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Wizard's Annual Review 2017

General discussions about equity high-yield income strategies
Wizard
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Wizard's Annual Review 2017

#106719

Postby Wizard » December 29th, 2017, 10:40 pm

Mods, I think I am OK putting this combined portfolio here as the guidance says "there are dedicated boards for Investment and Unit Trusts, Gilts and Bonds, and Investment Strategies where some discussions may be better carried out if they relate solely to those securities". Given that this post is not solely about bonds I hope their inclusion in a broader high yield portfolio is OK.

I thought I would try to give a summary of how my High Yield Income Portfolio has performed over the year. As part of this exercise I have also gone back to the start of me adding equities to the existing bonds and looked to retrospectively unitise the whole portfolio. It has not been easy (and will not be without effort going forward), all but one of the investments reported on here are in my SIPP, but one is held elsewhere. I also have a couple of other non-income holdings in my SIPP which need to be excluded, but the small amount of dividend from these is being reinvested in the Income Portfolio so I have to treat that as newly injected capital.

Background

I have held Co-Op Group bonds in my SIPP for some time, having bought former Co-Op Group preference shares at distressed prices and the bonds were issued as part of the subsequent restructuring. The equity side of things started to be purchased late in 2016, so at the start of this year was still a work in progress with a number more shares bought with dividends received and newly injected capital.

Portfolio as of 31st December 2016



2017 Activity

Through the year I added approximately another 50% of the existing portfolio size in newly injected capital. I also reinvested dividends from the portfolio, but given the fact December is the month the bonds pay their once annual coupon and the IMB dividend is received on 29th December a chunk of cash also remains to be invested. Finally, I sold Berkeley Holdings and reinvested the proceeds into other purchases. If I tried to break this down into a calendarised report on when every share was added it would just end up too long, so instead I'll cut to the chase and here is the position at the end of 2017.


* this is the running yield, the yield to maturity is c5.8%
** this is not the DigitalLook forecast as the Standard Life Aberdeen page is corrupted at the moment

2017 Performance

The equity component had a bit of a rally at the end of the year and has ended 4.4% down on the opening capital plus new capital additions. It has returned dividends of 4.2% of the opening capital plus new additions. Of course both these figures are very much a function of the fact that much of the portfolio has been added at various points throughout the year. The capital loss was significantly affected by Carillion and without it there would have been a gain, so one share is very much colouring the overall picture, but I guess that is why one holds a portfolio. The bond holding ended 4.4% up in capital terms and returned an income of 8.8% of opening capital. The weighted average gives a capital loss of 0.2% and a combined income of 6.2%. So bottom line, the equities have just about stayed flat including capital and dividends, all growth in the portfolio has come from capital growth and dividends from the bonds.

The process of calculating these figures made clear to me that with a portfolio in the build phase with significant new capital being injected it was not always that easy (for me at least) to be sure performance measurement was being treated correctly. For example, in the above figures the additional capital invested during the year was a product of newly injected capital as well as dividends reinvested, my logic being that if I receive £100 in dividend during the year and use it to buy a share which at the end of the year is worth £110 I need to account for that additional £10 somewhere. But I also concluded unitising for accumulation units would be beneficial, though as I mentioned above it has not been that easy given the somewhat intertwined nature of my holdings.

Given the caveat about purchases taking place throughout the year and therefore the potential for apples and oranges, in terms of the best performers in capital terms: top of the heap is Petrofac with a 29.0% increase; second best is the one share I actually sold Berkeley Group with a 26.7% capital gain; and, third was Standard Life Aberdeen with a 19.3% gain. The worst performers were: Carillion losing 92.7% of capital (no surprise there); next came Greene King with a hit of 20.5% and third worst was Stagecoach losing 19.7%.

2017 Unitised View
I started buying equities to add to the existing bonds in November 2016, so I base lined unitisation as at 1st November and 'indexed' this to start at a value of 100. As part of this opening position I included the existing bond holding and the cash sitting ready to buy the equities. Between 1st November and end of December 2016 I then purchased my first 8 holdings. I then re calculated the accumulation unit value as of end December 2017 (including the cash balance, but for simplicity not including ex-dividend amounts not paid before the end of the year). As at end of 2016 the accumulation value had risen to 105.8, the increase being almost entirely due to the receipt of the annual coupon payment from the Co-Op bonds in December 2016. On 1st March 2017 I made a large injection of capital into the portfolio meaning I needed to recalculate the value so I knew how many new units the capital injection was 'buying'. At this point the unit value had dropped a little to 103.9. At the end of the year I made another recalculation of the value of each unit, at this stage the value had increased to 109.6, the increase being driven mainly by income than capital appreciation. At this end of December 2017 point I also used the new unit value as the basis for 'buying' new units with the dividends available for reinvestment coming from shares in the SIPP but outside the Income Portfolio (which I consider new capital for Income Portfolio tracking purposes).

So overall the accumulation units increased in value over 2017 from 105.8 to 109.6. Given my portfolio is a mix of equity and a bond holdings and will soon likely also include some ITs I would welcome any suggestions for any sort of benchmark to track performance against. One thought I have is to use CTY given it could potentially be an alternative home for my whole portfolio.

2018 Plan
As the bonds pay in December I have yet to reinvest this, my plan is to use this cash to add to diversification by adding some ITs to the mix. At the moment I am looking for exposure to Asia possibly through JAI though that decision is not finalised yet. I will add another significant chunk of new capital in to the SIPP where most of this is held before the end of March, probably about 25% of the existing capital value. At this stage I think much of this will also be destined for ITs, though I will also consider top-ups of exiting equities or new equities if any look particularly attractive.


Any comments, observations, suggestions much appreciated.

Terry.

TUK020
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Re: Wizard's Annual Review 2017

#106760

Postby TUK020 » December 30th, 2017, 9:04 am

Terry,
good post.
Opportunities for new sectors are water utilities, aerospace and mobile telecoms
tuk020


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