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Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

General discussions about equity high-yield income strategies
monabri
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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#222817

Postby monabri » May 18th, 2019, 6:22 pm

tlf67482 wrote:
My state pension NI contributions are short of the maximum so I need to do something about this also. I think you can voluntary pay but it is quite a sum and as there is a reasonable chance I will come back to my senses and go back to work it seems silly to pay for it twice - mid life crisis ;)



You can pay voluntary class 3 NI and is DEFINITELY a consideration. Here's how to.

https://www.gov.uk/pay-voluntary-class- ... -insurance

The payback period is about two to three years ( full payback). The rate for 19/20 tax year being £780 ( bit cheaper for previous years..DYOR here!). It's a VERY good return , backed by the .GOV. with a yield of 30% ish.... :D


p.s. me and Mrs Monabri have now contributed 3 years of class 3.

onthemove
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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#222826

Postby onthemove » May 18th, 2019, 7:06 pm

tlf67482 wrote:Should I be ignoring the current political environment? ... Am I better off just converting to IUKD UK Dividend and IDVY Euro Dividend iShares to reduce the worry a bit and spread the risk a bit more but then again apart from the specific shares above it is not all bad and income is quite healthy.


In my view you need to consider where/ why the worry is arising.

I've been investing now for around 20yrs, roughly following an approximate High Yield / Value strategy.

That's a lot of experience, and I won't bore you with it all, but here are my thoughts with a few specific, and I feel pertinent points...

Part 1 - Lower Yields = Bigger Losses

Over the past few months there have been quite a few posts on here (TLF) relating to losing faith. In particular, a lot now seem to be almost advocating a buy high sell low strategy if their proclamations were taken at face value!

Let's look at Vodafone, and some of the recent commentary around that. Some expressed horror that people were buying it with such a high yield.. that was clearly a sign it wasn't safe, and it would be throwing money away. Stupid, silly!

Well, a few years ago, with my portfolio growing in size, and me getting older, I inevitably started become a little more risk averse. I've now got more to lose, and less years left to rebuild it if it goes wrong. So I did what I thought was the sensible thing and put quite a chunk into Tesco. It wasn't the highest yield around. But that was the point. This was me being risk averse and buying into a big stable company that should be just ticking over with a little growth and steadily increasing dividends until I retire.

And we all know what then happened. If we take the doom mongers at face value, I should be doing better than those who subsequently bought when the yield was even higher. After all, I bought a lower yield, they were silly and bought a higher yield.

Balderdash!

By buying in at a lower yield, I lost even more!!

Leaping to a lesson from that ... There's no such thing as a 'safe' company. Whatever yeld you might buy it at!

Part 2 - High Yields = High Gains!

Considering again the same horror at buying high yielders. Back when I was starting, one of my first investments was Nichols. The company who makes Vimto.

Now, shock horror, back then I wouldn't even consider a share if it wasn't yielding upwards of 7%!!

And Nichols was somewhere in that ball park when I bought it.

And now look at it... (scale to the period from 2000 to today)..
https://uk.finance.yahoo.com/chart/NICL.L

... my purchases were in the period around 2001- 2003

Today my £1,600 investment would now be worth £26,000 in capital value, on top of the 7% dividends was paying.

Note the 'would be'.

Sadly, with the ISA rules as they were, when they proposed moving to AIM market, not wanting to hold outside an ISA, I sold in 2004 at a small profit (of £388).


Part 3 - High Yields = Wipe Out!

So where's this going?

Like I say, no room and too boring for me to detail all of my investment experience, but looking back, I really do feel it's gone through phases. And I do mean 'phases' and not 'cycles'.

Back when I was buying Nichols, I was also buying other similarly high yield shares, and was actually doing quite well. So much so that I then became overconfident in my ability when the 2008 financial crisis hit.

After the best part of a decade doing pretty well buying shares with high yields, that the market wasn't interested in, suddenly a dose of reality.

For nearly a decade, buying high yield shares in companies whose names you recognised, felt quite safe. The brand gave some protection, and the yield was (to my mind) evidence that the companies had at least been generating profits at some point to provide that yield and OK, they might have hit a soft patch, but they'd proved the market was there, they just needed to get back on their feet.

How that presumption then proved wrong in 2008!!

Suddenly the high yields on the big name, instantly recognised banks, were something different.

I was reading TMF at the time and I didn't listen to one or two posters. And even with hindsight, even with big losses, I stand by that. I had no way of knowing whether those people genuinely had a brilliant inside understanding of the industry, or whether they were just shorters trying to manipulate the market. Or even just 'cranks' who with hindsight happened to be lucky. And with hindsight, I can still see no way I could have known back then, so stand by my decision at the time to ignore them. As an investor, you cannot rely on anonymous people on internet chat boards directing your investing.

I have to treat 2008 for what it was - a change in reality.

A change that meant some high yielders weren't a nice relatively safe unloved dividend payer that was just out of favour, but instead they were rotten giants, waiting to collapse from within.

Part 4 - High Yields to the Rescue

But that didn't dent my faith in high yielders.

I remember, in the shattered post-financial crash landscape, looking at the big FTSE 100 companies and seeing the likes of Shell, and other big names, yielding yields more akin to utilities.

As my portfolio lay in tatters... my total gains now verging on a loss... with the financial crisis having at one point wiped out all of the gains I'd made from the high yielders over almost a decade prior...

... I then remember thinking to myself.... is this it? Do I admit I'm no good as an investor? Or is this the time to be strong - buy when others are fearful?

Fortuitously I chose the latter. I was earning (and accumulating) quite a bit of overtime at the time, and other holdings were still paying dividends. I had quite a bit available in cash looking for a home.

I just went for it and bought a healthy spread across the FTSE100 of big name companies at knock down prices - yields that would have many on these HYP boards today hiding under their mattress and staying well away.

Well, I can safely say, that the health of my current portfolio, stems almost completely from that decision to go in big at that time, into scary high yielders, when everyone else was fearful.

Part 5 - Brexit Bonus!

Fast forward a little to the brexit vote, and bang... the FTSE does well as the pound collapses... I'd like to say it was skill on my part for choosing to buy companies with substantial foreign earnings.

But I have to be honest with myself. It was pure luck. I'd just been lucky in the aftermath of the financial crisis to buy into a very high yielding FTSE100 for which much of its earning come from overseas.

Though that 'luck' came about from chasing after the high yields which were there because everyone else was being fearful.

Part 6 - High Yield High Street Carnage

Unfortunately as part of my diversification and supposed de-risking strategy (due to dealing now with much higher value portfolio, and an older me with less time to make up losses), I also went into high yielders in the high street.

I might have avoided the Carrillion issue, but not Tesco, and certainly not Debenhams or Thomas Cook.

However, thinking back to the period mentioned in Part 2 to Part 3 above, most of my high yielders back then were retaillers. Body Shop, Thorntons, and so on. And I did quite well from those.

But now, fast forward to the post financial crisis world, and retail is now finished. Or at least, established retaillers are dead in the water.

Their debt has crippled them from competing with the likes of Amazon.

Since 2010, high yield retaillers have been a trap. One which I've fallen into.

But that said, annoying as it feels to lose money, my diversification has paid off ... it hasn't crippled my portfolio. I'm still substantially up overall. My portfolio value is still within 10% of its peak.

[seems like the system won't allow long posts, so I'm going to have to split this into two.....]

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#222827

Postby onthemove » May 18th, 2019, 7:07 pm

[Continued...]

Part 7 - High Yield Hiding

So like others, clutching at a few big losses, I'm now thinking I might try to hide from these by buying funds, in which the losses won't feel quite so direct, far less of a punch in the stomach.

But I'm not actually sure that's the issue here.

I made some losses back in my first honeymoon period before the financial crisis. It's just that they were relatively small and felt isolated. So it didn't then scare me into jumping into funds to hide the losses or anything.

So what's different today? A couple of retaillers going under, why the worry? You win some you lose some.

But if I'm being honest, it's what I mentioned already above.

This time it feels different. High yields now are not the same high yields they were back in the noughties.

Back then high yields felt high just because others weren't interested... they were off chasing other things, and the high yields were just shares that no one was looking at.

Today, it feels the high yields are due to people looking properly and not liking what they see.

And this is where my experience from Part 5 comes in...

What that forced to the forefront is that it was fine to focus on Britain when Britain was an equal amongst allies. With 'western' policy largely aligned, each western country tended to track each other. We were all intertwined.

Goldman Sachs did an analysis recently where for the 15 years prior to the brexit vote, they identified a basket of western economies excl. UK, that they found tracked UK fortunes very accurately. When I saw the chart, I was very surprised by how accurate and how far back the tracking went.

It just completely re-enforced how intertwined the fortunes of western economies are (or were).

But since the brexit vote, the same proxy/tracker shows that Britain has now lost around £600million per week compared to where it would have been had it carried on tracking those same fortunes of intertwined western economies that it had tracked surprisingly accurately for the previous decade and a half.


Part 8 - Is High Yield Really the Culprit?

When I look back, sure there are risks with high yielders - the financial crisis, retailers, etc.

But equally, they have also been very profitable at other times as well - when I started out in the noughties, and then later post financial crisis as well, it was buying high yielders that provided the profits.

Therefore I haven't necessarily lost faith in high yield portfolio investment.

But what I have done, is started to realise that the UK economy is now breaking away from tracking the western/global economies.

I now believe that much of the focus on HYP being UK based was valid only because the UK generally acted as a tracker for the western / global economies.

In other words, I now feel it isn't the High Yield aspect of HYP that is now being problematic.

I believe that it is possible that it's its UK focus at a time when the UK is uncoupling itself from western / global economies.


Part 9 - High Yield International(?)

If, as I suspect it is in my case, the increase in failed investments is actually due to non-cyclic changing fortunes of Britain, then no amount of trying to hide from individual catastrophe's through a mixed basket like IUKD is going to help.

Though I'll admit - I have bought some IUKD.

But I really do have a bad feeling about it. I like the (high) yield. I like the diversification.

But like retaillers, I have a horrible feeling the changes in Britain are non-cyclical. I really do feel that eventually that £600million PER WEEK loss of investment due to brexit is going to eventually set in properly.

So my portfolio is still high yield based, but now around 1/3rd from companies (or ETFs) where the earnings are mostly international (non-UK), 1/3rd companies (or ETFs) where the earnings are a mix of UK/non-UK, and 1/3rd where the earnings are mostly or all UK.

My more recent substantial investments have been in international high yield ETFs like IAPD and SEDY and also IDVY.

As a result of this global diversification (and fund charges behind them) I realise that I'm not going to see the kinds of gains I was getting from high yield UK shares when I was starting out.

But I do feel comfortable with where I am now. My portfolio is too large (and me too old) to contemplate having to rebuild from disaster, and at least this way it is now no longer coupled to the fortunates of a single country that might decide to jump off a cliff.

At least I hope in global terms, my total wealth should afford me a relatively stable standard of living in global terms, whichever way the british economy goes.

If the brexit unicorn actually turns out to exist, ok so I'll have lost out on that opportunity, but at least my financial ability to move abroad, or buy globally traded goods / assets should at least remain as per it is now.

And similarly, if brexit does turn out to be the long slippery scree that I expect it will be for the british economy, then similarly I hope my financial ability to move abroad, or buy globally traded goods / assets should still maintain its current level.

But I am sticking to high yields for the income.

I don't believe that fundamentally, across a wide range of sectors and countries, that a high yield in itself is bad. I do believe largely in (reasonably) efficient markets.

I do still believe that due to normal human nature, over the long term, a high yield is likely to be slightly higher then justified just because of human fear.

And therefore there is the opportunity, when spread over multiple investments, for the recoverers to make up for the losers.


Part 10 - High Yield Taking Stock

Just to add, in relation to the comments about the S&P etc.

My high yield focussed strategy - even with the high losses in banks in 2008, and more recently in high street retaillers - has averaged around just under 6% total annual returns over 20yrs

So I'm not Warren Buffett.

But equally, I don't think my high yield (albeit not strictly _the_ high yield portfolio) approach has done too bad either.

Most of the gains have come from dividends. Net gains (and they are gains) from capital appreciation have probably just slightly underperformed inflation. But only by a little.

I will admit the inflation tracking aspect (or slight underperformance in that respect) is a little of concern if I'm to treat (all) my dividends as income to live off.

Summary

I do feel that maybe there is a problem with a portfolio strategy that focuses just on one specific country - the risks then come when that country then decides to decouple from its normal allies / trading partners (like brexit)

I don't think there is a fundamental problem with high yield, though am slightly nervous about whether the income will keep up with inflation. That said, my own portfolio's slight underperformance to keeping up with inflation could be because of my bias towards UK for much of the time.

It'll be interesting to see how my switch to more international funds will go.
Though by the time I have the data in another decade or two's time, it will be too late to act based on it :^)

tjh290633
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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#222829

Postby tjh290633 » May 18th, 2019, 7:13 pm

tlf67482 wrote:Back to United Utilities and SSE what are opinions on whether I am falling into the trap of selling at lows and bad news instead of just riding out the bad news? Also Utilities shares I guess also have the regulatory reviews not just renationisation hanging over them? I have to say I will probably sleep better getting rid of UU and SSE but I guess without a crystal ball who knows what is going to happen. If I sell UU and SSE shouldnt I really be selling NG also?

I think the first thing to say is that you should ignore share price movements as such, but look for the factors that are causing them to diverge from the general market level. Currently that is down to two factors, Corbyn and McDonnell. If that worries you, there are two things you can do. You can sell your utilities or you can use your vote when the time comes. Or you can do both.

Dividend concerns may be another factor. SSE had indicated their intention to rebase theirs after the retail side had been spun off. That is now in abeyance but the reduction in dividend may still happen. I tend to be phlegmatic about small changes in dividends if the yield remains sufficiently high. This does not seem to be a problem with either UU. or NG.

I hold all three and have no intention of taking action at the moment. Sectors have times when they are out of favour and times when they are in favour. Miners and oils are particularly susceptible. If you are brave enough, you can take advantage of such times.

Above all, remember that the market can be capricious and paranoid. Being of a contrarian mind can help.

TJH

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#222851

Postby OhNoNotimAgain » May 18th, 2019, 8:42 pm

tjh290633 wrote: Equal weighting would be my choice.

TJH


There is simply no logic to investing the same amount of capital into Shell as into Thomas Cook. All you are doing is giving a portfolio a bias to small caps and a higher risk profile. You are investing in companies, not collecting stamps.

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#222853

Postby OhNoNotimAgain » May 18th, 2019, 8:46 pm

Backache wrote:Firstly I would say don't be to dissapointed research has shown that the majority of fund managers do worse than the market a


I think there is a clue there.

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#222888

Postby Hariseldon58 » May 18th, 2019, 11:05 pm

@tlf

Regards NI contributions, perhaps if you started a small ( it can be very small..) self employed occupation, you can volunteer to pay NI contributions for this year at least for around £3 pw, a huge saving on normal voluntary contributions.

The problem with an HYP or a basket of investment trusts is that you will always have some doing badly and others doing well,, they can even jump from doing badly to well on a surprisingly short period of time. Watching portfolio movements and thinking you have to do something may be harmful to your well being.

You may sleep better if you decide on a new simple rational portfolio mix, make the switch as quickly as possible then forget about it !

I assisted my father in law with a portfolio over 20 years ago, for a number of reasons it’s not been touched in 20 years but whilst there are better, cheaper ways to cover the targeted investment areas it has done very well indeed !

Given the effort and thousands of hours I have spent in that time, on investment matters ( i enjoy it..) the simple leave it alone approach has been remarkably successful.

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#222908

Postby Itsallaguess » May 19th, 2019, 6:48 am

tlf67482 wrote:
My main current concerns are I have United Utilities showing a 10% loss and SSE a 2% loss and National Grid showing a 55% profit. My gut feeling is get rid of UU and SSE and keep a very close eye on NG am I mad? Should I be ignoring the current political environment?

Am I better off just converting to IUKD UK Dividend and IDVY Euro Dividend iShares to reduce the worry a bit and spread the risk a bit more but then again apart from the specific shares above it is not all bad and income is quite healthy.

I have 22 shares, 18 sectors (16 if SSE/UU are sold with the sector names I use).


Coming back to your opening post, and specifically the section above, I think it might be worth just clearing up one specific query -

Given the above, is it fair to say that you've been relatively happy with the technical performance of the portfolio, but the main issue is that you're basically struggling to 'live with' the income-portfolio that's actually generating that technical performance?

I only ask because if this is indeed the case, then it might be useful for you to ask yourself what outcome you'd like to achieve off the back of this thread.

Is it that you're looking for reassurances that the technical performance of the portfolio will be fine, and that you should try to stop worrying about that aspect? I ask this because it seems that such reassurances might not actually be what you're looking for, because you seem *happy already* with the underlying technical performance, and it's something else that's giving you ongoing concern....

Just because other HYP investors can 'live with' a HYP portfolio similar to your own doesn't mean you're doing 'anything wrong' if you're not comfortable with it yourself......

I was in a very similar position to you, years ago, when I held almost 100% of my invested capital in a HYP portfolio consisting of single companies spread across a number of sectors. Like you, I was relatively happy with the 'technical performance' of the portfolio at a 'high-level', but I simply could not shake off the issues I had at 'component-level', where individual holdings either came to actual blows for one reason or another in an income or capital perspective, or came under a high level of volatility and 'market scrutiny', similar to your SSE/UU issues here.

Such were the issues that I had with a 'pure HYP' approach, it came to the point where I was seriously considering getting out of equity-investments altogether, thinking that I simply wasn't ''mentally cut out' for being able to deal with the inherent volatility in such financial dealings.

But then I discovered, after taking a 'last throw of the dice' with a couple of income-oriented investment-trusts, that something miraculous 'happened' - I saw that I was largely generating the same 'technical performance' with the investment trusts that I was with my single-company HYP holdings, but much more importantly to me, the issues that I had with many of those single-company holdings, where I'd worry about a number of them at any given time for often a number of different reasons, simply evaporated overnight....

I'm really quite aware that this is a simple mental trick, and that 'underneath the hood' of these investment trusts lies a series of single-component HYP's - that fact isn't at all lost on me (even though I'll of course recognise the fact that there's a level of diversification going on, especially across a number of geographical IT's, that I would never be close to achieving with a single-company HYP...), but it's definitely enough of a 'black box' cover for me to stick with equity-investing for income in a much, much more comfortable way.

For me personally, it's a case of largely maintaining the technical performance of an income-portfolio, but simply trading away the personal issues I had with achieving it via a 100% HYP approach...

Given your opening post section that I've quoted above, it doesn't seem to me that getting assurances that the HYP approach you're currently taking will continue to work is really what you're looking for - as you state quite clearly that you're already happy with the technical performance, so the other aspect that you might be able to change is just how you're achieving that technical performance, and perhaps see if there's any alternatives available that sit a little easier with you personally.....

Cheers,

Itsallaguess

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#222941

Postby Julian » May 19th, 2019, 10:50 am

Itsallaguess wrote:...
I was in a very similar position to you (Julian edit - "you" = tlf67482), years ago, when I held almost 100% of my invested capital in a HYP portfolio consisting of single companies spread across a number of sectors. Like you, I was relatively happy with the 'technical performance' of the portfolio at a 'high-level', but I simply could not shake off the issues I had at 'component-level', where individual holdings either came to actual blows for one reason or another in an income or capital perspective, or came under a high level of volatility and 'market scrutiny', similar to your SSE/UU issues here.

Such were the issues that I had with a 'pure HYP' approach, it came to the point where I was seriously considering getting out of equity-investments altogether, thinking that I simply wasn't ''mentally cut out' for being able to deal with the inherent volatility in such financial dealings.

But then I discovered, after taking a 'last throw of the dice' with a couple of income-oriented investment-trusts, that something miraculous 'happened' - I saw that I was largely generating the same 'technical performance' with the investment trusts that I was with my single-company HYP holdings, but much more importantly to me, the issues that I had with many of those single-company holdings, where I'd worry about a number of them at any given time for often a number of different reasons, simply evaporated overnight....
...
For me personally, it's a case of largely maintaining the technical performance of an income-portfolio, but simply trading away the personal issues I had with achieving it via a 100% HYP approach...
...

From the above you are pretty much describing me as well, at least my specific issue with HYP, and you articulate it very well.

For me the specific issue of an individual holding "coming to blows" was that I immediately saw the effect of a divi cut reflected in the single figure that I have laterly started measuring which is my predicted income surplus on 31-December each year i.e. all income for the year minus all withdrawals for the year. Obviously I could only look at that occasionally so that I only see the net effect of maybe a "10 steps forward one step back" 3 month period but my mentality is such that I always want to have the most accurate forecast of how my year is likely to look so I follow each step in my HYP in that I update my forecast after each divi declaration so I see every step back. Also, by the nature of the adverse events it is never (as far as I can remember) "one step backwards and one step forwards" because dividend rebasements tend to be big (e.g. VOD 40% cut) whereas a huge divi increase from a well-performing share would be about 10% at the moment and typically I at least am looking at <5% increases on previous year for the divi declarations from my holdings that are growing their dividends so a giant rebasement step backwards can need many regular divi-increase steps forward from other holdings before getting back to where the HYP was before the cut.

Out of interest, does your attitude mean that you also share my aversion to high-yielding ETFs and open-ended funds for income generation? For me it is because my idealised income stream is monotonically increasing, i.e. there are no steps back, and EFTs and open-ended funds don't offer that. Technically nor do ITs but well-chosen ones seem to me to have a very high likelihood of delivering it. (I have no issues with ETFs or open-ended funds for a growth portfolio by the way where dividend distributions are not being relied upon - at least in my case.)

For me I also had a nagging doubt originating about 10 years ago that I was missing out on further diversification by not also operating a second strategy of extracting spending money by top-slicing growth-oriented investments alongside my HYP. This was/is partly because I find things like Tim Hale's "Smarter Investing" message regarding passive investments compelling (if, in the case of that book, somewhat repetitively presented). Also for tax reasons deriving some of my income through capital gains hence also being able to make use of the annual CGT allowance to shelter some portion of my "income" (i.e. funds that I intend to spend on day-to-day living) rather than generate it all as taxable income seemed more tax efficient as well which is why I am not only shifting my HYP ultimately all towards high-yield ITs (HYIT) but also using some funds released from HYP to grow my growth portfolio as well. Funnily enough my years of HYP have trained me extremely well not to look at capital so I anticipate no problems whatsoever doing an annual selloff from the growth portfolio each year to extract my targeted extra income that I need for the following year even in a year when my growth portfolio value is down from the same time the previous year. I am well used to capital values going up and down in my HYP, it was/is the dividend hits that bother me.

For anyone contemplating an HYP -> HYIT switch they need to look at the possible overall income loss due to a reduced overall portfolio yield and the fact that there will be some leakage/loss of capital available for re-investment in the HYIT portfolio due to trading costs and the bid-offer spreads. My HYP currently (as of Wednesday valuation) sits at an overall portfolio yield of 4.97%. With City of London currently yielding 4.2% then, even with blending in some higher-yielding HYITs, my yield on funds switched from HYP to HYIT is likely to remain closer to the CTY level since that is one of my mainstays. I would maybe be looking at a blended yield of something like 4.5% since my new HYIT investment would be in more than just CTY. One must also be careful when looking at yields. A drop from a 5.0% yield to a 4.5% yield might "only" be 0.5% but in actual income terms it translates to a 10% drop in dividends received. For me that is probably about the threshold where I would consider that level of hit to be acceptable in return for what I feel would be a portfolio that has a much more durable and consistent dividend growth pattern with far less likelihood of any falls backwards.

- Julian

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#222942

Postby tikunetih » May 19th, 2019, 10:51 am

From observation my view is that few people make good natural investors, particularly in single name stocks, and the majority would be better served by outsourcing much or all of their investment portfolio's construction and management using collective investment vehicles while keeping markets at arms-length. ie. the antithesis of HYP

By doing so most will have an easier life and achieve better results.

But, traditionally the people who've had spare money available to invest for themselves are usually people who've been effective and skilled in some well-paying career or other; as such they're accustomed to being very competent at the stuff they do and it can be a surprise - and a blow to the ego - to discover they're not especially suited to meet the unusual combination of demands that investing places on us.

It's pleasing to see that in more recent times, instead of punting on individual stocks, the common first step into investing for young people starting out increasingly appears to be to buy an appropriate low-cost multi-asset fund following a sound long term strategy. And for most people, this is probably as far as they will ever need to go. Portfolio design, construction and management sorted. Job done. Get on with your life.

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#222949

Postby Itsallaguess » May 19th, 2019, 11:52 am

Julian wrote:
Out of interest, does your attitude mean that you also share my aversion to high-yielding ETFs and open-ended funds for income generation? For me it is because my idealised income stream is monotonically increasing, i.e. there are no steps back, and EFTs and open-ended funds don't offer that. Technically nor do ITs but well-chosen ones seem to me to have a very high likelihood of delivering it. (I have no issues with ETFs or open-ended funds for a growth portfolio by the way where dividend distributions are not being relied upon - at least in my case.)


I'll be honest and say that I've not really investigated higher-yielding ETF's or open-ended funds for income-generation. One of the big benefits to me of income-oriented Investment Trusts, in addition to the hopefully 'monotonically increasing dividends' that you mention, is that they tend to incorporate a good level of income-reserve as part of their investment mandate, and when it comes to income-reliability, whilst I'll of course intend to have a 'sufficient' income-reserve of my own, I do value the idea of my income-IT's themselves also having this additional 'belt-and-braces' income-reserve of their own. I acknowledge that both of these 'benefits' are likely to be inter-related to some degree, of course....


Julian wrote:
For anyone contemplating an HYP -> HYIT switch they need to look at the possible overall income loss due to a reduced overall portfolio yield and the fact that there will be some leakage/loss of capital available for re-investment in the HYIT portfolio due to trading costs and the bid-offer spreads.

My HYP currently (as of Wednesday valuation) sits at an overall portfolio yield of 4.97%. With City of London currently yielding 4.2% then, even with blending in some higher-yielding HYIT's, my yield on funds switched from HYP to HYIT is likely to remain closer to the CTY level since that is one of my mainstays. I would maybe be looking at a blended yield of something like 4.5% since my new HYIT investment would be in more than just CTY.

One must also be careful when looking at yields. A drop from a 5.0% yield to a 4.5% yield might "only" be 0.5% but in actual income terms it translates to a 10% drop in dividends received. For me that is probably about the threshold where I would consider that level of hit to be acceptable in return for what I feel would be a portfolio that has a much more durable and consistent dividend growth pattern with far less likelihood of any falls backwards.


I've just taken a look at the blended forecast-yield for my HYIT portfolio, and it's currently showing a yield of around 4.8%, so not too far away from your own. My single-stock vs IT weighting is currently around 59% single-stock and 41% income-oriented Investment Trusts, and I expect that figure to drift steadily towards a heavier IT weighting over the coming years.

It's an important point that you raise regarding portfolio 'blended yield' figures, as it's really quite educational and perhaps shocking to see the difference that even small changes to portfolio-yields can make to an expected level of income. Below is a table I've knocked up showing how a notional £100,000 invested against a number of portfolio yields ranging from 7% down to 4.5% can results in a surprising difference in potential income levels -

Image

Given the above, it's clear to see why single-share HYP's might be considered to be attractive, and I've always acknowledged the fact that a predominantly income-IT approach is likely to be towards the lower-end of any blended-yields comparisons, and almost certainly lower than an equivalent single-share HYP.

But the most important question for me was always to ask if such 'income-advantages', or the potential for them, was worth the real-life experiences that I had when using a pure-HYP approach, and the simple answer was that it wasn't. A higher level of income, or the prospect of it, was no good to me if I struggled to live with both the volatility of the pure-HYP holdings (both at an income and capital level...) and the general concerns that holding such a pure-HYP portfolio gave me over a consistent number of years.

After that, it simply came down to asking myself if I was willing to give up some yield for a much easier income-investment lifetime experience, and the answer to that was a resounding 'YES'.....

I'm very happy to say that all the benefits that I hoped would be delivered via a move away from a 'pure-HYP' approach and towards an income-IT approach have occurred. No more worrying about early-morning news-releases, no more shock dividend-cuts, and no more general unease at just which sector would be the next to rotate out of favour, after a number of years where each seemed to take their own turns in the downtrodden-spotlight....

I've still got quite a few pure-HYP holdings, and I won't be selling out of them completely, but where I've got the chance to bed-and-ISA holdings, those are the ones that get liquidated and moved into income-IT's. With that, and additional top-ups via dividends and regular injections of fresh capital (I'm still working...), the steady move away from a pure-HYP situation and more towards my intended income-IT approach will continue as planned...

Cheers,

Itsallaguess

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#222980

Postby tjh290633 » May 19th, 2019, 2:29 pm

OhNoNotimAgain wrote:
tjh290633 wrote: Equal weighting would be my choice.

TJH


There is simply no logic to investing the same amount of capital into Shell as into Thomas Cook. All you are doing is giving a portfolio a bias to small caps and a higher risk profile. You are investing in companies, not collecting stamps.

That assumes that there is logic in investing in Thomas Cook. The fact that they run an airline is enough to rule them out in my book. But why should I be heavier in Shell? That is applying a bias the other way.

You will be well aware that a private investor is very limited in the spread of weights he can use in practice. Not only that, but big companies can catch a cold as easily as a small one. Oils and miners are not immune from market forces. I'm happier starting equally weighted and imposing a limit on the weight of any one holding. You are aware of the limits on weight which apply to collective investments. A fund is limited by the availability of smaller capitalisation shares, so has little option but to be heavier in the big caps. This does not apply to the private investor.

TJH

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#222986

Postby moorfield » May 19th, 2019, 2:48 pm

monabri wrote:Income - assumes you want income "now".
I held UU and decided to "trade it in" for Merchants IT - the yield was slightly higher than UU and I was "happier" to have the money in a biggish investment trust (and the slightly increased yield helped).


That looks a smart move I think given the current political context. I have been mulling doing similar not only with my UU. but all my holdings yielding lower than City and/or Merchants for a few months now. My own retirement plan targets a particular level of income which I have worked/am working hard and look on track to achieve. Overall income is what matters to me, not the implementation of ie HYP and/or IT; on balance I think I'd rather have that future income coming from an IT rather than a collection of individual shares - most of which those ITs hold anyway.

Thanks Itsallaguess for sharing you comments above.

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#222999

Postby Julian » May 19th, 2019, 4:54 pm

moorfield wrote:
monabri wrote:Income - assumes you want income "now".
I held UU and decided to "trade it in" for Merchants IT - the yield was slightly higher than UU and I was "happier" to have the money in a biggish investment trust (and the slightly increased yield helped).


That looks a smart move I think given the current political context. I have been mulling doing similar not only with my UU. but all my holdings yielding lower than City and/or Merchants for a few months now. My own retirement plan targets a particular level of income which I have worked/am working hard and look on track to achieve. Overall income is what matters to me, not the implementation of ie HYP and/or IT; on balance I think I'd rather have that future income coming from an IT rather than a collection of individual shares - most of which those ITs hold anyway.

Thanks Itsallaguess for sharing you comments above.

I've just done some quick analysis of the yields on some of my HYP shares. I knew that stuff like Diageo and Unilever would be on low yields, and indeed they are, but a few others that are below City's yield (4.24%) let alone Merchants' yield (5.34%) surprised me a bit. For instance, given the concerns about R&D pipelines in pharma I was surprised to see AZN at 3.66% yield and I have a big holding of that. Tate at 3.58% is my other one that comes in at under City's yield. Once the bar is raised to Merchants' yield my list grows to include Severn Trent(*), BAE, UU, GSK, Pennon and Greene King (that last one only just, by 0.01% yield, so probably not realistically on the list due to trading costs).

My analysis was a bit of an eye-opener for me. My options will be limited by CGT considerations which will probably limit my ability to harvest too much from those low-yielders if I go that route but knowing the bigger breadth of opportunity than I thought that I have in my portfolio to trade some yields upwards as a counterbalance to the trading downwards that I will be doing with dumping CNA and SSE and maybe others is encouraging.

- Julian

(*) which I forgot I even held - oops! Probably more evidence that the most buy-and-forget decent strategy that I can find might be best for me.

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#223027

Postby MDW1954 » May 19th, 2019, 8:39 pm

Julian wrote:I've just done some quick analysis of the yields on some of my HYP shares. I knew that stuff like Diageo and Unilever would be on low yields, and indeed they are, but a few others that are below City's yield (4.24%) let alone Merchants' yield (5.34%) surprised me a bit. For instance, given the concerns about R&D pipelines in pharma I was surprised to see AZN at 3.66% yield and I have a big holding of that. Tate at 3.58% is my other one that comes in at under City's yield. Once the bar is raised to Merchants' yield my list grows to include Severn Trent(*), BAE, UU, GSK, Pennon and Greene King (that last one only just, by 0.01% yield, so probably not realistically on the list due to trading costs).

My analysis was a bit of an eye-opener for me. My options will be limited by CGT considerations which will probably limit my ability to harvest too much from those low-yielders if I go that route but knowing the bigger breadth of opportunity than I thought that I have in my portfolio to trade some yields upwards as a counterbalance to the trading downwards that I will be doing with dumping CNA and SSE and maybe others is encouraging.



Julian,

Looking at published yields on -- say -- Hargreaves Lansdown tells you nothing about the actual bought-cost yield that you are getting.

Published current yields are great for telling you the opportunity costs involved in current terms, and informing switching decisions that way, but it's always best to convert the potential switch to a pounds-and-pence impact on income.

Especially when CGT may be a concern.

MDW1954

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#223031

Postby Itsallaguess » May 19th, 2019, 8:52 pm

MDW1954 wrote:
Published current yields are great for telling you the opportunity costs involved in current terms


Current yields are only part of the situation here, where we might be comparing single-company holdings with potential collective income-investments alternatives.

The other opportunity cost, which might well be much more important, is the risk.....

Cheers,

Itsallaguess

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#223033

Postby MDW1954 » May 19th, 2019, 8:55 pm

Itsallaguess wrote:
MDW1954 wrote:
Published current yields are great for telling you the opportunity costs involved in current terms


Current yields are only part of the situation here, where we might be comparing single-company holdings with potential collective income-investments alternatives.

The other opportunity cost, which might well be much more important, is the risk.....

Cheers,

Itsallaguess


Couldn't agree more.

MDW1954

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#223035

Postby MDW1954 » May 19th, 2019, 9:00 pm

Julian wrote:I've just done some quick analysis of the yields on some of my HYP shares.


Focusing in on the word 'quick', here, I'd again urge you to look at the bought-cost yields, having recalled a post of yours from last week, in which you gave a clue as to how long-standing some of these holdings are.

MDW1954

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#223040

Postby tlf67482 » May 19th, 2019, 9:24 pm

Great, thanks again for all the thought provoking replies.

Currently I am thinking of "expanding" to different countries using the SEDY, IDVY and IAPD (iShares High Dividend EFT for Emerging Markets, Europe and Asia). I do have a small holding already in IDVY in an account that I decided I no longer wanted to "manage" as much. As soon as it is in a collection of shares I rightly or wrongly just leave it too it and do not actively track it as part of *MY* HYP. It is currently at a 10%+ annual return (that was timed nicely!).

My UU and SSE shares I am still not sure what I will do. I will post if I do sell just so everyone knows it will be time to buy ;) I am very good a selling at the low before the shares recover. I may just take the opportunity to sell these two shares and put the proceeds together with the money sat in the account into something new and global.

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Re: Losing the faith - should I just sell and move to funds (Poor Performance / Renationalisation)

#223044

Postby Julian » May 19th, 2019, 9:41 pm

MDW1954 wrote:
Julian wrote:I've just done some quick analysis of the yields on some of my HYP shares.


Focusing in on the word 'quick', here, I'd again urge you to look at the bought-cost yields, having recalled a post of yours from last week, in which you gave a clue as to how long-standing some of these holdings are.

MDW1954

Maybe I’m missing something here but I can’t see how bought-cost yields affect my decisions regarding switches next week. Surely all I care about when comparing income generation (I.e. ignoring issues such as perceived safety of that income, future growth potential etc) is absolute income levels as you alluded to further back in this thread. If I sell £10,000 worth of a share yielding currently yielding 3.00% and re-invest it all in a share yielding 4.00% then my annual income goes from £300 to £400. Yield on current price, I.e. income currently derived from the amount of releasable capital currently tied up in an investment where that capital is potentially deployable elsewhere at a different yield on current price hence to generate a different amount of income from the same capital, is surely what matters? Sorry if I’m being dense but I’m not sure why you’re urging me to calculate yield on bought cost.

By the way, my calculations were reasonably quick but not careless. I did hand-calculate all yields based on the most recent year of declared dividends in pence divided by the Friday closing price in pence. I didn’t simply take any numbers from a yield quoted on a web site where I couldn’t be sure how they were calculated or if they were correct. I also do have full S104 narratives for all my holdings so I can see my bought costs at a glance but I still struggle to understand why I care from an income perspective (I obviously do from a CGT perspective).

- Julian


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