IAN's HYP - 7 Year Itch

[IanTHughes]

Well, it only just over 6 years and 3 months but that would not sound so good

Since inception I have unitised my whole portfolio and keep records of both Accumulation Unit and Dividend Unit values, as well as a Forecast Dividend per Unit

Since initial purchases I have been adding annual ISA contributions plus some pension contributions to my SIPP Account. I have withdrawn funds on occasions - I am self-employed and sometimes periods of unemployment demand a cash infusion is provided - but generally it has been Long Term Buy and Hold (LTBH). My first absolute unforced "tinker" was last month when I sold Pearson (PSON)

Accumulation Units

A few details to explain what you are viewing.

First trades:        10 Feb 2012
Initial Unit Value:  £10.0000
Current Unit Value:  £19.1132

Annual Growth Rate:  10.11%

Dividend Units

Initial Unit Value:  £10.0000
Current Unit Value:  £14.1962

Dividend per Unit

Initial Dividend per Unit:  54.00p
Current Dividend per Unit:  72.72p

Current Yield                5.16%

Portfolio Management

Concentration Limits

I control diversification by placing limits on the maximum percentage of the overall portfolio Value, Income or Cost that is allowed for any one Holding, Sector and Industry. I have occasionally adjusted these limits and they are currently set at:



It should be noted that, unlike some posters on here who I believe actively maintain diversification by adding to under-weight holdings, I only add to any holding if, at the time of purchase, it qualifies as offering the highest available yield that satisfies my Dividend Safety criteria and do not create a break of any of the foregoing Concentration Limits. In other words, I do not “maintain” diversification but rather “forbid” over-concentration.

I use both Value and Cost limits to determine whether or not a particular purchase should be allowed but as yet I do not worry about breaches of the Income limit – there are none at present. I should also add that the breaching of a limit – as is currently the case for the Oil & Gas sector as well as Royal Dutch Shell (RDSB) and BP (BP) – does not automatically trigger a top-slice. I am adding funds and hopefully new monies directed elsewhere should solve the problem in time. I have not yet decided if that practice will change as and when I start withdrawing an income which will not be for a few more years yet

Tinkering

The strategy is very much “Buy ‘em and Hold ‘em”. I cannot see any benefit in selling off the biggest winners – top-slicing – to recycle funds into under-weight holdings. In any case, the foregoing Concentration Limits should ensure that, going forward, some top-heaviness will be taken care of simply by placing over-concentrated holdings as off-limits for any top up.

I also cannot see any evidence that “selling a cutter” will improve income over time, although as noted above I did recently dispose of PSON. Of course, immediately afterwards PSON’s share price went up over 20%!! Fortunately, the replacement – Greene King PLC (GNK) – also went up sharply and of course it is a much higher yield. Still, it just goes to show that I never really know in advance whether “now” is the time to sell or not.

Comments welcome and enjoy the sunny Sunday


Ian

[ADrunkenMarcus]

Thanks for sharing, Ian. Your unitisation policy has served you well in terms of being able to provide this performance data.

Best wishes

Mark.

[bluedonkey]

Great post, thanks. It broadly accords with the rather less comprehensive stats for my 15 year LTBH HYP. My IRR works out at 9-10% depending on the state of the market when I do the calculation. My total dividend income rises significantly each year but this is with reinvested dividends and a little new capital. Your dividend per unit shows a CAGR of 4.9%.

Doing very little can be profitable!

That said, I recently reviewed the historic yields and the lowest yielder was Rentokil at 1.1% followed by PSON at 1.9%. Although I am LTBH, the reason was to consider transferring part of the HYP to collective investments but that's going OT. I didn't end up selling. Rentokil probably pre-dates your HYP as it was a HYP candidate about 10+ years ago.

[moorfield]

I have not yet decided if that practice will change as and when I start withdrawing an income which will not be for a few more years yet

IMO this is the most important target to be measuring against - ie. what overall income you want your HYP to be generating and when, (ideally) expressed in today's money using a reasonable discount rate. Everything else - income or accumulation unit computations, XIRR etc. - is rear view mirror stuff. Look where you're going, not where you've been (as my nan used to tell me).

[Itsallaguess]

IMO this is the most important target to be measuring against - ie. what overall income you want your HYP to be generating and when, (ideally) expressed in today's money using a reasonable discount rate.

Everything else - income or accumulation unit computations, XIRR etc. - is rear view mirror stuff. Look where you're going, not where you've been (as my nan used to tell me).

Don't we gain much-needed confidence in any given strategy by looking at past results, especially if they are seen to take place over long periods of time, where a number of different market-cycles may have occurred?

Given that people are often using these income strategies as a major source of their income in later life, doesn't past performance give us some much-needed confidence regarding such major decisions?

Surely it's about looking forward with confidence, but where that confidence is primarily based on past results?

Cheers,

Itsallaguess

[Arborbridge]

I have not yet decided if that practice will change as and when I start withdrawing an income which will not be for a few more years yet

IMO this is the most important target to be measuring against - ie. what overall income you want your HYP to be generating and when, (ideally) expressed in today's money using a reasonable discount rate. Everything else - income or accumulation unit computations, XIRR etc. - is rear view mirror stuff. Look where you're going, not where you've been (as my nan used to tell me).

Looking forward is speculation, and this is less informed without looking at what has happened previously.
Another good reason for keeping such measurements is that one ought to test what one is doing against other possible forms of income investment. Otherwise one is groping in the dark in hope rather than knowledge.

Arb.

[Gengulphus]

Basically, we're driving cars with permanently frosted-up windscreens: we can look in the direction we're going or we can see clearly, but not both! So there's little point in arguing whether to look forward or back - just look in all directions and gather whatever clues you can...

Or of course hand the job of driving over to someone else (a fund manager). But they'll face exactly the same problem, and you'll still have something to worry about: are they a good driver? And you'll still have the look-forwards-or-backwards problem: you can see clearly how well they've driven in the past, but not how well they're going to drive in the future...

Gengulphus

[bluedonkey]

I know others here keep unitised records. How do those stats compare with Ian's dividend per unit CAGR of 4.9%?

[IanTHughes]

IMO this is the most important target to be measuring against - ie. what overall income you want your HYP to be generating and when, (ideally) expressed in today's money using a reasonable discount rate. Everything else - income or accumulation unit computations, XIRR etc. - is rear view mirror stuff. Look where you're going, not where you've been (as my nan used to tell me).

I cannot agree with you. Without a reliable crystal ball, the past is the only factual information that any of us have. I of course know that past performance is no guarantee going forward but at least it does show me how prior decisions panned out. It is all very well to set a goal of a particular annual income to be achieved by a specified date but once you have done that how do you set about achieving it? In point of fact I have not set such a goal which might well be unobtainable, as I prefer to aim for the “best” income possible which, if it keeps increasing, will one day be sufficient that, when combined with other retirement incomes, will be enough to live on.

Also, I believe it important to be able to justify my decision to spurn the assistance of paid fund managers and the like. To do this I must compare their past performance against mine. I believe that I am doing OK and of course I do enjoy very much looking after my own retirement pot. However, if any fund manager was able to demonstrate a better performance it would be foolish in the extreme to refuse to switch my fund to their care.

I do not believe that my management of my HYP is doing any worse than a fund manager would have achieved, but I must confess to not having checked it out yet.


Ian

[Dod101]

So far so good but it would be helpful for a post showing the actual make up of the HYP. I am always slightly bemused by why investors make elaborate 'rules' re concentration and the like and then find good excuses for ignoring them. I do not have rules but simply pick from the bottom up and at calendar year end I do an analysis to see where my contributions to income have come from and whether I should be adjusting my portfolio. I also keep an eye on values but seldom sell except if a share gets particularly out of line with the average size of my holding.

I too am LTBH but that certainly does not stop me gently adjusting the portfolio from time to time.

As I have been living off my dividends for over 20 years I have no view on Moorfield's point about having an aim but it seems to be to be sensible, although you need to know what works. I have no other income than the State pension which occasionally concerns me but as I have lived through the tech bubble of 1999/2000 and then the 2008 crisis I am reasonably satisfied that HYP works even conducting it rather informally which is what I do. I am unconvinced by the need for unitisation or elaborate rules, especially when as I say they are often broken!

Dod

[IanTHughes]

So far so good but it would be helpful for a post showing the actual make up of the HYP.

As it happens I did show my HYP a couple of weeks ago but the topic for this thread was the performance since inception, not its current make up

I am always slightly bemused by why investors make elaborate 'rules' re concentration and the like and then find good excuses for ignoring them.

The only rule I have is to not add to any Holding, Sector or Industry where such an addition would result in a breach of my Concentration Limits. I have never breached that rule. Nothing elaborate about it simply my interpretation of the need for diversification with HYP. I am sorry if that was not clear.

I am unconvinced by the need for unitisation or elaborate rules, especially when as I say they are often broken!

If you wanted to be in a position to compare your performance as an Investment Manager with anyone else you would need some such record. Furthermore, as I said, my single rule is hardly elaborate and the unitisation and other calculations are wholly automatic. All I have to do is press a button.


Ian

[tjh290633]

I know others here keep unitised records. How do those stats compare with Ian's dividend per unit CAGR of 4.9%?

Here is the record of my dividend per unit since 1987-88:

Ordinary 
Year to      Divs/unit
05-Apr-88         2.87
05-Apr-89         2.75
05-Apr-90         4.33
05-Apr-91         5.75
05-Apr-92         7.97
05-Apr-93         7.33
05-Apr-94         6.65
05-Apr-95         7.93
05-Apr-96         7.81
05-Apr-97         8.90
05-Apr-98         9.35
05-Apr-99         8.91
05-Apr-00        11.96
05-Apr-01        12.42
05-Apr-02        13.82
05-Apr-03        12.95
05-Apr-04        12.48
05-Apr-05        12.96
05-Apr-06        14.09
05-Apr-07        15.07
05-Apr-08        26.09
05-Apr-09        22.76
05-Apr-10        11.91
05-Apr-11        16.71
05-Apr-12        18.79
05-Apr-13        20.89
05-Apr-14        21.48
05-Apr-15        22.40
05-Apr-16        22.77
05-Apr-17        24.93
05-Apr-18        31.73

The CAGR works out at 8.33% over that period, using XIRR. Obviously it varies over periods, depending on the starting date. The figures exclude special dividends.

TJH

[Arborbridge]

As a comparison, I notice my dividend per unit has increased from 4.38p to 6.51p in seven years until Dec 2017.

That gives me an increase of x1.486, or 5.8% per annum. In the same ballpark as Ian and, I think, perfectly OK to do the job required.


Arb.

[tjh290633]

As a comparison, I notice my dividend per unit has increased from 4.38p to 6.51p in seven years until Dec 2017.

That gives me an increase of x1.486, or 5.8% per annum. In the same ballpark as Ian and, I think, perfectly OK to do the job required.


Arb.

My increase, from 16.71p to 31.73p over the 7 years from 2011 to 2018, gives an IRR of 9.58%.

If I take the maximum of 26.09p in 2008, then the IRR falls to 1.97%. That was before the massive fall in dividends following the 2008 crash, of course. It just goes to show that the starting date matters.

TJH

[csearle]

Basically, we're driving cars with permanently frosted-up windscreens...

I've one of those driverless cars - but I sit nervously behind the wheel wondering about the software. C.