Diversifying away from the UK through IT

[IanTHughes]

As we know those concentrating on high yielding shares have had a pretty torrid time in recent years.

You must be thinking of another HYPer. Recent years have been pretty good for my HYP


Ian

[zharrt]

Thank you for all the replies so far, even those which have meandered into off topic.

Firstly I have plumped for HFEL and will look to slowly raise my holding so it's 10% of my total portfolio, and then look to expand into more ITs (maybe an emerging market one and an americas one to cover my bases

Secondly, in answer to the question why at 38 am I focused on High Yield, well the simple reason is I don't really know other than I remember reading somewhere that if dividends are reinvested the return would have been much greater over the years, or something along those lines. I also track yield as it's a good benchmark that I can compare one year to the next, and also one share to another.

I am under no illusions that I can beat the market, the fact I am doing (what I think) is relatively well is undeniably pure luck.

But I have 20 years to before I cash out so hoping long term thinking, I don't sell when a share tanks (I am sat with a loss of about 68% on CNA at the moment, but that lost is only ever realised if I sell) I am happy to leave it as it is to slowly recover over those 20 years.

If it doesn't and goes the way of Carillion the fact I am spread across so many different shares means if a company goes the way of Carillion I will only lose between 2-3% of the portfolio.

Finally I chose shares as I enjoyed the "game" of trying to look at shares and see what will do well and what won't, of the 31 holdings I own, 7 are in the red and 24 in the green averaging 7.91% growth each year I have been investing since 2012.

[jackdaww]

As we know those concentrating on high yielding shares have had a pretty torrid time in recent years.

You must be thinking of another HYPer. Recent years have been pretty good for my HYP


Ian

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

so you were lucky enough , or wise enough not to have held in recent years ---


BT
capita
carillion
centrica
dixons
kier
marks
petrofac
provident
RMG .

perhaps dividends received and/or capital gains elsewhere compensated ok

[IanTHughes]

As we know those concentrating on high yielding shares have had a pretty torrid time in recent years.

You must be thinking of another HYPer. Recent years have been pretty good for my HYP

==========================
so you were lucky enough , or wise enough not to have held in recent years ---

BT
capita
carillion
centrica
dixons
kier
marks
petrofac
provident
RMG

.

Company             | EPIC | Comment
BT                  | BT-A | Small Buy in June 2018. In profit  
Capita              | CPI  | Yield too low. Later rejected      
Carillion           | CLLN | Full Holding. 20% back in dividends
Centrica            | CNA  | Rejected                           
Dixons Carphone     | DC   | Yield too low. Later rejected      
Kier                | KIE  | Half Holding. 40% back in dividends
Marks & Spencer     | MKS  | Rejected                           
Petrofac            | PFC  | Rejected. Already held BP and RDSB 
Provident Financial | PFG  | Rejected
Royal Mail Group    | RMG  | Holding IPO purchase

perhaps dividends received and/or capital gains elsewhere compensated ok

Well, the "P" in HYP does stand for Portfolio. Sure I have had a couple or three of failures but yes, the non-failures continue to more than compensate


Ian

[Dod101]

As we know those concentrating on high yielding shares have had a pretty torrid time in recent years.

You must be thinking of another HYPer. Recent years have been pretty good for my HYP


Ian

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

so you were lucky enough , or wise enough not to have held in recent years ---


BT
capita
carillion
centrica
dixons
kier
marks
petrofac
provident
RMG .

perhaps dividends received and/or capital gains elsewhere compensated ok

I realise that this was not addressed to me but the only ones on your list which I have ever held were BT and Centrica. BT I sold on 2 January 2018 at £2.588 (now £1.977 and Centrica sold on 7 December 2015 at £2.123 (now 68p) Did not like any of the others and was never tempted to buy. Turned out to be mostly a wise decision but in each case I did not like the culture. Still don't.

Dod

[jackdaww]

You must be thinking of another HYPer. Recent years have been pretty good for my HYP


Ian

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

so you were lucky enough , or wise enough not to have held in recent years ---


BT
capita
carillion
centrica
dixons
kier
marks
petrofac
provident
RMG .

perhaps dividends received and/or capital gains elsewhere compensated ok

I realise that this was not addressed to me but the only ones on your list which I have ever held were BT and Centrica. BT I sold on 2 January 2018 at £2.588 (now £1.977 and Centrica sold on 7 December 2015 at £2.123 (now 68p) Did not like any of the others and was never tempted to buy. Turned out to be mostly a wise decision but in each case I did not like the culture. Still don't.

Dod

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


similar story here also.

BT 2008 sold at 300 - now 180

carillion 2010 sold at 350 - now zero

centrica 2015 sold at 250 - now 68

kier 2010 sold at 1215 - now 120

probably luck . i got out of contractors long ago , utilities some years ago .

still hold some vodafone , miners , pharmas , insurance , shell, and a rump of tobacco - the latter i see being in steady decline.

[Dod101]

Very good for you. Tobacco is probably my weak spot but I will just hang on and see how things transpire. I know that I may well have too much there but never mind. I think there is a good chance of them being around for a good while yet.

Dod

[jackdaww]

Very good for you. Tobacco is probably my weak spot but I will just hang on and see how things transpire. I know that I may well have too much there but never mind. I think there is a good chance of them being around for a good while yet.

Dod

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

yes , i agree tobacco may be around for decades .

but IF the share price continues on a downwards path , isnt the dividend just becoming a return of capital ?

[Dod101]

I entirely agree and in my previous post was guilty of what I sometimes accuse others of. These dividends are as I have often said 'dearly bought'. I suppose what I am saying is that unless we see dividend cuts I doubt that the prices will go much lower and having taken the hit I might as well hang in, but I will not be buying.

Dod

[richfool]

Very good for you. Tobacco is probably my weak spot but I will just hang on and see how things transpire. I know that I may well have too much there but never mind. I think there is a good chance of them being around for a good while yet.

Dod

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

yes , i agree tobacco may be around for decades .

but IF the share price continues on a downwards path , isnt the dividend just becoming a return of capital ?

I have taken the above view about tobacco stocks for several years now and avoid them wherever possible. I am rapidly taking a similar view about oil stocks (i.e. that their long term future is doomed). Another reason not to hold too much in UK IT's as they tend to be heavy with Shell and BP as well as holding tobacco stocks. Though unfortunately many, if not most, Global trusts also hold tobacco and oil stocks.

[dspp]

Moderator Message:
At the risk of restating myself, but alerts do keep coming in, so here you go again.

Moderator Message:
I've had a request that any further musings please meander closer towards the topic title. regards, dspp

[jackdaww]

Very good for you. Tobacco is probably my weak spot but I will just hang on and see how things transpire. I know that I may well have too much there but never mind. I think there is a good chance of them being around for a good while yet.

Dod

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

yes , i agree tobacco may be around for decades .

but IF the share price continues on a downwards path , isnt the dividend just becoming a return of capital ?

I have taken the above view about tobacco stocks for several years now and avoid them wherever possible. I am rapidly taking a similar view about oil stocks (i.e. that their long term future is doomed). Another reason not to hold too much in UK IT's as they tend to be heavy with Shell and BP as well as holding tobacco stocks. Though unfortunately many, if not most, Global trusts also hold tobacco and oil stocks.

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

yes , choosing IT's that avoid these perceived declining high yield behemoths is an issue.

recommendations , ideas , gratefully welcome.

[77ss]

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

yes , i agree tobacco may be around for decades .

but IF the share price continues on a downwards path , isnt the dividend just becoming a return of capital ?

I have taken the above view about tobacco stocks for several years now and avoid them wherever possible. I am rapidly taking a similar view about oil stocks (i.e. that their long term future is doomed). Another reason not to hold too much in UK IT's as they tend to be heavy with Shell and BP as well as holding tobacco stocks. Though unfortunately many, if not most, Global trusts also hold tobacco and oil stocks.

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

yes , choosing IT's that avoid these perceived declining high yield behemoths is an issue.

recommendations , ideas , gratefully welcome.

Not actually that difficult to avoid these companies. Sectorally focused ITs, Mid- and small-cap ones, some geographies....

If you want a high yield (not something I have chased with my ITs, having other fish to fry) it gets a bit more difficult of course. The only one of my ITs that offers over 4% is BPET at about 4.17%. While I haven't actually checked, I rather doubt that a private equity IT would have any holdings in big-oil or big-tobacco!

As a nod to the OP's original question, BPET is only about 40% in the UK. My other PE holding (SLPE) is only about 13% in the UK - and still has a reasonable yield of 3.5%.

[Charlottesquare]

Very good for you. Tobacco is probably my weak spot but I will just hang on and see how things transpire. I know that I may well have too much there but never mind. I think there is a good chance of them being around for a good while yet.

Dod

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

yes , i agree tobacco may be around for decades .

but IF the share price continues on a downwards path , isnt the dividend just becoming a return of capital ?

Only insofar as dividends paid per share are above earnings per share, the share price is surely not, re this relationship ,the issue but more a reflection of market concern re the sustainability of the dividend policy.

[Charlottesquare]

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

yes , i agree tobacco may be around for decades .

but IF the share price continues on a downwards path , isnt the dividend just becoming a return of capital ?

I have taken the above view about tobacco stocks for several years now and avoid them wherever possible. I am rapidly taking a similar view about oil stocks (i.e. that their long term future is doomed). Another reason not to hold too much in UK IT's as they tend to be heavy with Shell and BP as well as holding tobacco stocks. Though unfortunately many, if not most, Global trusts also hold tobacco and oil stocks.

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

yes , choosing IT's that avoid these perceived declining high yield behemoths is an issue.

recommendations , ideas , gratefully welcome.

Well, I do not avoid tobacco and oil (my biggest single holding is Shell) but of the ITs I hold a fair few have an income bent.


Stock
Aberdeen Asian Income Fund Ordinary NPV Shares
Aberdeen Latin American Income Fund Ord NPV *1
Athelney Trust Ordinary 25p
Berkshire Hathaway Inc Class B USD0.0033 *R
BlackRock Frontiers Investment Trust Ordinary 1p
BlackRock World Mining Trust Ordinary 5p
City Of London Investment Trust Ordinary 25p Shares
European Assets Trust GBP0.10
Fidelity China Special Situations PLC Ordinary Shares 1p
Henderson Far East Income Ltd Ordinary NPV
JPMorgan Chinese Investment Trust plc Ordinary 25p
Merchants Trust plc Ordinary 25p
Middlefield Canadian Inc - GBP PC Part Pref Shs Npv
Murray International Trust plc Ordinary 25p Shares
Standard Life Investment Property Income Trust Ord 1P
Utilico Emerging Markets Trust plc Ordinary GBP 0.01

I view Berkshire as a no yield US IT (I know it is not but I also thought the US was overpriced so hold it in case it takes a powder and Warren and Charlie snaffle up some holdings at hopefully reduced price)

The two Chinese ones are much lower yielding than the rest.
Athelney is very UK centric and more smaller cos, possibly a mistake but who knows.
The Trusts (inc Berkshire) last time I bothered to check yielded 4.22% overall, my single company shares yielded 5.79% including lowly Unilever which was at 2.98% , blended mix of shares and ITs was 4.75% with 33.43% in individual shares and 66.57% in ITs (inc Berkshire)

Maybe this is useful. My aim is currently to limit UK economy exposure (and the likes of Shell, Imperial, BP, Unilever, HSBC, Vodafone are not UK centric) and have limited ITs with heavy UK presence (though Athelney certainly does)

It is in effect me mainly betting on a poor landing for Sterling re Brexit.

[Dod101]

Very good for you. Tobacco is probably my weak spot but I will just hang on and see how things transpire. I know that I may well have too much there but never mind. I think there is a good chance of them being around for a good while yet.

Dod

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

yes , i agree tobacco may be around for decades .

but IF the share price continues on a downwards path , isnt the dividend just becoming a return of capital ?

Only insofar as dividends paid per share are above earnings per share, the share price is surely not, re this relationship ,the issue but more a reflection of market concern re the sustainability of the dividend policy.

I was thinking that jackdaw was maybe thinking of the fact that although dividends have kept rolling in from the tobaccos, the share prices have continued to tank. In that sense, it is not a return of capital in any accounting sense but is in a practical one. Off topic again. I blame the fact that I was not thinking clearly. Too early in the morning.

Dod

[Gengulphus]

I was thinking that jackdaw was maybe thinking of the fact that although dividends have kept rolling in from the tobaccos, the share prices have continued to tank. In that sense, it is not a return of capital in any accounting sense but is in a practical one. ...

Only in one practical sense, namely that your net worth has failed to increase after the dividend has been paid and the share price has dropped. But there are others, such as what cause you should ascribe that failure to and where you should look to reduce such failures - and use of the word "return" rather obfuscates that because it implies that the dividend comes from the same place as the share price drop. By analogy, if I had a gambling problem that was causing me to lose money and an employer who was paying me the same amount in salary, it would be true that the two combine to mean that my net worth was failing to increase. But IMHO it wouldn't be reasonable to say that my employer was "returning" my gambling losses to me - the use of the word suggests a connection between the gambling losses and the salary that simply isn't there!

That analogy isn't perfect - it is usually obvious that there isn't such a connection between the gambling losses and the salary, whereas with dividends and drops in share price it isn't obvious. Dividends are paid by the company and they might be being paid from its capital resources rather than its earnings, while share price changes are equivalently market capitalisation changes and effectively paid by or to the market. The tricky question is how strong a connection there is between the company's market capitalisation and its capital resources, and that's not helped by the fact that a company's capital resources are very hard to determine (balance sheets are an attempt, but one with considerable flaws in it, flaws that IMHO are inextricably linked to the fact that they're an accounting concept). Whether the dividend actually is the company returning capital is an important question for the purpose of looking for where things have gone wrong - is it that you overvalued the company or that the market is currently undervaluing it? - and it's a practical question because it affects what you should ideally do about the share. The fact that the answer depends on something that is very hard to determine is unfortunate, of course - but it's a fact of life, and deciding the dividends accompanied by price drops automatically mean that the dividends are returns of capital ignores that fact of life.

Gengulphus

[Dod101]

I am not sure of your point Gengulphus because the comment was not intended to be anything very deep and it was in the context of what I have been saying for a long while that the tobacco dividends have been dearly bought in the last two or three years, 'dearly bought' in the sense that whilst the dividend is nice to have there is not a lot of point in a decent dividend if the share price is tanking at the same rate or faster at the same time.

Dod

[jackdaww]

I am not sure of your point Gengulphus because the comment was not intended to be anything very deep and it was in the context of what I have been saying for a long while that the tobacco dividends have been dearly bought in the last two or three years, 'dearly bought' in the sense that whilst the dividend is nice to have there is not a lot of point in a decent dividend if the share price is tanking at the same rate or faster at the same time.

Dod

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

nice and simply put .

ie total returns diminishing .

[Charlottesquare]

I am not sure of your point Gengulphus because the comment was not intended to be anything very deep and it was in the context of what I have been saying for a long while that the tobacco dividends have been dearly bought in the last two or three years, 'dearly bought' in the sense that whilst the dividend is nice to have there is not a lot of point in a decent dividend if the share price is tanking at the same rate or faster at the same time.

Dod

In hindsight fine but in practical terms does not help as backward looking, the stronger question is ought we have anticipated the price drop?

The share price is the result of myriad other factors, one of which is surely the uncovered dividend and the company dividend policy. It all presupposes in our thoughts that the market is rational in its pricing, but price drops often are not, they can sometimes, even for prolonged periods, be the market inflicting a punishment beating disproportionate to the offence (Imperial have say disappointed expectations rather than slid down a cliff re earnings)

So is the price movement a temporary movement downward or a permanent pricing adjustment given our crystal ball view of the entity's future? Who knows?

I have given up trying to predict market sentiment with individual shares (though I do still apply macroeconomic thinking/gut feel to my ITs), so with tobacco shares providing the company looks comfortable finding the cash for the dividends and it has deep distributable reserves, and it has been doing what it does for a very long time, and it likely will continue past my demise, frankly I do not get that concerned, same with Shell which I suspect will slowly (because it is like one of its tankers, slow turning) change business direction.

So, one then boils down to, can I judge the stepping on and off optimum points and price these? Well I am not great at that, the market does not price the same as I do, so that is not really how I work.

Crudely, because I do also look at cashflow/debt/ other bits, if it churns out say a 8% earnings yield (P/E up to say 12) , is mature, then frankly as long as it is not likely to run out of cash then I am reasonably happy- is it the optimum investment choice, no, were there better choices, yes, but frankly if the company is knocking out a say 8% return on my money (whether distributed or not) then that is currently a pretty reasonable return for a passive investment, it doubles my money (with compounding) every 10 years.