pyad wrote:A record smashing year.
Here is the data for the year ended 12 November 2017, the seventeenth year of this non-tinker portfolio.
........................................Dividends.....................ValueAnglo American 176.94 7,101
BA Tobacco 1,506.80 42,356
BT Group 875.03 14,080
Dixons Carphone 139.61 1,894
InterCon Hotels 328.94 18,541
Ladbrokes Coral 104.96 3,587
Land Sex 284.43 6,321
Lloyds 156.05 4,107
Mitch & But 51.83 1,848
Persimmon 1,426.95 28,275
Pearson 347.49 6,161
RD Shell B 584.86 9,628
Rio Tinto 949.68 19,046
RSA 83.95 2,905
United Utilities 309.41 6,635
Total £ 7,326.93 172,485
Gain 97,485 130.0%
FTSE100 at start 6,274.8
Gain 1,158.2 18.5%
HYP1 capital outperformance 94.1%Dividend History
Total to date £ 76,085
Events in year
There were returns of cash following share consolidations by InterContinental Hotels and Land Securities. In both cases the cash was reinvested in Lloyds being the optimum choice at the time based on a combination of good yield, greatest below average capital value and other selection criteria I use.
This is what HYPs are all about and the £7,327 for this year was another record by a long way, up 19.6% on last year and therefore crushing inflation. From year one, the increase is 112.3%.
Total income thus far is £76,085 over the 17 years, averaging £4,476 per year which is 5.97% pa on the £75,000 cost. An interesting milestone is that this total income has now exceeded the original investment.
BA Tobacco remains, as it has for years, the single largest income contributor with 20.6% of total income but Persimmon is not far behind in contributing 19.5% followed by Rio Tinto third at 13.0%. At the other end, the smallest sums arose from Mitchells & Butlers on 0.7%, RSA 1.1% and Ladbrokes Coral 1.4%.
There were no zero payers.
This is irrelevant or secondary depending on your viewpoint.
As shown a new record value of £172,485 has slaughtered the FTSE100 over the 16 years, up 130.0% against an index up 18.5% and thus outperforming it by 94.1%. This is without reinvesting dividends.
In the last twelve months the FTSE100 index has risen 10.4% whilst HYP1 is up 12.2%, outperforming this year as it has so often in the past.
BA Tobacco remains the largest holding at 24.6% of portfolio value with Persimmon second at 16.4%. Smallest holdings are Mitchells & Butler at 1.1% and Dixons Carphone also at 1.1%.
Comparison with CTY
As CTY is often mentioned as an IT that overlaps many of the selections frequently help in HYPs I thought it would be interesting to see how it compares to HYP1 over the same period from 2001 to 2017. To do some parts of the comparison I took the £75k invested in HYP1 and instead assumed it was invested in CTY on the same day, on that day CTY closed at 228p, so the £75k would have bought 32,894.74 units of CTY.
PYAD quotes an increase in dividends over the period of 112%, over the same period CTY has increased its pay out by 123%. Both of these look to have significantly outpaced inflation, the RPI index over the first 16 years of the period increased by only about 54%. The level of payout from CTY was lower than HYP1, both at the start and remained so at the end of the period. In year 1 the units of CTY would have paid out £2,467.11 and in 2017 it would have paid £5,493.42. Over the 17 year period CTY would have paid out £65,986.84, some £10,098.16 less than HYP.
However, the income profile for HYP1 has been much more volatile than CTY. CTY has increased its pay out every year during the period examined, whereas HYP saw three years when the pay out was reduced versus the previous year. In 2003 there was a reduction of 8.0% and only in 2005 did the pay out overtake that of 2002; in 2009 HYP1's pay out was 36.8% lower than 2008 and it took until 2013 to get back above the 2008 level of pay out. In 2014 there was a small reduction of 3.9% and in 2015 this reduction was more than reversed. HYP1 has also had some spectacular year-on-year increases in pay out, most notably: 2006 with 16.5%; 2011 with 16.6%; 2013 with 35.9% and 2017 with 19.6%. Each of these four years had an increase in pay out of more than the highest year-on-year increase from CTY which was 12.6% in 2008.
So I would conclude that HYP started with a higher return on the capital invested, but with the higher growth rate CTY has slowly been pegging that back. But with an overall deficit of more than £10k it will take CTY a long time to overall HYP1 in total pay out if history repeats itself. However, to enjoy that higher overall income an investor would have had to be able to accept significant reductions in income in some years, if they had needed to sell some of HYP1 in the lean years to maintain living standards the results would be different.
HYP1 has increased its value by 130%, this is a significantly better return than that provided by CTY which increased by £86% over the same period.
As others have said on the HYP Practical thread, the performance of HYP1 seems to have been reliant on a small number of very high performers. It does seem therefore that as of the 17th birthday a holder of HYP1 is in a somewhat risky position. If BAT or Persimmon were to hit a problem and cut or even suspend their dividends next year it is likely that the holder would see another year where overall income would fall versus 2017. Had the portfolio been tinkered with over time and / or balanced with some investments in ITs or other collectives then this risk is likely to have been mitigated, but of course it is impossible to say what impact this would have had on performance in terms of income and / or capital.
For me after 17 years what HYP1 makes clear is that the original concept is a high risk one and unsurprisingly with a high risk approach income from HYP1 is volatile. Whether the level of returns make this level of risk acceptable is of course for the individual holder to decide. But if I were asked by a relative with a lump sum to invest, who had little knowledge of and / or interest in investment matters, and they were going to rely on the income to some extent, I don't think that I would suggest they go down the HYP1 route.