The Lemon Fool

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The CTY benchmark topic has been split off from this thread, which is about rhinestone's HYP. CTY topic is here. Thanks - Chris

I have been gradually building an HYP since 2003 inspired by the early PYAD articles.

I have only tinkered with this a few times to rebalance - I'm talking about about a handful of transactions - so it is very much buy and hold. Most of the transactions to build this stopped 3-4 years back and I have explored ITs and passive income ETFs as complementary options and also sought greater geographical diversification.

I am posting for interest and any thoughts / comments others may have.

The income has taken a hit this year but I have memories of 2008 and expect it to recover.

Pulled together using the rather marvellous HYPTUSS tool.

Thanks

rhinestone wrote:I have been gradually building an HYP since 2003 inspired by the early PYAD articles.

I have only tinkered with this a few times to rebalance - I'm talking about about a handful of transactions - so it is very much buy and hold. Most of the transactions to build this stopped 3-4 years back and I have explored ITs and passive income ETFs as complementary options and also sought greater geographical diversification.

I am posting for interest and any thoughts / comments others may have.

The income has taken a hit this year but I have memories of 2008 and expect it to recover.

Pulled together using the rather marvellous HYPTUSS tool.

Thanks

That's 50 holdings you have from the FTSE-100. My personal observation is that ~30-35 holdings is the minimum required to get sufficient diversification in a HYP-P. I wonder whether you thought you'd reach with 50 when you started out. I wonder what the tracking error is between your current portfolio and a FTSE-100 index tracker.

regards, dspp

After building the HYP for a while and seeing how large the fluctuations could get went I decided early on that I felt more comfortable with more holdings than the basic 15. I have tried to maintain and add sector diversification as it grew. Two casualties along the way - Cattles and Carillion - and I am not minded to buy in the Services Sector in future.

Going forward if I see an opportunity to buy into what looks like a good company at a decent yield I sometimes take it - and whether it is adding to an existing holding or adding a new holding sector I am happy to take it as long as I don't get too overweight in a particular company / sector.

I don't know if I have sufficient records to compare against the FTSE over time - holdings were added most years from 2003 through to around 2015-16 and a few in the last couple of years. I guess the differences are that the HYP investment is on more of an equal weighted basis as opposed to capitalisation weighted in the FTSE. I paid closer attention to this in the earlier days but feel for now the results it is producing are good enough - I use this as top up income - with basic income needs coming from pensions. I'm fairly relaxed about the whole approach these days but keenly tracked it early on.

My foray into HYP and self directed investment generally was kicked off in my mid-40s when I lost my job and was quite shocked at the lack of savings / pension provision I had. Since 2003 I patiently built an HYP, took charge of my pensions savings and got to the point where I could afford to retire a year or so ago. HYP is part of my approach these days whereas in the early days it was a much larger part of the strategy. 2008-9 made me question that over dependence and I have looked for more diversification of approach since then - across my investments it's a mix of geographically diversified ETFs, ITs and individual shares - but that's a discussion for another board.

Several of the yields look incorrect to me - BP, RDSB, SLA, HSBA - and you have some deadwood beyond redemption - CNA, TUI (which I picked because I hold too).

A simple test here would be to compute overall portfolio yield and compare it to a collective IT, such as CTY (City of London) which also holds most of those. Using your yield numbers I make that 4.0%, compared to CTY's 5.3%. So your hard-earned and -saved is delivering a poor income, and 47 holdings (if I've counted correctly) is too many.

Time for a reboot perhaps. You could start by selling and recycling from low to high yield topping those up to one fifteenth of portfolio value at the time. Try it as a paper exercise first to see what income you could have won, to coin a Bullseye catchphrase. I'll wager you'll increase your overall income by a third next year, and that' before more dividend increases begin to flow.

rhinestone wrote:
I am posting for interest and any thoughts / comments others may have.

I've just re-ordered your first table in descending order of expected-percentage of dividends, and found that you've got nearly 10% of current HYP capital delivering just 1.1% of your expected HYP income -



It would be too simplistic on just that analysis to declare any precise actions to carry out, but on the face of it, and given the very large number of holdings you've amassed over the years, there's a good chance at least a fair chunk of your currently-languishing HYP capital could be working a little harder for you, with a potential secondary benefit of a good spring clean at the same time...

It's sometimes difficult to manage-out large numbers of holdings once things get a bit of momentum going, and I've had problems myself gearing up into action over the years, but what I found really helped me with this type of 'HYP-crumb' management was to concentrate on defining a sensible forecast income before any pruning takes place, and then looking at the end-result-benefit to that income with a bit of scenario-planning and optioneering, and over the years keeping that type of income-based focus has definitely helped me prune these types of low-deliverers much more easily when the time comes...

Cheers,

Itsallaguess

dspp wrote:That's 50 holdings you have from the FTSE-100. My personal observation is that ~30-35 holdings is the minimum required to get sufficient diversification in a HYP-P. I wonder whether you thought you'd reach with 50 when you started out. I wonder what the tracking error is between your current portfolio and a FTSE-100 index tracker.

His holdings are not all FTSE-100 companies.

Indivior and PZ Cussons are in the FTSE-250. Mitie is in the small cap index these days. South32 has an Australian listing. There may be others that I missed.

That said, I agree 50 holdings is too many and I also might be tempted to go for a FTSE-100 tracker in that case. Then again if he enjoys managing it all then fair play.

50 companies from the FTSE 350? That doesn't sound too many to me, and nor would I buy a FTSE 100 tracker instead.

MDW1954

Itsallaguess wrote:I've just re-ordered your first table in descending order of expected-percentage of dividends, and found that you've got nearly 10% of current HYP capital delivering just 1.1% of your expected HYP income -

Rhinestone's portfolio is not unusual in this respect. Those of us around in 2008-10 will remember well the carnage among some of the less reliable dividend payers. Some of them took an inordinate length of time to return to the ranks of dividend payers.

At that time I started out on a major rebuilding exercise. An early casualty was HBoS, sold before it got swallowed by Lloyds. Mapeley was dumped before it delisted. Then DSGI (now Dixons Carphone) went, replaced by Diageo; Trinity Mirror, replaced by Pearson; Anglo American, Rentokil and Premier Foods departed, replaced by BHP Billiton, BATS and Unilever; Prudential proposed a massive rights issue and were sold in favour of Brit Insurance, itself to be taken over a few months later and replaced by Aviva; Yule Catto and ITV went, replaced by Glaxo and the now SSE; Tomkins was taken over, to be replaced by British Land; Northern Foods went, replaced by Marstons; Reckitt Benckiser was added.

Looking at your list of non-payers, Dixons Carphone appears. There are some anomalies in that you attribute yields to some currently non-payers, like LLoyds, for example. My list of non-payers is:

Rank   EPIC   Yield
    
  28   S32    1.71%
  29   WMH    0.00%
  30   MKS    0.00%
  31   MARS   0.00%
  32   TW.    0.00%
  33   BT.A   0.00%
  34   CPG    0.00%
  35   KGF    0.00%
  36   LLOY   0.00%

Of those, William Hill is soon to depart. Most of the others will resume dividends as Covid subsides, but I may dump any laggards. I think that he ought to be prepared to cut out some of the deadwood. Indivior, and Centrica are two that I would give the heave-ho, possibly NatWest as well. It's that old problem of "Forecast dividends" again. I just do not trust them. A lot of the "yields" are fiction. I fear that the data source cannot be relied on. Better to go back to first principles and only count what the company itself is saying.

TJH

Lootman wrote:

dspp wrote:That's 50 holdings you have from the FTSE-100. My personal observation is that ~30-35 holdings is the minimum required to get sufficient diversification in a HYP-P. I wonder whether you thought you'd reach with 50 when you started out. I wonder what the tracking error is between your current portfolio and a FTSE-100 index tracker.

His holdings are not all FTSE-100 companies.

Indivior and PZ Cussons are in the FTSE-250. Mitie is in the small cap index these days. South32 has an Australian listing. There may be others that I missed.

That said, I agree 50 holdings is too many and I also might be tempted to go for a FTSE-100 tracker in that case. Then again if he enjoys managing it all then fair play.

Yes, I scanned them and wondered if they were once a FTSE 100. No matter, the vast bulk are FTSE 100. regards, dspp

As much as I commend the OP's commitment to LTBH, I personally think 50 holdings is to many. In effect, the HYP is almost an index fund. Furthermore, with HYP being an income strategy, I don't get why both non payers, and those with a very low yield are retained in this HYP? Each to their own though of course. I currently have 25 holdings in my HYP, and tbh, I'm seriously thinking of bringing Moneysupermarket.com (MONY) on board my HYP.

Ian.

idpickering wrote:As much as I commend the OP's commitment to LTBH, I personally think 50 holdings is to many. In effect, the HYP is almost an index fund. Furthermore, with HYP being an income strategy, I don't get why both non payers, and those with a very low yield are retained in this HYP? Each to their own though of course. I currently have 25 holdings in my HYP, and tbh, I'm seriously thinking of bringing Moneysupermarket.com (MONY) on board my HYP.

Ian.

Furthermore, with HYP being an income strategy, I don't get why both non payers, and those with a very low yield are retained in this HYP?

If I may just comment on that.. I believe he started off running a classic pyadic HYP, in which interventions are very minimal. He's to be praised in trying that experiment, thought without a proper benchmark comparison, it's difficult to know how well it has performed.
If I'm correct, then the question up to now "how can improve my income" has never arisen.

The original HYP (as if we need reminding!) was to buy a group a shares and just let the market do the trading, and not constantly worry about how we could improve it - for that way lies frying pan to fire decisions.

I believe that answers your question why. Whether it was the right decision, isn't clear.

My personal feeling is that maybe a series of mid course adjustments should be made now without being to revolutionary about the speed or number of alterations. I'm more for gradual evolution rather than revolution. In my view, 50 holdings is too many if one is doing any record keeping. I used to have 42 at the peak, and I've gradually reversed the growth in numbers and I can't say I am sorry!

Arb.

I've just re-ordered your first table in descending order of expected-percentage of dividends, and found that you've got nearly 10% of current HYP capital delivering just 1.1% of your expected HYP income

Thanks for this observation - there is some cleaning up that could be done here - some of the capital could be better deployed and it's removes some admin.

I think that he ought to be prepared to cut out some of the deadwood. Indivior, and Centrica are two that I would give the heave-ho, possibly NatWest as well. It's that old problem of "Forecast dividends" again. I just do not trust them. A lot of the "yields" are fiction. I fear that the data source cannot be relied on. Better to go back to first principles and only count what the company itself is saying.

The dividends came from the HYPTUSS tool - I do have records of payments and will perhaps rework this list from my own historic records and republish the data.

In effect, the HYP is almost an index fund. Furthermore, with HYP being an income strategy, I don't get why both non payers, and those with a very low yield are retained in this HYP? Each to their own though of course. I currently have 25 holdings in my HYP, and tbh, I'm seriously thinking of bringing Moneysupermarket.com (MONY) on board my HYP.

I don't think it is like an index fund - allocations were added based on median value weight - so it is not capitalisation based like an index fund and there is next to no rotation of stocks. I can see there is a case for some tidying up to improve yield and reduce administration but I am not really bothered by how many holdings there are as so long as there is reasonable diversification across companies / sectors and a decent yield.

I think I will slowly make some minor tweaks and adjustments during the next year to clean this up a bit.

Thanks for the feedback.

rhinestone wrote:I think I will slowly make some minor tweaks and adjustments during the next year to clean this up a bit.

Thanks for the feedback.

I'd go with this Rhinestone. Clean up a little, edge the income up as time goes by: you have a good collection but you will find ways of evolving it as you go along. If you keep records of dividends coming in like I do, I tended to prune out some investments which were giving me so little that it was hardly worth the effort of entering up the records!

Arb.

Just suppose you are in the “drawdown” phase of your HYP, and it’s like rhinestone’s here. If the overall yield isn’t presently sufficient, it makes sense to release some capital from the non-yielders. Running it sort of like an IT.

GrahamPlatt wrote:Just suppose you are in the “drawdown” phase of your HYP, and it’s like rhinestone’s here. If the overall yield isn’t presently sufficient, it makes sense to release some capital from the non-yielders. Running it sort of like an IT.

Yes but probably better to cut out the non yielders and add to some of the more attractive shares (attractive in terms of income that is) and so boost the income and simplify the admin.

Dod

dspp wrote:

rhinestone wrote:I have been gradually building an HYP since 2003 inspired by the early PYAD articles.

I have only tinkered with this a few times to rebalance - I'm talking about about a handful of transactions - so it is very much buy and hold. Most of the transactions to build this stopped 3-4 years back and I have explored ITs and passive income ETFs as complementary options and also sought greater geographical diversification.

I am posting for interest and any thoughts / comments others may have.

The income has taken a hit this year but I have memories of 2008 and expect it to recover.

Pulled together using the rather marvellous HYPTUSS tool.

Thanks

That's 50 holdings you have from the FTSE-100. My personal observation is that ~30-35 holdings is the minimum required to get sufficient diversification in a HYP-P. I wonder whether you thought you'd reach with 50 when you started out. I wonder what the tracking error is between your current portfolio and a FTSE-100 index tracker.

regards, dspp

It will surely be quite a lot due to his/her's portfolio presumably not following market cap weightings.

What attracted me to HYP initially was the LTBH aspects together with strategic ignorance as PYAD put it. At the start I was pretty much a complete novice with shares (apart from some I had from the NWB employee share scheme ... that's another story). So the idea of building up a diversified portfolio of UK shares to provide income appealed - especially as at that point my experience of shares through NWB had been of continuous growth of the share price...

2008-9 and the ensuing years taught some pretty harsh lessons but I kept investing in HYP and didn't stop - my nerve was tested on several occasions but the focus on income always appealed as something to fall back on.

Compared to index funds with HYP there was just a one off cost of purchase and that was it if you follow LTBH - no additional yearly fees.

There were always very distinct two schools of thought on HYP on the original Fool boards - the original PYAD LTBH approach and the periodic pruning as exemplified by TJH.

Early on I was very wary of selling, but I could see that TJH set out clear rules on how he does it and how to keep decisions rational - as there is always a risk that emotions take over in the buying and selling process.

From the useful feedback on this forum I can see there is some housekeeping I can do to both improve yield and reduce record-keeping admin on some of the minnows - however my inclination remains to make a few very minor changes and sit with this for the most part and any changes I do make will keep TJHs rules to the forefront.

Over 17 years I can see the approach is 'good enough' for me to deliver a supplementary income stream with minimal effort on my part. Staying away from too many buying and selling decisions is part of the attraction.

rhinestone wrote:After building the HYP for a while and seeing how large the fluctuations could get went I decided early on that I felt more comfortable with more holdings than the basic 15. I have tried to maintain and add sector diversification as it grew.

Well, you sure have maintained even grown that diversification!

When you were selecting top-ups for the portfolio, what limit if any did you place upon the value and/or income concentration? Or did you always try to diversify into another holding or Sector, irrespective of whether a higher yield was available? If the latter, this surely goes someway to explain the low yield achieved and it is hardly HYP

If your solution now is to sell some holdings and re-build with a smaller selection, the question has to be asked as to why so much diversification in the first place?


Ian

IanTHughes wrote:

rhinestone wrote:After building the HYP for a while and seeing how large the fluctuations could get went I decided early on that I felt more comfortable with more holdings than the basic 15. I have tried to maintain and add sector diversification as it grew.

Well, you sure have maintained even grown that diversification!

When you were selecting top-ups for the portfolio, what limit if any did you place upon the value and/or income concentration? Or did you always try to diversify into another holding or Sector, irrespective of whether a higher yield was available? If the latter, this surely goes someway to explain the low yield achieved and it is hardly HYP

If your solution now is to sell some holdings and re-build with a smaller selection, the question has to be asked as to why so much diversification in the first place?


Ian

I commend rhinestone for doing his HYP his way. Building it up over time, I think he's done well. None of us can tell the future, and he did what he thought was best for him at the time of each share purchase. He's put his HYP up here for all to see,[deletion] thereby allowing us to comment on his HYP. Should he choose to take notice of our comments, and carry out any actions (or not), that's up to him.

Ian.