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Greene King £8.50 bid - possible income options for proceeds....

General discussions about equity high-yield income strategies
Itsallaguess
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Greene King £8.50 bid - possible income options for proceeds....

#245562

Postby Itsallaguess » August 19th, 2019, 7:24 pm

Many years ago, when my HYP mainly consisted of single-share holdings, I used to view relatively high-offer surprise-bids as a bit of a pain because it meant that I had to find a new home for the 'released' capital, and I often saw that as introducing new risk into my portfolio, as I was often really quite happy with the previous holding...

Nowadays, around 40% of my income portfolio consists of collective-investments, with only 60% now being represented by single-share holdings, and when high-ball bids come in for any of my single-share income-holdings now, I relish the chance to rotate that single-share capital into an often slightly lower-yielding collective income-investment, and this post is meant to put down my thoughts on why I think it's advantageous for me to do so....

If we take today's Greene King (GNK) £8.50 per share bid as an example, this represents around a 49.5% up-take on this morning's opening price of around £5.68.

For a notional investment of £25,000, and a previous 12-month dividend of 33.2p (Interim 8.8p + Final 24.4p), we can state for this example that at last night's close, GNK represented the following income slot in my portfolio -

Last night - £25,000 notional capital against a 12-month running yield of 5.8% (33.2 / £5.68) equals a 12-month running income from dividends of around £25000 x 0.058 yield = £1,450

Following today's £8.50 per share bid, that notional £25,000 GNK capital is now worth around £25,000 x 1.495 = £37,375 (notional)

There are many collective investment-trusts that yield around the 4% mark, and sometimes a little higher.

As it happens, I posted earlier today that I was actually beginning to look at some income-IT's following the recent market weakness - https://www.lemonfool.co.uk/viewtopic.php?f=31&t=19097&p=245426#p245426

If we look at the list of income Investment-Trusts on that link, as an example we can see that Murray Income Trust is currently yielding around 4.09% and has a NAV discount of around 5% (Trustnet - https://tinyurl.com/yyyc42cp).

Also, if we look at the above Trustnet site for Murray Income, we can see the following Top 10 Holdings for 30th June 2019 -

  • Diageo 3.70%
  • BHP 3.50%
  • Prudential 3.30%
  • BP 3.20%
  • Royal Dutch Shell 'B' 3.20%
  • Unilever 3.20%
  • RELX 2.90%
  • Aveva 2.80%
  • GlaxoSmithKline 2.70%
  • AstraZeneca 2.60 %

If we now look to see what income we'd get by rotating the current Greene King capital (following today's £8.50 bid) into a collective investment such as Murray Income Trust (MUT), we can see the following -

Tomorrow - Notional capital of £37,375 into Murray Income Trust yielding 4.09% equals a 12-month dividend of £37,375 x 0.0409 = £1528

The above is a hypothetical example, but we can see that we might notionally move from a position last night of receiving £1,450 per year of single-share Greene King dividends, to a position tomorrow of receiving £1,528 per year of much more widely-diversified Murray Income Trust dividends.

That's actually also an income up-lift of around 5.4% (£1,528 / £1,450 = 1.0538), which is always nice but isn't actually the main idea behind this mainly-diversification process....

In the round I would see such an income-transition proposal as being beneficial for a number of reasons -

  • More diverse income - coming from a wide 'internal-spread' of IT holdings
  • Often taking advantage of a market-discount to underlying IT holdings (NAV) at today's price
  • Taking advantage of the revenue-reserve of an income-IT (around 0.8x in this example, which is nearly a full-years worth of revenue reserve..)
  • Diversifying away not only investment-holdings, but also some 'portfolio-management processes' too, which I see as an advantage as it's then not 'just me' looking after my investments...
  • Sometimes actually increases dividend-income at the same time as taking advantage of the above additional elements...

If I were to stick with rotating high-bid capital like this back into single-share HYP holdings, I would worry that I'd not looked after such a capital increase as well as I could have, and nowadays, by finding a suitable income-IT as a home for this type of very short-term capital increase, I find that I personally gain a lot of satisfaction that my income-portfolio end-result, both in terms of capital allocation and income-diversity, sits much more comfortably with me than it might otherwise have done. It certainly helps with the 'sleep at night' side of things, in my personal experience...

The use of Murray Income Trust above is just a notional example of the type of capital-rotation I like to process in these nice circumstances, and of course income IT's offer much more than just rotating back into the same UK markets that we'd normally fish in...

Looking at the table I posted earlier from the AIC website (first link above), we can see that many international markets and other specific market-segments offer similar yields to the Murray Income Trust example I've used here, so in additional to gaining advantage of more diverse income from similar markets, we can also start to look outside the UK markets for similar income yields, to gain even more global exposure for our dividend income.

I've not yet decided where my Greene King capital is actually likely to land, but I hope the above is an interesting example of the type of process I like to carry out when surprise high-bids like today's GNK example pops up.

Bids like this don't come along too often - let's make sure we don't waste them when they do......

Cheers,

Itsallaguess

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Re: Greene King £8.50 bid - possible income options for proceeds....

#245595

Postby Darka » August 19th, 2019, 9:29 pm

Excellent post Itsallaguess,

It's pretty much what I'll be doing with my GNK cash, I may sell in the next few days to lock it in - will decide tomorrow.

I'll probably put most of the money into IT's as I'm gradually moving more that way anyway - similar %'s to your, 60% HYP and currently 25% IT and 13% Private Pension (which will go into IT's eventually) and the rest in cash.

I'd like to get my IT's to over 50% before I pull the plug on employment as I'll feel much more confident with the diversification and reserves that IT's provide.

With this bid, I've gone from around a 15% loss on GNK to a 30% gain, so I'm happy with this as I was considering getting rid of them anyway.

regards,
Darka

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Re: Greene King £8.50 bid - possible income options for proceeds....

#245619

Postby mike » August 19th, 2019, 11:33 pm

Seconded.

In fact, the first two paragraphs I could have written about my own thought processes.

Cobham, bumping along with a recently re-instated dividend of 1p per share, around a 1% yield, received an approx 40% uplift offer, and I sold out and re-invested into
- Henderson International (HINT)
- Blackrock Frontiers (BRFI)
- City of London (CTY)
- Schroder Income Growth (SCF)

We now have Greene KIng, a share that gave me Brexit concerns due to its UK-only market, and being reliant on people having disposable income they are willing to spend in conditions that will be uncertain, and may well be difficult. Today, we received an uplift that gave me a chance to re-cycle as follows
- My non-ISA sale will just be withdrawn as the "income" equivalent of having re-invested my normal ISA income into Aberdeen Standard Equity Income (ASEI) & Murray International (MYI)
- My ISA holding is over 4 times the amount of my non-sheltered. I have sold half, and this will be re-invested into
Murray International (MYI)
Henderson Far East (HFEL)

The other half I'm thinking about and will almost certainly sell down. But do I wait to see if there is a counter offer, or am I just being greedy ? That would mean more thinking about things instead of just sorting it ! Of the ITs being considered for this part, a combination of MYI again, Merchants (MRCH) and Dunedin Income Growth (DIG), the earliest ex-dividend date will be MYI on 3 October, so I have plenty of time to dither. I'll know after having slept on it for a day or two.

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Re: Greene King £8.50 bid - possible income options for proceeds....

#245653

Postby MDS1951 » August 20th, 2019, 8:50 am

And me!

My Greene King money will be going into Schroder Income Capital.

I'm 68 and the older I become the more I want other people to take my investment decisions for me.

MDS1951

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Re: Greene King £8.50 bid - possible income options for proceeds....

#245708

Postby Julian » August 20th, 2019, 11:32 am

A good analysis itsallaguess. Had this event happened in my ISA(*) I would be looking at exactly the same sort of rotation and it is indeed gratifying when such a rotation from an individual share into a collective investment that one feels is a solid divi source (e.g. MUT, MYI or CTY) can be done with no impact on income generated or, even better, an increase in income.

I did buy Greene King (GNK) in my HYP days and still hold it in my non-tax-sheltered part of my portfolio. Since it was a foray outside of the FTSE100 I always viewed it as one of my slightly more racy HYP selections and as such it had a relatively low weighting. I mention that because to some extent I see the same "solid" vs "slightly more racy" spectrum in my income IT holdings and under my characterisations I would say that your example looked only at rotating the cash into the more "solid" end of the income ITs spectrum (MUT). Just because the yield is a fair bit higher I consider things like Merchants Trust (MRCH) and Henderson Far East Ltd (HFEL) as the slightly racier components in my income IT portfolio. I'm not saying they're high risk, certainly to me "racy" in my IT portfolio is way less likely to have any income or major capital crash vs "racy" in my HYP but I do still see a slight graduation in my views of reliability from my various ITs such that I tend to more heavily weight my more solid ones at about 2/3 of my portfolio vs the rest. If I were to split your hypothetical GNK cash release 2/3 MUT and 1/3 HFEL for instance it increases the income gain quite noticeably...

£37,375 previously generating £1,450 of GNK divis per year gives ~£24,900 into MUT plus ~£12,450 into HFEL (ignoring stamp duty & trading costs) giving ~£1,018 of MUT divis plus ~£748 of HFEL dividends (HFEL currently at a 6.01% yield) for a total of ~£1,766 and an increase vs previous GNK divis of 21.8% in annual income. Not a recommendation, just another bit of food for thought for those so inclined.

As you say, these things don't come along that often and nice for those drifting from individual HYP shares to collective income investments to have so many options to make a rotation off the back of the GNK deal with so many opportunities to generate a very worthwhile income enhancement.

- Julian

(*) Had GNK been in my ISA I would have been doing very much the above but it actually sits within my core non-tax-sheltered HYP so, as per my recent posts, now sits beneath the abstraction layer created by my collection & savings account mechanism and as such the capital released will simply be shuffled into my savings account to form part of the capital that will be used in 2020 to fund my living expenses and ISA contribution next year. It saves me doing some of my previously envisaged capital sell-offs at the end of December.

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Re: Greene King £8.50 bid - possible income options for proceeds....

#245726

Postby Gengulphus » August 20th, 2019, 12:02 pm

Itsallaguess wrote:If we take today's Greene King (GNK) £8.50 per share bid as an example, this represents around a 49.5% up-take on this morning's opening price of around £5.68.

For a notional investment of £25,000, and a previous 12-month dividend of 33.2p (Interim 8.8p + Final 24.4p), we can state for this example that at last night's close, GNK represented the following income slot in my portfolio -

Last night - £25,000 notional capital against a 12-month running yield of 5.8% (33.2 / £5.68) equals a 12-month running income from dividends of around £25000 x 0.058 yield = £1,450

Following today's £8.50 per share bid, that notional £25,000 GNK capital is now worth around £25,000 x 1.495 = £37,375 (notional)

There are many collective investment-trusts that yield around the 4% mark, and sometimes a little higher.

As it happens, I posted earlier today that I was actually beginning to look at some income-IT's following the recent market weakness - https://www.lemonfool.co.uk/viewtopic.php?f=31&t=19097&p=245426#p245426

If we look at the list of income Investment-Trusts on that link, as an example we can see that Murray Income Trust is currently yielding around 4.09% and has a NAV discount of around 5% (Trustnet - https://tinyurl.com/yyyc42cp).

Also, if we look at the above Trustnet site for Murray Income, we can see the following Top 10 Holdings for 30th June 2019 -

  • Diageo 3.70%
  • BHP 3.50%
  • Prudential 3.30%
  • BP 3.20%
  • Royal Dutch Shell 'B' 3.20%
  • Unilever 3.20%
  • RELX 2.90%
  • Aveva 2.80%
  • GlaxoSmithKline 2.70%
  • AstraZeneca 2.60 %

If we now look to see what income we'd get by rotating the current Greene King capital (following today's £8.50 bid) into a collective investment such as Murray Income Trust (MUT), we can see the following -

Tomorrow - Notional capital of £37,375 into Murray Income Trust yielding 4.09% equals a 12-month dividend of £37,375 x 0.0409 = £1528

The above is a hypothetical example, but we can see that we might notionally move from a position last night of receiving £1,450 per year of single-share Greene King dividends, to a position tomorrow of receiving £1,528 per year of much more widely-diversified Murray Income Trust dividends.

That's actually also an income up-lift of around 5.4% (£1,528 / £1,450 = 1.0538), which is always nice but isn't actually the main idea behind this mainly-diversification process....

In the round I would see such an income-transition proposal as being beneficial for a number of reasons -

  • More diverse income - coming from a wide 'internal-spread' of IT holdings
  • ...

But what do you see when you look at the diversification of your total portfolio's underlying holdings, as opposed to just looking at the diversification of the IT's holdings?

It gains small holdings of each share that the IT holds and you don't already have a single-share holding of, which will slightly increase its effective diversification, but it also gets small top-ups of each share that the IT holds and you do already have a single-share holding of, which will slightly decrease its effective diversification. The overall effect might be anything from decreasing its effective diversification by one share (if you already have single-share holdings of every share the IT holds, you would be reducing it effectively e.g. from a 30-share diversified portfolio to a 29-share diversified portfolio) to increasing its effective diversification by some unknown-but-small amount (if you don't already have a single-share holding of any share the IT holds).

The reality will lie somewhere between those two extremes, probably ending up as a somewhat negative effect on your effective diversification if a large percentage of the IT's holdings are in shares you already own and a somewhat positive one if a small percentage is. It will be a small effect in either case, because the effect of each of the IT's holdings on your effective diversification is tiny (*), so it's not IMHO worth worrying about all that much. But I would only consider it a clear diversification benefit if the overlap between the IT's holdings and the portfolio's was small - so in particular if the portfolio I was looking at was a UK-based HYP, I would regard an IT in the "UK Equity Income" AIC sector is just about the least likely to give me an effective diversification benefit. For diversification benefits, look to other AIC sectors.

By the way, I have been practicing what I preach on this: my HYP does contain two ITs, neither of which is in the "UK Equity Income" AIC sector. And I might end up choosing a third in which to reinvest the Greene King proceeds - but it too will not be in that AIC sector, nor in either of those of the two ITs I already own. And I should say thanks for the table you produced for the first of your two links - it's likely to be very helpful if and when I do that!

Edit: Just to be clear, I'm not disputing the other benefits that you describe and that I've stopped my quote short of - just saying the effective diversification benefit isn't clear, may actually be a drawback instead, and is small in either case. People will of course have to decide for themselves how highly or lowly (possibly even negatively) they value those benefits.

(*) Each of the IT's holding might be very roughly of the order of 0.1% or less of your overall portfolio value, assuming say that the amount invested into the IT is 3% of that value and each of the IT's holdings is very roughly of the order of 3% or less of the IT's holdings. To appreciate just how tiny an effect that has on overall diversification, consider adding a hundred such holdings to a single share portfolio: the single share will still be very roughly 90% or more of your overall portfolio, so it will still respond to news about that company much more like the single-share portfolio than like even a 2-share equally-weighted portfolio that contains the company. So the change to effective diversification of such a holding is so tiny that even a hundred of them still only add up to a fairly small change.

Gengulphus

Itsallaguess
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Re: Greene King £8.50 bid - possible income options for proceeds....

#245739

Postby Itsallaguess » August 20th, 2019, 12:55 pm

Gengulphus wrote:
Itsallaguess wrote:
In the round I would see such an income-transition proposal as being beneficial for a number of reasons -

  • More diverse income - coming from a wide 'internal-spread' of IT holdings
  • ...


But what do you see when you look at the diversification of your total portfolio's underlying holdings, as opposed to just looking at the diversification of the IT's holdings?

It gains small holdings of each share that the IT holds and you don't already have a single-share holding of, which will slightly increase its effective diversification, but it also gets small top-ups of each share that the IT holds and you do already have a single-share holding of, which will slightly decrease its effective diversification.


Thanks Gengulphus, and you're absolutely correct that this is something that needs to be considered as part of any potential foray into income IT's for anyone who already owns a single-share HYP, especially a UK-centric one at that.

I did think about using a non-UK trust as an example in my opening post, but I didn't want to seem to be going 'too exotic', but by sticking with a UK-centric trust I have somewhat lessened the potential for the 'diversification effect' listed above to be as dramatic as it perhaps could be by looking wider afield at some of the more global income-IT's and also specialist-area trusts, where it's much less likely that any potential over-lap issues might occur.

Out of interest, and as someone who's HYP single-share holdings do mostly come from the UK market, I note that out of the top ten Murray Income holdings listed in my first post, which account for around 31% of the MUT portfolio, I hold only 5 of those top ten entries.

According to the latest MUT report that I can find from January of this year (https://tinyurl.com/y4j8oeqq), I see that they state that the number of current MUT holdings is 58, so on the face of it, and given the relatively small number of single-share holdings in my own HYP, I don't think there would be a huge amount of overlap even with this UK-centric income-trust when compared to my own holdings.

I'm glad you found the IT-table linked above to be useful too - I was starting to get interested in dipping my toe into a couple of income-IT's after the recent market dip, and this GNK bid has probably boosted that schedule up a little...

Cheers,

Itsallaguess

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Re: Greene King £8.50 bid - possible income options for proceeds....

#245743

Postby Itsallaguess » August 20th, 2019, 1:07 pm

Julian wrote:
I did buy Greene King (GNK) in my HYP days and still hold it in my non-tax-sheltered part of my portfolio. Since it was a foray outside of the FTSE100 I always viewed it as one of my slightly more racy HYP selections and as such it had a relatively low weighting.

I mention that because to some extent I see the same "solid" vs "slightly more racy" spectrum in my income IT holdings and under my characterisations I would say that your example looked only at rotating the cash into the more "solid" end of the income ITs spectrum (MUT).

Just because the yield is a fair bit higher I consider things like Merchants Trust (MRCH) and Henderson Far East Ltd (HFEL) as the slightly racier components in my income IT portfolio. I'm not saying they're high risk, certainly to me "racy" in my IT portfolio is way less likely to have any income or major capital crash vs "racy" in my HYP but I do still see a slight graduation in my views of reliability from my various ITs such that I tend to more heavily weight my more solid ones at about 2/3 of my portfolio vs the rest. If I were to split your hypothetical GNK cash release 2/3 MUT and 1/3 HFEL for instance it increases the income gain quite noticeably...

£37,375 previously generating £1,450 of GNK divis per year gives ~£24,900 into MUT plus ~£12,450 into HFEL (ignoring stamp duty & trading costs) giving ~£1,018 of MUT divis plus ~£748 of HFEL dividends (HFEL currently at a 6.01% yield) for a total of ~£1,766 and an increase vs previous GNK divis of 21.8% in annual income. Not a recommendation, just another bit of food for thought for those so inclined.


Thanks Julian, and this is actually very similar to what I'll end up doing myself - splitting the GNK bid-proceeds up into a couple of different IT-tranches, and probably following a very similar risk-profile with each one.

Other than what ISA allowance I can fill, and some fairly regular top-up processes, I don't get to actively trade much at all nowadays, so I do enjoy having this type of HYP management-task every now and then, and that's especially so if I can manage an end-result that delivers an improvement in income-diversification, however small, and also of course if I'm able to boost my overall HYP income in the meantime.

I see a rotation out of single-share HYP holdings like this, under relatively high bid conditions, and then putting that capital into income-collectives, as an alternative version of Terry's 'income-ratchet', where he may top-slice single-share HYP holdings which might be yielding relatively low values, and rotate that capital into higher-yielding single-share holdings to ratchet up his overall portfolio income.

When a bid like the recent GNK one comes in and resets a given yield to a relatively low point due to what's sometimes a large share-price increase, I'm carrying out the same process but also wanting to avoid the single-share purchase, and prefer to gain some additional diversification at the same time, if possible.

We're lucky to have the investment options available today that perhaps weren't as easily accessible in the past, so I do enjoy working out what the best way to invest bid-capital like this might be...

As a few of us have said over the past couple of days - these are nice problems to have, of course...

Cheers,

Itsallaguess

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Re: Greene King £8.50 bid - possible income options for proceeds....

#245744

Postby kempiejon » August 20th, 2019, 1:08 pm

I hold GNK in my HYP, it has been static on the income front for several years and previously not forecast much to come. I may as well embrace the opportunity to swap out this static dividend for a chance to look at an income share with a history and hope of rising dividends. That said I do get frustrated when I share get taken away from me still at least this time it's a bit more profit than my recently nabbed RPC Group and Dairy Crest. So I'm looking for over 5% yield with sustainable increasing dividends a quick squizz shows me Microfocus, Schroders Non Voting or DS Smith only Schroders as a financial might need looking at for portfolio diversification.

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Re: Greene King £8.50 bid - possible income options for proceeds....

#245782

Postby Gengulphus » August 20th, 2019, 3:58 pm

Itsallaguess wrote:
Gengulphus wrote:But what do you see when you look at the diversification of your total portfolio's underlying holdings, as opposed to just looking at the diversification of the IT's holdings?

It gains small holdings of each share that the IT holds and you don't already have a single-share holding of, which will slightly increase its effective diversification, but it also gets small top-ups of each share that the IT holds and you do already have a single-share holding of, which will slightly decrease its effective diversification.

...
Out of interest, and as someone who's HYP single-share holdings do mostly come from the UK market, I note that out of the top ten Murray Income holdings listed in my first post, which account for around 31% of the MUT portfolio, I hold only 5 of those top ten entries.

According to the latest MUT report that I can find from January of this year (https://tinyurl.com/y4j8oeqq), I see that they state that the number of current MUT holdings is 58, so on the face of it, and given the relatively small number of single-share holdings in my own HYP, I don't think there would be a huge amount of overlap even with this UK-centric income-trust when compared to my own holdings.

You can find its entire list of holdings at the end of last year in the trust's own interim report, which is obtainable from the "Interim Report" link at https://www.murray-income.co.uk/ - there are 58 of them, so that's probably what the report you've found is based on. My own HYP has 11 of them, totalling 30.5% of the trust's holdings, so basically if I reinvested the GNK proceeds in it, 69.5% of my reinvestment would go towards increasing my effective diversification and 30.5% towards decreasing it. So if the increasing and decreasing effects are effectively equal in magnitude (not necessarily a good assumption! - but the best I can make in the absence of a proper mathematical definition and theory of effective diversification) then the net effect is that only 39% of my reinvestment is working to increase my diversification.

Gengulphus

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Re: Greene King £8.50 bid - possible income options for proceeds....

#245805

Postby Itsallaguess » August 20th, 2019, 5:35 pm

Gengulphus wrote:
You can find its entire list of holdings at the end of last year in the trust's own interim report, which is obtainable from the "Interim Report" link at https://www.murray-income.co.uk/ - there are 58 of them, so that's probably what the report you've found is based on.

My own HYP has 11 of them, totalling 30.5% of the trust's holdings, so basically if I reinvested the GNK proceeds in it, 69.5% of my reinvestment would go towards increasing my effective diversification and 30.5% towards decreasing it.

So if the increasing and decreasing effects are effectively equal in magnitude (not necessarily a good assumption! - but the best I can make in the absence of a proper mathematical definition and theory of effective diversification) then the net effect is that only 39% of my reinvestment is working to increase my diversification.


Thanks - that's interesting, and whilst I won't work out my own situation given that this is a notional example anyway, if my own calculations came out similar to yours then I'd be happy with that type of transition process from a single-share to a collective, given the other advantages of these types of collectives listed earlier.

As you've mentioned too - moving beyond the 'UK Equity Income' sector is likely to give lots of additional diversification benefits beyond the UK-market, but it's useful to see your own HYP example, given it's UK-holdings, based against what might be seen as this 'typical' UK income IT, and still see some 'one-stop-shop' diversification benefits..

Cheers,

Itsallaguess

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Re: Greene King £8.50 bid - possible income options for proceeds....

#247235

Postby andyalan10 » August 27th, 2019, 12:32 pm

Late to the party, but I'm surprised at the level of consensus amongst the posters so far.

"With a single share holding there's always the chance of a bid at a 50% premium, so when that happens I'll move the money away from a single share to make sure that doesn't happen again."

I sold GNK, which post bid became about 40% larger than my median holding, and some of the money went into ITV, some is waiting patiently for the next market wobble.

Andy

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Re: Greene King £8.50 bid - possible income options for proceeds....

#247240

Postby Dod101 » August 27th, 2019, 12:53 pm

What IAAG's original post and subsequent posts is doing is arguing for the merits of investment trusts in general as an alternative High Yield Strategy rather than holding individual shares. It really has very little to do with the bid for Greene King ; just that the bid has forced the hand of the holder to do something because it is about to be converted in to cash ( I prefer an all cash bid because I then get to choose where to put the cash rather than inherit shares in some outfit that may just have made an expensive bid for my previous holding thus removing at least some of the benefit of the bid for me).

Whether holding investment trusts rather than individual shares is a better high yield strategy than a HYP is a good question, and one which I am not sure anyone can truly answer. It looks as if IAAG is moving in that direction. So far I have not used ITs for income but I hold a few for total return and they are quite satisfactory.

Dod

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Re: Greene King £8.50 bid - possible income options for proceeds....

#247246

Postby Itsallaguess » August 27th, 2019, 1:22 pm

andyalan10 wrote:
Late to the party, but I'm surprised at the level of consensus amongst the posters so far.

"With a single share holding there's always the chance of a bid at a 50% premium, so when that happens I'll move the money away from a single share to make sure that doesn't happen again."


That's one way to look at it, certainly...

Another way might be to perhaps say -

"move the money away from a single share [that's just been bid up..] to make sure it then avoids the single-share risk of becoming the next Carillion, or the next New River REIT, or the next Imperial Brands...."

Does the relatively rare 'bid-premium' upside make enduring what's often seen to be a much more regular capital-downside worth maintaining the single-share risk?

Reader - you decide....

I should also point out that this specific example regarding Greene King is where a single-share has already been bid up, so we can perhaps consider the odds of it happening again to this particular share as part of such a decision-making process...

I continue to hold a large number of single-share companies in my HYP....

Cheers,

Itsallaguess

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Re: Greene King £8.50 bid - possible income options for proceeds....

#247293

Postby Dod101 » August 27th, 2019, 4:01 pm

Very interesting Itsallaguess and you have probably thought about this subject more deeply than I have but what puzzles me is why should a comparable IT produce a better outcome than holding a portfolio of single shares? One answer has to be surely that they are not strictly comparable. The IT has a much wider net for a start, but usually at least in the short term it will have a lower yield.

The other question is 'What is a 'better outcome'? Less risk to capital, a more reliable dividend and because of the Revenue Reserves of most ITs a greater likelihood of an increasing dividend. Surely much less chance of a 50% uplift in value overnight though, such as can happen with the usual HYP portfolio.

I know these points have mostly been covered by IAAG already and I am just thinking aloud so to speak. I think too that the HYP as discussed on the HYP-Practical Board was of its time. Things seem to have changed (which is a bit odd when the yield from say Bank Deposits is so miserable one would think that punters would be flocking to shares given the high yields on offer)

Funny business investing.

Dod

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Re: Greene King £8.50 bid - possible income options for proceeds....

#247301

Postby Alaric » August 27th, 2019, 4:26 pm

Dod101 wrote: Things seem to have changed (which is a bit odd when the yield from say Bank Deposits is so miserable one would think that punters would be flocking to shares given the high yields on offer)


When the dividend yield on the FTSE 100 Index is around 4.5% as against 1% or less on bank deposits and the serial dividend increasing shares like Diageo or Unilever offer 2.5% to 3%, perhaps investors or their proxies the "income" fund managers are less willing to fish among the potential recovery stocks or disasters in the higher yield range.

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Re: Greene King £8.50 bid - possible income options for proceeds....

#247305

Postby Itsallaguess » August 27th, 2019, 4:31 pm

Dod101 wrote:
but what puzzles me is why should a comparable IT produce a better outcome than holding a portfolio of single shares? One answer has to be surely that they are not strictly comparable. The IT has a much wider net for a start, but usually at least in the short term it will have a lower yield.

The other question is 'What is a 'better outcome'? Less risk to capital, a more reliable dividend and because of the Revenue Reserves of most ITs a greater likelihood of an increasing dividend. Surely much less chance of a 50% uplift in value overnight though, such as can happen with the usual HYP portfolio.


Hi Dod,

I'm not quite sure that I really need 'a better outcome' - I'd really be quite happy with the same outcome, so long as I'm more comfortable in actually getting one outcome over another....

Consider two busses going between the same two stops....

One might be an open-top bus, let's call that the HYP-bus....

The other hasn't got an open-top, and is the normal covered-type on the top deck, let's call that the IT-bus....

It seems to me that the HYP-bus tends to be enjoyed with fervour when the sun is shining and the warm air can blow through our hair when we're on that open-top deck, but when the clouds gather and the rain comes in, well the HYP-bus doesn't tend to look after some of it's passengers quite as well....

Compare that to the IT-bus - it gets between the same two destinations just the same, except the IT-bus passengers perhaps don't get to enjoy the sunny periods quite as much as those on the HYP-bus, but they still get to look out of the windows and enjoy the summer scenery, so there's some enjoyment there. When it rains though, and those dark clouds start to billow around, the passengers on the IT-bus know that there's just that bit less risk of feeling as wet on that top deck, when compared to some of those HYP-bus passengers....

It's difficult to say which trip would be 'better', but all I know is that I don't tend to catch the same number of showers that I used to get when I took the HYP-bus all the time, and as I get older I can see that I tend to enjoy my journey on the IT-bus much more, and when I remember back to my more frequent HYP-bus days, I tend to regret the stormy days on that top deck much more than I tended to enjoy the sunny ones...

Cheers,

Itsallaguess

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Re: Greene King £8.50 bid - possible income options for proceeds....

#247333

Postby tjh290633 » August 27th, 2019, 6:13 pm

Dod101 wrote:Very interesting Itsallaguess and you have probably thought about this subject more deeply than I have but what puzzles me is why should a comparable IT produce a better outcome than holding a portfolio of single shares? One answer has to be surely that they are not strictly comparable. The IT has a much wider net for a start, but usually at least in the short term it will have a lower yield.

The question of weighting must come into it. My theory is that a nominally equally weighted portfolio will outperform a market weighted portfolio.

TJH

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Re: Greene King £8.50 bid - possible income options for proceeds....

#247345

Postby Lootman » August 27th, 2019, 7:45 pm

tjh290633 wrote:
Dod101 wrote:Very interesting Itsallaguess and you have probably thought about this subject more deeply than I have but what puzzles me is why should a comparable IT produce a better outcome than holding a portfolio of single shares? One answer has to be surely that they are not strictly comparable. The IT has a much wider net for a start, but usually at least in the short term it will have a lower yield.

The question of weighting must come into it. My theory is that a nominally equally weighted portfolio will outperform a market weighted portfolio.

You don't have to just theorise about that idea since there are now ETFs that follow the equal-weight idea. I've mostly seen them with single sector ETFs, which makes sense since a single share can often dominate a sector which makes it hard to diversify within that sector without equal-weighting.

Any time you feel like it you can produce a chart of the performance of RSP against SPY. The former is the equal-weight S&P 500 ETF and the latter is the cap-weighted S&P 500. What you find if you do that over various time periods is that RSP does better when small and mid caps do relatively well. RSP does badly in momentum-type markets where the dominant shares out-perform. That is of course what you'd expect.

Most ITs will effectively be cap-weighted simply because they have to fish in deep waters to get the volumes and liquidity they need. An individual share portfolio can be equal-weighted, or else you can look for an equal-weighted ETF.

Traditional HYP is a bit confused over this issue. On the one hand it advocates equal-weighted purchases. On the other hand it eschews rebalancing of the type that you do.

If I wanted to simplify my portfolio management with collectives but retain the equal-weight aspect, I'd take a look at equal-weighted ETFs. They can re-balance without creating a capital gains tax event. That said at the moment the equal-weight ETFs I have seen are mostly US-listed. But some are cited here:

https://moneyforums.citywire.co.uk/yaf_ ... -ETFs.aspx

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Re: Greene King £8.50 bid - possible income options for proceeds....

#247349

Postby andyalan10 » August 27th, 2019, 8:07 pm

Itsallaguess wrote:
I continue to hold a large number of single-share companies in my HYP....

Cheers,

Itsallaguess


Thanks for the reply. I understand the advantages of collective investment, I just thought it strange that in this thread everybody had said that their GNK money had gone/would go into collectives, and the trigger event for that happening was a sudden rise of 50% in a single share, which whilst not an everyday occurrence is also not unknown. For the sake of balance I thought I'd say "I've gone for another beaten down single share".

Andy


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