Dod's high yield portfolio

[Dod101]

The above is my current high yield portfolio. Let me make a few comments first of all on the holdings themselves.

In the last 12 months, I sold the last of SSE in November, Vodafone in January 2019, British Land in February 2018 and BT in January 2018. With the proceeds, I bought HFEL towards the end of 2018, A & J Mucklow in February 2018, both as new holdings. I added to Murray Income, Admiral, Schroders NV and Phoenix Holdings.

As for dividends, the dividends I have shown are based on actuals for 2018. I have included the dividends derived from SSE and Vodafone because they arose in 2018 and help to compensate for the dividend drag on the new acquisitions, in particular HFEL. The yield on the portfolio is around 5.42%.

I have avoided any of the recent disasters by maintaining a fairly small and focussed portfolio. Although by almost any standards I am overweight in Unilever, Shell and maybe Legal & General I am not too concerned because I have another small growth portfolio which taken together reduces the percentage holding in those. I will probably reduce Unilever a bit before long. I have not touched any of these three for many years (I mean about 20 years) and like topsy, they have just growed!

I think diversification often leads to diworsification and so keep it small. I also simply do not consider the sectors and could not tell anyone what I have in any one sector. I simply look at shares and if I like I will buy. I will also not touch retailers, support services or contractors and am not very keen on utilities.

I live off my dividends so they are very important to me. If I have spare cash (from surplus dividends) I will decide at the time where to put it. I do not have any system for this and consider investing more art than science.

Hope this may be of interest and if anyone finds any errors please let me know.

Dod

[funduffer]

Very nice looking portfolio.

I have about half of these, spread across my HYP and IT portfolios.

I have always admired your ability to get out before trouble emerges, and judiciously avoid troublesome sectors!

I wish I had your skill and judgement.

Keep posting, I may learn yet!

I think your current view is that there are not many good HYP company shares around at the moment, which may explain your recent preference to buy IT's? If so, I agree with this sentiment.

Regards

FD

[MDW1954]

Thanks for this, Dod. I'm delighted to say that I hold 16 of your 22 shares. I'm even happier to report that SSE and VOD are among my very smallest holdings.

MDW1954

[Dod101]

Thanks for the comments but before you all carried away I am no expert, just a cautious and conservative investor prepared to take a long term view.

Funduffer. I think may said elsewhere, but I find the universe of attractive HYP shares reducing at the moment and almost without being conscious of it, have increased my exposure to ITs.

Dod

[monabri]

Is the HFEL divi weight correct -based on 4.24% capital weight?

[OZYU]

Is the HFEL divi weight correct -based on 4.24% capital weight?

This just reflects that Dod purchased it relatively recently, presumably. So that new 'Div engine' has not yet got into gear.


Ozyu

[monabri]

Is the HFEL divi weight correct -based on 4.24% capital weight?

This just reflects that Dod purchased it relatively recently, presumably. So that new 'Div engine' has not yet got into gear.

Ozyu

Thanks Ozyu - on re-reading Dod's post I can see this now.

[Arborbridge]

Dod thanks so much for posting that - I appreciate looking into your sweet shop, and I hope you will make this a semi-regular post so we can see how things evolve.

We may be working along similar lines. but you certainly have the knack of avoiding trouble, which I have lacked - and therein lies an important difference between us.

As regards specific holdings, I do not have PHP, have been tempted by Mucklow but keep backing off, and sold Murray Income as it seemed to perform less well than others I have. I own all the others you mention plus a number of other ITs which I always keep in a separate portfolio for clarity of comparison.

As I get older, my IT portfolio has expanded slightly in comparison with the HYP one - just because it's less bother and seems maybe slightly more dependable. This might be an illusion: it's just that one does not have to worry about the internal decisions of someone else fund and provided they come up with the goods one is not concerned.

Arb.

[Dod101]

Hi Arb

After a leisurely aperitif and having eaten, and now being in somewhat philosophical mood, I have to say that it may be that if you avoid trouble, as you put it, one is not taking enough risks. I do not know, but I have always taken on board the Sage of Omaha's advice, 'Do not lose money'. Of course it cannot always work but I have tried to steer clear and that is one reason why I reject pyad's belief about Strategic Ignorance. As you will know I also never chase yield and am content with a lower yield but steady growth if it can be found.

Dod

[Arborbridge]

Hi Arb

After a leisurely aperitif and having eaten, and now being in somewhat philosophical mood, I have to say that it may be that if you avoid trouble, as you put it, one is not taking enough risks. I do not know, but I have always taken on board the Sage of Omaha's advice, 'Do not lose money'. Of course it cannot always work but I have tried to steer clear and that is one reason why I reject pyad's belief about Strategic Ignorance. As you will know I also never chase yield and am content with a lower yield but steady growth if it can be found.

Dod

Certainly, conventional investment wisdom points out that it's looking after the losses which benefit one more than trying to find ten-baggers. But the Sage of Omaha and Pyad do have some things in common too - choosing well and the desire for a holding period of decades. Both aim never to sell. The difference is that Buffett is a master as the choice part, but Pyad's intention was to create a system for relative novice investors for which "near enough is good enough" in the old engineering term. He realised that a well diversified portfolio with some attention to safety would survive well enough for the purpose.
He was right about SI too: we cannot know what will come to pass in the future, hardly in a year, let alone in ten. This is true even for Buffett but is especially true for "ordinary" investors. I think it isn't so much SI that you reject, but Pyad's dictum, of market trading. i.e. in most circumstances, do nothing and let the market take care of the decisions for you. If your decision making is such that it truly avoids jumping from the frying pan into the fire, and you can prove it, then that's fine. I can't see anything wrong with it, and Pyad's dictum isn't for you. His statement was in the context of the typical amateur who just churns shares year after year looking for the next one to fulfill his dreams: one fresh love after another.
You clearly - like me - slow to turn over your share holdings; neither of us rush into things.

As for yield: my belief (and I can't proves it) is that a lower yield carries less risk. However, given a certain pot of gold to supply a pension, one requires a certain yield. That's the harsh truth, so each of us must take the risk commensurate with that. If I could survive on 2%. I would - but I can't.

Arb.

[Gengulphus]

He was right about SI too: we cannot know what will come to pass in the future, hardly in a year, let alone in ten.

Or at least at present, even in a month! ;-}

Gengulphus

[MDW1954]

He was right about SI too: we cannot know what will come to pass in the future, hardly in a year, let alone in ten.

Or at least at present, even in a month! ;-}

Gengulphus

Indeed.

MDW1954

[Alaric]

As for yield: my belief (and I can't proves it) is that a lower yield carries less risk.

There's the problem that the word "risk" has at least two meanings. In the context of fixed interest, there's the expression "risk free return" meaning the yield on Government Bonds (assuming UK, US or similar) where the likelihood of a default is treated as zero. That doesn't mean that prices cannot fall or aren't volatile. Corporate and other bonds have a higher yield by virtue of greater risk. Sometimes that's just marketability, but more usually it's partial or total default.

In the context of shares, risk is apt to be measured by the volatility (price fluctuation) of the share rather than the risk of it becoming worthless. If you compare investing in a selection of individual shares rather than the market as a whole by way of an index tracking fund, that's presumably "riskier" in the default sense. It might not be more risky in the volatility sense, but in any event the theorem that says you get higher returns by increasing risk is likely to be valid.

[Arborbridge]

As for yield: my belief (and I can't proves it) is that a lower yield carries less risk.

There's the problem that the word "risk" has at least two meanings. In the context of fixed interest, there's the expression "risk free return" meaning the yield on Government Bonds (assuming UK, US or similar) where the likelihood of a default is treated as zero. That doesn't mean that prices cannot fall or aren't volatile. Corporate and other bonds have a higher yield by virtue of greater risk. Sometimes that's just marketability, but more usually it's partial or total default.

In the context of shares, risk is apt to be measured by the volatility (price fluctuation) of the share rather than the risk of it becoming worthless. If you compare investing in a selection of individual shares rather than the market as a whole by way of an index tracking fund, that's presumably "riskier" in the default sense. It might not be more risky in the volatility sense, but in any event the theorem that says you get higher returns by increasing risk is likely to be valid.

I'm sorry, I should have made clear that the risk intended was of a major and permanent loss, not volatility. As a HYPer volatility tends to be rather less important since our holding period is "for ever" Volatility doesn't mean much to us unless we either panic or take advantage of it, so in a sense it can be ruled out of many HYPer's conversations. Only someone trying to harvest capital for income would think it uppermost as a consideration.

In any case, "the higher the return, the higher the risk" saying, I can't personally prove, but feels intuitively corrrect.

Arb.

[jackdaww]

Thanks for the comments but before you all carried away I am no expert, just a cautious and conservative investor prepared to take a long term view.

Dod

===========================

you may indeed be no expert , but you have saved me from low margin contractor disasters .

your warnings were given here well before the carillion collapse - no hindsight involved , as some here have said.

thanks.

[Walrus]

The above is my current high yield portfolio. Let me make a few comments first of all on the holdings themselves.

In the last 12 months, I sold the last of SSE in November, Vodafone in January 2019, British Land in February 2018 and BT in January 2018. With the proceeds, I bought HFEL towards the end of 2018, A & J Mucklow in February 2018, both as new holdings. I added to Murray Income, Admiral, Schroders NV and Phoenix Holdings.

As for dividends, the dividends I have shown are based on actuals for 2018. I have included the dividends derived from SSE and Vodafone because they arose in 2018 and help to compensate for the dividend drag on the new acquisitions, in particular HFEL. The yield on the portfolio is around 5.42%.

I have avoided any of the recent disasters by maintaining a fairly small and focussed portfolio. Although by almost any standards I am overweight in Unilever, Shell and maybe Legal & General I am not too concerned because I have another small growth portfolio which taken together reduces the percentage holding in those. I will probably reduce Unilever a bit before long. I have not touched any of these three for many years (I mean about 20 years) and like topsy, they have just growed!

I think diversification often leads to diworsification and so keep it small. I also simply do not consider the sectors and could not tell anyone what I have in any one sector. I simply look at shares and if I like I will buy. I will also not touch retailers, support services or contractors and am not very keen on utilities.

I live off my dividends so they are very important to me. If I have spare cash (from surplus dividends) I will decide at the time where to put it. I do not have any system for this and consider investing more art than science.

Hope this may be of interest and if anyone finds any errors please let me know.

Dod

Very interesting Dod. The surprise for me is the level of your overweighting in L&G and Unilever. Though I quite like it and the conviction Funds make similar tilts. Personally not qutte brave enough I don't think.

It has made me wonder if I should maybe swap IG for more L&G all be it a lower yield but in my opinion a much better share.

I don't mind admitting you getting out of Vod makes me even more nervous, and I should have sold at 160 for a small loss. As it is I think I'll just stick. How low can it go.......

[Gengulphus]

As for yield: my belief (and I can't proves it) is that a lower yield carries less risk.

There's the problem that the word "risk" has at least two meanings. In the context of fixed interest, there's the expression "risk free return" meaning the yield on Government Bonds (assuming UK, US or similar) where the likelihood of a default is treated as zero. That doesn't mean that prices cannot fall or aren't volatile. Corporate and other bonds have a higher yield by virtue of greater risk. Sometimes that's just marketability, but more usually it's partial or total default.

In the context of shares, risk is apt to be measured by the volatility (price fluctuation) of the share rather than the risk of it becoming worthless. If you compare investing in a selection of individual shares rather than the market as a whole by way of an index tracking fund, that's presumably "riskier" in the default sense. It might not be more risky in the volatility sense, but in any event the theorem that says you get higher returns by increasing risk is likely to be valid.

There's a third meaning that IMHO is the one most relevant to HYPers: the chance that the investment portfolio will fail to meet the investor's objectives. (Or maybe I should say "chances", as the investor may well have multiple objectives with different chances of being achieved - e.g. the objective of getting at least a basic subsistence income, the objective of getting an income that allows a comfortable lifestyle, the objective of getting an income that permits a luxury cruise holiday every year, or the objective of being able to run it without spending more than 30 minutes per week on it.)

There is the issue that that's a subjective concept of risk and cannot be made properly objective - it's perfectly possible for buying share A to be too risky and buying share B to be acceptably free of risk for one investor, while at the same time buying share B is too risky and buying share A is acceptably free of risk for another (all it requires is for instance for the first investor to already be overweight in share A and the second already overweight in share B, or the first investor to be employed by company A and the second by company B). That's both a strength and a weakness of the concept - it really is something that matters to the investor, but it's not something that one can study academically with any ease at all. And so those doing academic studies of investor behaviour and success are highly likely to use a concept such as volatility instead...

Gengulphus

[88V8]

I also simply do not consider the sectors and could not tell anyone what I have in any one sector. I simply look at shares ....

Around 34% of your divis - plus no doubt some of the ITs - derive from Financials. Given that the next bank crash will likely be worse than 2008, that may be an issue.
If I include my Prefs and Bonds, and given that this is the Strategies Board I can say that I definitely do, I'm nearer 45%. That worries me enough that I'm not adding in the broad Financials sector.

I admire your strength of will, avoiding sweetshop syndrome when there are so many high yields on offer.

V8

[Dod101]

V8

Thanks for your comments.

Many of the high yields available seem to me to be very questionable and some almost certainly unsustainable. I am fortunate at my time in my life not to need to be chasing those high yields.

As for the reliance on financials, I am not complacent and know that I have a lot of what can be loosely termed financials. I think though that they are all pretty much 'best in class' and for instance Admiral is very different from L & G, which is very different from HSBC, although if there is a market crash they will all be affected.

I review them on a very regular basis, as I do all my holdings.

Dod

[YeeWo]

Why no British American Tobacco?