15 share HYP

[daveh]

I guess it depends on time frame but generally all the evidence points to the low cost index funds generating consistently better returns compared to the majority of managed funds.

Regarding income I don't really find a problem with low yields, I use Vanguard Lifestrategy 60 index fund as part of my income portfolio and merely sell 4% of my units once each year and put this in my building society and then drawdown the monthly requirements as needed. As there are no charges for the purchase/sale of units, it makes little difference on size of portfolio holding.

The fund started in June 2011 and is up 71% (9.2% p.a. annualised) so easily covering my income requirements and much simpler than running a 20+ rollercoaster share portfolio.

Actually that's not as good a performance as my 20+ HYP which has grown by 86% over the same period so whilst I'm still able I'll stick to my HYP.
Interestingly the Vanguard Lifestrategy 80 index fund as performed better than the 60 putting in a similar performance to my HYP at 85% gain since June 2011.

[BarrenWuffett]

Does Vanguard Lifestrategy 60 produce a Yield in Cash as well as Capital Growth?

Which Platform do you use for Lifestrategy 60 (I assume there is a holding charge imposed by the platform for a SIPP or ISA) ?

Yes, you can select income or accumulation however the natural income is only ~1.5% and as I would still need to sell some units to get my 4% it seems easier to just go for the acc version.

The platform charges on Vanguard Investor are 0.15% which is OK for smaller investments but it works out cheaper with Halifax Share Dealing for investments over say £30K as their fee is only £12.50 p.a however they do have a £12.50 sale/pch fee but thats still only £25 with one sale per year.

[BarrenWuffett]

Actually that's not as good a performance as my 20+ HYP which has grown by 86% over the same period so whilst I'm still able I'll stick to my HYP.
Interestingly the Vanguard Lifestrategy 80 index fund as performed better than the 60 putting in a similar performance to my HYP at 85% gain since June 2011.

As you are probably aware, equities provide the better returns than bonds over time so yes its not surprising to see the return for the 80% equity fund is higher than the 60% equity fund. It is a bit surprising to see the 80% equity fund is on a par with a 100% equity hyp as you would normally expect a better return for the increased risk of the hyp.

The level of return should correspond to the degree of risk/volatility you are prepared to take on. The VLS 60 is fairly stable and I have a degree of certainty it will be delivering my 4% 'income' for many years to come and building a useful capital cushion in the process. For me, an ideal 'buy-and-forget' option.

[DrBunsenHoneydew]

Does Vanguard Lifestrategy 60 produce a Yield in Cash as well as Capital Growth?

Which Platform do you use for Lifestrategy 60 (I assume there is a holding charge imposed by the platform for a SIPP or ISA) ?

VLS60 has both Income and Accumulation Units available. Vanguard's own platform imposes a low holding fee compared to some https://www.vanguardinvestor.co.uk. Other brokers may charge to buy/sell or a higher or lower fee.

[Dod1010]

If I may venture to ask is buying the VLS60 a High Yield Strategy? If so what is its yield and if not it does not seem relevant for this Board.

Dod

[BarrenWuffett]

If I may venture to ask is buying the VLS60 a High Yield Strategy? If so what is its yield and if not it does not seem relevant for this Board.

Dod

I guess it depends on how you interpret 'high yield'. I take 4% 'income' from my VLS fund...is this high yield or is discussion on this board restricted to natural yield, in which case it would not be really relevant.

[Darka]

I take 4% 'income' from my VLS fund...is this high yield or is discussion on this board restricted to natural yield, in which case it would not be really relevant.

Curious where you get the 4% from, the Vanguard website says:

Yield As at close 31 Jul 2017 1.50% (Accumulation Class)
Yield As at close 31 Jul 2017 1.52% (Income Class)

Unless I'm missing something?

Ok, just seen your earlier post regarding selling 4% per year - ignore this.

[bluedonkey]

Perhaps "high withdrawal" strategy rather than "high yield".

[funduffer]

If I may venture to ask is buying the VLS60 a High Yield Strategy? If so what is its yield and if not it does not seem relevant for this Board.

Dod

Dod, we are comparing selling 4% of VLS60 each year against a HYP. If we cannot discuss this on a HYP share strategy board, then where else!!??

BW, I understand what you are doing, and it may well be that this approach is a safer strategy than HYP. I will be interested to see where my HYP gets to after 5 years.

It would also be interesting to see what happens if we have a major market correction in that time. The index funds will move with the market, and you may have to sell more than 4% to maintain your income. Would the HYP strategy hold up its income better in these circumstances - who knows?

FD

[Dod1010]

Sorry folks. I am just being bloody minded I guess.

Taking 4% from the capital per annum seems to me to be fine in a bull market but what happens when as is inevitable it turns down?

I have always seen as one of the advantages of a HYP share strategy that in a market downturn at least we still have some dividends. That is what happened in 2008/9. A lot of companies cut their dividends for a year or two but many restored them after that. I would never see a strategy of selling shares as a very sensible one if you are looking for a reasonably steady income to live off and that is what the HYP is supposed to be.

In my very early investing days I used to try harvesting capital gains and of course it worked at times but I concluded that I just did not have the temperament for it. But I was trying to take the gains, not capital willy nilly, which is surely what you are doing if you sell 4% per annum.

Dod

[tjh290633]

Moderator Message:
Just a comment here. VSL60 is not a share but a fund, as I understand it, and does not have a high yield. Therefore any discussion of it ought to be on the appropriate board - Investment and Unit Trusts - or else on Passive Investing which covers tracker funds and ETFs. Selling units to obtain an income is not a High Yield Share Strategy as far as I can see.

TJH

[Itsallaguess]

Bet that guy has gone passive...

Hi BreakoutBoy,

Just wondering if you're planning on coming back to this thread, given that there's been lots of replies to your posts, and some subsequent discussions around the points raised, but no further involvement by you after lots of others becoming interested in the thread, and the points that you originally raised?

Thought I'd post a quick new reply just to check in case you've forgotten about your original post.

Cheers,

Itsallaguess

[BreakoutBoy]

Just imagine a purist 15 share HYP: it could conceivably have hit the icebergs of Pearson, Petrofac, Provident Financial, Tesco, Carillion and Lloyds, all of which at one time or another might have been reasonable picks.

Bet that guy has gone passive...

Well, he might have done.

Do you know anyone who's been that unlucky?

Is it really all that useful to suggest a 'worse-case-scenario' like this as a reason to avoid something, if we're not also clear on the chances of it happening?

You've had responses from some people, and I'd include myself in there as well, who have been quite happy with their long-term income and/or TR returns over many years whilst following a similar High-Yield-Portfolio strategy, so do those views carry any weight against your own 'worse-case-scenario' above?

I should say here that I wouldn't personally be at all comfortable with just a 15-share HYP, and currently have around 38 individual elements to my high-yield portfolio, in the form of individual shares and investment-trusts, but I don't think it's particularly useful to dream up a worst-case scenario like this without any evidence that it's likely to happen, and continue to discount a strategy that many have been happy with for often really quite long periods.

With that said, it's not clear if you're discounting the whole strategy, or have issues with such a concentrated portfolio with just 15 shares. Can you expand on your actual concerns?

Cheers,

Itsallaguess

I think the idea of a 15 share portfolio is really too concentrated when dealing with what is effectively a "dogs of the FTSE" approach.

As an income strategy I believe HYP may work OK but if one share blows up in a 15 share portfolio, it's a pretty significant blow. As we have seen multiple disasters in the last two fairly benign years, I am far from sanguine about the prospects for a HYP in a future big credit crunch, though obviously the above records from the likes of Terry show that recovery is possible given time.

It is the fairly concentrated risk that worries me: It would have been entirely possible to suffer several bad body blows in a short time period with unlucky share selection using the standard criteria, which indicates a need for either bigger selection hurdles, more diversification or better prayers to Lady Luck.

I still have 40% of my portfolio in HYP for what it is worth, so I do have quite some skin in the game!

[Itsallaguess]

I think the idea of a 15 share portfolio is really too concentrated...

No arguments from me there, although I'm not really sure how many people actually stick with such a low level of diversification.

...when dealing with what is effectively a "dogs of the FTSE" approach.

I'm not sure that label is justified. Can you elaborate?

My take on the HYP strategy is that we're looking for boring, steady, mega-cap companies that have relatively low-capex expansion strategies, which then allows them to release excess-cash in the form of dividends.

Typically, those types of companies that also then go on to pass the rest of the HYP selection processes (5 years of rising/non-cutting dividends etc..) would not be classed as 'dogs', but that's not to say that there are not 'dogs' out there that *could* be picked for someone's HYP, and that's also not to say that some HYP picks might also go on to *become* dogs, but that's the nature of business and equity-investment, and those not willing to take such risks should perhaps think again about their particular risk-tolerance with regards to selecting individual shares, and I don't mean that too disparagingly, as I'd perhaps put one foot in that camp myself at times, hence my move into income-oriented Investment Trusts in recent years....

As an income strategy I believe HYP may work OK but if one share blows up in a 15 share portfolio, it's a pretty significant blow.

Again, no argument from me there. I personally think that a 15-share HYP is not diversified enough, and my HYP reflects that with around 38 individual 'income-elements' in the form of single-shares (around 70%), and income-related Investment Trusts (around 30%).

So would it be fair to say that your main issue with regards to the HYP strategy would be almost exclusively to do with the concentration of shares in any particular HYP, and that you'd consider 15-shares to be too risky?

If that's the case then I'm in full agreement, but I don't then choose to disparage the HYP strategy, I just choose to suggest that a wider net be used. Would that not be a better approach, rather than to simply continue disparaging the strategy itself?

As we have seen multiple disasters in the last two fairly benign years, I am far from sanguine about the prospects for a HYP in a future big credit crunch, though obviously the above records from the likes of Terry show that recovery is possible given time.

Can you explain what you mean by 'two fairly benign years', as I'm not sure what you mean by that?

Do you mean that you think that the last two years have seen a lot of potential HYP selections stumble during what you consider to be 'two benign years' of the general economic landscape?

It is the fairly concentrated risk that worries me: It would have been entirely possible to suffer several bad body blows in a short time period with unlucky share selection using the standard criteria, which indicates a need for either bigger selection hurdles, more diversification or better prayers to Lady Luck.

Well being lucky is always a useful trait, but that never seems to last forever even when we're having some luck at any given time, so I agree with you with regards to needing more diversification than a 15-share HYP. Bigger selection hurdles might help as well, but don't forget we're trying to follow a strategy that sells itself on it's 'ease of use', so it's difficult to then try to suggest to people that they need to hand-ball the Free-cash-flow statements of every company they're looking at...

I think there's a lot to be said for not chasing-yield, in terms of perhaps discounting some form of top-percentile picks, and that might also lend itself a little to your 'dogs' theory and also Luni's beloved 'Zones', but then all we'd really be saying is that if you've got more capital than you 'need', in terms of not having to chase upper-quantile yields, then you can 'afford' to walk down the yield-tree and look at either companies with 'safer' yields, or Investment Trusts that might charge a management fee on top of giving you a slightly lower-yield, but might also then go on to deliver more consistent income-returns over future years even if they aren't as high. Again, no argument from me as both of those situations are sometimes ones that I follow.

Having just taken a quick look, I see that the running-yield on my current HYP is around 4.12%, which isn't high, I don't think, compared to some HYP-reports that I see around here. I currently have 4 shares out of the 38 HYP components that have a Forecast Yield of over 6%, which isn't too bad I don't think, in terms of yield-risk to the HYP portfolio as a whole.

I think there is always a bit of a danger that someone starts a HYP-type portfolio which falls on some hard times early on, and they then go on to form an early view of the whole strategy that's perhaps not typical of the views found by others, who perhaps haven't been as unlucky in those early years, or have managed to persevere through those early years, and seen that the strategy can still work.

I think it's worthwhile considering these points before discounting the whole HYP idea, especially if there's only really something like the 'suggested' 15-share concentration-risk that's really bothering you about it.

It also bothered me, and I simply chose to ignore it, and went on to almost triple the original 15-share HYP suggestion, and also started to include some income-oriented Investment Trusts to cover a number of bases, some of which include your diversification concerns.

Don't throw the baby out with the bathwater is, I suppose, the TL;DR message.....

Cheers,

Itsallaguess

[tjh290633]

I think the idea of a 15 share portfolio is really too concentrated when dealing with what is effectively a "dogs of the FTSE" approach.

The Dogs of the FTSE approach was totally different from the HYP method. TMF tried it for quite a few years and abandoned it about the turn of the century, because it did not work.

My recollection, which may be wrong, is that it was based on the FT30 index and took a combination of ranking by highest yield and lowest share price to select its 5 constituents. I kept some records for a while and have two on file, which date from (I think) 2003 and 2008.

In 2003 the selection was BAE Systems, EMI and ICI (joint second), P&O and Reuters. The data were:

Rank    EPIC    Yield    Price 
   1    BA.     6.31%    145.75
2=      EMI     5.69%    140.50
2=      ICI     5.65%    132.75
   4    RTR     6.02%    230.00
   5    PO      5.72%    236.00

In 2008 it was Logica, BT, ITV and RSA (Joint third) and RBS. Again the data were:

Rank    EPIC    Yield    Price
   1    LOG     5.30%    109.5
   2    BT.A    6.89%    223.5
3=      ITV     4.79%     65.7
3=      RSA     5.15%      136
   5    RBS     9.20%      361

There were only five shares selected and I believe that they were changed annually as required. As you can see, in 5 years there was a total change. It is also evidend that a low share price trumps a higher yield.

TJH

[BreakoutBoy]

http://www.iii.co.uk/articles/415066/do ... are-faring

The above article gives a fairly good over view of the Dogs of the Dow / FTSE strategy. Essentially the index is ranked by yield, ten of the highest yield shares are bought in equal weights, relying on MCap as a safety factor and then held for a year before the process is repeated. See here for stockpedias description: http://www.stockopedia.com/screens/dividend-dogs-14/

The interesting thing is it produces lists that are remarkably similar to a HYP.

See here for another example: http://www.thisismoney.co.uk/money/inve ... UBLES.html

There is an obvious overlap with the share universe of HYP: a lot of familiar names in the portfolio produced.

Back testing shows that a Dogs of the Dow is a winning strategy in total return terms when backtested in the US, but prone to sharp drawdowns. I don't have long term results when applied to the FTSE.

[Raptor]

http://www.iii.co.uk/articles/415066/dogs-footsie-2017%3A-how-our-10-shares-yielding-5-plus-are-faring

The above article gives a fairly good over view of the Dogs of the Dow / FTSE strategy. Essentially the index is ranked by yield, ten of the highest yield shares are bought in equal weights, relying on MCap as a safety factor and then held for a year before the process is repeated. See here for stockpedias description: http://www.stockopedia.com/screens/dividend-dogs-14/

The interesting thing is it produces lists that are remarkably similar to a HYP.

See here for another example: http://www.thisismoney.co.uk/money/inve ... UBLES.html

There is an obvious overlap with the share universe of HYP: a lot of familiar names in the portfolio produced.

Back testing shows that a Dogs of the Dow is a winning strategy in total return terms when backtested in the US, but prone to sharp drawdowns. I don't have long term results when applied to the FTSE.

No disagreement that the lists do through up many HYP shares, but the process and idea behind the 2 are completely different. Picking HYP shares today would probably not throw up the same list as the "dogs". However, shares that have in the past been HYP stay in the running as we all have them, so the discussion, usually goes along the lines of "should I buy a new share, possibly in a different sector to give a dividend income I am looking for, OR who should I top-up with the money, then those "dogs" may not be the best to put money in. The "dogs" philsophy does not follow that flow does it? You put the nail on the head so too speak when you said "total returns", HYP is for primarily "a growing income", capital is important but comes 2nd (IMO) to a steady and rising income.

Raptor.

[Wizard]

As I am new to all this I had not heard of the Dogs of the Dow / FTSE approach before.

Having read a couple of the links it seems pretty easy to understand and whilst the list of any shares in a Dogs strategy may overlap with HYP the approach does seem quite difference. Is this summary / comparison to HYP broadly right?

Objective
HYP: sustainable income
Dogs: total return

Selection Universe
HYP: varies by person but typically will dip down to mkt cap of c.£1b
Dogs: FTSE 100

Portfolio Size
HYP: minimum 15, in some cases up to 40
Dogs: 10

Selection Criteria
HYP: multiple covering; yield, debt level and dividend history
Dogs: yield

Diversification
HYP: by design, a key safety factor both by company and sector
Dogs: by company, but sectors not considered

Tinkering
HYP: some none, some low level driven by portfolio balancing or specific events such as dividend cuts
Dogs: annually, may result in no change right up to replacing entire portfolio

Would appreciate any thoughts to where this is wrong.

Terry.

[daveh]

Just imagine a purist 15 share HYP: it could conceivably have hit the icebergs of Pearson, Petrofac, Provident Financial, Tesco, Carillion and Lloyds, all of which at one time or another might have been reasonable picks.

Bet that guy has gone passive...



I think the idea of a 15 share portfolio is really too concentrated when dealing with what is effectively a "dogs of the FTSE" approach.

As an income strategy I believe HYP may work OK but if one share blows up in a 15 share portfolio, it's a pretty significant blow. As we have seen multiple disasters in the last two fairly benign years, I am far from sanguine about the prospects for a HYP in a future big credit crunch, though obviously the above records from the likes of Terry show that recovery is possible given time.

It is the fairly concentrated risk that worries me: It would have been entirely possible to suffer several bad body blows in a short time period with unlucky share selection using the standard criteria, which indicates a need for either bigger selection hurdles, more diversification or better prayers to Lady Luck.

I still have 40% of my portfolio in HYP for what it is worth, so I do have quite some skin in the game!

Its not just Terry, this is what my HYP did over the credit crunch:


I started the HYP in 2000 with monthly investments so it wasn't purchased in one go and now consists of 32 shares and 3 high yield ETFs. The value started falling during 2008 and bottomed out by June 2009, it didn't regain its December 2007 peak until the end of 2012 so the unit value took 5 years to recover. However the income fell a year later in 2009 and dropped 27% in one year only and recovered quicker than the unit value as the income per unit was back to pre drop levels in under four years. In cash terms the income recovery was even quicker, as I am still building the portfolio and not yet taking an income the dividends were back to pre crash levels after only 1 year.

[Wizard]

I just did a quick look at DividendData to find what todays 'Dogs' list would be. Not clear whether 'Dogs' include special dividends or not, so two lists:

Excluding Specials*
BP
RDSB
SSE
Vodafone
Centrica
Marks & Spencer
Royal Mail Group
Legal & General
HSBC
BT

Including Specials**
ITV
Next
Taylor Wimpey
BP
RDSB
SSE
Vodafone
Centrica
Intercontinental Hotels Group
Marks & Spencer

There are some on those lists I would personally not consider for my HYP at the moment for reasons of relatively recent cuts or cover, but the constituents on those lists are unsurprisingly pretty familiar.

Terry.


* whether it is right or not to do so under a 'Dogs' approach I have excluded Provident Financial, RDSA and Pearson from this list on the basis of known cuts or duplication
** from this list in addition to the three excluded above I have also excluded National Grid as the special was clearly a one off