15 share HYP

[BreakoutBoy]

Just imagine purist 15 share HYP: it could conceivably have hit the icebergs of Pearson, Petrofac, Provident Financial, Tesco, Carillion and Lloyds, all of which at one time or another might have been reasonable picks.

Bet that guy has gone passive...

[StepOne]

Yeah, not to mention BATS, Unilever, British Aerospace, Vodafone, HSBC, Standard Life .... oh... hang on ....

[BreakoutBoy]

I certainly hope he picked a few winners, because the capital loss revealed on the junk will be truly scary!

[StepOne]

Well, diversification is one of the key principles of HYP. And high-yielding shares have been shown to out-perform (Dreman - Contrarian Investment Strategies). And you could just as easily make a list of non-HYP companies that have performed even worse than the ones you listed. So is there a better strategy than HYP?

[moorfield]

So is there a better strategy than HYP?

Assuming there isn't ( ) - perhaps a more useful question to discuss in response to the OP is how best to start a 15 share HYP - ie. lump sum or drip feed? - if investing for the long term timescale. I was fortunate with the timing of my initial lump sum purchases in Q4 2008/Q1 2009. Others clearly haven't been more recently.

[Raptor]

So is there a better strategy than HYP?

Assuming there isn't ( ) - perhaps a more useful question to discuss in response to the OP is how best to start a 15 share HYP - ie. lump sum or drip feed? - if investing for the long term timescale. I was fortunate with the timing of my initial lump sum purchases in Q4 2008/Q1 2009. Others clearly haven't been more recently.

Made me think, went back to 2004, when I brought or topped-up existing shares with a lumpsum. It was obvious that I really did not understand HYP that well or my criteria was flawed. Of the 15 only have CNA left and HBOS (LLOY), but the less we talk about that one the better. Recently sold Savills as part of my CGT strategy. Of the rest, I regret gettig rid of BATS (for ideological reasons), the rest some taken over, others were never HYP candidates.

Since then started a 15 share HYP for my Mum (have inherited that one and integrated it into mine), that was a lot better 7 of them still remain as have reduce my holdings to pay for an expense and had too many over lapping shares. This year have started one for my Daughter, currently 10 shares, too soon on that one to say.

Also a couple of years back took control of my pension pots in a a SIPP with HL, made a decision to work on an IT portfolio. Again too soon to see what one is best, dividend income on both is around the same (5%ish) but capital on the IT's is a lot better. IT's are going to be easier to manage going forward, which is a bonus.

Interesting though whether in the climate we see today whether a "pure" HYP is the way for "income" investors...

Raptor.

[daveh]

So is there a better strategy than HYP?

Assuming there isn't ( ) - perhaps a more useful question to discuss in response to the OP is how best to start a 15 share HYP - ie. lump sum or drip feed? - if investing for the long term timescale. I was fortunate with the timing of my initial lump sum purchases in Q4 2008/Q1 2009. Others clearly haven't been more recently.

Well as I didn't have a lump sum of any significance I started my HYP in 2000 with monthly savings of £250. I bought shares with Halifax sharebuilder and also invested £100 a month in a L&G all share tracker. I stopped that and started investing in HYP shares in a ISA when I decided I was performing as well as the tracker, but the income was better. I've continued to add more cash monthly over the whole period and reinvest the dividends. My HYP has returned an XIRR of 8.6%pa since inception and produces a good income.

It is basically a non tinkered HYP of 32 shares and 3 high yield ETFs built up over 17 years. Of the holdings 29 are in profit of between 0 and 730% and 6 are showing a loss.(RBS -90%, CLLN -62%, DC. -62%, TSCO -40%, LLOY -26%, SBRY -17%). Eleven holdings have disappeared due to takeovers, splits etc, 10 at a profit and only one at a loss. I'm happy with its performance.

I started unitising the portfolio from September 2003 when accumulation units were valued at £1.00. As of the last valuation on the 15th of August units were valued at 3.30 and last years income per unit was 14.08p in 2003 income per unit was 5.13p.

So the HYP has performed for me as hoped, but there have been some good times for buying high yield shares over the period I have been investing

[Itsallaguess]

Just imagine a purist 15 share HYP: it could conceivably have hit the icebergs of Pearson, Petrofac, Provident Financial, Tesco, Carillion and Lloyds, all of which at one time or another might have been reasonable picks.

Bet that guy has gone passive...

Well, he might have done.

Do you know anyone who's been that unlucky?

Is it really all that useful to suggest a 'worse-case-scenario' like this as a reason to avoid something, if we're not also clear on the chances of it happening?

You've had responses from some people, and I'd include myself in there as well, who have been quite happy with their long-term income and/or TR returns over many years whilst following a similar High-Yield-Portfolio strategy, so do those views carry any weight against your own 'worse-case-scenario' above?

I should say here that I wouldn't personally be at all comfortable with just a 15-share HYP, and currently have around 38 individual elements to my high-yield portfolio, in the form of individual shares and investment-trusts, but I don't think it's particularly useful to dream up a worst-case scenario like this without any evidence that it's likely to happen, and continue to discount a strategy that many have been happy with for often really quite long periods.

With that said, it's not clear if you're discounting the whole strategy, or have issues with such a concentrated portfolio with just 15 shares. Can you expand on your actual concerns?

Cheers,

Itsallaguess

[pendas]

There's no doubt you can pick up quite a few accident prone companies along the way with this methodology.

The original constituents of HYP 3 and HYP 4 constructed around 2005-7 are still available to view on-line and include Lloyds, RBS, Alliance & Leicester, Rentokil, Pearson, BP and Persimmon, so you would have had a bumpy ride ahead of you following these examples.

I've held all of the above apart from BP

[tjh290633]

I've posted some data about my portfolio at viewtopic.php?f=31&t=6914&p=76606#p76606 which shows its development from an initial 3 shares to the current 37. I've had my share of failures along the way, looking at my list of disposals. Notable candidates include Marconi, British Airways, HBOS, Mapeley, DSGI, Trinity Mirror, Premier Foods, RSA and Cattles, to name a few. I held on to Lloyds, Taylor Wimpey, Tesco and Carillion in the hope of recovery.

By 1998 I had worked up to 20 holdings in a PEP, and then started an ISA with a further 7 holdings initially. They were amalgamated in 2008, by which time there were 33 holdings, two of which came from a single company PEP also merged in. Demergers have accounted for some extra holdings, like AZN which came out of ICI, while IMB is all that remains of Hanson. Takeovers have abounded along the way. Each one presents the opportunity of adding a new share to enhance the dividend income flow.

TJH

[Urbandreamer]

OK, let us first accept that I am not a HYP purist, but then others in this post also are not.

For example HYP was thought of as a lump sum investment. To claim that we don't and hence this validates the idea is wrong.

OK, we have now accepted the idea that we shall at least add more money.

Doesn't that assume that when we do so we think about the companies to invest in and possibly start by considering those that we are already invested in. Dare I raise the old TMF debate and suggest that at that point we might at least consider tinkering?

FWIW I think that both the original HYP idea and what it has morphed into have many things that can be argued as strengths. Picking the weaknesess to me is easy game.

Pyad had good evidence that repeatedly tradeing good companies over a 20 year period (possibly as long as Dorris might be interested) was a mugs game. However 30, 40, 50 years as the morphed idea of building a HYP is concerned?

Personally I have decided to adopt a "mixed" approach as I intend to draw upon the results long enough that inerest/dividend alone is unlikely to provide. In simple terms I expect the state to debase the currency at least as fast as the yeild on the FTSE. Hence I need to grow the yield/capital at the same rate.

[Dod1010]

I probably hold as near to a 15 share HYP as anyone on the Board. In fact I have 17 directly held shares and 4 ITs..

This may be risky but is to me fine and I sleep soundly. I avoid what I regard as second rate shares (or maybe third rate; some out of my 18 are not quite first rate)

I list them below :-

Unilever
HSBC
Shell
Legal & General
Imperial Brands
BAT
SSE
Primary Health Properties
British Land
Phoenix Group
Chesnara
National Grid
Vodaphone
AstraZeneca
Glaxo
Segro
Schroders N V

The ITs are
Edinburgh
Temple Bar
Murray International
Murray Income

I do not need more than that. These shares have served me well; some, in fact at least the top 7, have served me well for over 20 years. They are my first team. The rest I am less enthusiastic about except for maybe National Grid and Schroders, although I like them all, and have at least a mental story on each and why I hold them. Going beyond that has always diworsified my portfolio.

Simple? Not really; I must always be on my guard, I know that only too well and please do not follow my ideas except at your own risk.

Dod

[Gengulphus]

Just imagine purist 15 share HYP: it could conceivably have hit the icebergs of Pearson, Petrofac, Provident Financial, Tesco, Carillion and Lloyds, all of which at one time or another might have been reasonable picks.

Rather than imagining what could conceivably have happened, how about looking at what happened to a 15-share HYP whose shares really were picked by someone who thought they were reasonable picks at the time? It's not quite purely a 15-share HYP, since it did spend about 5 years out of getting on for 17 so far as a 16-share HYP as a result of a demerger before coming down to 15 shares again by reinvesting the small proceeds of a taken-over iceberg-hitter in top-ups rather than a replacement share, but I hope you'll agree that's a very minor impurity!

• [Alliance & Leicester (not replaced when taken over in 2008) - hit a major iceberg in 2008.]
• Anglo American - hit a major iceberg in 2015.
• British American Tobacco (replaced Gallaher when it was taken over in 2007) - has avoided icebergs so far.
• BT (replaced Associated British Ports when it was taken over in 2006) - hit quite a big iceberg in 2009.
• Dixons Carphone (result of merger involving Dixons/DSGI, which replaced Alliance Boots/Boots when taken over in 2007) - as Dixons, hit a major iceberg in 2008.
• Intercontinental Hotels (demerged out of Bass/Six Continents in 2003) - has avoided icebergs so far.
• Ladbrokes Coral (result of merger involving Hilton/Ladbrokes, which replaced Blue Circle when taken over in 2001) - hit quite a big iceberg in 2009.
• Land Securities - hit quite a big iceberg in 2009.
• Lloyds - hit a major iceberg in 2008.
• Mitchells & Butlers (demerged out of Bass/Six Continents in 2003) - hit a major iceberg in 2008.
• Pearson (replaced one of Scottish & Newcastle and Resolution/Britannic when taken over in 2008) - hit quite a big iceberg in 2017.
• Persimmon (replaced the other of Scottish & Newcastle and Resolution/Britannic when taken over in 2008) - hit quite a big iceberg in 2008.
• Rio Tinto - hit moderate icebergs in 2010 and 2016.
• RSA - hit a major iceberg in 2002 and quite a big one in 2013.
• Shell - has avoided icebergs so far (*).
• United Utilities - hit a fairly big iceberg in 2009 (and a couple of more moderate ones along the way).

Whether an iceberg is major or merely quite a big one is obviously a matter of opinion, but by my reckoning that's six major icebergs and six more that weren't quite as big. Compared with your six iceberg-hitters, one of which (Pearson) I've only counted as quite a big one (**), that's somewhat worse than your imaginings!

(*) Shell's reserves scandal and the subsequent re-unification of the company in 2005 don't qualify as an iceberg in my view, as the dividends kept flowing. The reserves scandal did hurt the share price, but if I counted everything that hurt share prices as icebergs there would be far too many of them!

(**) A difficult decision, because there hasn't been enough time to really judge it yet. But if you want Pearson to be counted as major, so that you have six major iceberg-hitters, then that affects my numbers as well: they shift to seven major and five not quite so big icebergs.

Bet that guy has gone passive...

No - the HYP whose shares I have listed above is a non-tinkering HYP, which means that it has been about as passive as a share portfolio can be all along. So it hasn't gone passive, it's been that way right from the start...

Or put another way, being passive is part of the whole point of HYPs! Tinkering HYPs don't do it quite as well as non-tinkering ones, but they're still very much at the passive end of the share portfolio spectrum.

Last but by no means least, the HYP I've detailed above was started in 2000 with £75k capital. Details of its income up to last November (all of which has been withdrawn from it, not reinvested) and of its capital value at the same time can be found in viewtopic.php?f=15&t=432. There's a lot one might criticise about it - but its owner has not had a bad outcome, despite being passive!

Gengulphus

[Wizard]

I probably hold as near to a 15 share HYP as anyone on the Board. In fact I have 17 directly held shares and 4 ITs..

This may be risky but is to me fine and I sleep soundly. I avoid what I regard as second rate shares (or maybe third rate; some out of my 18 are not quite first rate)

I list them below :-

Unilever
HSBC
Shell
Legal & General
Imperial Brands
BAT
SSE
Primary Health Properties
British Land
Phoenix Group
Chesnara
National Grid
Vodaphone
AstraZeneca
Glaxo
Segro
Schroders N V

The ITs are
Edinburgh
Temple Bar
Murray International
Murray Income

I do not need more than that. These shares have served me well; some, in fact at least the top 7, have served me well for over 20 years. They are my first team. The rest I am less enthusiastic about except for maybe National Grid and Schroders, although I like them all, and have at least a mental story on each and why I hold them. Going beyond that has always diworsified my portfolio.

Simple? Not really; I must always be on my guard, I know that only too well and please do not follow my ideas except at your own risk.

Dod

Thanks for posting the list Dod. I had a few question, if you don't mind. Are the holdings broadly evenly split between the 17 on a capital basis? What is the equity versus IT split? Has there been much churn in the 17 over time, i.e fully exiting a share (I think Cobham was mentioned somewhere recently) and finding a new worthy candidate?

Terry.

[Dod1010]

Wizard

I make very few changes year on year so the portfolio is somewhat unbalanced but I do not mind that as the spread tends to reflect my feelings about individual shares. My top 7 for example are each around 7.5/8.0%, entirely out of long term growth in the share price. My biggest holding is currently Unilever at 8.3%, too much I know especially for a share with a fairly modest yield. I will probably top it some time. The other shares tail off from around 5% down to Segro at a mere 1.5%. The four ITs total about 15%.

As for churn, the only sale I made in 2016 was the sale of Cobham. With the proceeds I bought PHP.

In the current year I have traded a bit on HSBC, picking up some capital profits on the way but the biggest change was the forced sale of London & St Lawrence when it was liquidated. With the proceeds I bought Admiral (new holding), Murray Income Trust (another new holding) and more PHP. I also bought some Finsbury Income and Growth but of course that was outside of the HYP. L & St L was a big holding and I am very sorry to have lost it.

I live off my dividends and the biggest contributors last year were Shell and HSBC, hardly a surprise. From time to time I reinvest some dividends but not enough to make any significant difference to the holdings.

Looked at that way I am aware that for some that will seem too risky because of the concentrations but I can live with that. Obviously if Shell for instance cut its dividend that would not be good news on either the income or capital front but meanwhile enjoy!

I an sorry to be a bit vague but I only do a detailed calculation once a year so I have been trying to update the figures a bit, as I go.

I have another portfolio with some what I call growth shares, low yielders, and so if I put the whole lot together the percentage holdings drop quite a bit

HTH

Dod

[monabri]

Details of its income up to last November (all of which has been withdrawn from it, not reinvested) and of its capital value at the same time can be found in viewtopic.php?f=15&t=432.
Gengulphus

Gengulphus - Thank you for reminding me of your earlier post..which I read a few months ago. My Icebergs are Interserve/Carillion/Provident/Petrofac (divi?) for a new HYP so I was feeling a little bruised after Provident!

I just have to remember, HYP is a long term strategy. Hopefully, the ships can be repaired and in time will start to deliver again.

In the meantime, the loss of income/divi is not a show-stopper. I can live off my pension and the HYP is additional. So, assuming ALL my sharepicks don't hit 'bergs at the same time then it won't be too bad.

monabri

[NeilW]

This is precisely the point I was making on the other thread.

You have to view the entire HYP as an investment in a passive fund - and ignore as best you can the performance of the individual shares within it.

*Only* the entire portfolio can be compared to an IT, and will when you compare them perform pretty much the same as an IT - but without the fiscal drag over time of paying fees.

And the reason is that the IT is investing in precisely the same universe of shares that the HYP is. 15 shares is enough diversification. If one share has a wobble an "loses 75% of its value" then the capital impact on the whole thing will be about 5%. Which isn't far off the daily wobble amount some days.

Diversification ends up higher than that because over time other shares come to the top and the yield on your winners drops to 'normal'. I've got 33 shares in the portfolio at the moment simply due to application of the system over time.

So 15 is a starting point that is considered diverse enough to go for individual shares and gain the fee saving advantage over time (which compounds of course). But you certainly don't go around trimming the number of shares down, nor do you generally sell out of winners to chase more risk in different shares.

[funduffer]

Last but by no means least, the HYP I've detailed above was started in 2000 with £75k capital. Details of its income up to last November (all of which has been withdrawn from it, not reinvested) and of its capital value at the same time can be found in viewtopic.php?f=15&t=432. There's a lot one might criticise about it - but its owner has not had a bad outcome, despite being passive!

Gengulphus

I took the OP to mean that "going passive" as abandoning HYP, and investing in index tracker funds, but I guess he will need to comment on this.

From the TR point of view, the evidence seems to be that index tracking is better than some, probably most, active investment strategies. I doubt there is enough of a following of HYP to know how passive and HYP compare in TR terms. However, I struggle with index funds as an income strategy, unless you have a lot of capital and can afford a lowish yield, or are prepared to trade a lot - selling units for income.

Personally, I am 3.5 years into a HYP that was started with a lump sum and 15 shares, but has been added to, and is now up to 24 shares. Income per unit has increased every year so far, and the trailing yield is over 5%......and yet - I have got 6 cutters (Centrica, BHP Billiton, Sainsburys, AMFW, Carillion and Pearson), some of which have only recently been announced and have not yet fully impacted my income. My response has been to increase the number of companies (from 15 to 24). It remains to be seen if this is the right medicine. On the other hand, I have had at least one special dividend every year, which is a nice way of getting over the cutters!

So, for me the jury is still out, and will be until I have done at least 5 years.

In parallel, I run and income generating IT portfolio, which so far has been steadier, ahead on TR, but only yields 4%.

Watch this space.

FD

[BarrenWuffett]

From the TR point of view, the evidence seems to be that index tracking is better than some, probably most, active investment strategies. I doubt there is enough of a following of HYP to know how passive and HYP compare in TR terms. However, I struggle with index funds as an income strategy, unless you have a lot of capital and can afford a lowish yield, or are prepared to trade a lot - selling units for income.


FD

I guess it depends on time frame but generally all the evidence points to the low cost index funds generating consistently better returns compared to the majority of managed funds.

Regarding income I don't really find a problem with low yields, I use Vanguard Lifestrategy 60 index fund as part of my income portfolio and merely sell 4% of my units once each year and put this in my building society and then drawdown the monthly requirements as needed. As there are no charges for the purchase/sale of units, it makes little difference on size of portfolio holding.

The fund started in June 2011 and is up 71% (9.2% p.a. annualised) so easily covering my income requirements and much simpler than running a 20+ rollercoaster share portfolio.

[MartynC27]

Regarding income I don't really find a problem with low yields, I use Vanguard Lifestrategy 60 index fund as part of my income portfolio and merely sell 4% of my units once each year and put this in my building society and then drawdown the monthly requirements as needed. As there are no charges for the purchase/sale of units, it makes little difference on size of portfolio holding.

Does Vanguard Lifestrategy 60 produce a Yield in Cash as well as Capital Growth?

Which Platform do you use for Lifestrategy 60 (I assume there is a holding charge imposed by the platform for a SIPP or ISA) ?