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Thread for those incapable of keeping on-topic on HYP-P

General discussions about equity high-yield income strategies
Dod101
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Thread for those incapable of keeping on-topic on HYP-P

#236598

Postby Dod101 » July 14th, 2019, 3:35 pm

Moderator Message:
BT was the subject on the HYP-P board. Rather than just delete the off-topic stuff, with all the criticism that that brings, I'm moving it here in case anyone is remotely interested. - Chris

Walrus101 wrote:
kempiejon wrote:BT are one of my HYP's larger contributors to income just ahead of BP, SSE and Taylor Wimpey but all are within my safety and diversification limits. This is the highest yield I've seen from BT for a while now but the dividend has also been static for a couple of years. Perhaps the detractors are here to protect us from ourselves as we do not know what we are doing by investing in a diversified portfolio of high yield, large cap shares for income so thanks for that.


Do you not think in the current environment though that there is an argument that " diversified portfolio of high yield large cap shares" could also be phrased something like "conviction portfolio of large cap high yield shares with significant company specific business risks"

With regard the latter surely it is healthy to discuss the merits of the individual shares


I do not think there has ever been a problem in discussing the merits of individual shares. That surely is what the Board is about. The problem is with people questioning and arguing over the merits of HYP in the first place. I for one have never argued against that but I will discuss the merits of individual shares. In view of the mods comments I will say no more.

Dod

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Re: BT Group down over 3% today.

#236619

Postby Walrus101 » July 14th, 2019, 5:21 pm

Dod101 wrote:
Walrus101 wrote:
kempiejon wrote:BT are one of my HYP's larger contributors to income just ahead of BP, SSE and Taylor Wimpey but all are within my safety and diversification limits. This is the highest yield I've seen from BT for a while now but the dividend has also been static for a couple of years. Perhaps the detractors are here to protect us from ourselves as we do not know what we are doing by investing in a diversified portfolio of high yield, large cap shares for income so thanks for that.


Do you not think in the current environment though that there is an argument that " diversified portfolio of high yield large cap shares" could also be phrased something like "conviction portfolio of large cap high yield shares with significant company specific business risks"

With regard the latter surely it is healthy to discuss the merits of the individual shares


I do not think there has ever been a problem in discussing the merits of individual shares. That surely is what the Board is about. The problem is with people questioning and arguing over the merits of HYP in the first place. I for one have never argued against that but I will discuss the merits of individual shares. In view of the mods comments I will say no more.

Dod


It's a thin tightrope to tread on here :)

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Re: Thread for those incapable of keeping on-topic on HYP-P

#236656

Postby Alaric » July 14th, 2019, 9:03 pm

Dod101 wrote: I will discuss the merits of individual shares.


The problem comes when shares are suggested for purchase that have done little but lose money for total return investors over the last few years.

It's all very well selecting for highest sustainable yield, but what if you re-expressed that as dividend yield from shares showing the greatest recent price falls. That doesn't have to be invalid, but it's "recovery" rather than "income" as a strategy.

How greedy do you want to be with an income strategy? Fixed Income Gilts yield 1.5% to 2.5%. If can you get a bit better than that with FTSE 100 Dividend payers with the prospect of dividend increases and capital gains thrown in, why look at recovery stocks?

Pyad's original stuff was written when? Early 2000s or was it late 1990s? What were the Gilt and FTSE 100 yields at the time? I thinking that when you could get 4.5% on Gilts, 3.5% on the FTSE 100, "high yield" would have an entirely different meaning and 8% would not have been so high a risk premium over Gilts.

Walrus101
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Re: BT Group down over 3% today.

#236658

Postby Walrus101 » July 14th, 2019, 9:10 pm

Walrus101 wrote:
Dod101 wrote:
Walrus101 wrote:
Do you not think in the current environment though that there is an argument that " diversified portfolio of high yield large cap shares" could also be phrased something like "conviction portfolio of large cap high yield shares with significant company specific business risks"

With regard the latter surely it is healthy to discuss the merits of the individual shares


I do not think there has ever been a problem in discussing the merits of individual shares. That surely is what the Board is about. The problem is with people questioning and arguing over the merits of HYP in the first place. I for one have never argued against that but I will discuss the merits of individual shares. In view of the mods comments I will say no more.

Dod


It's a thin tightrope to tread on here :)


I will add some more colour to this seeing as it has been moved and taken out of context. I have nothing against HYP as a strategy and personally saw it as almost an annuity replacement intending to move over to income as I get closer to retirement.

What I fear personally is that the subset of shares we are looking at have systemic issues and even having a diverse selection of these type of shares does not make a balanced portfolio. I am not trying to argue with anyone on the HYP board purely offer an opinion on the individual risks of specific shares.

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Re: Thread for those incapable of keeping on-topic on HYP-P

#236661

Postby Walrus101 » July 14th, 2019, 9:17 pm

Alaric wrote:
Dod101 wrote: I will discuss the merits of individual shares.


The problem comes when shares are suggested for purchase that have done little but lose money for total return investors over the last few years.

It's all very well selecting for highest sustainable yield, but what if you re-expressed that as dividend yield from shares showing the greatest recent price falls. That doesn't have to be invalid, but it's "recovery" rather than "income" as a strategy.

How greedy do you want to be with an income strategy? Fixed Income Gilts yield 1.5% to 2.5%. If can you get a bit better than that with FTSE 100 Dividend payers with the prospect of dividend increases and capital gains thrown in, why look at recovery stocks?

Pyad's original stuff was written when? Early 2000s or was it late 1990s? What were the Gilt and FTSE 100 yields at the time? I thinking that when you could get 4.5% on Gilts, 3.5% on the FTSE 100, "high yield" would have an entirely different meaning and 8% would not have been so high a risk premium over Gilts.


I'm coming to a similar conclusion. I personally have an interest in deep value investing provided the fundamentals stack up, my fear though is that a hyp today is erring towards running a fairly high risk portfolio of bombed out high yielding companies with individual systemic issues. It's certainly not what I originally had envisaged.

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Re: Thread for those incapable of keeping on-topic on HYP-P

#236697

Postby SalvorHardin » July 15th, 2019, 7:42 am

Alaric wrote:How greedy do you want to be with an income strategy? Fixed Income Gilts yield 1.5% to 2.5%. If can you get a bit better than that with FTSE 100 Dividend payers with the prospect of dividend increases and capital gains thrown in, why look at recovery stocks?

Pyad's original stuff was written when? Early 2000s or was it late 1990s? What were the Gilt and FTSE 100 yields at the time? I thinking that when you could get 4.5% on Gilts, 3.5% on the FTSE 100, "high yield" would have an entirely different meaning and 8% would not have been so high a risk premium over Gilts.

Indeed. An 8% equity yield now says that investors are taking on far more risk than a 8% equity yield did back then, because nowadays the equity risk premium is much higher. Some of us would argue that shares yielding that much are the equity equivalent of junk bonds; aka junk equity.

https://www.investopedia.com/investing/calculating-equity-risk-premium/

There’s a saying that “this time it’s different” is one of the most dangerous phrases in investing. Well, when it comes to the yield on shares compared to the early 2000s this time it really is different. That’s because the market today has reverted to the pre-1960s mentality where equity yields had to be much higher than gilt yields (back then this was mostly to compensate for a more volatile dividend income).

As I type this Bloomberg has 10 year gilts yielding 0.83% and 30 year gilts yielding 1.44%. Stockopedia shows a 3.3% trailing yield and 4.0% forecast yield on the FTSE100. That is a huge difference between equities and gilts, especially when compared to what was available back in the early 2000s.

If gilt yields remain at this level then shares are cheap. Now that’s a big if, highly dependent upon future interest rates which in turn will be influenced by inflation (though politics will also play a big part, as it has done since 2008). Warren Buffett said this last May:

““I think stocks are ridiculously cheap if you believe ... that 3% on the 30-year bonds makes sense,” Buffett said in an interview with CNBC’s Becky Quick on “Squawk Box.” “We are sitting very, very little inflation with the Federal Reserve putting a target at 2% not that long ago. ... Since money doesn’t cost anything, you can print lots of money and have full employment and no inflation. … I wouldn’t think you can have these things at these levels — long-term rates, interest rates, budget deficits — have that at a stable situation for a long period of time,” Buffett added. However, the billionaire investor known as the Oracle of Omaha doubts that low rates will always be the reality”

https://www.cnbc.com/2019/05/06/warren-buffett-says-stocks-are-ridiculously-cheap-if-interest-rates-stay-at-these-levels.html

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Re: Thread for those incapable of keeping on-topic on HYP-P

#236709

Postby JamesMuenchen » July 15th, 2019, 9:05 am

Alaric wrote:Pyad's original stuff was written when? Early 2000s or was it late 1990s? What were the Gilt and FTSE 100 yields at the time? I thinking that when you could get 4.5% on Gilts, 3.5% on the FTSE 100, "high yield" would have an entirely different meaning and 8% would not have been so high a risk premium over Gilts.

Pyad's HYP1 was published November 13, 2000

The highest yield he selected was UU at 6.9%

According to him the FTSE100 was on ~2% at the time:
https://web.archive.org/web/20140528041 ... 01113c.htm
pyad wrote:Yields are on a forecast basis. The average is 4.8%. For comparison, the yield on the FTSE 100 at present is marginally over 2%. So there is a substantial difference between that and the yield on this sort of income portfolio.

According to this page, the FTSE100 average was 4.43% at March 31, 2019
http://siblisresearch.com/data/ftse-all ... -dividend/

So an 8% yield today is actually less above-average FTSE100 than when he started.

Not sure about gilts.

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Re: Thread for those incapable of keeping on-topic on HYP-P

#236723

Postby 77ss » July 15th, 2019, 10:01 am

JamesMuenchen wrote:
Alaric wrote:Pyad's original stuff was written when? Early 2000s or was it late 1990s? What were the Gilt and FTSE 100 yields at the time? I thinking that when you could get 4.5% on Gilts, 3.5% on the FTSE 100, "high yield" would have an entirely different meaning and 8% would not have been so high a risk premium over Gilts.

Pyad's HYP1 was published November 13, 2000

The highest yield he selected was UU at 6.9%

According to him the FTSE100 was on ~2% at the time:
https://web.archive.org/web/20140528041 ... 01113c.htm
pyad wrote:Yields are on a forecast basis. The average is 4.8%. For comparison, the yield on the FTSE 100 at present is marginally over 2%. So there is a substantial difference between that and the yield on this sort of income portfolio.

According to this page, the FTSE100 average was 4.43% at March 31, 2019
http://siblisresearch.com/data/ftse-all ... -dividend/

So an 8% yield today is actually less above-average FTSE100 than when he started.

Not sure about gilts.


As I understood it, HYP is an equal weighted strategy. To compare the yields of its individual constituents with the capital weighted yield of the FT100 seems to me to be intellectually dubious. The equal weighted yield (currently 3.92%) is not that difficult to find:

https://research.ftserussell.com/Analyt ... e2f149.pdf

Historical data going back to 2000 is a bit trickier.

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Re: Thread for those incapable of keeping on-topic on HYP-P

#236726

Postby Alaric » July 15th, 2019, 10:15 am

77ss wrote:. The equal weighted yield (currently 3.92%) is not that difficult to find:


3.92% versus weighted FTSE 100 in the 4.0% to 4.5% range isn't greatly different. Both are a fair way above what you would get for Gilts.
The capital weighted yield is influenced by the high but slow dividend growers at the top of the capitalisation order. FTSE 250 yield is much lower.

It's rarely seen as a comment, but what if you ignored stock selection and just put your lump sum in a FTSE 100 ETF or tracker OEIC? What would you have got by way of income and capital performance?

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Re: Thread for those incapable of keeping on-topic on HYP-P

#236756

Postby Alaric » July 15th, 2019, 12:43 pm

JamesMuenchen wrote:Not sure about gilts.


A contemporary study suggests Gilt yields were in the range 6% at the short end down to 4% at the long end.

https://www.dmo.gov.uk/media/14497/gar9900.pdf has a yield curve towards the end of the document.

A very different interest rate context to today. So if you got 6% dividend yield on a share, your risk premium over cash or near cash would have taken the form of unknown future capital appreciation, dividend growth or both.

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Re: Thread for those incapable of keeping on-topic on HYP-P

#236867

Postby TUK020 » July 15th, 2019, 6:21 pm

77ss wrote:
As I understood it, HYP is an equal weighted strategy. To compare the yields of its individual constituents with the capital weighted yield of the FT100 seems to me to be intellectually dubious. The equal weighted yield (currently 3.92%) is not that difficult to find:

https://research.ftserussell.com/Analyt ... e2f149.pdf

Historical data going back to 2000 is a bit trickier.


for a diverse weighted yield (not as skewed as FTSE100 in terms of content), comparison with CTY IT might provide insight. Not on my normal computer, so don't have the yield tracker url to hand

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Re: Thread for those incapable of keeping on-topic on HYP-P

#236884

Postby 77ss » July 15th, 2019, 7:47 pm

Alaric wrote:
77ss wrote:. The equal weighted yield (currently 3.92%) is not that difficult to find:


3.92% versus weighted FTSE 100 in the 4.0% to 4.5% range isn't greatly different. ......


Why cite a range of 4.0% to 4.5%, when you have the actual figure of 4.34% available?

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Re: Thread for those incapable of keeping on-topic on HYP-P

#236896

Postby Alaric » July 15th, 2019, 8:57 pm

77ss wrote:
Why cite a range of 4.0% to 4.5%, when you have the actual figure of 4.34% available?


Because it will change every day with market values.


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