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Unitisation question

Practical discussions about equity High-Yield Portfolios (HYP) for income
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Wizard
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Unitisation question

#190820

Postby Wizard » January 3rd, 2019, 2:43 pm

Apologies if this is a question that has been answered before.

I am pulling together my end of year position and want to make sure I am treating unitisation correctly. There has been little activity in my portfolio this year, only the collection of dividends and two corporate actions (one rights issue in which I participated and a consolidation associated with a return of capital). I am not withdrawing income from the portfolio, and in all but one case could not as it is in my SIPP and I am not yet at an age where I can access it. I had a cash balance at the start of the year, so have started with that added the dividends and added capital returned and subtracted funds used to participate in the rights issue. I have then used this adjusted cash balance as one of the component parts of my portfolio and calculated the unitisation using this. No other new funds have been added to the portfolio. I think this means I am unitising on the basis of accumulation units.

The alternative would presumably be to not add in the dividends as if I had taken them as income, but as I am not drawing anything from the portfolio this does not seem right to me.

Guidance would be much appreciated.

Regards,
Terry.

moorfield
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Re: Unitisation question

#190832

Postby moorfield » January 3rd, 2019, 3:24 pm

Wizard wrote:I am not withdrawing income from the portfolio, and in all but one case could not as it is in my SIPP and I am not yet at an age where I can access it.


Snap. I think you may find accumulation units easier to manage while reinvesting until retirement, and income units easier to use when drawing income in retirement. In that case you would only need to adjust accumulation units when you contribute new funds into your SIPP, otherwise you would need to adjust income units every time you buy or sell shares, which can quickly become a pfaff. You could of course use and compute both in parallel if you wished to.

The simplest way to start would be to compute no. units based on a notional initial value, say £100/unit, using your end of year prices:

No. Acc Units = (Value Shares + Cash) / 100, adjusted every time you add or withdraw cash

No. Inc Units = (Value Shares) / 100, adjusted every time you buy or sell shares

tjh290633
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Re: Unitisation question

#190871

Postby tjh290633 » January 3rd, 2019, 6:11 pm

Wizard wrote:The alternative would presumably be to not add in the dividends as if I had taken them as income, but as I am not drawing anything from the portfolio this does not seem right to me.

My method is to issue additional units for the dividends received.

This is no different from what happens in a company. The income rolls up into the share price until it goes XD. Just because you are not reinvesting it does not mean that it is not there. In your case, you are not withdrawing cash, in which case you would nominally sell units. However, I find it simpler to assume that the income is used to buy more units, whereas if they were accumulation units, you would not. This way, when you do buy more shares with the cash, you do not need to "buy" more units, as the cash has already provided more units.

TJH

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Re: Unitisation question

#190966

Postby evilbungle » January 4th, 2019, 10:05 am

Ok, Now reading this I am confused as I think I may be doing something wrong.

At the beginning I took the Value in £ and assigned that many units (So each unit is worth £1)
Now each month when I add money I add more units based on £X added / Current Price (Unfortunately at the moment that is around 85p)

As I can't afford to buy more shares every month (As I do not have that much money) I add the cash held to the portfolio value to calculate the current unit price (Value / Number Units)

Then why I buy shares (With a mixture of Dividends and New Money) the cash element goes down and the portfolio amount goes up by an equal (hopefully) amount - So i don't actually account for the dividends as coming into the portfolio until they are reinvested - should I be adding units for these as well?

I then work out the income as pence per unit so I can monitor if it goes up or down (Although as I am building and a couple of decades away from needing the money this is really just to make sure my income is growing)

Does this sound right? I was always put off Unitising but then read that it was actually quite simple and so started to do it - but now worry that I may have done it too simply?

IanTHughes
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Re: Unitisation question

#190987

Postby IanTHughes » January 4th, 2019, 11:36 am

Here is how I do it

Accumulation Units

Portfolio Value is the prevailing value of all holdings plus cash plus ex-dividend amounts
Unit Value is the Portfolio Value divided by the number of units

Cash In: Buy units at prevailing Unit Value
Cash Out: Sell units at prevailing Unit Value

Dividends: Do nothing

Dividend Units

Portfolio Value is the prevailing value of all holdings plus cash plus ex-dividend amounts
Unit Value is the Portfolio Value divided by the number of units

Cash In: Buy units at prevailing Unit Value
Cash Out: Sell units at prevailing Unit Value

Dividends: Buy units at prevailing Unit Value

Portfolio Income is the Forecast Dividend Income for all holdings
Forecast Unit Dividend is the Portfolio Income divided by the number of units


Whether you consider Special Dividends the same as Ordinary Dividends is of course up to you. In my case I only consider those Special Dividends which, if I were drawing income, I would be relying on as income. Those which I consider to be a Return of Capital in all but name, I do not consider as income and “non-income” amounts are not included for the purpose of calculating the Portfolio Income, nor for the purchase of new Income Units.

I hope that helps


Ian

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Re: Unitisation question

#190992

Postby tjh290633 » January 4th, 2019, 11:54 am

I'm different from Ian, in that all dividends buy more units in my income units. Likewise, so do returns of capital.

Arguably, I should not, but what I am doing is using all cash arising to buy more units. That is the same as if I injected that amount of cash into the portfolio.

TJH

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Re: Unitisation question

#190993

Postby moorfield » January 4th, 2019, 12:00 pm

tjh290633 wrote:My method is to issue additional units for the dividends received.


However, I find it simpler to assume that the income is used to buy more units, whereas if they were accumulation units, you would not. This way, when you do buy more shares with the cash, you do not need to "buy" more units, as the cash has already provided more units.


But if you decide to spend (some of) the income instead, then you will need to remember to "unissue" (some of) those units? Which means you need to keep track of two unit prices - when the dividend was received and when you spent (some of) it?

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Re: Unitisation question

#190997

Postby tjh290633 » January 4th, 2019, 12:14 pm

moorfield wrote:
tjh290633 wrote:My method is to issue additional units for the dividends received.


However, I find it simpler to assume that the income is used to buy more units, whereas if they were accumulation units, you would not. This way, when you do buy more shares with the cash, you do not need to "buy" more units, as the cash has already provided more units.


But if you decide to spend (some of) the income instead, then you will need to remember to "unissue" (some of) those units? Which means you need to keep track of two unit prices - when the dividend was received and when you spent (some of) it?

I normally do it on the last day of the month, and if I have withdrawn more cash than dividends received, then I "sell" units to that value. I always use the unit value at the end of the previous month to avoid circular calculation errors.

TJH

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Re: Unitisation question

#191001

Postby Arborbridge » January 4th, 2019, 12:40 pm

We ought to be very careful to specifiy if we are describing our actions for income units or accumulation units - otheriwise there is a chance of misunderstanding.

As regards income units, dividends are ignored. They might be spent, or go to buy more shares, perhaps with additional capital input. If new shares are bought, the unit price is calculated using HYPtuss at the closing price of the day prior to purchase (or sale).

For accumulation units, dividends are added to the total of cash and shares. The unit price is this grand total portfolio value divided by the number of units. If shares are sold, the cash is held inside the portfolio until either taken out (when the number of units must be reduced using the price ruling on the day) or employed to buy another share.
If additional capital is added, create new units to account for it.

Accumulation units are significantly easier to use, since changes are relatively rarer than with income units, at least in my case.



Arb.

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Re: Unitisation question

#191003

Postby monabri » January 4th, 2019, 12:43 pm

edit; I'm in accumulation mode so I think that Arb's view and mine concur - with the exception that I also include the XD element as described below - it's probably a small discrepancy.

After the initial unitisation, new money added into the HYP buys new units at the current unit value.

and

Money out of the HYP requires the cancellation of units at the current unit value.



Then it's a question of how does one calculate the unit value on which to buy/withdraw units?

Personally, I calculate the unit value based on everything that is in my HYP. i.e.

HYP Value = the value of the shares held + any cash + dividends earned (i.e. divis that are XD).

These 3 elements are what my HYP is currently worth.

Thus "HYP Value" being the sum of 3 parts is then used to calculate "unit values".

In reality, the cash + dividends elements are usually a small percentage of the overall value - an exception being the addition of a lump sum of money. And, if you are adding a lump sum of money, the probable intention is to buy/top up shares so it wouldn't stay as cash for long (*) .




(*) some posters say they are holding a percentage of cash in anticipation of a good buying opportunity - maybe 10% of their portfolio value...so once again, some exceptions. :)

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Re: Unitisation question

#191010

Postby Arborbridge » January 4th, 2019, 1:27 pm

monabri wrote:

Then it's a question of how does one calculate the unit value on which to buy/withdraw units?



I agree with your method.

If the cash held "inside the box" becomes too large, I would consider surrendering some units to reduce it. But on the whole, for most of us, I guess that cash will eventually be used for share purchases so it can just sit there.

Arb.

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Re: Unitisation question

#191019

Postby torata » January 4th, 2019, 2:19 pm

I've never been sure if I'm correct in the way that I do it, but I'm consistent in what I do, which I think is probably the most important aspect.

As I live outside the UK, my HYP-centred ISA (and non-HYP Sipp) are frozen, and I'm in building phase for all accounts/portfolios.

Accumulation - I use the value of each whole portfolio - stocks+cash. Due to my situation in the sentence above, for ISA (and Sipp), there's never a change to the number of units, just the unit value.

Income - I use the value of stocks only - cash only 'gets counted' (ie buys or sells units) when it buys or sells stocks, not when it comes into the account in the form of dividends.

I realise that I'm probably not strictly following the standard unitization process for Income, but it's very simple, and works for me.

As I use Money as my main tracking tool, it takes me about 5 mins per year to produce the unitization details for the ISA and Sipp each.

For me the benefit of unitization with regard to HYP (i.e. my ISA), is in comparing the dividend per unit against the raw cash % increase. For example, in 2018, my raw HYP income (including specials) is 16.7% higher compared to 2017, which seems great. But the dividend per unit is actually flat over the 2 years, which is a more accurate reflection of how I am allocating capital (and Carillion, etc).

torata

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Re: Unitisation question

#191181

Postby Arborbridge » January 5th, 2019, 9:37 am

torata wrote:
Accumulation - I use the value of each whole portfolio - stocks+cash. Due to my situation in the sentence above, for ISA (and Sipp), there's never a change to the number of units, just the unit value.

Income - I use the value of stocks only - cash only 'gets counted' (ie buys or sells units) when it buys or sells stocks, not when it comes into the account in the form of dividends.

I realise that I'm probably not strictly following the standard unitization process for Income, but it's very simple, and works for me.


torata


I believe all that is correct. Either that - or we are both incorrect
:!:

And I thought that was the standard way of doing it....



Arb.

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Re: Unitisation question

#191195

Postby tjh290633 » January 5th, 2019, 10:33 am

I don't think that there is a correct way. You just do what suits your system. Unless you accumulate a lot of cash, it is unlikely to be a significant percentage of the portfolio value.

TJH

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Re: Unitisation question

#191196

Postby Gersemi » January 5th, 2019, 10:35 am

Arborbridge wrote:
torata wrote:
Accumulation - I use the value of each whole portfolio - stocks+cash. Due to my situation in the sentence above, for ISA (and Sipp), there's never a change to the number of units, just the unit value.

Income - I use the value of stocks only - cash only 'gets counted' (ie buys or sells units) when it buys or sells stocks, not when it comes into the account in the form of dividends.

I realise that I'm probably not strictly following the standard unitization process for Income, but it's very simple, and works for me.


torata


I believe all that is correct. Either that - or we are both incorrect
:!:

And I thought that was the standard way of doing it....



Arb.


I haven't worked it through, but I suspect it doesn't matter when you add the dividends for income units - as cash doesn't affect the unit value. I realise that if you add them later the unit value will have changed, but the number of units you buy will change accordingly, so I think the unit value will end up the same.

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Re: Unitisation question

#191208

Postby Arborbridge » January 5th, 2019, 10:56 am

Gersemi wrote:
I haven't worked it through, but I suspect it doesn't matter when you add the dividends for income units - as cash doesn't affect the unit value. I realise that if you add them later the unit value will have changed, but the number of units you buy will change accordingly, so I think the unit value will end up the same.


Income units are defined by the fact that income is being withdrawn. The cash has "leaked away" and might be used to buy ice-creams or shares for all I know. Dividends are not added for income units.


Arb.

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Re: Unitisation question

#191385

Postby Gersemi » January 5th, 2019, 10:25 pm

Arborbridge wrote:
Gersemi wrote:
I haven't worked it through, but I suspect it doesn't matter when you add the dividends for income units - as cash doesn't affect the unit value. I realise that if you add them later the unit value will have changed, but the number of units you buy will change accordingly, so I think the unit value will end up the same.


Income units are defined by the fact that income is being withdrawn. The cash has "leaked away" and might be used to buy ice-creams or shares for all I know. Dividends are not added for income units.


Arb.


I was referring to the dividends that are reinvested.

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Re: Unitisation question

#191415

Postby Arborbridge » January 6th, 2019, 8:15 am

Gersemi wrote:
Arborbridge wrote:
Gersemi wrote:
I haven't worked it through, but I suspect it doesn't matter when you add the dividends for income units - as cash doesn't affect the unit value. I realise that if you add them later the unit value will have changed, but the number of units you buy will change accordingly, so I think the unit value will end up the same.


Income units are defined by the fact that income is being withdrawn. The cash has "leaked away" and might be used to buy ice-creams or shares for all I know. Dividends are not added for income units.


Arb.


I was referring to the dividends that are reinvested.


So was I. You don't include them until they are invested, only then do you ackowledge they exist, and unitise them as part of a new purchase, should that happen. Maybe we agree on that but expressed it differently?

Arb.

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Re: Unitisation question

#191431

Postby tjh290633 » January 6th, 2019, 9:45 am

I think that the alternative method might be to roll up dividends in the income units until you are ready to reinvest them, then create new units with the reinvested dividends. Effectively your income units go XD.

I cannot see any good reason for not including retained cash in the portfolio value.

TJH

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Re: Unitisation question

#191435

Postby EssDeeAitch » January 6th, 2019, 10:03 am

I am only included new money invested in the portfolio as well as capital changes to the holdings.

All dividends and Return of Capital are ignored for Unitisation calcs but I do have a "Dividends/Unit" calculation which I annualise by simply dividing dividends for the period by units held and multiplying by 365.

This may be wrong, it may be crude but it does give me a simple, understandable comparison of the value movements.


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