Arbit, HYP and OEICs 2022 Q2

[Arborbridge]

Latest update on my "Three Streams" of income below. I've plotted the income for £100-worth of units in each fund at the beginning of the period. Each point is the sum of the previous 4 quarters so, in effect a year's income. The scale is in pounds sterling per unit.



As I think some of us expected, the IT income has drooped a little, whereas the HYP income has bounded back. I might have expected that of the OEIC income too, but it seems to have been more static. It could be that as I have fewer OEICs in the basket, the result is prone to some lumpiness - perhaps that income will catch up later.
The dark blue (HYP) line, which since COVID had been struggling, is now back above the pink (IT) line.

In terms of total income since the beginning for £100, OEICs come out on top and all of them have beaten RPI. However, there is a caveat: I haven't subtracted the annual management fees of my various brokers. This is because fees are a variable feast depending who one deals with, and may depend on how big the portfolio is. For this reason, I judge it better to leave fees out.

Arb.

[Arborbridge]

Just to clarify an exceptional which I have just noticed:
I have included the TATE special, which was has boosted the HYP result considerably. Without this, the final quarter point would have been at 6.56. Still above the IT and OIEC line, but not so obvious.

Arb.

[Itsallaguess]

Just to clarify an exceptional which I have just noticed:

I have included the TATE special, which was has boosted the HYP result considerably.

Without this, the final quarter point would have been at 6.56. Still above the IT and OIEC line, but not so obvious.

Thanks for the always-interesting chart update Arb.

On the point about specials, I tend not to count them as 'dividend income' if they're not as regularly paid out as dividends themselves, but in this charting exercise I don't think it will matter too much over the long term, and whilst it might slightly 'enhance' the current quarterly HYP aspect, in the long-run I expect it will wash out and just form part of the 'HYP-income volatility' that's been shown already on earlier sections of the chart.

Cheers,

Itsallaguess

[Arborbridge]

Just to clarify an exceptional which I have just noticed:

I have included the TATE special, which was has boosted the HYP result considerably.

Without this, the final quarter point would have been at 6.56. Still above the IT and OIEC line, but not so obvious.

Thanks for the always-interesting chart update Arb.

On the point about specials, I tend not to count them as 'dividend income' if they're not as regularly paid out as dividends themselves, but in this charting exercise I don't think it will matter too much over the long term, and whilst it might slightly 'enhance' the current quarterly HYP aspect, in the long-run I expect it will wash out and just form part of the 'HYP-income volatility' that's been shown already on earlier sections of the chart.

Cheers,

Itsallaguess

It's always a difficult one, but a special is income from the HYP just like any other and should be included - as it is somewhere within the income paid by ITs and OEICS. The fact they have different ways of doing things shouldn't confuse us on that point: to leave out specials would not reflect the true income paid by HYP.
Hopefully, as you say, it will even out. Each point does represent the total of the previous four quarters so this smears out such lumps to a good extent.

Arb.

[idpickering]

It's always a difficult one, but a special is income from the HYP just like any other and should be included - as it is somewhere within the income paid by ITs and OEICS. The fact they have different ways of doing things shouldn't confuse us on that point: to leave out specials would not reflect the true income paid by HYP.
Hopefully, as you say, it will even out. Each point does represent the total of the previous four quarters so this smears out such lumps to a good extent.

Arb.

I tend to agree with your stance on this Arb. The Special should be included. Either way, manage it however you see fit.

Ian.

[daveh]

It's always a difficult one, but a special is income from the HYP just like any other and should be included - as it is somewhere within the income paid by ITs and OEICS. The fact they have different ways of doing things shouldn't confuse us on that point: to leave out specials would not reflect the true income paid by HYP.
Hopefully, as you say, it will even out. Each point does represent the total of the previous four quarters so this smears out such lumps to a good extent.

Arb.

I tend to agree with your stance on this Arb. The Special should be included. Either way, manage it however you see fit.

Ian.

I disagree. I (now) treat specials that are accompanied by a share consolidation as a return of capital and not as a dividend. Large specials if treated as a dividend distort the annual dividend amount by too much. Think of what you would do if living off your dividends (I'm not yet, but might be soon), I wouldn't treat large one off specials as income I could spend, I would reinvest them back into the portfolio.

Last year the Pennon special (with consolidation) if counted as dividend income, would have been 21% of the total dividend (including the specials) and this year the Aviva and Natwest specials (with consolidation) would be 16% of the the total dividend declared so far this year.

[kempiejon]

It's always a difficult one, but a special is income from the HYP just like any other and should be included - as it is somewhere within the income paid by ITs and OEICS. The fact they have different ways of doing things shouldn't confuse us on that point: to leave out specials would not reflect the true income paid by HYP.
Hopefully, as you say, it will even out. Each point does represent the total of the previous four quarters so this smears out such lumps to a good extent.

Arb.

I currently take a view in my spreadsheet that specials are always income, with regular specials from Admiral Group it's obvious, don't some of the housebuilders call their schemes returns of capital? I also treat them as income. It is academic currently as I'm still building and reinvesting but when I'm drawing down from my pot I think a special that is accompanied by share consolidation like the recent Pennon activity or TATE might be better deployed back into more income producing investments rather than being spent as in those circumstances I see the capital being returned as part of the group's income producing ability has been reduced by selling part of the business. Perhaps then I'll change my mind about what is income.

[Itsallaguess]

I (now) treat specials that are accompanied by a share consolidation as a return of capital and not as a dividend. Large specials if treated as a dividend distort the annual dividend amount by too much.

Think of what you would do if living off your dividends (I'm not yet, but might be soon), I wouldn't treat large one off specials as income I could spend, I would reinvest them back into the portfolio.

I agree with all of that, and as I mentioned earlier, I think it's definitely worth looking more closely at the type of special dividend being delivered, and under what circumstances it's been 'generated', and splitting off more 'income like' regular specials away from less 'income like' capital events similar to the TATE share-consolidation return that Arb's mentioned in his earlier posts.

I don't think anyone here has yet disagreed with the view that 'some' specials might quite appropriately be classed as dividend income, but I think it's a step too far to give a blanket approach on that, where it's clear that some are more 'capital event' based returns of underlying capital...

Cheers,

Itsallaguess

[monabri]

I think the ArbHyp manager is massaging the numbers to keep his job ...



The inclusion of the TATE payment is an artificial distortion of ' real ' dividends IMHO. Why not just sell shares and declare them as a dividend?

It just looks wrong as well!

( I assume ArbHyp does not contain Aviva..?)

[daveh]

I (now) treat specials that are accompanied by a share consolidation as a return of capital and not as a dividend. Large specials if treated as a dividend distort the annual dividend amount by too much.

Think of what you would do if living off your dividends (I'm not yet, but might be soon), I wouldn't treat large one off specials as income I could spend, I would reinvest them back into the portfolio.

I agree with all of that, and as I mentioned earlier, I think it's definitely worth looking more closely at the type of special dividend being delivered, and under what circumstances it's been 'generated', and splitting off more 'income like' regular specials away from less 'income like' capital events similar to the TATE share-consolidation return that Arb's mentioned in his earlier posts.

I don't think anyone here has yet disagreed with the view that 'some' specials might quite appropriately be classed as dividend income, but I think it's a step too far to give a blanket approach on that, where it's clear that some are more 'capital event' based returns of underlying capital...

Cheers,

Itsallaguess

It can be a difficult decision with some company's shareholder returns whether to treat them as income or capital.

Eg:
PSN, they call their return a capital repayment, but it is paid regularly (even if only once a year some years) doesn't come with a share consolidation, and is taxed as a dividend. So I treat it as a dividend.

The Pennon special, it was called a dividend and (AFAIR as it is in an ISA) was taxed as a dividend, but was a partial return of the proceeds of the sale of a large part of the company and came with a share consolidation. I treated it as a capital return in my spreadsheet

The Aviva special was called a capital return, was taxed as a capital return via a B share scheme, and came with a share consolidation. I treated it as a capital return.

BHP's divestment of Woodside, was a sale of part of the company paid for with shares of the purchasing company which were transferred to BHP shareholders. It was called a dividend and taxed as a dividend - I treated it as a demerger/capital repayment. BHP's demerger of S32 was similar, called and taxed as a dividend as was Prudential's demerger of Jackson Financial.

I was deciding how to treat specials etc on an individual basis, but decided to set some rules so I hope I now treat these events with some consistency. Now if it is a payment of cash, but comes with a share consolidation I treat it as a capital return. If it is a demerger of a separate shareholding I also treat it as a capital event.

Now I've set rules there is bound to be an event that doesn't fit them and still requires a decision from me or an event that the rules say should be treated one way, but would be better treated in the opposite.

[monabri]

I think the ArbHyp manager is massaging the numbers to keep his job ...



The inclusion of the TATE payment is an artificial distortion of ' real ' dividends IMHO. Why not just sell shares and declare them as a dividend?

It just looks wrong as well!

( I assume ArbHyp does not contain Aviva..?)

I think it does.....

viewtopic.php?p=482347#p482347

[Arborbridge]

I think the ArbHyp manager is massaging the numbers to keep his job ...



The inclusion of the TATE payment is an artificial distortion of ' real ' dividends IMHO. Why not just sell shares and declare them as a dividend?

It just looks wrong as well!

( I assume ArbHyp does not contain Aviva..?)

I think it does.....

viewtopic.php?p=482347#p482347

Yes, it does. I agree about different types of specials, so I'll think on this and see whether what I've done needs some correction. Fortunately, until recently, there hasn't been much of an issue with specials.
The Manager thanks the non-execs on the ARBIT board of directors for their input.

[Arborbridge]

I (now) treat specials that are accompanied by a share consolidation as a return of capital and not as a dividend. Large specials if treated as a dividend distort the annual dividend amount by too much.

Think of what you would do if living off your dividends (I'm not yet, but might be soon), I wouldn't treat large one off specials as income I could spend, I would reinvest them back into the portfolio.

I agree with all of that, and as I mentioned earlier, I think it's definitely worth looking more closely at the type of special dividend being delivered, and under what circumstances it's been 'generated', and splitting off more 'income like' regular specials away from less 'income like' capital events similar to the TATE share-consolidation return that Arb's mentioned in his earlier posts.

I don't think anyone here has yet disagreed with the view that 'some' specials might quite appropriately be classed as dividend income, but I think it's a step too far to give a blanket approach on that, where it's clear that some are more 'capital event' based returns of underlying capital...

Cheers,

Itsallaguess

It can be a difficult decision with some company's shareholder returns whether to treat them as income or capital.

Eg:
PSN, they call their return a capital repayment, but it is paid regularly (even if only once a year some years) doesn't come with a share consolidation, and is taxed as a dividend. So I treat it as a dividend.

The Pennon special, it was called a dividend and (AFAIR as it is in an ISA) was taxed as a dividend, but was a partial return of the proceeds of the sale of a large part of the company and came with a share consolidation. I treated it as a capital return in my spreadsheet

The Aviva special was called a capital return, was taxed as a capital return via a B share scheme, and came with a share consolidation. I treated it as a capital return.

BHP's divestment of Woodside, was a sale of part of the company paid for with shares of the purchasing company which were transferred to BHP shareholders. It was called a dividend and taxed as a dividend - I treated it as a demerger/capital repayment. BHP's demerger of S32 was similar, called and taxed as a dividend as was Prudential's demerger of Jackson Financial.

I was deciding how to treat specials etc on an individual basis, but decided to set some rules so I hope I now treat these events with some consistency. Now if it is a payment of cash, but comes with a share consolidation I treat it as a capital return. If it is a demerger of a separate shareholding I also treat it as a capital event.

Now I've set rules there is bound to be an event that doesn't fit them and still requires a decision from me or an event that the rules say should be treated one way, but would be better treated in the opposite.

Thnks: a neat reminder of some the ones I need to check into! Especially as two of those happened when I was on holiday.

[Itsallaguess]

I was deciding how to treat specials etc on an individual basis, but decided to set some rules so I hope I now treat these events with some consistency.

Now if it is a payment of cash, but comes with a share consolidation I treat it as a capital return. If it is a demerger of a separate shareholding I also treat it as a capital event.

Now I've set rules there is bound to be an event that doesn't fit them and still requires a decision from me or an event that the rules say should be treated one way, but would be better treated in the opposite.

I think that's the right way to go about this - try to properly differentiate between regular 'dividend-income' and irregular 'capital-returns', with a consistent set of personal guidelines, and modify those guidelines accordingly as different flavours of specials land over time. I suspect such guidelines would settle down quite quickly across a particular income-portfolio, with little ongoing maintenance being needed after too long...

As someone who plans to live off their regular dividend income at some point in the future, and who likes to have reliable income-portfolio 'regular dividend' data as part of those ongoing plans, it's important to me that irregular one-off returns aren't considered to be part of those 'regular dividend' plans, as they are unlikely to be at all helpful to me in that specific regard to helping to plan my future use of them.

I'm glad to see that Arb is looking to perhaps reconsider this particular capital-return from TATE...

Cheers,

Itsallaguess

[Arborbridge]

I'm glad to see that Arb is looking to perhaps reconsider this particular capital-return from TATE...

Cheers,

Itsallaguess

The important thing with regard to this plotting of the "three streams" is to do whatever is necessary for a valid comparison. I'm not completely sure how to that beyond my vanilla approach used up until now. ITs pay from reserves and can pay from flogging assets - that makes comparison harder. Previously, I've just taken a dividend to be a dividend and logged it as such - even when it's a special. But now, I'll need to think about the special specials!

Arb.

[MDW1954]

The important thing with regard to this plotting of the "three streams" is to do whatever is necessary for a valid comparison. I'm not completely sure how to that beyond my vanilla approach used up until now. ITs pay from reserves and can pay from flogging assets - that makes comparison harder. Previously, I've just taken a dividend to be a dividend and logged it as such - even when it's a special. But now, I'll need to think about the special specials!

Arb.

I think you're right, Arb. Daveh's post above pretty much nailed it.

MDW1954

[BullDog]

I'm glad to see that Arb is looking to perhaps reconsider this particular capital-return from TATE...

Cheers,

Itsallaguess

The important thing with regard to this plotting of the "three streams" is to do whatever is necessary for a valid comparison. I'm not completely sure how to that beyond my vanilla approach used up until now. ITs pay from reserves and can pay from flogging assets - that makes comparison harder. Previously, I've just taken a dividend to be a dividend and logged it as such - even when it's a special. But now, I'll need to think about the special specials!

Arb.

Your approach is absolutely fine. It's all just money at the end of the day. Some people seem to want you to hang arbitrary labels on things but it's still just money at the end of the day. Please keep doing what you're doing, it's extremely valuable real life information. Don't change a thing. Thank you for taking the time to do this.

BD.

[Itsallaguess]

Some people seem to want you to hang arbitrary labels on things but it's still just money at the end of the day.

Just as a minor point of order - the first person to 'hang arbitrary labels on things' in this particular thread was actually Arb himself in his second clarifying post, when he himself initially used the words 'exceptional' and 'special' in relation to the TATE influence on this set of Q2 figures, so I think it's fair that a topical side-discussion might then ensue over that particular area, whilst at the same time still enabling all interested parties here to continue being grateful for the work Arb puts into this ongoing exercise...

Cheers,

Itsallaguess

[Arborbridge]

Some people seem to want you to hang arbitrary labels on things but it's still just money at the end of the day.

Just as a minor point of order - the first person to 'hang arbitrary labels on things' in this particular thread was actually Arb himself in his second clarifying post, when he himself initially used the words 'exceptional' and 'special' in relation to the TATE influence on this set of Q2 figures, so I think it's fair that a topical side-discussion might then ensue over that particular area, whilst at the same time still enabling all interested parties here to continue being grateful for the work Arb puts into this ongoing exercise...

Cheers,

Itsallaguess

Having looked at my sequence of events, I see that the Tate 'business' was put through as a dividend - because it was labelled as a dividend. At the time I noted the change in the number of shares, but didn't clock what I should do about it as we were then on the point of turning our minds to the cruising holiday.
OK, so , the dog ate my homework, let's be honest.

Fortunately, I did save all the necessary prices at the appropriate date and because we went away, there was only one purchase made after that date. In short, my spreadsheet record is easy to correct.

TATE "dividend" will be treated as though I have sold a given number of shares, which will affect my number of units as well as the dividend chart. This what I did in previous similar cases (e.g. Aviva).
The "dividend" will be backed out of the three streams chart, and I will re-publish it in due course.

I hope this will satisfy the none-execs.

Arb.

[Itsallaguess]

TATE "dividend" will be treated as though I have sold a given number of shares, which will affect my number of units as well as the dividend chart.

This what I did in previous similar cases (e.g. Aviva).

The "dividend" will be backed out of the three streams chart, and I will re-publish it in due course.

A fair and consistent approach Arb, given earlier similar circumstances.

Cheers,

Itsallaguess