HYP1 is 18

[pyad]

Yet another record income year.

Here is the data for the year ended 12 November 2018, the eighteenth year of this non-tinker portfolio.

..........................................Income......................Value

Anglo American              366.69              8,036
BA Tobacco                1,639.70             25,588
BT Group                    875.03             14,472
Dixons Carphone             139.61              2,089
Glaxo                       214.72              5,544
InterCon Hotels             337.31             17,575
Land Sex                    308.14              5,746
Lloyds                      192.72              3,583
Mitch & But                  34.55              1,794
Persimmon                 2,483.95             24,459
Pearson                     155.93              8,195
RD Shell B                  551.19              9,743
Rio Tinto                 1,169.71             20,091
RSA                          96.83              2,560
United Utilities            316.25              6,108

Total  £                  8,882.33            155,583

Cost                                           75,000

Gain                                           80,583    107.4%


FTSE100 at start                              6,274.8

Now                                           7,053.1

Gain                                            778.3     12.4%

HYP1 capital outperformance                               84.5%

Income 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
2017	   	   		   7,327
2018                               8,882

Total to date     £               84,967

Events in year
Ladbrokes Coral was taken over for cash which was reinvested in GlaxoSmithKline.

Income
This is what HYPs are all about and the £8,882 for this year was another record by a long way, up 21.2% on last year and making it the second highest ever annual rise, crushing inflation. From year one, the increase is 157.4% over the 17 years.

Total income thus far is £84,967 over the 18 years, averaging £4,720 per year which is 6.29% pa on the £75,000 cost.

Persimmon is now the single largest income contributor with 28.0% of total income, overtaking BA Tobacco which is now second on 18.5% after having been the record holder for many years. Rio Tinto is third at 13.2%. At the other end, the smallest sums arose from Mitchells & Butlers on 0.4%, RSA 1.1% and Dixons Carphone 1.6%.

Capital
This is irrelevant or secondary depending on your viewpoint.

The value has declined since last year to £155,583 but continues to slaughter the FTSE100 over the 18 years, up 107.4% against an index up just 12.4% and thus outperforming it by 84.5%. This is without reinvesting dividends.

In the last twelve months the FTSE100 has fallen 5.1% whilst HYP1 is down 9.8%, underperforming the index this year.

BA Tobacco remains the largest holding at 16.4% of portfolio value with Persimmon a close second at 15.7%. Smallest holdings are Mitchells & Butler at 1.2% and Dixons Carphone also at 1.3%.

[monabri]

A comparison with "HYP1 is 17" to see where the extra divi has come from - mostly from Persimmon with the miners also contributing and a little bit more from the new addition of GSK.

[idpickering]

Great stuff Stephen, thank you for keeping us up to date. You're an inspiration sir!

Ian.

[monabri]

Strip out Persimmon and the div increase is a more realistic 4.2%.

[Itsallaguess]

I've been keeping track of the lumpiness of HYP1 income and capital over the years, and looking at this latest data we've now got a new record for the top-five holdings in terms of how large a percentage of overall-income those top-five holdings are delivering.

Here's the current and historical results -



So nearly 76% of overall income being delivered by just 5 HYP1 holdings, with capital from the top-five holdings dropping slightly to around 65.7%.

That continues to be a hell of a concentration of income from such a small number of holdings, as well as a considerable concentration of HYP1 capital.

Here's the underlying data for anyone interested - https://i.imgur.com/fy6CB3u.png

Given the above, I continue to take the view that it's very lucky of Doris not to be too interested in how her income is being generated....

Cheers,

Itsallaguess

[moorfield]

I've appropriated pyad's data again this year to compare HYP1 income versus the RPI/CHAW index since 2001
(source: https://www.ons.gov.uk/economy/inflatio ... /chaw/mm23)

(If I can find the time, and the historical data, I'm minded to add a comparison versus £75k invested into City of London IT, CTY.L, in 2000. TBC.)

[Luniversal]

moorfield- City of London (CTY) would have generated about £69,000 from the same £75,000 as was notionally invested in HYP1 in Nov. 2000.

Nowhere near HYP1's £84,967 to date, but delivered less lumpily because the revenue reserve allows smoothing. CTY raised the payout continuously. Its compound annual growth was 5.2%, 2001-18, versus HYP1's 6.0%.

This is not the most a UK Equity Income investment trust could have supplied over HYP1's lifespan. Schroder Income Growth (SCF) would have thrown up £82,000, though more erratically than CTY; Merchants (MRCH), £77,000. But HYP1's capital performance is far stronger; moreover Merchants and Schroder are paying less by now as City of London, whose dividend has been 'growthier'.

[NeilW]

That continues to be a hell of a concentration of income from such a small number of holdings, as well as a considerable concentration of HYP1 capital.

It's entirely likely that's how it works. You've no idea what the winners are going to be in any particular year or era, but it tends to cycle around. So if the initial selection is broad based and the market works as it is supposed to work theoretically then the income arises in whatever turns out to have been underpriced at that time.

It's little different than a private equity firm having a broad selection of seedlings knowing that all its profit will come from the one or two that turn into oaks. But with a lot less effort.

NeilW

[pyad]

Thanks for the comments, apart for course from:

Strip out Persimmon and the div increase is a more realistic 4.2%.

I don't mind constructive criticism but didn't know whether to laugh or lacrymate at that attempt to knock it. Another way to express the same sentiment and correspondingly crass would be:

Strip out Pearson and the div increase is a more realistic 25.0% (compared with the actual 21.2%)

As for the observations on how unbalanced HYP1 has become, they arise every year but it's no surprise that a tinkerless portfolio becomes highly unbalanced over time simply because companies don't progress at the same rate and moreover the market doesn't continue to rate companies on the same fundies over time. What would really be a suprise is if all the shares were about equal in value.

The unbalanced nature, arising from being a tinkerfree zone, is its very strength. It's why it has done what it's done, on both income and capital.

[moorfield]

If I may post one criticism it's of the overall income volatility, particularly during 2007-12, which leads to a (constructive I hope) question - has Doris put aside any of that £8882 this year into a reserve?

[pyad]

Nope. Vanishingly few HYPers I'd guess operate income reserves. You see it mentioned here but in practice, I'm pretty sure that hardly anybody can be [expletive deleted] and just take the income as it comes including the inevitable bum years. Not saying there's anything wrong with the idea, just that I don't think most HYPers will bother with it.

Incidentally I've seen income reserves characterised very misleadingly as "derisking" (but only around here and previously on TMF, not in the real investment world). In fact it's nothing of the sort, the risks to income remain the same whether you reserve some or not.

[idpickering]

As for holding cash back in reserve, I don’t bother, and like to get my money working for me ASAP in my HYP. We have money going into and out of our current account and that’s all. Admittedly there is a large amount just sat in the current account but that’s for emergencies, not pencilled in for investing.

Ian.

[monabri]

Thanks for the comments, apart for course from:

Strip out Persimmon and the div increase is a more realistic 4.2%.

I don't mind constructive criticism but didn't know whether to laugh or lacrymate at that attempt to knock it. Another way to express the same sentiment and correspondingly crass would be:

Strip out Pearson and the div increase is a more realistic 25.0% (compared with the actual 21.2%)

The numbers in the table are a true statement of the income received which are heavily skewed by one company.

How often can the HYPer expect this to occur where the increase is >20% p.a.?

I would put forward that the rest of the constituents of HYP1 are behaving more normally (based on previous HYP1 history) - some have raised the divi by a few percent and there has been some counterbalance from reductions.

I highlighted the 4.2% and not 21.2% as perhaps being a more realistic figure for someone planning on using HYP with dividends being reinvested or planning investing "now" when drawing a pension.

If you don't point out these anomalies, then surely you might expect others such as myself to point them out?

[Arborbridge]

As for holding cash back in reserve, I don’t bother, and like to get my money working for me ASAP in my HYP. We have money going into and out of our current account and that’s all. Admittedly there is a large amount just sat in the current account but that’s for emergencies, not pencilled in for investing.

Ian.

Emergencies. like you dividend income being a bit down one year, perhaps? Aha! an income reserve in all but name, then

[Arborbridge]

Nope. Vanishingly few HYPers I'd guess operate income reserves. You see it mentioned here but in practice, I'm pretty sure that hardly anybody can be [expletive deleted] and just take the income as it comes including the inevitable bum years. Not saying there's anything wrong with the idea, just that I don't think most HYPers will bother with it.

Incidentally I've seen income reserves characterised very misleadingly as "derisking" (but only around here and previously on TMF, not in the real investment world). In fact it's nothing of the sort, the risks to income remain the same whether you reserve some or not.

I don't much like Luni's term "derisking" either. Seems a bit radio 3 to me, but I give him the benefit of knowing that it's nothing to do with derisking the dividends which flow (or not) but with with "de-risking" the volatility of the income the pensioner actually chooses to draw. A steady income withdrawal was Luni's aim in applying this idea which, as far as I know, is much the same as the IR which predates it.
Reference to real life HYPs (and there are very few of those) does suggest that the variation in income could be quite considerable, so an IR reserve seems an obvious solution. If we just call it a "rainy day fund" perhaps more people would recognise it as what they actually do without knowing it - thereafter, it's only a matter of "how much"i.e. a matter of degree rather than principle. Neither is there a need to be [expletive deleted] to work out what's needed - just do what feels right - from being totally invested, to whatever you feel like.

Arb.

[Arborbridge]

As for the observations on how unbalanced HYP1 has become, they arise every year but it's no surprise that a tinkerless portfolio becomes highly unbalanced over time simply because companies don't progress at the same rate and moreover the market doesn't continue to rate companies on the same fundies over time. What would really be a suprise is if all the shares were about equal in value.

The unbalanced nature, arising from being a tinkerfree zone, is its very strength. It's why it has done what it's done, on both income and capital.

I have some sympathy for these comments. In effect, one is running one's winners by not rebalancing, whereas most of our ideas about rebalancing seem to do the opposite: trimming back a winner because it has become too big and often backing a share which has fallen so the yield has increased.

This is counter-intuitive and definitely against the usual advice.

The question at the heart of this conflict is: which is the least risky way of proceeding?

Arb.

[Bouleversee]

As for holding cash back in reserve, I don’t bother, and like to get my money working for me ASAP in my HYP. We have money going into and out of our current account and that’s all. Admittedly there is a large amount just sat in the current account but that’s for emergencies, not pencilled in for investing.

Ian.

Sounds ever so slightly like holding cash back in reserve to me, Ian .

Unless Doris has several HYPs, I should think she'd find herself somewhat overdrawn by the end of the year rather than having anything to hold back.

Am pleased to say that this Doris also has quite a chunk of Persimmon which is one of the largest holdings in her very unbalanced p/f. As her p/f constituents have changed over the years by additions, insolvencies, takeovers, consolidations etc. and she is barely computer literate, she is incapable of producing any comparative figures.

That is indeed a good result, Pyad. What have subsequent HYPs done?

[idpickering]

With regards to the "cash reserve" comment, I'm glad posters opted to add smilies to their posts. I wonder why I bother coming here at all sometimes.

Ian.

[moorfield]

The question at the heart of this conflict is: which is the least risky way of proceeding?

That's a very topical question today, I think Persimmon should "Remain".

[Bouleversee]

Albeit down 8.67% and still falling, along with other housebuilders. That will distort the figures a bit.