ITs and Stocks in a HYP?

[EssDeeAitch]

What is the consensus on having ITs and individual stocks in an HYP?

Moderator Message:
Subject line edited to remove apostrophes -- MDW1954

[Darka]

Quite a few of us do, however ITs aren't allowed to be discussed on the HYP Practical board (this one), so you may want to start another topic on the strategy board, or maybe one of the mods can move this one?

viewforum.php?f=31

regards,
Darka

[Raptor]

Moderator Message:
The guidleines for HYP Practical are clear. Moving to Strategy. Raptor.

[Raptor]

As pointed out the HYP Practical board "restricts" the allowed constituents of a HYP to UK Shares and REIT's.

For the HYP Practical board we define an HYP as a portfolio comprised exclusively of ordinary shares.

I have a High Yield portfolio that contains shares and IT's. I have not seen any laid down criteria for IT's, but I have chosen those that are delcared as either "Income IT's" or Income & Growth IT's".

So the answer to your question is that with the "guidleines" for the board a HYP (if you are talking about the High Yield Portfolio on the "practical board") cannot contain IT's (REIT's excepted).

My Portfolio can be found here, Have since started to drip money into JETI and have added Greene King to sit alongside Marstons.

Raptor.

[Alaric]

What is the consensus on having ITs and individual stocks in an HYP?

It's your money, so do what you feel comfortable with. Purists, as you may have noticed, will object to the use of the term HYP to describe such an asset collection.

[moorfield]

What is the consensus on having ITs and individual stocks in an HYP?

It's your money, so do what you feel comfortable with. Purists, as you may have noticed, will object to the use of the term HYP to describe such an asset collection.

+1. For this reason I have deliberately restyled my portfolio a "HYRP" not a "HYP". I am not a member of Sacred Congregation for the Doctrine of the Faith.

[OZYU]

What is the consensus on having ITs and individual stocks in an HYP?

It's your money, so do what you feel comfortable with. Purists, as you may have noticed, will object to the use of the term HYP to describe such an asset collection.

Our HY ISA portfolios, as a pair, were called HYP in our system (database + control language in those days, excel with macros nowadays) since their inception, and analysed as such, we are talking PEP days, now over thirty years ago, to my knowledge way before HYP appeared on any board I can think of.

So purist can object all they like, nobody owns that acronym as far as I know. Our HYPs contain mostly individual stocks (and the odd pref and IT), in mine, and mrs Oz only invests in collectives, mostly ITs. None the worse for it since the pair is approaching the 'double turn round the clock' mark, while having rolling volatility lower than FTAS. In any case impossible to achieve the coverage of income sources we want else. In posts I refer to this portfolio as our HY ISA effort.

Better to concentrate on finding good investments imho that be obsessed with ridiculous rules.

Ozyu

[EssDeeAitch]

Great, got it and many thanks. Construction of HYP portfolio underway

[tjh290633]

What is the consensus on having ITs and individual stocks in an HYP?

It's your money, so do what you feel comfortable with. Purists, as you may have noticed, will object to the use of the term HYP to describe such an asset collection.

It's simple. You can invest in what you like, but don't confuse the performance of your HYP by including non-HYP securities in your reported results. Keep them in a separate jamjar or teapot. By all means compare their performance with your HYP, to judge whether you are on the right lines. They provide a useful yardstick and your comparison would be welcome on this board.

TJH

[EssDeeAitch]

What is the consensus on having ITs and individual stocks in an HYP?

It's your money, so do what you feel comfortable with. Purists, as you may have noticed, will object to the use of the term HYP to describe such an asset collection.

It's simple. You can invest in what you like, but don't confuse the performance of your HYP by including non-HYP securities in your reported results. Keep them in a separate jamjar or teapot. By all means compare their performance with your HYP, to judge whether you are on the right lines. They provide a useful yardstick and your comparison would be welcome on this board.

TJH

That's a good point, it will be easy enough to report on both as distinct entities if I go down that route.

[monabri]

I run a HYP ( in the HYP practical definition) plus a collection of ITs which are 'income focused' but are not UK biased....example HFEL, JETI, NAIT. At the moment, the ratio is approx 75:25 HYP to IT but I want to increase the IT side in the future.

[Gengulphus]

What is the consensus on having ITs and individual stocks in an HYP?

Depends on exactly what you mean the consensus you're asking about to be about - some possibilities:

* Whether one should include both ITs and individual stocks in what one thinks of as one's HYP. There is no consensus on that, any more than there is a consensus on any other aspect of how one should run one's investment portfolio. My own view is that it's completely pointless either to expect there to be such a consensus or to try to get one.

* Whether one should think of a portfolio that contains both ITs and individual stocks as a HYP. I don't think there is a consensus about that either. My own view is that it should depend on the ITs - basically, an IT's ICB classification of being in the Equity Investment Instruments sector almost totally obfuscates the question of what sectors one is invested in as a result of its underlying investments. If an IT's 'underlying sector' is fairly clear-cut and diversifies well with the sectors in the rest of the HYP, there's little problem - I think that's the basic reason why REITs are acceptable on HYP Practical, as they have a fairly clear sector (which I would describe as 'Property' or possibly 'Commercial Property') and they're the main form of UK shares investing in that sector. Another IT I think meets that test is Greencoat UK Wind (UKW), which I would describe as being in the 'Alternative Energy' or 'Renewable Energy' sector. At the opposite end of the spectrum are generalist UK ITs whose underlying holdings will very largely duplicate the sectors of a HYP's individual shareholdings, and often largely duplicate the HYP's individual shareholdings themselves: thinking of such ITs and individual shares as side-by-side holdings in a HYP is IMHO an exercise in adding illusory diversification to the HYP rather than real diversification, and concealing that from oneself by obfuscating the underlying diversification picture. One can deal with that by analysing the sector diversification analysis for each IT, and repeating that analysis regularly and fairly frequently - but that's a lot of work and it's far better IMHO to regard the overall portfolio as consisting of two parts: a HYP whose sector diversification one manages oneself, and an IT portfolio whose management (including managing its sector diversification) one delegates to the ITs' managers, only managing its 'manager diversification' oneself.

* Whether one should be able to discuss a portfolio that contains both ITs and individual stocks on the HYP Practical board. I think there is a consensus about that, but it's only a consensus among the site owners and moderators, not among the site's users. It's described in the HYP Practical board guidance, which basically says "No ITs, with the exception of REITs" (in practice, I think that's softened a bit, in that portfolios which contain a small proportion of non-REIT ITs don't seem to cause problems there as long as their IT holdings don't become the focus of the discussion). I won't give my own view about this one here, as any discussion of the question belongs on the Biscuit Bar (and in any case has been done to death there recently!).

That last bullet is specific to the HYP Practical board, and doesn't apply to this board, which is (potentially!) about a whole lot more than HYP strategies. So there's nothing preventing one from discussing high-yield portfolios that contain both ITs and individual shares here, nor the strategies that are used to run them. I would suggest not calling them HYPs (i.e. that specific all-caps acronym), though, as that is just likely to cause confusion and attract adverse comments under the misapprehension that they're supposed to be what the HYP Practical board guidance describes...

Gengulphus

[daveh]

At the moment I have high yield shares and high yield ETFs in my HYP. The ETFs cover areas I'm not happy buying individual shares in (non UK markets). I have EMDV, IDVY, IAPD to cover emerging markets, Europe and Asia Pacific. Not that happy with EMDV as its dividend has been falling rather than growing, so am open to suggestions of an alternative to EMDV (either an ETF or IT).

[funduffer]

I run a HYP ( in the HYP practical definition) plus a collection of ITs which are 'income focused' but are not UK biased....example HFEL, JETI, NAIT. At the moment, the ratio is approx 75:25 HYP to IT but I want to increase the IT side in the future.

I do the same.

I have a HYP with 20 shares, and a basket of 8 high income ITs which I run as 2 portfolios.

The HYP has FTSE100 and a couple of FTSE250 shares. The ITs are are about half and half UK and internationally focussed.

The HYP yields about 5% and the ITs about 4%.

Both portfolios are about of equal overall value, and both were started in 2013. Very little new capital is being added now. Some dividends are withdrawn, some are reinvested.

My intention is to compare the 2 after 5-10 years and decide if I prefer one over the other, or like both. If both, as I get older, I may just migrate the HYP into the ITs if I decide the HYP has become too bothersome to manage or I start to lose my faculties. I am 63, so I hope that is a long way off!

Currently I am enjoying managing both.

FD

[TUK020]

What is the consensus on having ITs and individual stocks in an HYP?

I think there are 3 possible reasons to invest in ITs as well as individual stocks:

a) Instant diversification for small portfolios. When you take dealing costs into account, it doesn't make that much sense to purchase blocks of less than £1000 of any individual stock. I try to set my dealing minimum to be £2000. To get reasonable safety from diversification you need around 15 different stocks, and you may not have sufficient funds to get a spread of reasonable purchases. When starting my kids' portfolios, I started with ITs, and then started picking individuals stocks later.

b) geographic diversification. Althought the FTSE is pretty international (some 70% of the earnings are overseas), ITs are an easy way to get further exposure to parts of the world or sectors that are not represented that well in the FTSE (e.g. tech or Far east)

c) what I call the 'long term gaga plan'. ITs require much less in the way of corporate actions, rebalancing, cash buffer decisions, etc.

I also tend to use them in my SIPP rather than ISA, as I want less capital volatility in the SIPP in the short term, but I have no evidence that this is the case.

[Julian]

What is the consensus on having ITs and individual stocks in an HYP?

I think there are 3 possible reasons to invest in ITs as well as individual stocks:
...

I'd add a 4th possible reason to that

d) Stabilising an income stream. Any HYP investor presumably hopes that all their HYP shares will show year-on-year increases in dividends, or at least no falls, but as more companies move to USD or EUR divi declarations exchange rate fluctuations can cause year-on-year decreases in GBP payouts even if a company's underlying dividends are static or even growing. Also, a good income IT can hide catastrophic events such as the BP Gulf of Mexico incident from an investor who is only looking at dividends paid out.

I suppose (d) is somewhat related to (c) but I think it's subtly different, for instance I do run a cash buffer to smooth out my income and would still do so with an all-IT income portfolio but it still frustrates me whenever I enter a new divi declaration into my 1 year forward forecast spreadsheet and see it reduce the total income that I am estimating for the following 12 months. This is probably the biggest reason why I have ITs in my predominantly HYP-based income portfolio and am gradually switching the weighting of that portfolio more towards my income ITs. Ultimately I think I will end up with a 100% IT-based income portfolio although capital gains tax considerations might well mean I die before I can actually get to that end-point in a tax-efficient way (I have a pretty large non-tax-sheltered portfolio).

- Julian

[OZYU]

What is the consensus on having ITs and individual stocks in an HYP?

I think there are 3 possible reasons to invest in ITs as well as individual stocks:

a) Instant diversification for small portfolios. When you take dealing costs into account, it doesn't make that much sense to purchase blocks of less than £1000 of any individual stock. I try to set my dealing minimum to be £2000. To get reasonable safety from diversification you need around 15 different stocks, and you may not have sufficient funds to get a spread of reasonable purchases. When starting my kids' portfolios, I started with ITs, and then started picking individuals stocks later.

b) geographic diversification. Althought the FTSE is pretty international (some 70% of the earnings are overseas), ITs are an easy way to get further exposure to parts of the world or sectors that are not represented that well in the FTSE (e.g. tech or Far east)

c) what I call the 'long term gaga plan'. ITs require much less in the way of corporate actions, rebalancing, cash buffer decisions, etc.

I also tend to use them in my SIPP rather than ISA, as I want less capital volatility in the SIPP in the short term, but I have no evidence that this is the case.

Agree, and I can think of two more:

Because you simply want to.

Because for a vast proportion of investors, having looked at so many limping DIY efforts over the years, imho it will improve overall returns.


Ozyu

[Itsallaguess]

I'd add a 4th possible reason to that

d) Stabilising an income stream. Any HYP investor presumably hopes that all their HYP shares will show year-on-year increases in dividends, or at least no falls, but as more companies move to USD or EUR divi declarations exchange rate fluctuations can cause year-on-year decreases in GBP payouts even if a company's underlying dividends are static or even growing.

Also, a good income IT can hide catastrophic events such as the BP Gulf of Mexico incident from an investor who is only looking at dividends paid out.

No-one has mentioned Investment Trust income-reserves on this thread yet, so I thought I would bring it up as an additional benefit to the ones already mentioned.

This allows many income-related Investment Trusts to continue paying out a steady stream of dividends even during periods where individual companies or even sectors might come under pressure to do so at a more direct level.

Of course this 'insurance' comes at a cost, and we shouldn't ever consider that hiving out income-investment to IT's is a cost-free alternative to different methods of gaining that income, but I personally think that like all good insurances, there's a price worth paying for it, and after many years of owning a HYP with no IT involvement, I'm happy to say that working my way up to a position where around 38% of my HYP capital is currently allocated to various Investment Trusts is a position that I'm extremely content with.

My one wish is that I'd started to do so much sooner....

If I were starting out today with an interest in the HYP idea, I'd certainly advocate at least 25% of capital being allocated to IT's from day one, and possibly more.

Cheers,

Itsallaguess

[Gengulphus]

Because for a vast proportion of investors, having looked at so many limping DIY efforts over the years, imho it will improve overall returns.

I'm not clear what you mean by "having looked at so many limping DIY efforts over the years" - is it that you've looked at your own stockpicking efforts and found that a lot of the shareholdings you've selected have limped, or is it that you've seen a lot of other investors' attempts at stockpicking and seen that a lot of the shareholdings they've picked have limped, or is it that you've seen a lot of other investors' attempts at stockpicking and seen that a lot of their overall portfolios have limped?

And whichever it is, what makes you think that you've gained any information about the proportion of stockpicking investors who have done poorly? Even if you've seen the portfolios of hundreds of stockpicking investors, it's likely that it's the ones who have done poorly and want advice who have shown you their portfolios, while those who have done well probably haven't. In particular, I reckon anyone who is sufficiently independently-minded to want to pick their own individual shareholdings and who is doing well is pretty likely to figure that what they're doing ain't broke and don't need fixing!

Gengulphus

[OZYU]

Because for a vast proportion of investors, having looked at so many limping DIY efforts over the years, imho it will improve overall returns.

I'm not clear what you mean by "having looked at so many limping DIY efforts over the years" - is it that you've looked at your own stockpicking efforts and found that a lot of the shareholdings you've selected have limped, or is it that you've seen a lot of other investors' attempts at stockpicking and seen that a lot of the shareholdings they've picked have limped, or is it that you've seen a lot of other investors' attempts at stockpicking and seen that a lot of their overall portfolios have limped?

And whichever it is, what makes you think that you've gained any information about the proportion of stockpicking investors who have done poorly? Even if you've seen the portfolios of hundreds of stockpicking investors, it's likely that it's the ones who have done poorly and want advice who have shown you their portfolios, while those who have done well probably haven't. In particular, I reckon anyone who is sufficiently independently-minded to want to pick their own individual shareholdings and who is doing well is pretty likely to figure that what they're doing ain't broke and don't need fixing!

Gengulphus

The latter I am glad to say.

I have taken a look at enough HY portfolios, real ones from all kind of investors, and on various boards to form an opinion on the matter, and I do say imho. In any case I was not aware that these boards exclude one's opinion and need your approval, since opinions that is all they can contain, and my opinion is every bit as valid as yours my boy, of that I am absolutely certain. We ourselves run, since PEPs (now ISAs) one HY portfolio each, mine has similarities to HYP, in that I mostly invest in individual Cos, but uses a much wider range of cap values, my wife specialises in ITs, although she does have the odd fund in there. Plenty of years to form an opinion, since we started to invest more seriously in the early 70s anyway, having messed around with penny stocks before. We also run three other portfolios with different aims and strategies, these portfolio have outperformed our HY ISAs, because imho they are stuffed with smaller Cos, tech, and have a fair bit in the US too, and we research these deeper anyway.

One of the relevant pieces of info is the comparison of GDHYP vs plain old CTY, the latter has outperformed GDHYP every year of its life on the records I have so far, for income, a little but always ahead, and for capital, a lot and always ahead. GDHYP will never catch it up while I live IMHO, don't worry I don't have that long left according to the quacks! Because of the extra capital, the CTY investor could boost the income way further too any time required, by re deploying on a risk for risk basis vs GDHYP. Main reason for the better results was the financial crisis, plus the fact that Job Curtis goes about it sensibly enough, nothing special, less dogma and 'don't do this that and the other' for sure. The XIRRs are vastly different. The data, not my opinion since I have the exact data, did surprise me when it was passed over to me, so I carried on monitoring this quietly as it is no hassle.

Another couple of reasons being that ITs portfolios reduce hitting the 'Carillions' of this world, and when the proverbial hits the fan IT divis keep coming in essentially untouched, to be re invested with a SP hammered by the gearing, a win win for the pot builder. And hit the fan it will surely do again, imho.

FWIW I think blending in an HY individual Cos portfolio with a few ITs, to cover regions and aspects hyp as 'defined' cannot reach, as Itsallaguess suggest and in his kind of proportion, makes sense IMHO, certainly for the retiree on tight means to make the income flow more secure, possibly for many retirees too. When we were required to build portfolios for ancient members of our circle of friends and family to cover their care and nursing home fees, ITs it has been exclusively, a no brainer imho, and I am building another one at the mo for an old friend. For the younger pot builder, my opinion is that a growth portfolio is better, at least in part, as ours have done really well, better than the HY ISA efforts, or at least running at a lower yield than HYP, to catch much better divi growth, plus better capital progress.

IMHO, which I am entitled to hold and express as I read the thread.



Ozyu