Top-up HYP or IUKD?

[OLTB]

Afternoon all - a glass of cold Thatchers 'Haze' would go down well right now, phew what a scorcher.

Here's my HYP and I have been thinking about top-ups recently as I might have a few pennies to invest soon:



As you may see, there are a few shares, when it comes to capital values, which are ripe for top-ups such as BAe Systems, British Land and Unilever. I have been reluctant to top them up from a capital point of view as others have higher yields, although I'm conscious that there is starting to be a bit of imbalance in the portfolio.

I do like order and 'balance' so it would be mentally comfortable to bring the stated shares mentioned up to the average value, however, this would then bring the potential overall yield down as I could invest elsewhere.

So, one of my thoughts is to invest in IUKD (iShares UK Dividend Plus) as this generates a yield of 5.12% compared to the other shares mentioned above (BAE Systems 3.50%, British Land 4.70%, Unilever 3.10%).

However, I am also conscious that the HYP should be viewed as a portfolio and therefore the individual shares should not be ignored and it's what the whole generates that is important. Currently, HYPTUSS calculates that my HYP portfolio yield is 5.40%

So, I am at this crossroads of do I top up the HYP constituents that are paying a low-ish yield so that the portfolio is in balance, or, do I consider the IUKD which keeps income and diversity high (acknowledging that I will have some replication of shares I already hold in the HYP) and leave the laggards to fend for themselves.

There has been previous comment about pyad's HYP1 started in 2000 and the imbalance that has built up (mainly because of the soaring value in tobacco shares) and I don't really want to get to that position if I don't need to. Pyad may argue that there isn't a problem and the HYP is doing what it set out to do, which of course it is.

Any comments gratefully received!

Cheers, OLTB.

[moorfield]

Afternoon all - a glass of cold Thatchers 'Haze' would go down well right now, phew what a scorcher.

Some of us are stuck indoors working ....

So, one of my thoughts is to invest in IUKD (iShares UK Dividend Plus) as this generates a yield of 5.12% compared to the other shares mentioned above (BAE Systems 3.50%, British Land 4.70%, Unilever 3.10%).

So there's your benchmark. Buy or top-up a share yielding more than 5.12%. I hold 8 that I could choose from currently: RE.B, CNA, SSE, RDBS, VOD, IMB, GSK, HSBA.
Why bother buying lower yielding ULVR when you can buy higher yielding IUKD?

However, I am also conscious that the HYP should be viewed as a portfolio and therefore the individual shares should not be ignored and it's what the whole generates that is important. Currently, HYPTUSS calculates that my HYP portfolio yield is 5.40%

Indeed. Your HYP overall should be producing more income this year than it did last, regardless of overall yield.

[OLTB]

Afternoon all - a glass of cold Thatchers 'Haze' would go down well right now, phew what a scorcher.

Some of us are stuck indoors working ....

So, one of my thoughts is to invest in IUKD (iShares UK Dividend Plus) as this generates a yield of 5.12% compared to the other shares mentioned above (BAE Systems 3.50%, British Land 4.70%, Unilever 3.10%).

So there's your benchmark. Buy or top-up a share yielding more than 5.12%. I hold 8 that I could choose from currently: RE.B, CNA, SSE, RDBS, VOD, IMB, GSK, HSBA.
Why bother buying lower yielding ULVR when you can buy higher yielding IUKD?

However, I am also conscious that the HYP should be viewed as a portfolio and therefore the individual shares should not be ignored and it's what the whole generates that is important. Currently, HYPTUSS calculates that my HYP portfolio yield is 5.40%

Indeed. Your HYP overall should be producing more income this year than it did last, regardless of overall yield.

I am (unfortunately) also working indoors! It would still go down well though The plan for my HYP is that eventually, I won't have to (which, I'm sure is also your plan as well!)

So, you're saying that you would leave say ULVR alone and let it dwindle (I mean the capital value, and not the dividends) as the portfolio grows - ok, that's my current thought as well but always happy to be challenged!

Cheers, OLTB.

[tjh290633]

I haven't looked at it recently, but one of the failings of IUKD was its lack of diversity. Very heavy in financials at one time, and often with a full set from one sector. That comes with the method of selecting shares purely on yield. Also weighting by the income which each share generates.

Rebalancing is now 3-monthly, but a lot can happen in three months. I suspect that you will be duplicating many of your HYP shares.

Top up selectively instead.

TJH

[OLTB]

I haven't looked at it recently, but one of the failings of IUKD was its lack of diversity. Very heavy in financials at one time, and often with a full set from one sector. That comes with the method of selecting shares purely on yield. Also weighting by the income which each share generates.

Rebalancing is now 3-monthly, but a lot can happen in three months. I suspect that you will be duplicating many of your HYP shares.

Top up selectively instead.

TJH

Thank you TJH - remarks taken on board.

Cheers, OLTB.

[monabri]

I think IUKD would be an ideal de-risker and valuable yielder & I might do likewise !!

Not taking any of your other holdings into account (J Baron p/f etc) but purely comparing to your HYP list - you would be "buying" a share of quite a substantial new set of companies.....the question is, of the many that you DON'T already own a share in, would you be happy (ish) to hold them as an individual new HYP member? For me, the answer would be a "yes" and many of the HYP-fraternity hold them within their individual HYPs.


(RDSB :RDSA . IUKD holds the "A" version, OLTB the "B" version - I've taken the liberty to equivalence them)



(alright maybe not CNA )


I think that's consistent with my previous thoughts

viewtopic.php?f=54&t=11079#p146160

[tjh290633]

Looking at that list, I hold 20 of them, my portfolio ranked by yield is:

Rank   EPIC   Yield
   1   TW.    8.83%
   2   MARS   7.53%
   3   VOD    7.06%
   4   SSE    6.77%
   5   BT.A   6.71%
   6   MKS    6.05%
   7   IMB    6.04%
   8   ADM    5.97%
   9   LGEN   5.57%
  10   AV.    5.49%
  11   NG.    5.35%
  12   RIO    5.26%
  13   RDSB   5.22%
  14   GSK    5.19%
  15   UU.    5.13%
  16   BP.    5.06%
  17   S32    5.04%
  18   BATS   5.01%
  19   LLOY   4.89%
  20   BLND   4.66%
  21   WMH    4.39%
  22   BLT    4.36%
  23   TATE   4.34%
  24   AZN    3.91%
  25   KGF    3.70%
  26   IMI    3.65%
  27   BA.    3.41%
  28   ULVR   3.06%
  29   SMDS   2.89%
  30   RB.    2.58%
  31   SGRO   2.47%
  32   DGE    2.31%
  33   CPG    2.18%
  34   PSON   1.91%
  35   TSCO   1.16%

S32 is the exception in my top 21. The average yield of the top 21 is 5.77%. For the whole portfolio it is 4.7%.

PSON and TSCO may be on borrowed time.

TJH

[OLTB]

I think IUKD would be an ideal de-risker and valuable yielder & I might do likewise !!

Not taking any of your other holdings into account (J Baron p/f etc) but purely comparing to your HYP list - you would be "buying" a share of quite a substantial new set of companies.....the question is, of the many that you DON'T already own a share in, would you be happy (ish) to hold them as an individual new HYP member? For me, the answer would be a "yes" and many of the HYP-fraternity hold them within their individual HYPs.


(RDSB :RDSA . IUKD holds the "A" version, OLTB the "B" version - I've taken the liberty to equivalence them)



(alright maybe not CNA )


I think that's consistent with my previous thoughts

viewtopic.php?f=54&t=11079#p146160

Thanks for all your efforts on that monabri - really appreciated.

Cheers, OLTB.

[vrdiver]

When IUKD was first launched, I thought it would be a good holding station for cash, as it seemed to focus on High Yield. Unfortunately, when the market weakened, IUKD plummeted, as all the high yielders at the time were ravaged by market sentiment.

I won't touch it now, not because of the burnt fingers, but because their selection process is still the same and could lead to a lot of poor quality companies that you would filter out of your HYP selection but which they will allow in.

I note you have 18 companies in your HYP. At that number, I'd be looking to add to the total holdings rather than top up, but your total investment picture might make you less worried about HYP diversification than me!

VRD

[monabri]

The share price took a dive between 2007 and 2009. Since then it has been an upward progression (select the "max" option on the graph)

https://www.google.co.uk/search?source= ... d2wDN655GU

[OLTB]

When IUKD was first launched, I thought it would be a good holding station for cash, as it seemed to focus on High Yield. Unfortunately, when the market weakened, IUKD plummeted, as all the high yielders at the time were ravaged by market sentiment.

I won't touch it now, not because of the burnt fingers, but because their selection process is still the same and could lead to a lot of poor quality companies that you would filter out of your HYP selection but which they will allow in.

I note you have 18 companies in your HYP. At that number, I'd be looking to add to the total holdings rather than top up, but your total investment picture might make you less worried about HYP diversification than me!

VRD

Thanks VRD - yes, I have also been thinking of adding one or two extra shares as I lost one with Carillion and will be losing another with Sky being sold soon.

I was thinking of one (or both) of Standard Life Aberdeen and WPP. I don’t have these as sector choices as yet, and ITV could also be a simple swap for the Sky proceeds as and when that happens.

Cheers, OLTB.

[moorfield]

So, you're saying that you would leave say ULVR alone and let it dwindle (I mean the capital value, and not the dividends) as the portfolio grows - ok, that's my current thought as well but always happy to be challenged!

Yes, although important to qualify that I am an "accumulator" rather than a "payee" of dividends, and as such can tackle portfolio imbalances through reinvestment over time; I don't feel the need to do so through deliberate selling of anything (costs me £9.95 a pop), including ULVR which I also hold - its yield is currently too low to top up (or buy new), but not low enough to dispose of - so am happy to continue holding until such time it isn't Mr Market's BFF anymore and can be bagged for a higher yield, or my portfolio's overall income starts to lag behind it's annual target.

M

Afternoon all - a glass of cold Thatchers 'Haze' would go down well right now, phew what a scorcher.

Since my earlier post have been enjoying several stubbies in the sun this evening.

[OhNoNotimAgain]

It hasn't done too badly over 5 years, not so good over 3 years since QE stopped.

[Gengulphus]

So, I am at this crossroads of do I top up the HYP constituents that are paying a low-ish yield so that the portfolio is in balance, or, do I consider the IUKD which keeps income and diversity high (acknowledging that I will have some replication of shares I already hold in the HYP) and leave the laggards to fend for themselves.

My main comment is that an investment in IUKD (or any other 'fund' investment, i.e. anything which is basically a portfolio of other investments) is a fundamentally different strategy from picking your own investments - in one, you get someone (or some computer!) else to decide what you're invested in for you, in the other, you make such decisions yourself.

That's a bit of an overstatement - it isn't quite that stark a distinction. In particular, when you invest in a big company, you're almost always actually investing in a whole group that consists of a top-level holding company (which is what you actually own shares in) and a whole lot of its subsidiaries, subsidiaries of its subsidiaries, etc, which you own indirectly because the holding company owns shares in its subsidiaries, its subsidiaries own shares in their subsidiaries, etc. So your investment in Legal & General, for instance, is in many ways basically an investment in a portfolio of all its subsidiaries, etc, with management of that portfolio done by Legal & General's board, not by you. However, most of its subsidiaries will be 100% owned by Legal & General, who aren't selling, so the only way to invest in them is by holding shares in Legal & General: you cannot manage such holdings yourself. And most or all of the rest will be held by a very limited number of holders, who will generally be bound by company law, specific provisions in the subsidiary's Articles of Association and/or specific shareholder agreements not to sell them to anyone else, either at all or without first giving the other existing investors to buy the shares at the same price, which make it impossible in practice for anyone else to own the subsidiary except indirectly by holding shares in one or more of its existing shareholders, and so letting one or more of them manage the holding.

So probably a more accurate description of the strategy difference is between (on the one hand) picking your own investments whenever it is reasonably practical to do so and only delegating the job when it isn't (*) and (on the other hand) delegating it more generally, ranging up to a fund-only strategy where you delegate it all to fund managers.

I can see the point of choosing a pick-investments-oneself strategy, especially if one enjoys the challenge, or of choosing a delegate-the-picking-of-investments strategy, especially if one can (or wishes to) devote very little time to the job. And I can see the point of picking some intermediate strategies, such as picking the UK investments oneself but delegating the picking of foreign investments if one doesn't really have the time or inclination to track more than one market oneself. Or another case where I see the point is what might be called 'strategy diversification', where e.g. one puts half one's capital into a pick-investments-oneself strategy and the other half into a delegate-the-picking-of-investments strategy because one enjoys the challenge of picking one's investments oneself but wants to limit the damage if one makes a mess of it.

But all of that says that I don't really see the point of investing in IUKD as just another holding in a 20ish-holding portfolio of what are otherwise individual (groups of) companies. At ~5% of your total capital with the remaining ~95% in pick-it-oneself individual investments, it doesn't achieve any significant 'strategy diversification': you'll still be hit almost as badly if you make a mess of picking individual companies yourself. It doesn't significantly reduce the amount of work you need to put into picking individual investments, nor does it allow you to invest indirectly in things it's not practical for you to invest in directly. As regards company and sector diversification, it doesn't add significantly to them: a holding of IUKD in a 20ish-share portfolio effectively adds a ~0.1% holding of each of the 50 companies in IUKD to the portfolio, totalling ~5%: if adding loads of holdings so tiny that collectively, they're still only a small part of the portfolio, to a portfolio were the way to achieve good diversification, then a portfolio that was 95% Carillion and 5% IUKD would have been well-diversified! The way to achieve good diversification is instead to limit the maximum size of a holding, at least as a first approximation (there are better methods in principle based on correlations, but with the practical problem that they rely on correlations remaining as historically observed - and they tend not to in times of crisis...) and a holding in IUKD will complicate keeping an eye on that. E.g. adding IUKD to a 19-share balanced portfolio as another holding of the same size will apparently reduce its maximum size holding from 5.3% to 5.0%, but in reality the effective size of any holding that it holds both directly and as an underlying holding of IUKD will actually be about 5.0%+0.1% = 5.1%. Not saying that that's a huge difference, but it is a minor complication and can be a bigger one if one has more 'fund' holdings.

I'm not saying "Don't buy IUKD" (nor indeed "Do buy IUKD"). But I am saying that it is basically a different type of holding with a different strategic role to shares in individual companies: basically one of delegating part of the share-picking job from oneself to IUKD's strategy (a very mechanical one if it's still similar to when I last looked at it in detail, several years ago). And I am saying that if you don't want to do that delegation, you shouldn't use IUKD at all, while if you do want to do it, you almost certainly want to make use of it for considerably more than about 5% of your portfolio. So I'm not clear on whether my opinion is "too much" or "too little", but I am reasonably clear that I think holding IUKD as a single holding on an equal footing with individually-chosen companies in a 20ish-holding portfolio fall between two stools.

(*) E.g. investing in companies with lots of subsidiaries, in REITs owning a lot of commercial properties, or in an investment trust specialising in particular foreign markets for investors who don't want the additional effort of tracking what's going on in those markets but do want to be invested in them.

Gengulphus

[OhNoNotimAgain]

So, I am at this crossroads of do I top up the HYP constituents that are paying a low-ish yield so that the portfolio is in balance, or, do I consider the IUKD which keeps income and diversity high (acknowledging that I will have some replication of shares I already hold in the HYP) and leave the laggards to fend for themselves.

My main comment is that an investment in IUKD (or any other 'fund' investment, i.e. anything which is basically a portfolio of other investments) is a fundamentally different strategy from picking your own investments - in one, you get someone (or some computer!) else to decide what you're invested in for you, in the other, you make such decisions yourself.


Gengulphus

The simple question is whether you think stock-picking is more powerful than compound interest.

[OZYU]

The simple question is whether you think stock-picking is more powerful than compound interest.

Ian sorry to say this, OhNotHimAgain alias Rob, but your response is utter nonsense. As a fund manager yourself, you should surely know better.

I am a more of a stockpicker I suppose, my wife invests mostly in funds(essentially ITs), other in ETFs (smart or not)and others in HYP, and I can assure you that during the pot building stage at least, as divis and new funds pour in, all such investments lead to compounding, by the basic inescapable laws of mathematics. "More powerful" is not inherent to any method, it is to do with individual skills, luck, timing, etc...


As for IUKD. It is not and will never be for us two, for a variety of reasons.


OZYU

[OLTB]

The simple question is whether you think stock-picking is more powerful than compound interest.

Ian sorry to say this, OhNotHimAgain alias Rob, but your response is utter nonsense. As a fund manager yourself, you should surely know better.

I am a more of a stockpicker I suppose, my wife invests mostly in funds(essentially ITs), other in ETFs (smart or not)and others in HYP, and I can assure you that during the pot building stage at least, as divis and new funds pour in, all such investments lead to compounding, by the basic inescapable laws of mathematics. "More powerful" is not inherent to any method, it is to do with individual skills, luck, timing, etc...


As for IUKD. It is not and will never be for us two, for a variety of reasons.


OZYU

Thanks everyone - Rob (thanks Ozyu!), I reinvest dividends at the moment so hope to enjoy compound growth eventually (my HYP is only 2 years old).

Regarding the majority of comments stated above, I will not be investing in IUKD.

Thanks again everyone, cheers, OLTB.

[monabri]

As for IUKD. It is not and will never be for us two, for a variety of reasons.

OZYU

I'd be interested as to what the reasons might be (genuinely!). For me, primarily an income investor, it seems to offer a reasonable yield at a lower risk than say investing in companies where there is mis/bad management (Carillion/ Provident/Interserve). Having invested (squandered) good money I feel that I would have been much better served just banging it all in IUKD.

[vrdiver]

For me, primarily an income investor, it seems to offer a reasonable yield at a lower risk than say investing in companies where there is mis/bad management (Carillion/ Provident/Interserve). Having invested (squandered) good money I feel that I would have been much better served just banging it all in IUKD.

You might want to take a look at Morningstar's analysis of IUKD...

Returns are classified as Low, Below Average, Low, and Low over 3, 5 and 10 years and all data, respectively) whilst the risk is classified as Above Average, Above Average, High and High for the same periods.

https://www.youinvest.co.uk/market-rese ... fault.aspx

A stellar under-performer, in my view.

VRD


(Disclosure: lost money on IUKD!)

[OhNoNotimAgain]

For me, primarily an income investor, it seems to offer a reasonable yield at a lower risk than say investing in companies where there is mis/bad management (Carillion/ Provident/Interserve). Having invested (squandered) good money I feel that I would have been much better served just banging it all in IUKD.

You might want to take a look at Morningstar's analysis of IUKD...

Returns are classified as Low, Below Average, Low, and Low over 3, 5 and 10 years and all data, respectively) whilst the risk is classified as Above Average, Above Average, High and High for the same periods.

https://www.youinvest.co.uk/market-rese ... fault.aspx

A stellar under-performer, in my view.

VRD


(Disclosure: lost money on IUKD!)

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