How low will you go?

[Wizard]

When I read the topic today on Marston's (MARS) trading update I went on to DividendData.co.uk to look at the yield over time vs that of Greene King. Of course, as MARS is not big enough to be in the FTSE250, DividendData.co.uk does not provide that information. As MARS seems to have a number of holders amongst those that frequent this board, it made me wonder, how low in market cap terms are those running an HYP willing to go? So I thought I would pose that very question.

[EssDeeAitch]

It would also be interesting to map the results against the length of time respondents have been HYPing. More experienced = higher hurdle?

[maximan]

When I read the topic today on Marston's (MARS) trading update I went on to DividendData.co.uk to look at the yield over time vs that of Greene King. Of course, as MARS is not big enough to be in the FTSE250, DividendData.co.uk does not provide that information. As MARS seems to have a number of holders amongst those that frequent this board, it made me wonder, how low in market cap terms are those running an HYP willing to go? So I thought I would pose that very question.

Greene King is my only holding outside the FTSE 100 in respect of my HYP so I had to tick the £1501 to 2000 box. I am considering Tate but no others especially after CLLN.

[Breelander]

MARS seems to have a number of holders amongst those that frequent this board, it made me wonder, how low in market cap terms are those running an HYP willing to go? So I thought I would pose that very question.

I don't hold MARS. Its market cap of £688.1m puts it in the FTSE Small Cap index, but not that far below the FTSE 250 automatic entry point of about £731m.
http://www.stockchallenge.co.uk/ftse.php

I do hold 2 (out of 28) that are (now) below MARS in market cap, De La Rue and Halfords. My personal limit when I was building was £500m, but preferably at least £1,000m. DLAR and HFD were above my limits on purchase but have since slipped below. As a 'Doris' I'm holding, but if I were looking for a new purchase I would not be buying anything below £1,000m market cap today.

[idpickering]

I voted £500+, and outside of the ftse100 I hold Marston’s, Greene King, and Tate&Lyle.
I do prefer to start screening at £1bn, but relaxed that.

[Lootman]

If you buy into the suggestion in the Guidelines that shares should be chosen from the FTSE-350, then that takes us down to about 600 million or so. An example at that level would be Card Factory.

There are some 350 constituents that are worth less than that, because of price declines and the lag between that happening and being relegated from the index. Also bear in mind that there are a good number of investment trusts in that index which you might also want to exclude.

On the other hand there are a few AIM shares that are bigger than that as well, so some might consider those. Personally I like a variety of large, mid and small caps.

[Arborbridge]

The strange thing is that I didn't have a clue how big my current companies were. This is because my HYP was mainly forged a while back so I haven't bothered to keep an eye on how big they are. I've had to trawl through them checking, and it seems my smallest one is Chesnara, capitalised at just over £500m. I made an off the wall purchase there - I wouldn't normally buy at less than £1000m ten years ago so the aim would be about 1500-2000 now.
However, Chesnaraproves that I have broken that rule - incidentally, the reason is that my wife already had the very similar Phoenix group, and I just wanted to plump for something different. Certainly not the best reason for making a choice, but it seemed the right thing at the time!

Arb.

[moorfield]

Agree with Lootman re the Guidelines arguably no one here should be selecting below £600m ish. Personally I won't look at selecting from outside FTSE 100 now so have voted for £30001m plus.

[Arborbridge]

I'm old school, and reckon our choices should mostly concentrate on the FTSE 100 - the bigger the better, in general.
However, I think we've always acknowledged that HYPers may go a little below that. In my view, RBS notwithstanding, you can hardly do better than aim for the biggest and/or best in class.

I was initally surprised at the poll's result - the lowness was lower than I would have expected from a group of HYPers. But then, I guess the explanation is that the lowest people will go to, isn't necessarily what they would normally aim for. I guess we all like a little wiggle room.
To that extent, the low value is misleading - hopefully people are staying mostly in the FTSE 100 - which is apparent from HYPs we see posted.

Arb.

[Lootman]

hopefully people are staying mostly in the FTSE 100

The underlying theory there is that the FTSE-100 shares are more solid and stable, and less likely to vanish. That may be true even though we have seen a fair few accidents.

But another issue is sectoral diversity. If you limit yourself to the FTSE-100 then you limit your sectors. The FTSE-100 is significantly over-weight natural resources, finance, utilities and pharma. Industrials, chemicals, autos and Tech are much harder to find. I deal with that imbalance by looking at overseas shares, but surely another approach is to look at mid-caps?

[PinkDalek]

I was initally surprised at the poll's result - the lowness was lower than I would have expected from a group of HYPers

I wasn't surprised.

Many like voting in polls, come what may, and many who spot them aren't genuine HYPpies (in so far as this board is concerned that is). Others claim not even to know which board they are on.

PD (didn't vote!)

[Wasron]

I hold Marstons and the smallest by market cap at purchase was probably GCP Student Living (DIGS), around £150m. But as a student accommodation REIT it provided great diversification which I valued over market cap.

Wasron

[MDW1954]

But another issue is sectoral diversity. If you limit yourself to the FTSE-100 then you limit your sectors. The FTSE-100 is significantly over-weight natural resources, finance, utilities and pharma. Industrials, chemicals, autos and Tech are much harder to find. I deal with that imbalance by looking at overseas shares, but surely another approach is to look at mid-caps?

Exactly. As with trackers, the FTSE 100 isn't representative. More to the point, perhaps, it isn't representative of UK-focused stocks, which (post-referendum) is are where some tasty yields are to be had.

MARS is in my top 5 holdings. Greggs is another. But to be sure, the bulk of my HYP (spread across ISA and SIPP accounts) is with the likes of HSBC, GSK, RDSB, BHP, etc etc.

MDW1954

[Arborbridge]

But another issue is sectoral diversity. If you limit yourself to the FTSE-100 then you limit your sectors. The FTSE-100 is significantly over-weight natural resources, finance, utilities and pharma. Industrials, chemicals, autos and Tech are much harder to find. I deal with that imbalance by looking at overseas shares, but surely another approach is to look at mid-caps?

Exactly. As with trackers, the FTSE 100 isn't representative. More to the point, perhaps, it isn't representative of UK-focused stocks, which (post-referendum) is are where some tasty yields are to be had.

MARS is in my top 5 holdings. Greggs is another. But to be sure, the bulk of my HYP (spread across ISA and SIPP accounts) is with the likes of HSBC, GSK, RDSB, BHP, etc etc.

MDW1954

It would be good to have Pyad's input to this discussion.

It seems we might opening up mission creep if we go too far down this line of reasoning - not that I believe you are, MDW, but such seductive arguments could be taken by some as an open invitation to bend the "buy big" guideline. I notice that LMF in its infinite wisdom decided to alter the size criterion to FTSE350, which was never in the original guidelines, AFAIK and leads to companies which would never have been looked at by Pyad, which in my view is undermining the concept of HYP which he laid down, and which this board is supposed generally to uphold.
And as for "tasty yields" as someone already pointed out, there may be good reasons for those yields, especially amongst medium sized companies.

Arb.

[pyad]

First of all, for the reasons Pink Dalek suggested, I would not take that poll as representative of HYPers generally and not even of HYPers here because those who bother to respond are a self-selected group, possibly some not even being HYPers at all.

As I've said from the earliest days, my view is that HYPs should stick to the FTSE100. That's always the starting point and ideally it should remain that way. But the world aint ideal.

The reason to search the FTSE250 is if the investor runs out of acceptable selections from the 100 or perhaps deliberately wishes to include sectors which are not represented in the 100 at all or not by acceptable shares. This does happen in a lot of cases. If some 250 shares have to be included, the final portfolio should only ever contain a very small minority of them

[88V8]

I have:
CLIG City of London £100mio, yield 6.75%
CSN Chesnara £530mio, yield 5.6%
GLIF GLI Finance £23mio, yield nil, it seemed a good idea at the time.
IRV £18mio, it wasn't when I bought it!
NRR New River £600mio, yield 9.8%
PAY Paypoint £570mio, yield 5.4%

The yields are from LSE, not checked.

I don't actually have a bottom limit, but tend to buy the smaller cos in smaller amounts.

V8

[Arborbridge]

First of all, for the reasons Pink Dalek suggested, I would not take that poll as representative of HYPers generally and not even of HYPers here because those who bother to respond are a self-selected group, possibly some not even being HYPers at all.

As I've said from the earliest days, my view is that HYPs should stick to the FTSE100. That's always the starting point and ideally it should remain that way. But the world aint ideal.

The reason to search the FTSE250 is if the investor runs out of acceptable selections from the 100 or perhaps deliberately wishes to include sectors which are not represented in the 100 at all or not by acceptable shares. This does happen in a lot of cases. If some 250 shares have to be included, the final portfolio should only ever contain a very small minority of them

Thanks for responding, and as usual in a clear manner.

Arb.

[MDW1954]

The reason to search the FTSE250 is if the investor runs out of acceptable selections from the 100 or perhaps deliberately wishes to include sectors which are not represented in the 100 at all or not by acceptable shares. This does happen in a lot of cases. If some 250 shares have to be included, the final portfolio should only ever contain a very small minority of them

Arb,

For the avoidance of doubt, pyad's views here largely mirror my HYP in practice and design.

MDW1954

[tjh290633]

I recall that my first venture into the lower reaches was when ICI was taken over and the only share with a sensible yield in the Chemicals sector with a sensible yield was Yule Catto. In April 2008 at 153p it yielded over 6%. It paid two dividends then stopped, resuming at a lower level in 2010, when I sold out at a fair profit, at 240p. My IRR was about 29%.

There have been a few on the cusp of the FTSE100 since then, quite a few dropping out, and more notably Marstons, which fell out of the FTSE250/350 recently.

The casualties included Mapeley, Thus, which spun out of Scottish Power, and some of DSG International plc, Trinity Mirror plc, Premier Foods plc and Rentokil Initial plc. More recently Northern Foods and Cattles will have joined their ranks. I think all of those made their way into the FTSE250.

The market does change, some of the dropping out caused by other shares being promoted.

TJH

[Arborbridge]

I recall that my first venture into the lower reaches was when ICI was taken over and the only share with a sensible yield in the Chemicals sector with a sensible yield was Yule Catto. In April 2008 at 153p it yielded over 6%. It paid two dividends then stopped, resuming at a lower level in 2010, when I sold out at a fair profit, at 240p. My IRR was about 29%.

There have been a few on the cusp of the FTSE100 since then, quite a few dropping out, and more notably Marstons, which fell out of the FTSE250/350 recently.

The casualties included Mapeley, Thus, which spun out of Scottish Power, and some of DSG International plc, Trinity Mirror plc, Premier Foods plc and Rentokil Initial plc. More recently Northern Foods and Cattles will have joined their ranks. I think all of those made their way into the FTSE250.

The market does change, some of the dropping out caused by other shares being promoted.

TJH

Changes - yes, to be sure HYPs and companies evolve. But I'm sure the context intended here is about the size of company on purchase.