Should HICL Infrastructure Company Ltd be allowed on HYP-P as it is akin to a REIT

[Gersemi]

Moderator Message:
Whilst trusts are surely an interesting way of investing, the guidelines for this board make it fairly clear that for the HYP Practical board Investment Trusts or open ended funds should not be included. Please bear that in mind. Thanks - Chris (edited)

As I understand it HICL Infrastructure Company Ltd invests in infrastructure projects - which are companies, but not ones that individual investors can buy shares in directly. As such I think it is akin to a REIT and I can see no logical reason why it shouldn't be eligible for inclusion in a HYP and discussed on this board.

Moderator Message:
Moved here from HYP-P. By this board both the author and I are referring to HYP-P. - Chris

[Dod101]

First thing is that it is now HICL Infrastructure PLC wef 1 April 2019, incorporated in the UK. The second thing to say is that it is not a REIT and in fact it is structured more like an investment trust. It is an investment company with a portfolio of investments, with investment managers and so on. Thus, I do not think it qualifies for inclusion on the HYP Practical Board.

Would have thought that that was of secondary importance though. Is it a decent investment? Seems that it is quoted at a small premium with a yield of 5% which on the face of it is good but of course it has the usual political risks of any infrastructure company, all the more so because it is now firmly ensconced ion the UK, although with quite a lot of overseas assets.

Dod

[Gengulphus]

As I understand it HICL Infrastructure Company Ltd invests in infrastructure projects - which are companies, but not ones that individual investors can buy shares in directly. As such I think it is akin to a REIT and I can see no logical reason why it shouldn't be eligible for inclusion in a HYP and discussed on this board.

Moderator Message:
Moved here from HYP-P. By this board both the author and I are referring to HYP-P. - Chris

As far as my own HYP is concerned, the rule is that investment trusts and similar companies are not permitted into it if a substantial proportion of their underlying investments are ones that my HYP could invest in directly. So it's got not just REITs, but also three investment trusts in it - one specialising in European shares, one in global shares (both of which are not allowed as direct holdings for tax reasons by my HYP's rules, but to be clear, I'm not saying that I think they should be general HYP rules - they're just my personal choice of rules) and the third in alternative energy investments. I would certainly allow HICL in it as well on the same basis, were it not for the fact that I don't feel I particularly want to increase my infrastructure-related investments at present - they're a bit too subject to government whims!

So yes, I don't feel that the current rule for HYP Practical makes particular sense. But one of the distinguishing characteristics of HYP strategies is that the HYPer is managing many of the practical details of running the investments themselves rather than delegating it to others, so making major use of fund managers isn't part of it. That means that there is an issue of just how much (if any) use of fund managers is needed to make the use major - and I don't think there is an answer that makes complete sense. (Or put another way, putting one's entire portfolio in the hands of one or more fund managers and managing a portfolio consisting entirely of individual non-fund-like shareholdings oneself present very different practical problems, so there's little point in forcing those practical problems to all be discussed on the same board - but they're two ends of a spectrum of possibilities, with no very clear dividing point between them.)

So basically, I think that whatever rule TLF have about investment trusts and similar companies on HYP Practical, it's not going to make complete sense in some cases. So they've just got to either have no such rule, which will result in the board being filled with arguments between adherents of very different types of strategy this are supposed to be on the High Yield Shares & Strategies board and is liable to render HYP Practical pretty useless for its intended purpose, or have a rule about investment trusts and expect people to put up with its imperfections and work with them. Those imperfections will exist, and although the current rule has more than I think it needs to, I don't see any real problem about living with them: if and when I want to discuss the investment trusts in my HYP, I can start the thread here; if and when I want to discuss my HYP as a whole on HYP Practical, I can list it there without making an issue of them myself and deal with anyone who does try to make an issue of them by refusing to argue with them - they should be taking their issue to the moderators rather than to the board.

Gengulphus

[tjh290633]

I agree that HICL is the type of company that should be permitted.

TJH

[Gengulphus]

First thing is that it is now HICL Infrastructure PLC wef 1 April 2019, incorporated in the UK. The second thing to say is that it is not a REIT and in fact it is structured more like an investment trust. It is an investment company with a portfolio of investments, with investment managers and so on. Thus, I do not think it qualifies for inclusion on the HYP Practical Board.

Would have thought that that was of secondary importance though. Is it a decent investment? ...

I totally agree that whether HICL is a decent investment is a very important question, and that where the discussion of that question should go is probably less important. But less important questions still need to be sorted out, and this thread has both a subject and an OP that are clearly about where the discussion should go, not about whether HICL is a decent investment. Furthermore, trying to discuss both questions in the same thread is liable to result in people repeatedly trying to pull the discussion back to the question they think the thread really should be discussing. That will just result in a discussion that goes around in circles between the two subjects...

So if anyone currently wants to discuss whether HICL is a decent investment, please start a new thread about that question. I'd be perfectly happy for it to be on HYP Practical, but since the board guidance currently doesn't allow it, anyone starting it would probably be wiser putting it on High Yield Shares & Strategies.

I'd do it myself if I currently wanted to discuss the question, but as I said, I'm not currently interested in increasing my exposure to infrastructure-related investments, and I don't reckon that people starting threads they're not interested in is a good idea!

Gengulphus

[seagles]

So if anyone currently wants to discuss whether HICL is a decent investment, please start a new thread about that question. I'd be perfectly happy for it to be on HYP Practical, but since the board guidance currently doesn't allow it, anyone starting it would probably be wiser putting it on High Yield Shares & Strategies.

Gengulphus

or the dedicated Investment Trust Forum

[mc2fool]

If anyone has the time and inclination to dig through the internet archive (Wayback Machine) of HYP-P on TMF (I don't have either!) they will find that discussion of HICL was allowed there, and for the same reason as Gengulphus has stated for his HYP, being, to paraphrase, that HICL (like REITs) is non-DIYable.

While the strict letter of "the law" was that ITs (and OEICs/UTs/ETFs) weren't allowed, the spirit was that the HYPer should buy shares directly themselves and not via collective vehicles. This reason was stated explicitly in the TMF HYP-P FAQ:

"6. What are the hallmarks of a HYP strategy?
:
• As a diversified portfolio of directly-held shares, to reduce risk and costs. Holding shares indirectly via funds is not part of the strategy, due to the fund management fees - this includes not using investment trusts and ETFs (also known as iShares)."
https://web.archive.org/web/20161020175 ... 48855.aspx (no digging needed to find that )

I.e. a HYPer shouldn't buy ITs like CTY, MRCH, etc to get a portfolio of high yielders but should DIY it and buy RDSB, VOD, HSBA, etc, etc, etc, themselves.

However, in the case of infrastructure and commercial property it's not possible for the HYPer to buy into the underlying investments directly themselves, and so inclusion of investments such as HICL and REITs was allowed on HYP-P, as they kept within the spirit of the rules, and were the only way to diversify into those sectors.

(I don't follow the HY boards anymore and wouldn't have noticed this if it hadn't been moved to the Biscuit Bar, and, frankly, don't give a hoot what's decided, but just thought that some history might be of interest....)

[Lootman]

However, in the case of infrastructure and commercial property it's not possible for the HYPer to buy into the underlying investments directly themselves, and so inclusion of investments such as HICL and REITs was allowed on HYP-P, as they kept within the spirit of the rules, and were the only way to diversify into those sectors.

I think that is absolutely the sensible view to take on it and, if there is consensus around that then such a rule could be added to the guidelines to make it explicit.

However it does open up the gate for various other types of investments as well. For instance it is more difficult, but not impossible, to hold individual foreign shares yourself. You can do it (and I do) but you have issues with currency, trading hours, brokers not making a market in them, higher costs and possible tax concerns as Gengulphus mentioned. So there might be an argument to use collectives for foreign exposure.

Then there are sectors that are not well represented in the UK. If you want exposure to, say, a major steelmaker or auto maker, then you are out of luck in the UK. Might that argue for including a global steel or auto ETF, for instance? Or X or F in the US?

In other words you buy British shares when you can, but don't allow that restriction to cause your portfolio to be skewed or unbalanced.

I've also often thought that there is an argument to use collectives in the early stages of building a HYP (or any other kind of portfolio) because the funds may not exist to buy enough shares to be properly diversified. Buying an IT like CTY could be a good way to start, migrating to individual shares later and only when an amount has been accumulated that enables one to own (say) 15 or more shares in sensible amounts. Tiny holding are not cost effective or efficient in my view.

Obviously investors can buy and hold whatever they want, but the question is whether the discussion of such holdings is "allowed" here. A good answer might be yes, if it makes sense and is reasonable, and otherwise no. And the test is whether a UK share exists that does the same job.

[Dod101]

I am bemused by this sort of discussion/argument and simply do not care where such and such a share is to be discussed. I include ITs in my HYP anyway. I thought that the split between ITs and other collectives and individual shares was more because there are different considerations when dealing with and choosing an IT or similar such as NAV, discount/premium, Ongoing Charges, the manager, and so on, none of which apply to an individual share.

I think there is, as Lootman says, quite a lot to be said for a newbie buying into an IT to get instant spread., In fact that is what I did. I bought Alliance Trust and my wife bought Second Alliance and then after a year or two began branching out into individual shares, but that gave us a good base to work from.

Dod

[mc2fool]

I thought that the split between ITs and other collectives and individual shares was more because there are different considerations when dealing with and choosing an IT or similar such as NAV, discount/premium, Ongoing Charges, the manager, and so on, none of which apply to an individual share.

They apply to REITs.

[TUK020]

I am bemused by this sort of discussion/argument and simply do not care where such and such a share is to be discussed. I include ITs in my HYP anyway. I thought that the split between ITs and other collectives and individual shares was more because there are different considerations when dealing with and choosing an IT or similar such as NAV, discount/premium, Ongoing Charges, the manager, and so on, none of which apply to an individual share.

I think there is, as Lootman says, quite a lot to be said for a newbie buying into an IT to get instant spread., In fact that is what I did. I bought Alliance Trust and my wife bought Second Alliance and then after a year or two began branching out into individual shares, but that gave us a good base to work from.

Dod

I see ITs fulfilling 3 different roles in high yield portfolios:
1. Providing instant diversity for smaller portfolios; I have started my Kids S&S ISAs with a core of a diversified IT like CTY, before adding individual shares.
2. Getting diversity into segments that it is difficult to cover with individual shares on the London stock exchange, examples being HICL for infrastructure, and Henderson Far East (HFEL) and Murray International (MYI) for geographic spread.
3. What I have referred to as my "Long Term Gaga Plan". My intent is to gradually migrate dividend reinvestment towards a basket of ITs to reduce the need for active management and proof my portfolio against neglect as I get older.

[Gengulphus]

I am bemused by this sort of discussion/argument and simply do not care where such and such a share is to be discussed. I...

And I'm bemused that someone who simply does not care about an issue bothers to post to a thread about it at all, even to say that they're bemused by it. Whatever floats your boat, I suppose, but I'm glad that it's not a common approach to the boards!

Gengulphus

[csearle]

I am bemused by this sort of discussion/argument and simply do not care where such and such a share is to be discussed.

We are trying to maintain a certain board structure. That is one of the features that makes TLF what it is. That is why areas that turn out to be grey are sometimes discussed.

There is a chance that if we just discussed "such and such a share" simply anywhere people would not find it or it might get lost in all the multiple discussions going on about different matters/shares.

All that happens when you (or anyone) doesn't care about where they post is that those trying to adhere to the board structure are antagonised and we end up having to adjudicate based on the board's guidelines. If you know this and continue winding people up then you are trolling and should be sanctioned.

Chris

[Lootman]

I include ITs in my HYP anyway. I thought that the split between ITs and other collectives and individual shares was more because there are different considerations when dealing with and choosing an IT or similar such as NAV, discount/premium, Ongoing Charges, the manager, and so on, none of which apply to an individual share.

I suspect the original rationale for excluding ITs was more that Bland liked to stick to the relatively few investment areas where he felt he had some kind of edge or specialist knowledge. I can't recall him talking knowedgeably about ITs, or funds in general, and so assume he didn't know much about them. And it's hard to recommend what you don't know.

Likewise I cannot recall him writing knowledgeably about small companies or foreign shares, which might explain his focus on UK largecaps. Likewise preference shares, bonds, commodities or anything else that you might invest in.

Again, as an accountant he was a numbers guy. That led him to place emphasis on factors that can be measured rather than the more qualitatitive factors that growth investors like. Bland was happier poring over company accounts than predicting the iPhone would create a trillion dollars of stock market wealth, for example.

ITs, in particular, are UK companies that trade on the LSE and so perhaps are a better thematic fit for a HYP than an ETF or open-ended fund. But these days they can all be held on the same platform so maybe that is an arbitrary distinction that made more sense at the inception 20 years ago than it does now.

[Dod101]

I am bemused by this sort of discussion/argument and simply do not care where such and such a share is to be discussed. I...

And I'm bemused that someone who simply does not care about an issue bothers to post to a thread about it at all, even to say that they're bemused by it. Whatever floats your boat, I suppose, but I'm glad that it's not a common approach to the boards!

Well I enjoy discussing individual shares but frankly it is surely not too difficult to accept the difference between an IT or other collective and an individual share (I know before anyone corrects me that IT shares are just like any other share but the investment underlying them is not)

Dod

[Dod101]

I am bemused by this sort of discussion/argument and simply do not care where such and such a share is to be discussed.

We are trying to maintain a certain board structure. That is one of the features that makes TLF what it is. That is why areas that turn out to be grey are sometimes discussed.

There is a chance that if we just discussed "such and such a share" simply anywhere people would not find it or it might get lost in all the multiple discussions going on about different matters/shares.

All that happens when you (or anyone) doesn't care about where they post is that those trying to adhere to the board structure are antagonised and we end up having to adjudicate based on the board's guidelines. If you know this and continue winding people up then you are trolling and should be sanctioned.

Sorry you misunderstand. It is not that I do not care where I post about a particular share (I don't mind you) but I will try to follow the guidelines. IF I want to discuss HICL I have not the slightest concern whether it is to be discussed on the IT Board or the HYP Practical Board and from the user point of view, to be fussed about that seems very strange. Let the Mods decide and I will follow.

Dod

[Dod101]

And I think Lootman may have a point, but if you allow HICL on the HYP-P Board then why not all other ITs as well. As I pointed out earlier to me there is a good reason and that is that there are a number of different things to be considered with an IT, and maybe other collectives, different that is to say from discussing say Royal Dutch Shell or Unilever. personally I would think that logically HICL should stay on the IT Board.

Dod

[mc2fool]

And I think Lootman may have a point, but if you allow HICL on the HYP-P Board then why not all other ITs as well. As I pointed out earlier to me there is a good reason and that is that there are a number of different things to be considered with an IT, and maybe other collectives, different that is to say from discussing say Royal Dutch Shell or Unilever. personally I would think that logically HICL should stay on the IT Board.

The answer to the first sentence has already been explained. With most ITs (UK ones at least) you can buy the underlying assets yourself. With infrastructure investment companies and real estate investment trusts you can't.

REITs and ITs like HICL that build and/or buy and then run physical assets themselves -- buildings, schools, hospitals, roads, railways, etc -- are quite different than collectives that just buy a bunch of shares that you could have bought yourself.

HICL and, say, PHP, are very similar in this respect, and not at all like, say, CTY or MRCH. But, hey, why am I arguing this point? As far as I'm concerned having discussions of infrastructure companies out of HYP-P and somewhere less, umm, insular, would be good! I reckon discussion of REITs should go the same way ... after all, they have the same "different things" to be considered (NAV, discount/premium, charges, manager, etc).

[Dod101]

That argument could of course open the door to all sorts of ITs such as RIT Capital Partners and Caledonia to mention only two of them They both invest in assets that it would be difficult for the individual to access and I have no doubt that there are a number of others. Then, logically the argument in a couple of years could be why are we discussing some ITs and not others on the HYP-P Board?

I think therefore an all or nothing approach to ITs and other collectives is the only way to go.

Dod

[mc2fool]

That argument could of course open the door to all sorts of ITs such as RIT Capital Partners and Caledonia to mention only two of them They both invest in assets that it would be difficult for the individual to access and I have no doubt that there are a number of others.

Not comparable. Those have only a smattering of unlisted assets, less than 10%.

Companies like HICl, BLND, TRIG, PHP, UKW, SGRO, JLEN, DIGS, etc, etc, etc have 100% unlisted assets.

I think therefore an all or nothing approach to ITs and other collectives is the only way to go.

Real Estate Investment Trusts too then, as you can't make a consistent argument between HICL and PHP, etc.

Although really HICl, BLND, TRIG, PHP, etc aren't any more (or less) "collectives" than, say, ULVR, RB., Hanson as was, etc, and anyway, IT status is just a legal one. If HICL was doing exactly as it does now but wasn't an investment trust I doubt this debate would have surfaced in the first place.