Portfolio Advice please

[robbelg]

This is my mothers portfolio that I have put together over the past 2 years.
The objective is to pay her care home fees so long term growth is not an issue.

I'm about to add a chunk of new money approx 15% of total so I'm looking for about 5 new shares or 10 top ups.

In a month or so there will be another cash injection of about the same size.

( yes I know CUKX is cumulative not income, it was intended as a holding position while I thought about what to buy )

I'm not worried about dividend timing we've got enough of a cash buffer for lumpy income.

All suggestions and comments welcome

[monabri]

I think reliability of income must be a consideration. As both NG and UU are off the boil at the moment I would suggest a top up in these along with LGEN. All 3 are at the lower end of the "% value of total" - so that would start to balance the portfolio.


I would consider the additions of

- BP as a new share even though you have RDSB.
- Greene King for divi and div cover. - New sector and GNK is trading on a down at the moment.
- a Housebuilder - perhaps Taylor Wimpey (yield) or Crest Nicholson or Barrat Dev but not Berkely (see the recent postings on the HYP board).
also a new sector.
- addition of Imperial Brands (cigs) - even though you have BATS.
- addition of LLoyds (yield)

Have a gander at some of the postings on the shares mentioned above.

And - my own opinion - avoid anything that is "Oil Equipment Support" (or words similar) - sooner or later they may be "Petrofacced" (have a possible association with Unaoil and become the subject of an SFO investigation).


I would avoid adding/topping up any share that is "support services" (Carillion/Interserve).

Finally, download a copy of HYPTUSS (HYP top up spreadsheet) so you can add the shares and view the overall balance of purchases (with the i-shares held out of the spreadsheet - not forgotten but just not included!).

http://lemonfoolfinancialsoftware.weebl ... op-up.html

[moorfield]

robbelg

I would look to consolidate the portfolio to 20 holdings at most, rather than expand it further.

You are duplicating several holdings with MIDD, CUKX, IUKD and probably indirectly paying a management fee for the privilege, I would remove those and redeploy.

Don't get too seduced by the very high yields (unless looking at preference shares) with an important objective such as care home fees.

Good luck.

M

[Gengulphus]

This is my mothers portfolio that I have put together over the past 2 years.
The objective is to pay her care home fees so long term growth is not an issue.

I think I've got to ask: why are you using a HYP for that objective?

Expected (though not guaranteed!) long-term income growth is one of a HYP's main 'selling points' - so in situations where it is not wanted, the suitability of a HYP has got to be questioned, because there are definitely investment strategies that have more shorter-term certainty. In particular, an 'immediate needs' annuity will often guarantee to supply the required income for as long as the person is in care and leave capital that can be invested free from the need to provide the care home fees - so can provide income for 'extras' (if wanted) and a contingency reserve of capital while alive, plus reasonably-certain-to-still-be-there capital after death.

Please note that I'm only questioning the decision to use a HYP, not saying it's definitely wrong. I can see circumstances in which it's a sensible decision, notably if there's enough capital for there to be little danger of the income proving inadequate. (But in those circumstances, I feel one might as well invest with long-term income growth in mind - i.e. just like any other HYP...)

Gengulphus

[OLTB]

This is my mothers portfolio that I have put together over the past 2 years.
The objective is to pay her care home fees so long term growth is not an issue.

I think I've got to ask: why are you using a HYP for that objective?

Expected (though not guaranteed!) long-term income growth is one of a HYP's main 'selling points' - so in situations where it is not wanted, the suitability of a HYP has got to be questioned,
Gengulphus

A different interpretation.

I read the above comment that long term (capital)* growth is not an issue, rather than long term (income)* growth not being an issue. As care fees tend to increase at a rate very much higher than inflation each year, I would think that a HYP approach is a sensible consideration amongst others (such as the Immediate Care Annuity - a very different approach and one which can mean substantial capital commitments, but, as Gengulphus points out, certainty in terms of a set income generation).

*my bolds

Cheers, OLTB.

[robbelg]

A different interpretation.

I read the above comment that long term (capital)* growth is not an issue, rather than long term (income)* growth not being an issue. As care fees tend to increase at a rate very much higher than inflation each year, I would think that a HYP approach is a sensible consideration amongst others (such as the Immediate Care Annuity - a very different approach and one which can mean substantial capital commitments, but, as Gengulphus points out, certainty in terms of a set income generation).

*my bolds

Cheers, OLTB.

That is indeed what I meant

I went the HYP type route largely because that is how my own money is invested, so I felt I knew what I was doing. I never considered an annuity, she's 92 so running out of money is not a danger.

I have to admit having an eye to my inheritance but that is very much a minor consideration.

Rob

[bjmarren]

Hi Rob,

I'm also currently looking to top up my new HYP portfolio of 12 shares to bring it up to the recommended minimum 15 shares. I see that your forecast yield for Rio is 6.6% which is also what I got from the HYPTUSS spreadsheet, whereas the current yield given by Dividenddata.co.uk is showing only 4.05% at yesterday's closing price. I appreciate that "current" and "forecast" can be different but that's a big difference. Given it's one of your current holdings, I was wondering where you got the forecast yield from.

Brendan

[Itsallaguess]

I'm also currently looking to top up my new HYP portfolio of 12 shares to bring it up to the recommended minimum 15 shares.

I see that your forecast yield for Rio is 6.6% which is also what I got from the HYPTUSS spreadsheet, whereas the current yield given by Dividenddata.co.uk is showing only 4.05% at yesterday's closing price.

I appreciate that "current" and "forecast" can be different but that's a big difference. Given it's one of your current holdings, I was wondering where you got the forecast yield from.

I suspect there may be some element of 'special dividend' in those higher RIO dividend forecasts. I seem to remember reading a couple of articles about this earlier in the year, but you're probably better verifying this yourself if you can.

Looking at the two separate RIO forecasts on the Digital Look website (http://tinyurl.com/mgfl8so) we can see the following -

Year Ending   Revenue (£m)  Pre-tax (£m)   EPS       P/E    PEG      EPS Grth.   Div         Yield
2017-12-31    30,917.33     9,224.59       355.06p   8.1    0.1      59%         199.01p     6.5%
2018-12-31    28,501.90     6,995.29 	   268.84p   11.7  -0.5     -24%         162.70p     5.3%

That drop back to a 5.3% forecast yield at end-2018 looks to suggest that this might be the case.

I'd tend to err on the side of caution in these scenarios, and treat any forecast special as a one-off, especially for something as lumpy as RIO, and would only use the 'background yield' as a figure for potential-purchase decisions, so somewhere around the 4% to 4.5% mark as a rough guide from this years figures.

Cheers,

Itsallaguess

[robbelg]

Everything in that table is from HYPTUSS, forecasts and prices updated this morning

[bjmarren]

Hi itsallaguess,

Many thanks for your reply and the link.

I'm definitely inclined to err on the side of caution here, given that I'm still in my initial building stage. In addition to Rio, I've also been looking at:

William Hill ( diversification, yield, PE and dividend cover),
Pennon (diversification as I already hold SSE, progressive dividend policy, but highish PE and low dividend cover)
ITV (diversification as I don't have a media company, Yield, including specials, dividend history and dividend cover).

Rio is a FTSE 100 company as is ITV, whereas Pennon and William Hill are FTSE 250.

My other holdings are:

HSBC
Vodafone
Legal & General
Capita
Shell B
SSE
Greene King
British Land
Royal Mail
Persimmon
SSE
Glaxo

Apologies for not formatting it in columns with weighting, yield etc but I'm still learning how to do this!

I'm not looking for specific advice as I'll DMOR but would be interested in people's thoughts.

Brendan

[Gengulphus]

This is my mothers portfolio that I have put together over the past 2 years.
The objective is to pay her care home fees so long term growth is not an issue.

I think I've got to ask: why are you using a HYP for that objective?

Expected (though not guaranteed!) long-term income growth is one of a HYP's main 'selling points' - so in situations where it is not wanted, the suitability of a HYP has got to be questioned, ...

A different interpretation.

I read the above comment that long term (capital)* growth is not an issue, rather than long term (income)* growth not being an issue. ...

No, sorry, but that is not a different interpretation - it can't be, because my words were saying what I wanted to say, not presenting an interpretation of what robbelg had said.

To clarify: I know perfectly well what robbelg said, which was that "long term growth is not an issue", without saying whether it was capital or income growth (he has since clarified that he meant income growth).

But I also know that HYPs are subject to considerable risks to short-term growth - more to short-term capital growth than to short-term income growth, but considerable risks to both. To put some numbers on how severe those risks are:

* Capital values of the stockmarket as a whole nearly halved between late 2007 and early 2009. HYPs were no exception - e.g. HYP1 was on £140,417 in November 2007 (https://web.archive.org/web/20100421194 ... iness.aspx) and £97,485 in November 2009 (http://web.archive.org/web/201611100714 ... sort=whole) - and that was after the market had had several months of recovery since its trough in about March 2009.

* Income values also dived in over roughly the same time period (probably somewhat later, as it takes longer for lower company performance to feed through into lower dividends than into lower share prices). There are various figures around for how much they dropped by - TJH has said his HYP's income dropped by around a half, mine dropped by about a third, HYP1's dropped by a bit more than a third according to the second link above, and even Luniversal's retrospectively-constructed HYPs (which he attempted but I doubt totally succeeded in making free of hindsight) lost something like 20-25% of their income.

That severity is only half the numbers about how bad the risks are, of course - the other half being how likely they are to actually happen. But that other half is very hard to even guestimate - we only really know that they can happen (since they have happened) but are nowhere even close to an every-year likelihood.

My point about long-term income growth is that that's the flip side for the HYPer of those very real short-term risks: a sensible HYPer accepts the short-term risks to both capital and income because they want a reasonable hope (though as I said, no guarantee) of long-term income growth. (Which incidentally can be expected to be accompanied by long-term capital growth as well - e.g. viewtopic.php?f=15&t=432 shows that HYP1 is above where it was in November 2007 on both capital and income.)

I.e. briefly, short-term risk to capital, income or both is the price paid by the HYPer for long-term growth, most likely of both capital and income (though with income generally the more important consideration, both because of the common use of HYPs for retirement income and because the short-term risks to capital are probably somewhat greater).

All of which makes a HYP a rather mismatched way of funding care, for which short-term considerations are usually far more important than long-term ones - and indeed robbelg said that long-term growth isn't an issue in this case. It's not necessarily a mistake, but anyone contemplating it should consider the possibility of a really bad year wiping out maybe 25-50% of the income the HYP is generating and knocking down its capital value severely at the same time. Hopefully that's not a big chance - but the possibility does exist and there's not much point in risking it unless the reasonable hope of long-term growth is actually a wanted feature!

More generally and outside this specific context, I do get the impression that quite a lot of HYPers have been lulled by the last 7 years or so of their HYPs growing (on both capital and income) into thinking that it's a law of nature that can be relied upon - individual shareholdings and their income are at risk, but the portfolio is safe. That's understandable, especially for those who have taken up HYPing quite recently - but it is not true, and any financial plan involving a HYP should take the risks to the HYP into account!

Gengulphus

[Gengulphus]

I went the HYP type route largely because that is how my own money is invested, so I felt I knew what I was doing. I never considered an annuity, she's 92 so running out of money is not a danger.

I have to admit having an eye to my inheritance but that is very much a minor consideration.

Just to make certain it hasn't been missed, it's an immediate needs annuity I was talking about - those extra words are important, because they make a considerable difference from the characteristics of an ordinary pension or purchased annuity.

At least at first sight, https://www.moneyadviceservice.org.uk/e ... ment-plans looks like a reasonably fair description of them.

Gengulphus

[moorfield]

I think you're over analysing a little for a Friday evening Gengulphus ...

I hadn't grasped robbelg's mother was 92 which places her in the high percentiles of life expectancy tables.

Under the circumtances, fixed income may be a better route than HYP if long term growth is not an issue.

Edit: Care Home Fees/Capital Available is the key calculation to do as far as required yield is concerned.

M

[moorfield]

is not was - that was a grammatical slip needing correction - apologies!

[MDW1954]

is not was - that was a grammatical slip needing correction - apologies!

Let's hope she's not reading Gengulphus's gloomy prognostications -- otherwise it probably will be "was"!!

MDW1954

[Gengulphus]

... Gengulphus's gloomy prognostications ...

I haven't produced any prognostications in this thread. Risk warnings, yes, but not prognostications - i.e. I've warned about not-so-good things I think might happen, but not predicted that they will happen.

Gengulphus

[Hypster]

I'm about to add a chunk of new money approx 15% of total so I'm looking for about 5 new shares or 10 top ups.

Hello robbelg,

From a purely 'HYP Practical' perspective I would add BT.A as a new share, and top up SSE, BLND, LGEN, NG, GSK, TATE.



BT.A has a decent yield and safety factors. The top-ups have good yields, covered by earnings, and are underweight in the portfolio at present.

[YeeWo]

More generally and outside this specific context, I do get the impression that quite a lot of HYPers have been lulled by the last 7 years or so of their HYPs growing (on both capital and income) into thinking that it's a law of nature that can be relied upon - individual shareholdings and their income are at risk, but the portfolio is safe. That's understandable, especially for those who have taken up HYPing quite recently - but it is not true, and any financial plan involving a HYP should take the risks to the HYP into account!

On the assumption that an "Economic Cycle" is Ten Years, and that we had: -
a) The 1987 Stock Market Crash
b) The 1997 Asian Financial Crisis
c) The 2007/8 Global Financial Crisis
- : the above comments from Gengulphus are moderation itself.
I'm not doing anything rash, but holding Cash going into the end of 2017 will give extra optionality in the event of a short-term market spasm.
At some stage Interest Rates may have to adapt to reflect underlying inflationary pressure(s) which again may not be brilliant for Equities.

[FarmerTom]

Hello robbelg,

From a purely 'HYP Practical' perspective I would add BT.A as a new share, and top up SSE, BLND, LGEN, NG, GSK, TATE.

[table]L=Ticker||Name||Sector||fc Yield||fc Cover||Value Weighting||Top-up Rank
L=BT.A||United Utilities||Gas, Water, and Multiutilities||5.5%||1.4||0.0%||New

BT.A has a decent yield and safety factors. The top-ups have good yields, covered by earnings, and are underweight in the portfolio at present.

I just noticed that there's something not right about the table entry for BT.A or is it UU?......
Tom

[Hypster]

Hello robbelg,

From a purely 'HYP Practical' perspective I would add BT.A as a new share, and top up SSE, BLND, LGEN, NG, GSK, TATE.



BT.A has a decent yield and safety factors. The top-ups have good yields, covered by earnings, and are underweight in the portfolio at present.

I just noticed that there's something not right about the table entry for BT.A or is it UU?......
Tom

Goodness me, you're right. It should be BT, I'm sorry about that. Thanks for letting me know.