an illuminating exercise for those considering the HYP approach and seeking a high and robust income from their hard earned and saved.

The edits below are my own.

My portfolio now looks like this:

Value                           
Rank    EPIC   Weight   % Median   Yield
    1   BHP     3.78%     128.1%   6.02%
    2   S32     3.30%     111.7%   3.93%
    3   TW.     3.29%     111.3%   9.00%
    4   SMDS    3.20%     108.4%   6.69%
    5   AV.     3.20%     108.3%   8.06%
    6   BP.     3.20%     108.3%   4.48%
    7   DGE     3.19%     108.1%   2.56%
    8   BLND    3.16%     107.1%   7.63%
    9   IMI     3.15%     106.9%   1.82%
   10   LGEN    3.15%     106.8%   9.54%
   11   BA.     3.12%     105.6%   2.61%
   12   IMB     3.11%     105.4%   8.23%
   13   NG.     3.11%     105.2%   5.72%
   14   KGF     3.08%     104.3%   6.14%
   15   AZN     3.07%     103.8%   2.28%
   16   SSE     3.02%     102.3%   3.76%
   17   IGG     2.99%     101.3%   7.34%
   18   WDS     2.95%     100.0%   11.81%
   19   ADM     2.94%      99.7%   3.08%
   20   BATS    2.93%      99.2%   9.45%
   21   UU.     2.89%      98.1%   4.38%
   22   SHEL    2.89%      97.9%   4.01%
   23   RIO     2.85%      96.7%   6.53%
   24   PHP     2.70%      91.6%   7.64%
   25   PSON    2.69%      91.2%   2.40%
   26   GSK     2.60%      88.0%   3.78%
   27   HLN     2.59%      87.7%   1.26%
   28   LLOY    2.58%      87.3%   6.21%
   29   TSCO    2.58%      87.3%   4.00%
   30   VOD     2.47%      83.6%   10.39%
   31   TATE    2.33%      78.8%   2.97%
   32   ULVR    2.18%      73.7%   3.73%
   33   BT.A    2.09%      70.6%   2.61%
   34   SGRO    1.97%      66.6%   3.84%
   35   RKT     1.68%      57.1%   3.16%

        AEI     80.19%             7.89%

        Overall Yield              5.39% 8.20%

Moorfield, I could do something similar by selling the shares yielding less than my median and reinvesting in the remainder, but I choose not to. I am happy doing what I am, but were I to adopt another approach it would not involve that particular IT as I am not enamoured of the managers.

TJH

[CliffEdge]

Hello TJH

I've taken the liberty of awarding you an inflation smashing +52.1% pay rise - congratulations! - by replacing your lower yield holdings with higher yield equity income IT, in this case AEI (an AIC "dividend hero"). This is essentially what I have been doing in my portfolio during the last 18 months (into a portfolio of ITs) to ratchet up and stabilise income from lower yield holdings. Since you don't publish yields I've had to do some legwork here, source: dividenddata @ cob 24th (I haven't checked these).

+52.1% is the largest pay rise I have collated so far (+32.8% here, +15.6% here). More samples will be tested and I already suspect they will show that large HYPs (20+ holdings) can be turned over in this way to generate comfortably more income overall. Or put differently, small concentrated HYPs work best (max. 15 holdings, perhaps even 12 or fewer).

This is not intended to be an inflammatory trolling of your HYP. The contrary - I know you would not take this up - but I think it's an illuminating exercise for those considering the HYP approach and seeking a high and robust income from their hard earned and saved.

The edits below are my own.

My portfolio now looks like this:

Value                           
Rank    EPIC   Weight   % Median   Yield
    1   BHP     3.78%     128.1%   6.02%
    2   S32     3.30%     111.7%   3.93%
    3   TW.     3.29%     111.3%   9.00%
    4   SMDS    3.20%     108.4%   6.69%
    5   AV.     3.20%     108.3%   8.06%
    6   BP.     3.20%     108.3%   4.48%
    7   DGE     3.19%     108.1%   2.56%
    8   BLND    3.16%     107.1%   7.63%
    9   IMI     3.15%     106.9%   1.82%
   10   LGEN    3.15%     106.8%   9.54%
   11   BA.     3.12%     105.6%   2.61%
   12   IMB     3.11%     105.4%   8.23%
   13   NG.     3.11%     105.2%   5.72%
   14   KGF     3.08%     104.3%   6.14%
   15   AZN     3.07%     103.8%   2.28%
   16   SSE     3.02%     102.3%   3.76%
   17   IGG     2.99%     101.3%   7.34%
   18   WDS     2.95%     100.0%   11.81%
   19   ADM     2.94%      99.7%   3.08%
   20   BATS    2.93%      99.2%   9.45%
   21   UU.     2.89%      98.1%   4.38%
   22   SHEL    2.89%      97.9%   4.01%
   23   RIO     2.85%      96.7%   6.53%
   24   PHP     2.70%      91.6%   7.64%
   25   PSON    2.69%      91.2%   2.40%
   26   GSK     2.60%      88.0%   3.78%
   27   HLN     2.59%      87.7%   1.26%
   28   LLOY    2.58%      87.3%   6.21%
   29   TSCO    2.58%      87.3%   4.00%
   30   VOD     2.47%      83.6%   10.39%
   31   TATE    2.33%      78.8%   2.97%
   32   ULVR    2.18%      73.7%   3.73%
   33   BT.A    2.09%      70.6%   2.61%
   34   SGRO    1.97%      66.6%   3.84%
   35   RKT     1.68%      57.1%   3.16%

        AEI     80.19%             7.89%

        Overall Yield              5.39% 8.20%

Why have you crossed out most of the holdings?

[tjh290633]

Why have you crossed out most of the holdings?

Moorfield has crossed out all those with yields less than his suggested IT. That leaves 7 original holdings plus his suggested IT. While 8 holdings might be fine for an all-IT portfolio, my view is that upwards of 20 holdings is safer for a portfolio with individual shares.

TJH

[88V8]

Value                           
Rank    EPIC   Weight   % Median   Yield
    3   TW.     3.29%     111.3%   9.00%
    5   AV.     3.20%     108.3%   8.06%
   10   LGEN    3.15%     106.8%   9.54%
   12   IMB     3.11%     105.4%   8.23%
   18   WDS     2.95%     100.0%   11.81%
   20   BATS    2.93%      99.2%   9.45%
   30   VOD     2.47%      83.6%   10.39%

        AEI     80.19%             7.89%

        Overall Yield              5.39% 8.20%

TW, cyclical destroyer of the countryside
Aviva, serial cutter
LGEN, I hold
IMB, value eroder, I hold, alas
WDS, temporary aberration
BATS, another value eroder, I hold
VOD, haha you put money in that hahaha
AEI, I hold although not 80%.

It's not exactly widows & orphans.

Would you rebalance it periodically? If so, how?

V8

[moorfield]

Moorfield

Whilst I am no defender of TJH as I am not a follower of his selling methods, I think that this is such a poorly thought out post that it deserves to be debunked.

Why on earth would you invest in such a 'poor yielding' IT when you could put all of the money that you have liquidated into a much higher yielder such as Legal & General? They are a good solid company, aren't they? and the yield on them is 9.54%, 1.65% higher.

You may also want to write to Aberdeen and ask them why they don't sell their holdings in BHP, BP, BA., NG., SSE, SHEL and RIO since they are all in their top 30 investments and are dragging down their yield! I've not looked at the yield on their other investments but you may find that this doesn't give a yield that would suggest that 7.89% is sustainable. However, it may be that in the current climate, you are buying at a discount to NAV, but then again, there may be a good reason that their discount is higher than other ITs...

Anyone can look through a list of ITs and select the one which currently has a high yield and has a good dividend history, pick the best yield of those and then say that because it has done well in the past, it will obviously do well in the future. I'm sure that those investing in the fund managed by Woodford thought the same.

It is dangerous to place too much confidence in past results and in fact one of my issues with the TJH method is that sometimes you are in danger of selling reliable dividends in companies whose share price goes up because they are getting good results, for higher dividends with companies who may not continue to give such high yields in future. However, at least TJH recognises that he needs diversification in his portfolio and does try to maximise his yield in the short-term. Therefore he is protected from a Woodford scenario and whilst I am sure that your post is somewhat tongue in cheek to provoke a rebuttal, it may tempt less wary investors to follow your 'bet the farm' method of choosing shares.

I am reminded of an old TMF poster could JimSusan who had all his investments in Lloyds because they were a bank and banks never fail. We haven't heard from him since the 2008 banking crisis.

Chris

Moorfield, I could do something similar by selling the shares yielding less than my median and reinvesting in the remainder, but I choose not to. I am happy doing what I am, but were I to adopt another approach it would not involve that particular IT as I am not enamoured of the managers.

Using one IT is an exaggerated (and slightly lazy on my part) example here. I'm sure the point can be grasped that line could equally be the overall yield of a portfolio of ITs across different sectors (UK, Overseas, Debt, Property, Specialist). It's not too difficult to build a small portfolio of ITs yielding north of 7.0%. Think about overall portfolio yields, not necessarily the one example used here, and you'll find less to debunk if anything.

I deliberately chose a dividend hero here, it has sustained and increased it's dividend for 22 years running (coincidentally the same age as HYP1). Can you find me a HYP share or even a HYP portfolio that has done that?
On that list there are more: 6.4% (11 yrs), 7.8% (10 yrs), 12.1% (17 yrs), 7.3% (10 yrs), 6.8% (15 yrs), 9.4% (16 yrs), 6.0% (13 yrs).

It may not seem obvious but this is also a spin on the age old question: How many holdings is too many in an HYP? I'm fully expecting to see HYP1 at the top of this table next month, which would be fitting.

[moorfield]

Would you rebalance it periodically? If so, how?

Well, if you are turning over lower yielding HYP shares into a higher yielding single IT such as AEI, you are delegating the answer to that question, clearly. Diversification (of its underlying portfolio) is not at issue here, I would suggest. However it's understandable that folk would be concerned about its governance and management as Chris and TJH allude to, and perhaps bolt-ons like debt and derivatives. To those who harrumph over ITs' managers and fees I would suggest HYPsters are not immune to such "management" risks themselves - they or their keyboards can be their own worst enemies (read: idpickering, for example). And what HYP companies do not use debt and derivatives too?

If you are constructing a portfolio of ITs across different sector types (UK, Overseas, Property, Debt, Specialist), I do not see any reason why TJH's system cannot be used to manage balancing. An ITs portfolio is likely to have fewer holdings so income and cost limits might necessarily be larger (7-8% say), but the mechanics of rankings, 20% top up and 150-200% median trimming can work in exactly the same way.

And that portfolio of ITs can be premised upon the same founding principles as HYP:
- Invests on a Long Term Buy and Hold (LTBH) basis in a diversified portfolio.
- Have yields greater than the yield of the FTSE 100 index.
- When bought, be reasonably expected to sustain, and preferably grow their dividends in the future.

Only the choice of implementation is different, so you wouldn't call it a HYP. Perhaps call it a PHY instead?


Anyway, the rugby beckons....

[Dod101]

Fundamentally I would not want 80% of my portfolio dependent on one IT manager or for that matter on one set of IT directors. Who anyway is AEI? I do not recognise the name.
Mind you, looking at some of the yields on individual companies, my portfolio could maybe do with a bit of culling but like TJH I like the diversification. When I last checked (at 31 December) my historic portfolio yield was about 5%. It will be a good deal higher at the moment, aided by a fall in share values and some good increases in dividends.

Dod

[richfool]

AEI = Abrdn Equity Income. (Abrdn = formerly Aberdeen).

https://www.hl.co.uk/shares/shares-sear ... rd-gbp0.25

[Arborbridge]

AEI = Abrdn Equity Income. (Abrdn = formerly Aberdeen).

https://www.hl.co.uk/shares/shares-sear ... rd-gbp0.25

A quick glance shows the TR over 10 years of 17%, so it looks as though the income has been "expensively bought".

I can only think that the OP put this forward as an idea for further discussion, rather than a serious proposal - I'll give him the benefit of the doubt, anyway. I can believe moorfield would put all his eggs in one basket, so it was just a "for instance".

Arb.

[BullDog]

AEI = Abrdn Equity Income. (Abrdn = formerly Aberdeen).

https://www.hl.co.uk/shares/shares-sear ... rd-gbp0.25

A quick glance shows the TR over 10 years of 17%, so it looks as though the income has been "expensively bought".

I can only think that the OP put this forward as an idea for further discussion, rather than a serious proposal - I'll give him the benefit of the doubt, anyway. I can believe moorfield would put all his eggs in one basket, so it was just a "for instance".

Arb.

Indeed. HFEL isn't the only IT to have at least some canine characteristics. Yet again, it seems that reaching for the highest yields that destroys capital over the medium to longer term.

[Dod101]

This is a High Yield Strategies board. I like a high yield as much as anyone but not at the more or less guaranteed loss of capital. This could only have been a tongue in cheek suggestion by moorfield.

Dod

[IanTHughes]

AEI = Abrdn Equity Income. (Abrdn = formerly Aberdeen).

https://www.hl.co.uk/shares/shares-sear ... rd-gbp0.25

A quick glance shows the TR over 10 years of 17%, so it looks as though the income has been "expensively bought".

I am not sure how you calculate “Total Return”, but my XIRR calculation for Abrdn Equity Income (AEI) gives an “Annual Return” of 1.99%, from 28 October 2013 to 27 October 2023 – 10 years.

The price would have dropped from 407.00 GBp to 294.00 GBp (-113.00 GBp, -27.76%). Meanwhile, having purchased at a yield of 5.06%, 186.30 GBp per share would have been received in the form of dividends, eclipsing the loss of capital, and making the “Annual Return” a small positive.

Enjoy!


Ian

[88V8]

A quick glance shows the TR over 10 years of 17%, so it looks as though the income has been "expensively bought".

I am not sure how you calculate “Total Return”, but my XIRR calculation for Abrdn Equity Income (AEI) gives an “Annual Return” of 1.99%, ....making the “Annual Return” a small positive.

It would have been .
Back when divis were not taxed
Ahh those golden days.

V8

[moorfield]

I can only think that the OP put this forward as an idea for further discussion, rather than a serious proposal - I'll give him the benefit of the doubt, anyway. I can believe moorfield would put all his eggs in one basket, so it was just a "for instance".

This is a High Yield Strategies board. I like a high yield as much as anyone but not at the more or less guaranteed loss of capital. This could only have been a tongue in cheek suggestion by moorfield.

I suggest you both reread my post above viewtopic.php?p=623705#p623705. The point of the exercise is to examine overall portfolio yield and number of holdings. Despite the harrumphing about the quality of the "test", it can be applied consistently to HYPs of all shapes and sizes presented here regardless of absolute income they produce, and that's what makes it interesting because they can then be compared, and even ranked. I intend to continue with it.

Look at the table above - why is IanT's 25 holdings producing less than his 33? and why are those 33 producing much more than TJH's 35? why would their owners not upcycle into (portfolios of) ITs which could produce them inflation bonking increases? - there's no voodoo going on there, that's just counting. Does pyad's smaller more concentrated HYP have more or less to gain than IanTs or TJHs? And so on...

For the record no I would not put all my eggs in one IT. I am however building a portfolio of ITs and will likely adapt TJHs balancing method to manage it.

[tjh290633]

I am not sure how you calculate “Total Return”, but my XIRR calculation for Abrdn Equity Income (AEI) gives an “Annual Return” of 1.99%, ....making the “Annual Return” a small positive.

It would have been .
Back when divis were not taxed
Ahh those golden days.

V8

If you have the good sense to keep your investments in an ISA, they are not.

TJH

[Dod101]

All Moorfield is doing is illustrating the age old dilemma, when is a high yield too high? I do not want a yield that is at the expense of capital, whether deliberately as in the case of some ITs, or market sentiment as in the case of many/most high yield shares.

Dod

[Dod101]

It would have been .
Back when divis were not taxed
Ahh those golden days.

V8

If you have the good sense to keep your investments in an ISA, they are not.

TJH

Anyway, tax makes little difference on a total return of 1.99% over 10 years, but that is awful. Dearly bought income indeed.

Moorfield needs to do better than that.

Dod

[moorfield]

All Moorfield is doing is illustrating the age old dilemma, when is a high yield too high? I do not want a yield that is at the expense of capital, whether deliberately as in the case of some ITs, or market sentiment as in the case of many/most high yield shares.

Ha ha, now don't get me started...

Anyway, tax makes little difference on a total return of 1.99% over 10 years, but that is awful. Dearly bought income indeed.

Moorfield needs to do better than that.

I am not alone, and the same can be said of many a HYP share, of course.