Diversifying away from the UK through IT

[Itsallaguess]

surely total of accumulated wealth is the ONLY benchmark? regardless of building or spending.

Don't risk saying that on the HYP Practical Board. Some contributors consider the amount of dividend the only benchmark, even going to the extent of buying just before a stock goes ex dividend.

Understandable perhaps if income to spend is a requirement but pointless if all they do with the income is reinvest it.

Well I don't think it's 'pointless' at all, but to understand why I think that you've got to first appreciate that there are two separate investment-related issues here, and your focus on 'total return' is just one aspect of that....

The other aspect is 'investment-process', and how simple, repeatable, and palatable a particular 'investment-process' might be over any other 'investment-process'.

So someone who might perhaps advocate splitting investment approaches, and hence investment-processes, into a more 'capital/total-return' oriented approach during those years where 'income' in and of itself isn't necessarily required, and then moving towards a more 'pure' income-oriented approach in the years when income itself becomes much more important to someone who desires regular use of it from their investments is really advocating the use of two completely different investment-strategies for different periods of time.

And it's this specific issue that perhaps means that some investors perhaps don't want to take that approach, even if there's a long-term performance 'levy' to pay on not taking it...

By taking a single 'income-oriented' approach to our investments, even during those years where income isn't necessarily required, such as during our working years, we are able to reinvest that unused dividend-income in exactly the same way as we do any additional investment capital that we accumulate via excess wage-related income, and I think being able to take that single investment approach for a lifetime of investment has a great deal of merit if you're the type of investor who would prefer not to have to worry about 'learning' or 'enacting' a completely different, capital-growth based approach as well.

The additional benefits, to me at least, of taking a more 'reinvesting income' approach to my investments, even whilst still working, are that it both enables me to track and largely predict the amount of income and income-growth that my single-strategy approach is creating, and hence how that might be tracked in future, which helps me to manage my long-term career and any potential retirement plans, and it also provides me with a single 'income-switch', which sits right at the very heart of my single-strategy approach, and which is currently switched to the side that says 're-invest income'.

If and when the time comes when I want to take, rather than re-invest that income, all I have to do is throw that switch from 're-invest income' to the side that says 'pay out income', and the whole of my investment strategy will stay exactly the same except for the fact that I'll then be taking, rather then re-investing that portfolio income from that time.

So whilst you might think that it's 'pointless' to take investment-income and then re-invest it, I think that view removes any credit that might be taken on the 'process' side of things, and the longer I go on investing, the more I find myself thinking that the 'process' side of things is, to me at least, of equal importance if not more so than a comparable 'total return' figure might be if I were to take a more 'multi-strategy' approach to things....

Cheers,

Itsallaguess

[Alaric]

So whilst you might think that it's 'pointless' to take investment-income and then re-invest it,

It was the advocacy that if there was a choice, investing cum div was better than investing x div because you got more dividends. I'm not sure you do in the longer run, since if you invest x div after the price drop, you get more shares, so more dividend next time round. You do however artificially boost the income received total in the current year at the cost of getting some of your purchase price back almost immediately and of probably having to pay stamp duty on it.

[77ss]

.....

So someone who might perhaps advocate splitting investment approaches, and hence investment-processes, into a more 'capital/total-return' oriented approach during those years where 'income' in and of itself isn't necessarily required, and then moving towards a more 'pure' income-oriented approach in the years when income itself becomes much more important to someone who desires regular use of it from their investments is really advocating the use of two completely different investment-strategies for different periods of time....
Itsallaguess

So? As one moves through life ones circumstances change. Sometimes drastically. Does it not make sense to change ones approach accordingly? An unchanging strategy does have the virtue of simplicity, but other than that, 'one size fits all' makes little sense to me, and I have certainly changed my personal strategy - gradually rather than all at once.

After early retirement, I needed income, so a high yield strategy was the obvious approach. When my pensions kicked in, my need for dividend income diminished and I started to target total return, via low-modest yielding shares and ITs. As I age, I may well move back, as I may not have sufficient life-expectancy to ride out a slump.

[onthemove]

Might you not be better advised to put some of your money into lower yielding investments that promise a better total return in the long run?

Who makes such a "promise" for the lower yielding investments?

[baldchap]

The additional benefits, to me at least, of taking a more 'reinvesting income' approach to my investments, even whilst still working, are that it both enables me to track and largely predict the amount of income and income-growth that my single-strategy approach is creating, and hence how that might be tracked in future, which helps me to manage my long-term career and any potential retirement plans, and it also provides me with a single 'income-switch', which sits right at the very heart of my single-strategy approach, and which is currently switched to the side that says 're-invest income'.

In a nutshell. 100 thumbs up.

[Dod101]

The OP asked what would be a good 'ration' towards ITs. I would certainly think that 10/15% would be a reasonable proportion, and I would choose HFEL (Henderson far East) and MYI (Murray International) Both are to an extent income trust investing internationally and managed by different investment houses. That will give him some international exposure and a feel for ITs, and of course instant diversification. With ITs I would keep them for the long term and let the manager do his thing.

Dod

I too have both HFEL & MYI as means of diversifying internationally from an FTSE based HYP.
You may also wish to look at HICL as an infrastructure IT.

Thanks TUK. I have looked at infrastructure trusts and I agree that they look good for income but I have never been able to persuade myself to buy. Either the premium is too high, or the political risk is. But I agree; they are a good diversifier.

Dod

[Dod101]

Might you not be better advised to put some of your money into lower yielding investments that promise a better total return in the long run?

Who makes such a "promise" for the lower yielding investments?

AS you must know it is not a 'promise' in the oft used sense of the word but the evidence certainly in the UK market over the last several years is that higher yielding shares have not done much. Full stop. OTOH, shares like the oft quoted Unilever and Diageo have done much better on a total return basis.

Dod

[tjh290633]

Might you not be better advised to put some of your money into lower yielding investments that promise a better total return in the long run?

Who makes such a "promise" for the lower yielding investments?

AS you must know it is not a 'promise' in the oft used sense of the word but the evidence certainly in the UK market over the last several years is that higher yielding shares have not done much. Full stop. OTOH, shares like the oft quoted Unilever and Diageo have done much better on a total return basis.

Dod

That is certainly true of the last few years, but a comparison of the HIX and LIX indices will show that opposite situation prevailed for a long time, it could revert in the near future. Yesterday's hiatus saw a lot of high yielders showing incredible gains.

TJH

[Dod101]

We are now well off the topic but I will respond to TJH. I saw the newspaper report as well (of big gains) but I did not catch many. Only Legal & General was a significant gain for me.

I was going to respond to the post by IAAG but will not as I feel it is well off topic and that is unfair to the OP.

Dod

[tjh290633]

We are now well off the topic but I will respond to TJH. I saw the newspaper report as well (of big gains) but I did not catch many. Only Legal & General was a significant gain for me.

I was going to respond to the post by IAAG but will not as I feel it is well off topic and that is unfair to the OP.

Dod

Perhaps you should revise your selection rules. With 3 of mine rising over 10% on the day (LLOY, MKS, TW.), and several more , 8 I think, rising more than 5%, a portfolio rise of almost 3% was very welcome.

TJH

[Itsallaguess]

I was going to respond to the post by IAAG but will not as I feel it is well off topic and that is unfair to the OP.

You're quite right Dod, and with apologies to the OP if this is an unwanted area of discussion, I've now created a separate topic where discussion might be able to continue regarding single, or multi-strategy approaches -

https://www.lemonfool.co.uk/viewtopic.php?f=31&t=19899

Cheers,

Itsallaguess

[onthemove]

AS you must know it is not a 'promise' in the oft used sense of the word but the evidence certainly in the UK market over the last several years is that higher yielding shares have not done much. Full stop.

My question was really an allusion as to what determines yield - and quite simply the market does.

Any share paying a dividend can be a high or low yielding share. It's not the dividend that decides the yield, it's not the company that decides the yield, it's not even the company's performance that directly decides the yield ... the yield is what the market decides to make of the companies dividend.

Which makes allusion to the concept of market efficiency.

If you buy into the concept of an efficient market ( https://www.investopedia.com/terms/e/ef ... thesis.asp ) then there isn't any net difference between high or low yield shares. The market (under this assumption) has set their yield so that you wouldn't expect to outperform (total return) from either.

If you don't believe the markets to be efficient, then to believe that lower yielders "promise" a higher return would suggest some kind of inherent inefficiency that always means high yielding shares, should in reality be even higher yielding in order to converge expected returns with those of low yielding shares.

But then think about that... if the market becomes more 'efficient' and increases the yield of high yield shares even further, then the inefficiency is lost, and the potential for superior returns from one compared to the other is diminished.

In essence, to believe in "promises" of better returns from low yielding shares, you'd need to believe that there was some inherent inefficiency in the markets, that is always present and always had the effect of 'compressing' the yield spread across the shares in the market (such the low yielders were always yielding slightly higher than they intrinsically should, and high yielders never quite yield as high a yield as they intrinsically should).

There are certainly psychological factors that can influence or bias this. For example, fear can cause high yielding shares to be priced even lower (thereby raising their yield even more!). Or alternatively greed can make people over optimisitic in 'growth' companies' prospects, leading to over optimistic pricing (and lower yields than they intrinsically deserve)

But neither of these would really be expected to be persistent in the market.

I know it's a cliche, but how does the saying go... "In the short term the market is a voting machine, in the long term it's a weighing machine".

Just to return to a specific point on the OP...

I have mainly stuck with shares over EFT's or IT's as I am unfortunately with HL so the fees for holding shares are a max £200 a year where as holding funds in a HL SIPP is on the more expensive end of the scale

One of my accounts is with HL, and I have ETFs in there... though it isn't a SIPP. My understanding is that ETFs are just treated as shares in terms of trading and fees.

Is this different in a SIPP? (I'm not sure why it should be, because my understanding is that ETFs are specifically designed to in effect 'be' just like a share for practical purposes.

[IanTHughes]

We are now well off the topic but I will respond to TJH. I saw the newspaper report as well (of big gains) but I did not catch many. Only Legal & General was a significant gain for me.

I was going to respond to the post by IAAG but will not as I feel it is well off topic and that is unfair to the OP.

Perhaps you should revise your selection rules. With 3 of mine rising over 10% on the day (LLOY, MKS, TW.), and several more , 8 I think, rising more than 5%, a portfolio rise of almost 3% was very welcome.

I have just been updating my spreadsheets and yes, the gains yesterday were spectacular!

From my holdings:

COMPANY         | EPIC | +/-   
CREST NICHOLSON | CRST | 11.69%
PERSIMMON       | PSN  | 10.86%
NEWRIVER REIT   | NRR  |  8.73%
STAGECOACH      | SGC  |  8.50%
ROYAL MAIL      | RMG  |  7.86%
KIER GROUP      | KIE  |  7.39%
BT GROUP        | BT.A |  6.57%
AVIVA           | AV.  |  6.30%
ITV             | ITV  |  6.20%
PHOENIX GRP HDG | PHNX |  5.21%
TALKTALK        | TALK |  5.13%
SSE             | SSE  |  5.10%
STD LIFE ABER   | SLA  |  5.03%
SAINSBURY(J)    | SBRY |  4.38%
MARSTON'S       | MARS |  3.14%
BROWN(N.) GRP.  | BWNG |  2.80%
BRITVIC         | BVIC |  2.72%
NATIONAL GRID   | NG.  |  2.39%
ADMIRAL GRP     | ADM  |  1.91%
HSBC HLDGS.UK   | HSBA |  1.57%
BHP GROUP       | BHP  |  1.40%
BAE SYS.        | BA.  |  0.51%
TATE & LYLE     | TATE | -0.12%
SOUTH32         | S32  | -0.30%
VODAFONE GRP.   | VOD  | -0.93%
RDS 'B'         | RDSB | -0.95%
IMP.BRANDS      | IMB  | -1.03%
BP              | BP.  | -1.68%
ASTRAZENECA     | AZN  | -1.93%
BR.AMER.TOB.    | BATS | -3.56%

Overall, my HYP gained 2.10% in value!

i wonder why the sudden movement up?


Ian

[kempiejon]

I diversified away from the UK when I combined all my employee pensions into a SIPP buy buying Vanguard ETFs to cover the rest of the world. My 5 picks were Asia exJapan VAPX, Developed Europe exUK VERX, Emerging Markets VFEM, Japan Equity VJPN and S&P 500 VUSA. Very low charges and no real research or managers to care about as I'm buying the market.
My UK holdings are mostly directly held shares either unsheltered or in ISAs so this was a bit of a strategy change for me but before I started buying UK shares I bought FTSE100 trackers in my ISA so this is my global version.

[Dod101]

The sudden movement up is I assume to do with the Brexit talks. Most of the big gains were from shares which are very much domestically oriented. Anyway the fact is that ITH and TJH deserve the occasional good day with the collection of shares at the top of ITH's table. As we know those concentrating on high yielding shares have had a pretty torrid time in recent years.

I was affected by the fact that apart from Phoenix, Chesnara and Legal and General most of my shares are big on international earnings and they of course were affected by the strengthening of the pound. Overall though I was certainly up but I am unconcerned one way or the other although it is good to see some increases. I have had a lot of better days.

Dod

[dspp]

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

[tjh290633]

There was a sudden marked rise in sterling against the USD yesterday. $1.2668 according my Bloomberg app. +1.81% they say.

TJH

[Gengulphus]

surely total of accumulated wealth is the ONLY benchmark? regardless of building or spending.

No, not for me it isn't. If accumulated wealth had been the only benchmark for me, I wouldn't have retired early almost a decade ago - I was earning a very good salary and benefitting from an employee share scheme that had turned out to be lucrative and would have become considerably more so with the benefit of the extra years' awards. A finger-in-the-air guestimate is that I would have been a high six-figure or low seven-figure amount wealthier today if I'd not retired early than I actually am, so if accumulated wealth had been my only benchmark, I would not have retired early.

Not getting stressed out, not risking the health problems associated with too-prolonged stress, and having plenty of time to do the things I most enjoy are just as important in my choice of strategy as accumulated wealth - if not more so. I'm not saying that's true of everyone - indeed, my priorities were different up to around 15 years ago, and very different up to around 20 years ago: accumulating wealth tends to be a much higher priority when obtaining enough of it is a significant challenge than when it isn't. But it is true of me, and more generally it means that people's priorities (and hence the benchmarks they choose to use) do vary.

Edit: To bring out some relevance to the thread's topic (what the benchmarks to use are is clearly relevant to assessing investment strategies, i.e. the board's topic), one of the big attractions of investment trusts to me is that the right investment trust will allow me to invest in foreign companies while using a security that is a UK source for tax purposes. Getting tax returns right is something I find rather stressful and so I value anything that makes it easier!

Gengulphus

[TUK020]

Might you not be better advised to put some of your money into lower yielding investments that promise a better total return in the long run?

Who makes such a "promise" for the lower yielding investments?

AS you must know it is not a 'promise' in the oft used sense of the word but the evidence certainly in the UK market over the last several years is that higher yielding shares have not done much. Full stop. OTOH, shares like the oft quoted Unilever and Diageo have done much better on a total return basis.

Dod

The problem that I have with the idea that 'quality' companies that Unilever and Diageo will provide a better long term return despite being lower yielding is the survivership bias in this selection.
I have scar tissue from investing in quality growth, lower yielding companies, which provide a superior return........ until they don't. Tesco, RB, RR, Cobham are ones that come to mind easily.

[AJC5001]

The problem that I have with the idea that 'quality' companies that Unilever and Diageo will provide a better long term return despite being lower yielding is the survivership bias in this selection.
I have scar tissue from investing in quality growth, lower yielding companies, which provide a superior return........ until they don't. Tesco, RB, RR, Cobham are ones that come to mind easily.

The problem I have with the 'oft quoted' Unilever and Diageo is that I would like a Growth portfolio of around 20 shares for the same reasons as I would like a HYP of around 20 shares.

What are the other 18 companies going to be?

Adrian