LuniHYP250: Year 6 review
Posted: July 13th, 2018, 6:56 pm
Here is reviewed the latest year of what began as a 20-share 'Midcaps HYP' on The Motley Fool. It is now called LuniHYP250, since it consists of FTSE 250 companies, although none was valued at less than £500m on purchase. Choices were on standard 'pyadic' tests, e.g. dividend history, gearing, sectoral separation. No tinkering, no capital added since it was bought on Jul. 12, 2012.
Constituents at launch:
Amlin (AML)*
Balfour Beatty (BBY)
Berendsen (BRSN)*
Chemring (CHG)
Cineworld (CINE)
Close Brothers (CBG)
Cranswick (CWK)
Go-Ahead (GOG)
Greene King (GNK)
Greggs (GRG)
HICL Infrastructure (HICL)
IG (IGG)
Inmarsat (ISAT)
moneysupermarket (MONY)
N Brown (BWNG)
Premier Farnell (PFL)*
Provident Financial (PFG)
Tullett Prebon (TLPR), renamed TP ICAP (TCAP)
UBM (UBM)*
UK Commercial Property (UKCM)
*Taken over
Later substitutions and additions:
Weir (WEIR), Feb. 2016
Ashmore (ASHM), Mar. 2017
PayPoint (PAY), Oct. 2017
Essentra (ESNT), Nov. 2017
Bellway (BWY), Mar. 2018
William Hill (WMH), Jun. 2018
John Wood (WG.), Jun. 2018
Original cost after expenses was £23,949. Later buys were at the same unit cost as at first: <=£1,200 per share.
INCOME
HYPs are about income. This concept stemmed from hopes that periodic income would rise faster, if more bumpily, than in my Footsie HYPs. Wrong! Regular interims and finals grew by only 2-3% pa in this decade, close to inflation:
2011-12 (equivalent for year before acquisition): £1,216
----------------------------------------------------------------------------------------
2012-13: £1,241, +2.1% equivalent
2013-14: £1,273, +2.6%
2014-15: £1,299, +2.0%
2015-16: £1,305, +0.5%
2016-17: £1,365, +4.6%
2017-18: £1,308, -4.1%
LuniHYP250 has produced £7,791 of routine payouts to date, from a very mixed bag.
Chemring and Balfour Beatty ceased paying entirely, then resumed at far lower rates; Provident Financial, previously the biggest dispenser in the portfolio, may do likewise. Inmarsat has lately chopped its payout. Freezes are in force at UKCM, Weir, N Brown and TP ICAP. Best gains in income arose from Cranswick, Greggs and Cineworld, though CINE's shrank after its stonker of a rights issue (see below).
LuniHYP250's average running yield from this income was 4%: a yardstick that constantly crops up as a good-average for UK equity higher-paying assemblages at all sizes of capitalisation. On average shares were obtained when yielding one-third more than the All-Share Index. This is in line with my 'optimal zone' happy medium between juicy and injudicious-- though not deliberately so, since this is not a mech portfolio. Eight of 27 buys (whisper it not in Gath) came from the 'warning' or 'danger' zones.
The fruits of TMFpyad's 'market trading', thrown up by corporate shuffles, are another tale entirely. They have vastly safeguarded income:
2012-13: £115
2013-14: £188
2014-15: £315
2015-16: £200
2016-17: £0
2017-18: £2,046
Total to date £2,864, 27% of all receipts. More than two-thirds of the non-regular income was £1,771 in lapsed rights entitlement from Cineworld, as it raised cash to buy America's Regal moviehouse chain. I never exercise rights-- usually good money after bad-- and this windfall was well over a year's worth of routine dividends from the whole portfolio. A freak, maybe, but it sure puts the disappointments in perspective.
There was a further £244 in lapsed rights from Prov. Fin.'s bailout rights call, equating to about two years' worth of its now-suspended dividend. (OK, that's a complacent way of regarding it.)
CAPITAL
To me this is almost as pressing a concern as the next Eurovision Song Contest winner, but what the hell.
At Jul. 12, 2018, LuniHYP250's market value was £37,362, including £85 of unallocated capital. This is 7.8% down on the year, whereas the All-Share Index (FTAS) gained 4.0%; it is the third consecutive (and much the worst) accounting year of underperformance. Last year finished feebly: Inmarsat saw a handsome bid evaporate, while TP ICAP put out a warning and sacked the boss.
Year-end values:
Jul. 2012 (bought): £23,949
Jul. 2013: £30,405, +27.0%, FTAS +19.3%
Jul. 2014: £31,688, +4.2%, FTAS +2.8%
Jul. 2015: £38,353, +21.0%, FTAS +1.9%
Jul. 2016: £36,949, -3.7%, FTAS -0.8%
Jul. 2017: £40,509, +9.6%, FTAS +12.2%
Jul. 2018: £37,362, -7.8%, FTAS +4.0%
In 2012-18 the portfolio has increased by 56% against the FTAS's 45%. The FTSE250 ex Investment Trusts index, a more congruous yardstick, is up 41%; I use the All-Share as a universal comparator for an unconstrained, British small investor. Inflation has been about 16%.
The best overall payback, taking in all receipts plus paper profits, is Cranswick's £3,934. The thinnest is N Brown's £117. The average among 16 survivors from 2012 is £1,065.
No doubt my sloppy attitude to capital changes among portfolio members (albeit full takeovers' proceeds and capital returns are ploughed back into new stocks) is partly to blame for recent underperformance. OTOH I now hold 23 well-differentiated midcaps. None lack hope of producing dividends in the near term. Together they yield well above what a bond or cash deposit offers, with inflation protection from an income reserve.
BALANCE
Has the portfolio become perilously unweighted over time? My test is whether any share furnishes more than twice or less than half what an even split would dictate.
As to regular income, of the 16 survivors among the 20 positions taken in 2012 Balfour Beatty and Chemring-- both cutters, now in early recovery-- provided less than half as much income as the one-sixteenth portion of a perfect balance. No share has paid out more than twice as much. The collection remains broadly spread as regards periodic dividends, its raison d'etre.
The largest regular income among these survivors was paid by Provident Financial despite its present malaise: £510. The least was Chemring's £98.
Capital weights at Jul. 2018 among the 23 present members include two worth less than half the norm, which is 4.4% of total value: N Brown and Provident Financial. One share, Cranswick, accounts for 8.7% of the portfolio, a shade overweight by the 'twice average' test. None of these divergences seem to call for tinkering.
DERISKING
My habit is to set aside part of the raw inflow to preserve the purchasing power of a 'derisked' spendable sum. The surplus goes to an income reserve which will bolster purchasing power when the portfolio collects too little.
Thus LuniHYP250 harvested £1,356, 5.7% of starting capital, in its first year. At the end of it I took 4.5% or £1,078 for spending and reserved the rest, £278. The FTAS yielded 3.3% in Jul. 2013. To begin more than a point higher seemed enough to honour the High in HYP.
In Years 2 and 3 the withdrawn quantum was increased only by inflation-- at 2.6%, then 1.0%-- while further transfers filled the reserve. At the end of Year 3 it already contained 12 months of the spendable allowance. So it felt safe to lift the withdrawal rate, index-linked, from 4.5% to 5.2%, i.e. by 15%. The reserve remained at 12 months at Jul. 2017.
The Cineworld bonus of Feb. 2018 made me again jettison my cautious custom of waiting at least five years betweeri rises in the withdrawal rate. I do not need a reserve of three or four years' current spendable income.
Yet far harder times may lie in wait for us dividend fans. So I will lean to temerity and boost the withdrawal by one-tenth, giving an ongoing 5.69%+RPI on the original investment with a reserve of 24 months at present. Over the first six years, three-tenths of raw income will have been held back: £3,160 out of £10,655.
A stress test, piling on the prophetic agony, imagines inflation at 4% pa in 2018-2022. Meanwhile, what if portfolio income comprises regular items only. Wot, no extras?
Say such regular income dropped by one-tenth in 2018-19 due to a recrudescence of crisis --despite the portfolio's newcomers starting to contribute-- and then increased by only 3% in 2019-22, behind living costs. The reserve would be heavily depleted; however by Jul. 2022 it would contain 10 months' payout after ten years' operation.
A tolerable nadir before recovery, if recovery there is to be. If not, it will be back to bullion, bullets and baked beans.
Constituents at launch:
Amlin (AML)*
Balfour Beatty (BBY)
Berendsen (BRSN)*
Chemring (CHG)
Cineworld (CINE)
Close Brothers (CBG)
Cranswick (CWK)
Go-Ahead (GOG)
Greene King (GNK)
Greggs (GRG)
HICL Infrastructure (HICL)
IG (IGG)
Inmarsat (ISAT)
moneysupermarket (MONY)
N Brown (BWNG)
Premier Farnell (PFL)*
Provident Financial (PFG)
Tullett Prebon (TLPR), renamed TP ICAP (TCAP)
UBM (UBM)*
UK Commercial Property (UKCM)
*Taken over
Later substitutions and additions:
Weir (WEIR), Feb. 2016
Ashmore (ASHM), Mar. 2017
PayPoint (PAY), Oct. 2017
Essentra (ESNT), Nov. 2017
Bellway (BWY), Mar. 2018
William Hill (WMH), Jun. 2018
John Wood (WG.), Jun. 2018
Original cost after expenses was £23,949. Later buys were at the same unit cost as at first: <=£1,200 per share.
INCOME
HYPs are about income. This concept stemmed from hopes that periodic income would rise faster, if more bumpily, than in my Footsie HYPs. Wrong! Regular interims and finals grew by only 2-3% pa in this decade, close to inflation:
2011-12 (equivalent for year before acquisition): £1,216
----------------------------------------------------------------------------------------
2012-13: £1,241, +2.1% equivalent
2013-14: £1,273, +2.6%
2014-15: £1,299, +2.0%
2015-16: £1,305, +0.5%
2016-17: £1,365, +4.6%
2017-18: £1,308, -4.1%
LuniHYP250 has produced £7,791 of routine payouts to date, from a very mixed bag.
Chemring and Balfour Beatty ceased paying entirely, then resumed at far lower rates; Provident Financial, previously the biggest dispenser in the portfolio, may do likewise. Inmarsat has lately chopped its payout. Freezes are in force at UKCM, Weir, N Brown and TP ICAP. Best gains in income arose from Cranswick, Greggs and Cineworld, though CINE's shrank after its stonker of a rights issue (see below).
LuniHYP250's average running yield from this income was 4%: a yardstick that constantly crops up as a good-average for UK equity higher-paying assemblages at all sizes of capitalisation. On average shares were obtained when yielding one-third more than the All-Share Index. This is in line with my 'optimal zone' happy medium between juicy and injudicious-- though not deliberately so, since this is not a mech portfolio. Eight of 27 buys (whisper it not in Gath) came from the 'warning' or 'danger' zones.
The fruits of TMFpyad's 'market trading', thrown up by corporate shuffles, are another tale entirely. They have vastly safeguarded income:
2012-13: £115
2013-14: £188
2014-15: £315
2015-16: £200
2016-17: £0
2017-18: £2,046
Total to date £2,864, 27% of all receipts. More than two-thirds of the non-regular income was £1,771 in lapsed rights entitlement from Cineworld, as it raised cash to buy America's Regal moviehouse chain. I never exercise rights-- usually good money after bad-- and this windfall was well over a year's worth of routine dividends from the whole portfolio. A freak, maybe, but it sure puts the disappointments in perspective.
There was a further £244 in lapsed rights from Prov. Fin.'s bailout rights call, equating to about two years' worth of its now-suspended dividend. (OK, that's a complacent way of regarding it.)
CAPITAL
To me this is almost as pressing a concern as the next Eurovision Song Contest winner, but what the hell.
At Jul. 12, 2018, LuniHYP250's market value was £37,362, including £85 of unallocated capital. This is 7.8% down on the year, whereas the All-Share Index (FTAS) gained 4.0%; it is the third consecutive (and much the worst) accounting year of underperformance. Last year finished feebly: Inmarsat saw a handsome bid evaporate, while TP ICAP put out a warning and sacked the boss.
Year-end values:
Jul. 2012 (bought): £23,949
Jul. 2013: £30,405, +27.0%, FTAS +19.3%
Jul. 2014: £31,688, +4.2%, FTAS +2.8%
Jul. 2015: £38,353, +21.0%, FTAS +1.9%
Jul. 2016: £36,949, -3.7%, FTAS -0.8%
Jul. 2017: £40,509, +9.6%, FTAS +12.2%
Jul. 2018: £37,362, -7.8%, FTAS +4.0%
In 2012-18 the portfolio has increased by 56% against the FTAS's 45%. The FTSE250 ex Investment Trusts index, a more congruous yardstick, is up 41%; I use the All-Share as a universal comparator for an unconstrained, British small investor. Inflation has been about 16%.
The best overall payback, taking in all receipts plus paper profits, is Cranswick's £3,934. The thinnest is N Brown's £117. The average among 16 survivors from 2012 is £1,065.
No doubt my sloppy attitude to capital changes among portfolio members (albeit full takeovers' proceeds and capital returns are ploughed back into new stocks) is partly to blame for recent underperformance. OTOH I now hold 23 well-differentiated midcaps. None lack hope of producing dividends in the near term. Together they yield well above what a bond or cash deposit offers, with inflation protection from an income reserve.
BALANCE
Has the portfolio become perilously unweighted over time? My test is whether any share furnishes more than twice or less than half what an even split would dictate.
As to regular income, of the 16 survivors among the 20 positions taken in 2012 Balfour Beatty and Chemring-- both cutters, now in early recovery-- provided less than half as much income as the one-sixteenth portion of a perfect balance. No share has paid out more than twice as much. The collection remains broadly spread as regards periodic dividends, its raison d'etre.
The largest regular income among these survivors was paid by Provident Financial despite its present malaise: £510. The least was Chemring's £98.
Capital weights at Jul. 2018 among the 23 present members include two worth less than half the norm, which is 4.4% of total value: N Brown and Provident Financial. One share, Cranswick, accounts for 8.7% of the portfolio, a shade overweight by the 'twice average' test. None of these divergences seem to call for tinkering.
DERISKING
My habit is to set aside part of the raw inflow to preserve the purchasing power of a 'derisked' spendable sum. The surplus goes to an income reserve which will bolster purchasing power when the portfolio collects too little.
Thus LuniHYP250 harvested £1,356, 5.7% of starting capital, in its first year. At the end of it I took 4.5% or £1,078 for spending and reserved the rest, £278. The FTAS yielded 3.3% in Jul. 2013. To begin more than a point higher seemed enough to honour the High in HYP.
In Years 2 and 3 the withdrawn quantum was increased only by inflation-- at 2.6%, then 1.0%-- while further transfers filled the reserve. At the end of Year 3 it already contained 12 months of the spendable allowance. So it felt safe to lift the withdrawal rate, index-linked, from 4.5% to 5.2%, i.e. by 15%. The reserve remained at 12 months at Jul. 2017.
The Cineworld bonus of Feb. 2018 made me again jettison my cautious custom of waiting at least five years betweeri rises in the withdrawal rate. I do not need a reserve of three or four years' current spendable income.
Yet far harder times may lie in wait for us dividend fans. So I will lean to temerity and boost the withdrawal by one-tenth, giving an ongoing 5.69%+RPI on the original investment with a reserve of 24 months at present. Over the first six years, three-tenths of raw income will have been held back: £3,160 out of £10,655.
A stress test, piling on the prophetic agony, imagines inflation at 4% pa in 2018-2022. Meanwhile, what if portfolio income comprises regular items only. Wot, no extras?
Say such regular income dropped by one-tenth in 2018-19 due to a recrudescence of crisis --despite the portfolio's newcomers starting to contribute-- and then increased by only 3% in 2019-22, behind living costs. The reserve would be heavily depleted; however by Jul. 2022 it would contain 10 months' payout after ten years' operation.
A tolerable nadir before recovery, if recovery there is to be. If not, it will be back to bullion, bullets and baked beans.