absoultezero's HYP

[absolutezero]

On another thread, TUK020 said they would be interested to see what my HYP looks like after I did a fair amount of cleaning up earlier this year.
The HYP currently yields 5.3%.

CAPITAL VALUES


SECTOR WEIGHTINGS


DIVIDEND INCOME BY COMPANY


What did I get rid of?
Memory behind the reasoning might be a bit shaky but the general thrust is here.

Royal Mail, SSE, National Grid, United Utilities, Severn Trent.
Too much political risk here. A snap General Election could see these companies confiscated. And yes. I do mean confiscated.


McBride, Drax, Wood Group, South 32, Land Securities.
All small holdings and I felt the money would be better deployed topping up another, larger holding.

BHP Billiton, RSA Insurance, TP ICAP, Standard Life Aberdeen.
Duplication of other sectors. Diversifying is good but I think there can be too much diversity. I saw no point in owning 4 different mining companies.

Imperial Brands, British American Tobacco, BT, Pearson, First Group, Sainsbury, De La Rue.
Either dying businesses (literally) or businesses that have significant issues and I can't see them being remedied.

Carillion.
Was disposed of for me.

TUI
Foreign tax was annoying me.

NEX Group
Corporate action.

[idpickering]

Thank you for sharing absolutezero it’s good to see other HYPs. With regards to your HYP management, each to their own is appropriate here, and I support your right to manage your portfolio however you see fit. Peace of mind is invaluable.

Ian.

[absolutezero]

Cheers Ian.
I like seeing what others have got. We're mostly all the same but I like seeing if there any unusual choices about.

[idpickering]

Cheers Ian.
I like seeing what others have got. We're mostly all the same but I like seeing if there any unusual choices about.

You're welcome, credit where it's due imho. I also like to see what others are holding to see it they have any shares that might be of interest to me, that I don't hold currently.

Ian.

[TUK020]

On another thread, TUK020 said they would be interested to see what my HYP looks like after I did a fair amount of cleaning up earlier this year.
What did I get rid of?
Memory behind the reasoning might be a bit shaky but the general thrust is here.

Royal Mail, SSE, National Grid, United Utilities, Severn Trent.
Too much political risk here. A snap General Election could see these companies confiscated. And yes. I do mean confiscated.


McBride, Drax, Wood Group, South 32, Land Securities.
All small holdings and I felt the money would be better deployed topping up another, larger holding.

BHP Billiton, RSA Insurance, TP ICAP, Standard Life Aberdeen.
Duplication of other sectors. Diversifying is good but I think there can be too much diversity. I saw no point in owning 4 different mining companies.

Imperial Brands, British American Tobacco, BT, Pearson, First Group, Sainsbury, De La Rue.
Either dying businesses (literally) or businesses that have significant issues and I can't see them being remedied.

Carillion.
Was disposed of for me.

TUI
Foreign tax was annoying me.

NEX Group
Corporate action.

Thanks for sharing, Absolutezero.
I have largely the same set of shares, with some minor differences in the names (BLT instead of Anglo, MARS instead on GNK), but some differences in emphasis on the sectors (lower in food, higher in oil, also tobacco). Over the last year, I have also been trying to clean up the portfolio a bit.

Utilities. I avoided Royal Mail, and bailed out of SSE. The latter was partly due to political risk. I still have a heavy bet on NG, thinking the US presence and concentration in core transmission rather than retail supply reducing the chances of nationalisation. I also hold smaller position in Pennon.

Bailed on Wood group (got in via AMEC), Pearson & Sainsburys due to short selling activity. (one of my takeaways from the Carillion saga is to keep half an eye on this)

Key difference is that I have stayed in Tobacco, topping up both BATS & IMB in the last 6 months, and stayed with NG.
Think Tobacco is a solid defensive bet to ride Brexit market gyrations, and that emerging market earnings of these players will ride for some time.
My housecleaning also involved top slicing some stakes in RB, RR, BA at opportune moments.

tuk020

[absolutezero]

Hi TUK

I think most HYPs contain pretty much the same stuff.

A few thoughts:
Fags - I can see a time where these eventually get outlawed or at least to a pint where the companies become unviable/significantly less profitable due to such low numbers of smokers. Wary of extrapolating a straight line but fewer than 1/5 adults smoke in the UK now. I go abroad a fair bit and they don't seem to be smoking in numbers like they used to either.

National Grid - Don't underestimate the ideology of the loony left. Logic is not a thing.

I too have learned from CLLN. Always pay attention to short sellers!

Top slicing is not something I do.
Either I have faith in a company or I don't.
If I don't, then it gets sold. (I had twitchy fingers over CLLN and wish I'd got rid when I thought about it but I was a 'in an HYP you do not sell' type. Which I now know is stupid - trust your instincts.)

[Gengulphus]

I too have learned from CLLN. Always pay attention to short sellers!

I've also learned from Carillion. But the lesson I've learned is to pay attention to companies being very dependent on winning big, very competitively tendered-for contracts, especially if they're for public projects. That's because I've seen that for other badly-fallen HYP companies (e.g. FirstGroup), I don't think I've seen it in many HYP companies that have gone on to become good successes (Arriva's the closest, and was a decent success for me, but I don't think it quite made it up to being what I count as a good success) and I can see how it is liable to make dividends unsafe.

Be that as it may, I think the thing I find most surprising about your HYP is that you don't seem to be concerned about having 18.7% of its income coming from its two housebuilders. That's not far off the 19.3% of HYP1's income that was coming from BT near the end of 2007, and BT's 2009 dividend cut resulted in the holding's income contribution reducing from £858 then to £392 in 2010. That reduction of £466 is getting on for twice the £244 damage done to HYP1's income by Lloyds totally cancelling its dividend over the same period (*).

The point being that being overweight in a company or sector can magnify the effect of problems in that company and sector, to the extent that a 'moderate' problem in an overweight company or sector can do considerably more damage than a 'severe' problem in another company or sector that isn't overweight. And by the way, I've expressed the above in terms of income weightings and damage, in keeping with the focus of this board, but it applies just as well to capital weightings and damage: in HYP1, BT had a capital weighting of 11.8% in 2007, and its capital value dropped by £6,941 from £16,521 in 2007 to £9,580 in 2010, which is nearly 2.5 times the £2,668 drop for Lloyds (£3,499 to £831). And again, your 10.44% capital weighting for housebuilders is not all that far behind the 11.8% weighting BT had.

And I hardly think that housebuilders are free of political risk - it's not as overt as Labour's announced plans for the utilities, but there's a strong tendency among politicians to blame housing shortages on housebuilders sitting on their land banks in the pursuit of profit and I can all too well imagine them coming into the sights of nationalisation enthusiasts - if they're not already there!

Anyway, I've by no means had a full look at your HYP yet, but its weightings for housebuilders are high enough to have stood out for me as a significant risk it's taking.

(*) I've done this over three years because AFAIAA pyad didn't report on HYP1 in 2008 and while he did report on it in 2009 very briefly, that report didn't break the income down by company. One can actually use BT's dividend page to establish that BT's dividends paid in HYP1's years to November 2007, 2008, 2009 and 2010 were respectively 15.1p, 15.8p, 6.5p and 6.9p, so HYP1's dividends for those years can be reconstructed as £858, £898, £369, £392. A bit later in the same thread, kool4kats apparently did, but his report was actually for CHYP1 (giveaways of that include the fact that the portfolio does contain Vodafone and doesn't contain Persimmon) - it's just that the thread comes from before CHYP1 was separately named. It does confirm that the HYP1 BT income figure for 2009 was £369 on the assumption that nothing had caused HYP1 and CHYP1 to contain different numbers of BT shares - which is the case as far as I remember. There is also a similar kool4kats 2008 report which provides a similar conditional confirmation of the £898 figure. A similar exercise for Lloyds produces HYP1 income contributions of £244, £253, £0, £0, so the income drop caused by the BT partial cut was £529 and actually a bit over twice the £253 income drop caused by the Lloyds complete cancellation. But the three-year drop that can be established from pyad's own report is enough to establish the point I'm making - this footnote just sharpens the focus of the picture it gives a bit...

Gengulphus

[Dod101]

Top slicing is not something I do.
Either I have faith in a company or I don't.
If I don't, then it gets sold. (I had twitchy fingers over CLLN and wish I'd got rid when I thought about it but I was a 'in an HYP you do not sell' type. Which I now know is stupid - trust your instincts.)

Top slicing can be sensible if the shareholding is getting too big a proportion of the portfolio because of price increases. Then top slicing and recycling cannot be a bad thing. The problem arises the other way, and I have been guilty of this recently, once with British Land and then with SSE. I was selling because I did not think they were going anywhere and in these circumstances it is silly to hedge one's bets. I am now totally out of B Land and am still holding some of SSE.

As for Carillion, I never held because I do not much like contractors or support services and the culture seemed all wrong, nothing to do with short sellers.

Dod

[AndyPandy]

Carillion.
Was disposed of for me.

And there we have the first nominee for 'Understatement of the year' at the TLF Awards this December.