TJH Portfolio adjustment

[Newroad]

Hi Terry.

Whether it's right to buy, who knows (but in my methodology, and from what I understand of yours, we likely would).

Either way, the methodologies are working OK - either allowing a sell high buy low and/or by preventing a larger loss had the trim not been done.

On another note, KGF is also currently in pole position for my next top-up.

Regards, Newroad

[tjh290633]

Hi Terry.

Whether it's right to buy, who knows (but in my methodology, and from what I understand of yours, we likely would).

Either way, the methodologies are working OK - either allowing a sell high buy low and/or by preventing a larger loss had the trim not been done.

On another note, KGF is also currently in pole position for my next top-up.

Regards, Newroad

A lot can happen before I am ready for another top-up, not least the possibility of Admiral having to be trimmed. In that case I may be able to make 3 top-ups. That may bring PHP back into play.

TJH

[tjh290633]

Accumulated dividends have allowed me to top up Reckitt Benckiser (RKT) this morning by 20% at £57.10, during the tea interval in the Test. It was my lowest weighted share having been top-sliced in 2016 when its share price was £70.58. It was the highest eligible share in my top-up rankings, despite its yield of 3.27%. First bought in 2011 at £30.62, with a yield of 4.1%, it has given me an IRR of 9.33%.

My top-up table now looks like this:

Top-up          Income                     Cost                
Rank     EPIC   Rank     EPIC   % Income   Rank   Epic   % Cost
     1   VOD+        1   WDS       5.28%      1   LLOY    4.77%
     2   WDS*        2   TW.       5.15%      2   BLND    4.61%
     3   BT.A+       3   BATS      5.12%      3   BT.A    4.51%
     4   PHP+        4   LGEN      4.62%      4   VOD     4.36%
     5   BATS*       5   AV.       4.52%      5   IGG     4.30%
     6   LLOY+       6   IMB       4.40%      6   PHP     4.22%
     7   IMB*        7   VOD       4.15%      7   AV.     3.76%
     8   IGG+        8   BLND      3.83%      8   TW.     3.76%
     9   ULVR        9   BHP       3.79%      9   BATS    3.71%
    10   TATE       10   SMDS      3.77%     10   KGF     3.57%
    11   RKT        11   RIO       3.63%     11   LGEN    3.56%
    12   AV.*       12   IGG       3.38%     12   ADM     3.54%
    13   LGEN*      13   NG.       3.38%     13   WDS     3.35%
    14   S32        14   KGF       3.24%     14   GSK     3.19%
    15   SMDS       15   PHP       3.16%     15   IMB     3.15%
    16   KGF        16   ADM       3.15%     16   BP.     3.14%
    17   UU.        17   BP.       2.96%     17   TSCO    3.11%
    18   GSK        18   BT.A      2.93%     18   S32     2.95%
    19   BLND+      19   LLOY      2.92%     19   PSON    2.82%
    20   DGE        20   UU.       2.51%     20   SHEL    2.81%

As is my custom, I disqualify any share which, if topped up by 20%, would exceed 5% of either share of income(*) or share of portfolio cost(+). It follows therefore that currently the top eligible shares for topping up are ULVR, TATE and RKT, which all rank equally. VOD has been released from the share of income hurdle, but remains prohibited on grounds of cost. PHP is on the cusp of prohibition on cost grounds.

My portfolio now looks like this:

Value                           
Rank    EPIC   Weight   % Median
    1   TW.     4.05%     138.9%
    2   ADM     3.92%     134.5%
    3   IMI     3.56%     122.1%
    4   BHP     3.40%     116.8%
    5   BA.     3.34%     114.5%
    6   NG.     3.19%     109.6%
    7   BLND    3.18%     109.2%
    8   RIO     3.17%     108.7%
    9   BP.     3.17%     108.6%
   10   LGEN    3.13%     107.6%
   11   AV.     3.09%     106.1%
   12   AZN     3.07%     105.5%
   13   SHEL    3.07%     105.5%
   14   TSCO    3.01%     103.3%
   15   SMDS    2.97%     102.0%
   16   SSE     2.93%     100.4%
   17   UU.     2.92%     100.2%
   18   IMB     2.91%     100.0%
   19   KGF     2.90%      99.4%
   20   SGRO    2.88%      98.8%
   21   GSK     2.86%      98.1%
   22   PSON    2.86%      98.1%
   23   IGG     2.68%      91.8%
   24   BATS    2.67%      91.5%
   25   DGE     2.65%      90.9%
   26   HLN     2.59%      89.0%
   27   S32     2.58%      88.6%
   28   LLOY    2.52%      86.5%
   29   ULVR    2.46%      84.4%
   30   WDS     2.43%      83.3%
   31   PHP     2.25%      77.3%
   32   BT.A    2.13%      73.1%
   33   RKT     2.03%      69.7%
   34   TATE    1.86%      64.0%
   35   VOD     1.59%      54.4%
                                
        Mean    2.86%

Reckitt has moved up two places to 33rd. It will be some time in March when I next make any changes, unless something rises rapidly. My hopes for Admiral were dashed when it dropped suddenly.

TJH

[NickNick]

Terry,
Can you please clarify something on your top-up / top-slicing methodology. Are you focussed on book-cost, book-value or both?

For example, if you had 3 shares, AAA, BBB,CCC where 2 have risen in share price and hence book value is higher than book cost while1 has fallen. By some fluke all now have exactly the same good yield, cover etc making them all number 1 rank for topping up. What would your policy say about top slicing vs top-up vs disqualification?

[tjh290633]

Terry,
Can you please clarify something on your top-up / top-slicing methodology. Are you focussed on book-cost, book-value or both?

For example, if you had 3 shares, AAA, BBB,CCC where 2 have risen in share price and hence book value is higher than book cost while1 has fallen. By some fluke all now have exactly the same good yield, cover etc making them all number 1 rank for topping up. What would your policy say about top slicing vs top-up vs disqualification?

EPIC         PURCHASE COST         CURRENT VALUE           Question
              vs portfolio median     vs portfolio median     
AAA                 150                                  75                 Is this disqualified because the purchase COST is above median or do you ignore sunk cost?
BBB                  75                                  124                is this disqualified because a new purchase would take current VALUE above 125% of median?
CCC                  50                                 150                do you top slice this because the current VALUE is above 125% of median?

AAA is only disqualified if topping up by 20% takes it above 5% of portfolio cost. My median holding cost is about 3%.

BBB is not disqualified, but is unlikely to be high in the top-up rankings, because its value will count against it.

CCC I would be top-slicing, because the criterion is over 150% of median value.

My rankings take the sum of yield ranking and inverse value ranking, and then rank those. This table shows my current portfolio rankings:

Holding   Weight   Yld   W+Y   Rank
ADM           35    23    58     33
AV.           30     6    36     15
AZN           21    32    53     32
BA.           33    30    63     34
BATS          12     2    14      5
BHP           28    17    45     26
BLND          26    12    38     16
BP.           29    18    47     29
BT.A           4     7    11      3
DGE           11    29    40     18
GSK           22    26    48     30
HLN            9    33    42     20
IGG           13    11    24      7
IMB           10     3    13      4
IMI           32    35    67     35
KGF           24    15    39     17
LGEN          23     4    27      9
LLOY          15    13    28     10
NG.           27    16    43     23
PHP            5     5    10      2
PSON          19    31    50     31
RIO           18    10    28     11
RKT            1    24    25      8
S32            6    34    40     19
SGRO          16    28    44     25
SHEL          25    20    45     27
SMDS          31    14    45     28
SSE           17    25    42     21
TATE           2    27    29     13
TSCO          20    22    42     22
TW.           34     9    43     24
ULVR           8    21    29     12
UU.           14    19    33     14
VOD            3     1     4      1
WDS            7     8    15      6

Of my holdings the following are disqualified because of share of income:

EPIC   % Income
BATS      5.34%
TW.       5.26%
LGEN      5.05%
AV.       4.84%
IMB       4.49%
VOD       4.24%

These are disqualified because of share of cost:

Epic   % Cost
LLOY    4.77%
BLND    4.61%
BT.A    4.51%
VOD     4.36%
IGG     4.30%
PHP     4.22%

You will note that my 5% limit on share of cost or income means that any holding above 4.2% in those factors is disqualified.

Hope that explains the situation for you.

TJH

[tjh290633]

Having built up enough accumulated dividends, this morning I have added 20% to Woodside Energy Lyd (WDS), that being the highest ranking eligible share in my portfolio. Even though they cut their dividend to be paid on Thursday, the yield is still almost 7%, so Im have gone ahead. The deal was done at £15.80. No stamp duty on an Australian share.

As a result my top-up table now looks like this. As aleways I disqualify shares wheich, if topped up by 20%, would exceed 5% of dividend income (*) or of portfolio cost (+).

Top-up          Income                     Cost                
Rank     EPIC   Rank     EPIC   % Income   Rank   Epic   % Cost
     1   VOD+*       1   BATS      5.30%      1   LLOY    4.74%
     2   BT.A+       2   TW.       5.22%      2   BLND    4.58%
     3   PHP         3   LGEN      5.02%      3   BT.A    4.49%
     4   BATS*       4   AV.       4.81%      4   VOD     4.34%
     5   IMB*        5   IMB       4.46%      5   IGG     4.28%
     6   WDS         6   VOD       4.21%      6   PHP     4.19%
     7   RKT         7   RIO       3.89%      7   WDS     3.91%
     8   IGG+        8   BLND      3.88%      8   AV.     3.74%
     9   RIO         9   SMDS      3.82%      9   TW.     3.73%
    10   LGEN*      10   WDS       3.82%     10   BATS    3.69%
    11   ULVR       11   IGG       3.43%     11   KGF     3.55%
    12   TATE       12   NG.       3.42%     12   LGEN    3.54%
    13   UU.        13   BHP       3.34%     13   ADM     3.52%
    14   LLOY+      14   KGF       3.28%     14   GSK     3.17%
    15   DGE        15   LLOY      3.24%     15   IMB     3.14%
    16   TW.*       16   PHP       3.23%     16   BP.     3.12%
    17   BHP        17   ADM       3.19%     17   TSCO    3.09%
    18   SSE        18   BP.       3.02%     18   S32     2.93%
    19   S32        19   BT.A      2.97%     19   PSON    2.81%
    20   NG.        20   UU.       2.55%     20   SHEL    2.80%

This has now released PHP from the cost disqualification and that is now my top eligible share, followed by WDS and RKT.

My portfolio now looks like this:

Value                           
Rank    EPIC   Weight   % Median
    1   ADM     4.24%     144.6%
    2   SMDS    4.07%     138.7%
    3   BA.     3.67%     125.1%
    4   IMI     3.62%     123.4%
    5   TW.     3.61%     123.1%
    6   AV.     3.45%     117.7%
    7   BP.     3.21%     109.5%
    8   BLND    3.19%     108.8%
    9   KGF     3.19%     108.7%
   10   NG.     3.09%     105.3%
   11   SHEL    3.07%     104.6%
   12   BHP     3.05%     103.9%
   13   LGEN    3.03%     103.3%
   14   TSCO    3.01%     102.5%
   15   AZN     3.00%     102.3%
   16   GSK     2.95%     100.4%
   17   LLOY    2.94%     100.2%
   18   PSON    2.93%     100.0%
   19   SGRO    2.86%      97.5%
   20   RIO     2.76%      94.2%
   21   SSE     2.76%      94.0%
   22   UU.     2.69%      91.9%
   23   WDS     2.65%      90.5%
   24   IGG     2.65%      90.5%
   25   IMB     2.62%      89.2%
   26   BATS    2.61%      89.1%
   27   DGE     2.55%      86.8%
   28   HLN     2.53%      86.2%
   29   ULVR    2.42%      82.5%
   30   S32     2.24%      76.4%
   31   PHP     2.15%      73.3%
   32   BT.A    2.04%      69.6%
   33   VOD     1.86%      63.4%
   34   TATE    1.77%      60.4%
   35   RKT     1.53%      52.1%
                                
        Mean    2.86%

WDS has risen from 30th to 23rd as a result. Next activity after the Mayday bank holiday, unless Admiral puts a spurt on.

TJH

[csearle]

For similar reasons I topped up Vodafone this morning, which was atop my list. For the moment Rio Tinto takes its place at the front of the queue. C.

[kempiejon]

WDS doesn't pass my 5 years increasing dividend, but it's new the UK market. As noted this year's income is below last years too. I still have my spin off but it can sit there.
Similarly I have excluded VOD for the cut in 2018 and subsequent 5 years static dividend. Both high yield for sure but I want an increasing income too.

[tjh290633]

SMDS went past my weight limit of 1.5 times the median weight last night. Accordingly I trimmed it by 25% and added 20% to each of PHP, RKT and WDS, being the most eligible shares in my to-up table. My Top-up table now looks like this:

Top-up          Income                     Cost                
Rank     EPIC   Rank     EPIC   % Income   Rank   Epic   % Cost
     1   VOD+        1   BATS      5.25%      1   PHP     4.71%
     2   BATS*       2   TW.       5.17%      2   LLOY    4.68%
     3   BT.A+       3   LGEN      4.97%      3   WDS     4.56%
     4   IMB*        4   AV.       4.76%      4   BLND    4.52%
     5   PHP+        5   WDS       4.54%      5   BT.A    4.43%
     6   RKT         6   IMB       4.42%      6   VOD     4.28%
     7   IGG+        7   VOD       4.17%      7   IGG     4.23%
     8   LGEN*       8   RIO       3.85%      8   AV.     3.69%
     9   ULVR        9   BLND      3.84%      9   TW.     3.69%
    10   UU.        10   PHP       3.84%     10   BATS    3.64%
    11   TATE       11   IGG       3.39%     11   KGF     3.50%
    12   RIO        12   NG.       3.39%     12   LGEN    3.49%
    13   LLOY+      13   BHP       3.31%     13   ADM     3.47%
    14   AV.*       14   KGF       3.25%     14   GSK     3.13%
    15   BLND+      15   LLOY      3.21%     15   IMB     3.10%
    16   DGE        16   ADM       3.16%     16   BP.     3.08%
    17   WDS*       17   BP.       2.99%     17   TSCO    3.05%
    18   NG.        18   BT.A      2.94%     18   S32     2.89%
    19   TSCO       19   SMDS      2.84%     19   PSON    2.77%
    20   SSE        20   UU.       2.52%     20   SHEL    2.76%

As always, I disqualify any share which, if topped up by 20% would exceed 5% of either Share of income (*) or Portfolio Cost (+).

Consequently the most eligible shares are Reckitt (RKT) followed by Unilever and UU.

My portfolio now looks like this:

Value                           
Rank    EPIC   Weight   % Median
    1   ADM     4.02%     139.2%
    2   BA.     3.61%     125.0%
    3   TW.     3.56%     123.6%
    4   IMI     3.54%     122.7%
    5   BP.     3.51%     121.8%
    6   SHEL    3.45%     119.7%
    7   AV.     3.22%     111.6%
    8   BHP     3.21%     111.4%
    9   KGF     3.21%     111.2%
   10   WDS     3.20%     110.9%
   11   SMDS    3.19%     110.5%
   12   AZN     3.13%     108.4%
   13   BLND    3.08%     106.9%
   14   NG.     3.02%     104.8%
   15   RIO     2.98%     103.2%
   16   LGEN    2.96%     102.8%
   17   LLOY    2.91%     100.9%
   18   TSCO    2.88%     100.0%
   19   GSK     2.85%      98.8%
   20   PSON    2.85%      98.7%
   21   SSE     2.80%      97.1%
   22   SGRO    2.73%      94.7%
   23   IGG     2.70%      93.5%
   24   UU.     2.67%      92.6%
   25   PHP     2.57%      89.1%
   26   IMB     2.55%      88.3%
   27   BATS    2.52%      87.4%
   28   S32     2.52%      87.4%
   29   HLN     2.46%      85.5%
   30   DGE     2.43%      84.4%
   31   ULVR    2.32%      80.5%
   32   BT.A    2.01%      69.5%
   33   TATE    1.83%      63.5%
   34   VOD     1.78%      61.8%
   35   RKT     1.72%      59.6%
                                
        Mean    2.86%

SMDS has fallen to 11th position while PHP has risen from 31st to 25th, RKT remains stuck at 35th and WDS has risen from 223rd to 10th.

TJH

[kempiejon]

It's always interesting to see the TJH updates, we share many holdings. Of course SMDS could be adjusted when the Mondi / International paper wranglings conclude. Mondi yields about 4% so a fairly neutral impact to a HYPer for a combination of those 2. I hold both so a combination would skew my weightings at company level if not sector. We can see recent strengths in SMDS as an advantage for sellers. Probably not me.

[moorfield]

It's always interesting to see the TJH updates, we share many holdings. Of course SMDS could be adjusted when the Mondi / International paper wranglings conclude. Mondi yields about 4% so a fairly neutral impact to a HYPer for a combination of those 2. I hold both so a combination would skew my weightings at company level if not sector. We can see recent strengths in SMDS as an advantage for sellers. Probably not me.

What would be interesting and instructive to see I think would be the "delta" %age increase in TJH's (forecast) overall income each time such trimmings are done, in this case SMDS into PHP, RKT and WDS. Shouldn't be difficult compute to assuming same dividends as last year are paid next year, until announced otherwise. Not to mention the transaction costs incurred which (at AJ Bell rates) would be at least £40 - TJH does not normally discuss these. For the true HYPster that would be £0 or close to, of course! (I incurred 1.17% of income in custody, dealing and stamp last year, 23 buys 1 sell, which I feel is a more meaningful way to express these rather than as a %age of portfolio value.)

[tjh290633]

It's always interesting to see the TJH updates, we share many holdings. Of course SMDS could be adjusted when the Mondi / International paper wranglings conclude. Mondi yields about 4% so a fairly neutral impact to a HYPer for a combination of those 2. I hold both so a combination would skew my weightings at company level if not sector. We can see recent strengths in SMDS as an advantage for sellers. Probably not me.

What would be interesting and instructive to see I think would be the "delta" %age increase in TJH's (forecast) overall income each time such trimmings are done, in this case SMDS into PHP, RKT and WDS. Shouldn't be difficult compute to assuming same dividends as last year are paid next year, until announced otherwise. Not to mention the transaction costs incurred which (at AJ Bell rates) would be at least £40 - TJH does not normally discuss these. For the true HYPster that would be £0 or close to, of course! (I incurred 1.17% of income in custody, dealing and stamp last year, 23 buys 1 sell, which I feel is a more meaningful way to express these rather than as a %age of portfolio value.)

The increase in income is something which I look at but do not calculate. In this case the transaction costs were £44 plus stamp duty on the three purchases, about £35 from memory. Usually the replacement shares are yielding more than the one sold. I did have one such transaction where the replacement shares promptly cancelled or reduced it's dividend.

Reckitt is a bit of a punt. The class action in the USA may lead to problems. Who knows? Meanwhile with the depressed price the yield becomes more acceptable, as long as the dividend is maintained.

I will try to remember to comment on relative yields in future.

TJH

[tjh290633]

I've now had a chance to look at the relative yields, this being the current table ranked by yield:

Rank   EPIC     Yield 
   1   VOD      11.47%
   2   BATS     10.21%
   3   IMB       8.50%
   4   LGEN      8.21%
   5   PHP       7.33% *
   6   AV.       7.26%
   7   BT.A      7.19%
   8   TW.       7.12%
   9   WDS       6.95% *
  10   RIO       6.35%
  11   IGG       6.17%
  12   BLND      6.11%
  13   NG.       5.50%
  14   LLOY      5.41%
  15   BHP       5.05%
  16   KGF       4.97%
  17   UU.       4.63%
  18   RKT       4.58% *
  19   SMDS      4.37% -
  20   TSCO      4.28%
  21   BP.       4.17%
  22   ULVR      3.96%
  23   ADM       3.86%
  24   SSE       3.60%
  25   GSK       3.53%
  26   SHEL      3.48%
  27   SGRO      3.24%
  28   TATE      3.04%
  29   DGE       2.92%
  30   BA.       2.28%
  31   PSON      2.26%
  32   AZN       2.06%
  33   HLN       1.86%
  34   S32       1.66%
  35   IMI       1.60%
                      
       Median    4.58%
       Mean      5.00%

I have marked the four shares in question, and the three new shares have yields higher than that of SMDS (4.37%). Not by much in the case of RKT, but 3% more from PHP and about 2.5% in the case of WDS.

I will try to produce this information each time in future. I was wrong about the stamp duty, because I had forgotten that WDS does not attract it. It was about £25 in fact.

TJH

[csearle]

What would be interesting and instructive to see I think would be the "delta" %age increase in TJH's (forecast) overall income each time such trimmings are done...

On my spreadsheet I've a column, which shows, for each underweight holding, how much more income would be eked¹ out were the top holding to be sold down to 125% median and invested in it. It accounts of course for the loss of income from the notionally trimmed stock. I think it wouldn't be too difficult to express it as a percentage somehow. (It is just a nice-to-have; I don't really use it much. [Must have been a slow Sunday when I did it.])

Chris
¹ Looked odd to me but a quick DuckDuckGo suggested it is the way to spell it.

[ReformedCharacter]

On my spreadsheet I've a column, which shows, for each underweight holding, how much more income would be eked¹ out were the top holding to be sold down to 125% median and invested in it. It accounts of course for the loss of income from the notionally trimmed stock. I think it wouldn't be too difficult to express it as a percentage somehow. (It is just a nice-to-have; I don't really use it much. [Must have been a slow Sunday when I did it.])

Chris
¹ Looked odd to me but a quick DuckDuckGo suggested it is the way to spell it.

[Eke] One of my favourite words. When bees were kept in straw skeps and had drawn combs of honey to the bottom of the skep, an eke would be added below the base of the skep, just a cylindrical straw extension to give the bees more room to draw comb and store honey, hence the expression 'ekeing out'.

RC

[tjh290633]

What would be interesting and instructive to see I think would be the "delta" %age increase in TJH's (forecast) overall income each time such trimmings are done...

On my spreadsheet I've a column, which shows, for each underweight holding, how much more income would be eked¹ out were the top holding to be sold down to 125% median and invested in it. It accounts of course for the loss of income from the notionally trimmed stock. I think it wouldn't be too difficult to express it as a percentage somehow. (It is just a nice-to-have; I don't really use it much. [Must have been a slow Sunday when I did it.])

Chris
¹ Looked odd to me but a quick DuckDuckGo suggested it is the way to spell it.

What I have is a column in the yield rankings showing the average yield in successive rows. Hence if I sold all those below the median yield and reinvested in the others equally, what the yield would be. Also a list showing the effect of dropping the shares with the highest yield, as some might consider yields above, say, 9% or a lesser figure, unsafe.

Various ways of increasing income were it to be needed.

TJH

[csearle]

...

Thank you. To educate, amuse, and enrich. TLF continues where TMF left off. C.