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Arb's HYP 11th year - Impractical Question

General discussions about equity high-yield income strategies
Wizard
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Arb's HYP 11th year - Impractical Question

#108398

Postby Wizard » January 6th, 2018, 7:13 pm

As requested by mod, moving from :

viewtopic.php?f=15&t=9374

Arborbridge wrote:
Wizard wrote:Thanks for posting Arb, most interesting and I am sure I will have questions for you. But in the first instance, if I may, we seem to have only three quarters of the picture, the income component for both the HYP and non-HYP elements and the capital component for HYP. Can you provide the capital component for the non-HYP element, as you did for income?

Terry.


Here you are, Terry. I thought it politic not to dwell too much on the non-HYP components as this is the HYP Practical board, but since you've posed the question, here is the price per unit over the years for the various portfolios. If you want detailed information about the components in those baskets, I'll post them on another board. They all started at 100p in early 2010.



Arb.

Thanks Arb. Would it therefore be fair to say, based on your experience, that unless you needed the full income in the first few years the ITs and OIECs have proven to be better investments than the HYP, as they have returned considerably better capital growth and whilst income was lower to start with it is now higher than the HYP?

Terry.

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Re: Arb's HYP 11th year - Impractical Question

#108462

Postby Arborbridge » January 7th, 2018, 10:23 am

As regards the comparison between HYP and the others, I'd say the jury is still out.
My feeling is that those particular ITs may be a better choice than my particular HYP, but it's not possible to say at present. After all, I'm still obtaining a higher yield (don't confuse price per unit with yield) so the HYP is producing a higher income per pound invested - which is what I'd expect.

If we have a couple of good years with HYP and I manage to avoid dogs and get Dods instead (!) I may find fortune swings the other way. TJH seems to think he does better with his HYP, but as far as I know he has never compared over a longer period of time.

Investment, I've learnt, is a never ending story. Things are always changing.

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Re: Arb's HYP 11th year - Impractical Question

#108463

Postby Arborbridge » January 7th, 2018, 10:26 am

FredBloggs wrote:Given that I advocate there is no difference between income and growth, i.e. it is all simply money, I would say that is a pretty good conclusion to draw.


Well, that's an old argument. Technically true, but some people - I am one - prefer an income via dividends than via capital harvesting. So there is a difference between income and capital - it's mainly a practical difference. A matter of convenience, if you like.


Arb.

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Re: Arb's HYP 11th year - Impractical Question

#108469

Postby Itsallaguess » January 7th, 2018, 11:11 am

Arborbridge wrote:
As regards the comparison between HYP and the others, I'd say the jury is still out..


If the jury was in, and the results were that a basket of income IT's delivered slightly worse income-performance over time when compared to what we may call a 'purer' HYP, but that the owner of the basket of IT's spent less time on it, and worried far less about it, due to the internal mechanisms of the IT's 'hiding' the sorts of sporadic 'performance hits' that most HYP's are more visibly affected by over their lifetimes (and 2017 had quite a few examples of these...), what would be your view on that theoretical situation?

What I'm getting at, is that a pure 'performance comparison' isn't the only comparison I'm currently making between my income-IT holdings and my 'purer' HYP holdings....

I'm coming around to the idea that I'm quite willing to give up a small level of income if there's other clear 'non-income' benefits....

Cheers,

Itsallaguess

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Re: Arb's HYP 11th year - Impractical Question

#108470

Postby Wizard » January 7th, 2018, 11:14 am

Arborbridge wrote:As regards the comparison between HYP and the others, I'd say the jury is still out.
My feeling is that those particular ITs may be a better choice than my particular HYP, but it's not possible to say at present. After all, I'm still obtaining a higher yield (don't confuse price per unit with yield) so the HYP is producing a higher income per pound invested - which is what I'd expect.

If we have a couple of good years with HYP and I manage to avoid dogs and get Dods instead (!) I may find fortune swings the other way. TJH seems to think he does better with his HYP, but as far as I know he has never compared over a longer period of time.

Investment, I've learnt, is a never ending story. Things are always changing.

My bold.

Sorry Arb, but I am confused, I thought the graph below showed that income from ITs had been broadly the same as the HYP since mid 2014 with OIECs more variable but currently higher.

Arborbridge wrote:To answer this, I've plotted the incomes per units given my my HYP against those for the incITs and incOEICS baskets:-

Image

Each point is the addition of the previous four quarters. Clearly the HYP is stalling, whilst the others - particularly the OEICS - are moving ahead. OEICS stream would naturally be "lumpier" over the years than the IT stream and are going through a purple patch, it seems.

Again, my bold.

What am I missing / misunderstanding? :?

Thanks in advance,
Terry.

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Re: Arb's HYP 11th year - Impractical Question

#108473

Postby kempiejon » January 7th, 2018, 11:19 am

Arborbridge wrote:
FredBloggs wrote:Given that I advocate there is no difference between income and growth, i.e. it is all simply money, I would say that is a pretty good conclusion to draw.


Well, that's an old argument. Technically true, but some people - I am one - prefer an income via dividends than via capital harvesting. So there is a difference between income and capital - it's mainly a practical difference. A matter of convenience, if you like.


Arb.


My view is that income fluctuates less than capital, certainly in my HYP that's been the experience. I am not adverse to selling shares for profit but not in the HYP. Within my HYP I can tell it's done when the income level is sufficient, in a capital harvesting model how much capital will be enough?

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Re: Arb's HYP 11th year - Impractical Question

#108476

Postby Itsallaguess » January 7th, 2018, 11:22 am

FredBloggs wrote:
Itsallaguess wrote:
Arborbridge wrote:
As regards the comparison between HYP and the others, I'd say the jury is still out..


If the jury was in, and the results were that a basket of income IT's delivered slightly worse income-performance over time when compared to what we may call a 'purer' HYP, but that the owner of the basket of IT's spent less time on it, and worried far less about it, due to the internal mechanisms of the IT's 'hiding' the sorts of sporadic 'performance hits' that most HYP's are more visibly affected by over their lifetimes (and 2017 had quite a few examples of these...), what would be your view on that theoretical situation?

What I'm getting at, is that a pure 'performance comparison' isn't the only comparison I'm currently making between my income-IT holdings and my 'purer' HYP holdings....

I'm coming around to the idea that I'm quite willing to give up a small level of income if there's other clear 'non-income' benefits....



Money is money. Sainsbury's/Tesco's/Aldi etc... Don't give two hoots whether your ten pound note came into your hands as "income" or as "growth".

To try to argue that there are two types of money is, frankly, ridiculous.


Well Fred, I suppose it might be ridiculous if it was something I was trying to suggest.....

Have you by any chance replied to the wrong post?

Cheers,

Itsallaguess

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Re: Arb's HYP 11th year - Impractical Question

#108478

Postby Itsallaguess » January 7th, 2018, 11:26 am

FredBloggs wrote:
Sorry, I was agreeing with you entirely.

I was referring to the post above, that, to me, suggests there IS a difference in money depending on it's source. Apologies if that isn't clear.


Well my post was nothing to do with where income might be harvested, and really to do with potential comparisons between income-related IT's and 'purer' HYP's.

It was really nothing to do with a more 'growth' orientated approach, and the potential harvesting of income from such an approach. I think your point may have been more appropriate as a reply to a different post, but I appreciate that my initial point above may not have been absolutely clear either, so I can see where the confusion may have come from that led you to reply to my post, given the slightly different topics being discussed...

Cheers,

Itsallaguess

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Re: Arb's HYP 11th year - Impractical Question

#108480

Postby tjh290633 » January 7th, 2018, 11:36 am

I do have a sort of comparison, as I run a number of ITs on behalf of my grandchildren.
Witan, Dec 2001, TR 12.0%, HYP  9.3%
FRCL, Jun 2003, TR 11.3%, HYP 10.8%
ATST, Apr 2004, TR 11.5%, HYP 10.2%
FCI, Mar 2010, TR 10.6%, HYP 12.7%
FRCL, Mar 2015, TR 16.9%, HYP 11.7%

The HYP results are from the nearest year end, so not quite compatible. The effect of CLLN can be seen in the last result. What is noticeable is that the HYP has beaten FCI, which is the real comparison with an income-oriented IT.

TJH

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Re: Arb's HYP 11th year - Impractical Question

#108489

Postby Gengulphus » January 7th, 2018, 12:04 pm

Arborbridge wrote:
FredBloggs wrote:Given that I advocate there is no difference between income and growth, i.e. it is all simply money, I would say that is a pretty good conclusion to draw.


Well, that's an old argument. Technically true, but some people - I am one - prefer an income via dividends than via capital harvesting. So there is a difference between income and capital - it's mainly a practical difference. A matter of convenience, if you like.

Indeed. Two important practical differences as far as I'm concerned are to the decision-making and to how urgent it can be. In particular, with a good yield from my investments, so that the cash income they generate exceeds my living costs, my bank account's balance will tend to rise over time. It doesn't much matter if I don't pay any attention to my investments for a while, and when I do pay attention to them, I have buying decisions to make about reinvesting the accumulated surplus.

If I instead held investments that didn't generate cash income, my bank balance would instead fall over time. To top it up, I would have to sell - and if I didn't pay attention for a while, the selling decisions would become urgent. And I find selling decisions rather more difficult, and don't like being rushed into decisions - even if the rush is entirely the fault of my own procrastination and/or lack of attention!

A further practical difference for me is tax. I want to maximise the tax-sheltered part of my investments, so I prefer to take my living expenses from the non-tax-sheltered part of them. Doing so via cash income from dividends makes dealing with the tax comparatively easy: record all the dividends, add them up. Doing so via capital gains is considerably messier, with requiring separate CGT calculations for each holding based on its holding history before adding up the results of those calculations - and while nominee brokers can (and do) perform the job of adding up the dividends for me, they cannot do the CGT calculations for me (some try, but they simply don't have all the information they need to do them correctly for clients who also have holdings elsewhere of the same investments).

The net result is that given the choice of investments that generate cash income and ones that don't with the same total return, I'll generally prefer the cash-income-generating ones, and indeed I'll even prefer them if they have a slightly lower total return: I'm willing to pay a small price for (what I see as) their practical advantages. That's very much based on my own individual preferences and (especially for the tax one) financial circumstances, and others with different preferences and circumstances might well view them differently. And so my real point here is that while seeing the variety of people's views and the strategies they choose is informative and potentially useful (they might bring up a reason for them that I've missed, and sometimes do), it becomes much more so it's in the context of their preferences and circumstances.

Gengulphus

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Re: Arb's HYP 11th year - Impractical Question

#108493

Postby monabri » January 7th, 2018, 12:15 pm

If we can understand why Arb's chosen ITs have performed better then maybe we can learn something for our HYPs?
Arb has a HYP of ~ 40 individual companies ...surely many of these are the self same companies that featured in the majority of the income ITs?

Maybe the IT identified the problem with CLLN and IRV beforehand and took appropriate action to reduce their holding?

The components of the IT probably included lower yielding companies so that would have been a natural drag on the income compared to Arb's HYP which contains the higher yielders. I'm somewhat puzzled that with 2 duffers (C and Irv) then the HYP has underperformed relative to the IT income wise? Maybe the HYP was overweight in these 2 shares leading to a bigger negative effect?

Arb - any chance you could divulge what the ITs you selected are?
Last edited by monabri on January 7th, 2018, 12:20 pm, edited 1 time in total.

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Re: Arb's HYP 11th year - Impractical Question

#108494

Postby Arborbridge » January 7th, 2018, 12:16 pm

Wizard wrote:Sorry Arb, but I am confused, I thought the graph below showed that income from ITs had been broadly the same as the HYP since mid 2014 with OIECs more variable but currently higher.


Again, my bold.

What am I missing / misunderstanding? :?

Thanks in advance,
Terry.


The incomes per unit have been converging, but this the rate of increase. Given that the yield from HYP is higher than that of the other two, the income is still higher for each pound invested. e.g. if HYP yield is 4.7% and ITs is 3.7%, the HYP produces more.

Arb.

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Re: Arb's HYP 11th year - Impractical Question

#108497

Postby Arborbridge » January 7th, 2018, 12:24 pm

monabri wrote:If we can understand why Arb's chosen ITs have performed better then maybe we can learn something for our HYPs?
Arb has a HYP of ~ 40 individual companies ...surely many of these are the self same companies that featured in the majority of the income ITs?

Maybe the IT identified the problem with CLLN and IRV beforehand and took appropriate action to reduce their holding?

The components of the IT probably included lower yielding companies so that would have been a natural drag on the income compared to Arb's HYP which contains the higher yielders. I'm somewhat puzzled that with 2 duffers (C and Irv) then the HYP has underperformed relative to the IT income wise? Maybe the HYP was overweight in these 2 shares leading to a bigger negative effect?


December 2016, Clln was on median weight, and IRV was 0.96 median weight. They had never been particularly overweight - my method would not normally allow it as I would be particularly conscious of NOT wanting smaller shares like this going overweight.

One might think that since all ITs are fishing in the same pond, the results would be rather similar, but they are not. Likewise, I'm am pretty sure that if I bought basically the same shares as, say CTY, my HYP would not perform the same. One major difference is equal weighting, and the other is that knowledge of what a fund manager is actually doing is always historic, as you pointed out.

Arb.

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Re: Arb's HYP 11th year - Impractical Question

#108501

Postby Arborbridge » January 7th, 2018, 12:38 pm

The only sense in which I might agree with FredBloggs is that -whenever I've casually checked, as I do from time to time - the UK equity income group of ITs produces a lower return than the All Companies category. At the moment the difference is rather lower - 64.2% to 69% over the 5 year period - but it has been bigger in the past.

If one was in the early stage of investment, this might be worth having, rather than the income - but during retirement I personally prefer dividends for convenience. Gengulphus puts it well, and I agree with him.
As a matter of interest, this is a constant debte between myself and my B-in-L. He does produce some astonishing growth rates (he aims for 30% pa), which I can but admire - however, this comes at a cost of quite intense decision making and fairly frequent trading, which I'm perfectly happy to do without!


Arb.

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Re: Arb's HYP 11th year - Impractical Question

#108504

Postby Itsallaguess » January 7th, 2018, 12:49 pm

Gengulphus wrote:
Arborbridge wrote:
Well, that's an old argument [no difference between income and growth]. Technically true, but some people - I am one - prefer an income via dividends than via capital harvesting. So there is a difference between income and capital - it's mainly a practical difference. A matter of convenience, if you like.


Indeed. Two important practical differences as far as I'm concerned are to the decision-making and to how urgent it can be.


Interesting discussion, and whilst there were frequent thread on TMF around this subject, I don't recall many detailed ones here yet.

Some further considerations for me personally -

1. I very much prefer not to want to 'switch strategies' between growing a portfolio and finally taking income from it, I think managing that preference by using a dividend-income approach gives me a number of benefits -

(a) - I only have to learn, and learn how to manage and cope with, a single strategy. Whilst this may not be a huge consideration for others, it's very important to me...

(b) - Whilst the decision-making around taking income (selling some shares..) from a growth strategy when actually *in* the income-taking phase has been discussed, I think it's also important to appreciate that for anyone wanting to maintain a semblance of 'balanced-portfolio-weighting' during the building phase, they might well also need to be making these sorts of selling decisions throughout the entire lifetime of a portfolio, even from potentially very early stages.

This compounds your valid concerns regarding decision-making during the phase of taking income itself, and is reduced somewhat with a dividend-income strategy by the regularity of 'not-needed' income generated from dividends received throughout the building phase, as the balancing process can then generally be maintained purely by using the regular buying opportunities that this dividend-income gives us during that stage.

(c) - It enables me to use the 'dividend-switch' approach, where an income-strategy based more or less entirely on a dividend-approach has no need to change at all between the portfolio-growing phase and the income-taking phase, with a single 'switch-throw' being the only necessary change needing to be carried out, where the holder diverts dividends from what used to be the 'back into the portfolio' position onto the 'pay it into my bank account' position.

2. Selling shares to generate income costs money in the form of broker-charges. Dividends will generally flow into an account with no further charges at all following the initial purchase of the paying-entities.

A counter to this extra cost-charge might be that it may be seen to be insignificant in terms of the capital amounts being talked about when in the income-taking stage, but that will depend on the level of capital being removed using a growth strategy, and the regularity of such sales, and this in itself raises other growth-strategy-related issues -

(a) - If someone wanted to take a years-worth of income from a growth-portfolio at the beginning of the year, then what might be a substantial amount of money is then removed from the market, reducing the effectiveness of portfolio-capital appreciation on that amount. An element of market-timing-effect might also come into play at this point, with large sales having to take place at what might be a relative-market-low at those times...

(b) - If someone were to take smaller amounts over more regular periods, then this approach would then clearly become more affected by broker-charges, and depending on the levels of sales being made, these charges then may become relatively significant compared to the removed capital. This approach might help remove some market-timing element from the single-shot approach above, but would become more expensive at the same time, again incurring costs that aren't encountered when receiving dividends.

Taking someone who may want to receive £1000 per month from their growth-portfolio, then making the sales once per month might incur a £20 broker-charge, for instance. This might seem insignificant to some, but as a frequent 2% charge every month on their income, it's not insignificant when compared to the free-delivery of £1000 of dividends using a dividend-income strategy....

Just some further thoughts that have occurred over the years.

Cheers,

Itsallaguess

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Re: Arb's HYP 11th year - Impractical Question

#108631

Postby Arborbridge » January 7th, 2018, 8:06 pm

FredBloggs wrote:Perhaps another aspect that I have only just thought about with regard to the TR v HYP discussion is that my investment derived "income" is entirely discretionary. I don't live off it and perhaps never will.

I looked long and hard at HYP as a lurker at MF and I decided it was a strategy that had its time in the sun but now isn't the time to start. Hence my philosophy that has developed over the last 30+ years is take what I can when I can from where I can.

If I need to draw any "income" I do so in March to minimise any admin/tax overhead.

HYP isn't for everyone and sometimes, I feel that's not clear, especially in the other sub forum.


Well, that makes more sense now we know the background. But HYP was always described by PYAD as an income strategy not a TR strategy - so I don't agree that it isn't clear, although for new people who haven't read the original articles, I grant you, it would be ambiguous. I've never thought of HYP as necessarily the best pot building idea*, personally only as an annuity substitute.
*see my 108501 below (or above!) which explains why.

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Re: Arb's HYP 11th year - Impractical Question

#108723

Postby torata » January 8th, 2018, 10:25 am

Arborbridge wrote:Here you are, Terry. I thought it politic not to dwell too much on the non-HYP components as this is the HYP Practical board, but since you've posed the question, here is the price per unit over the years for the various portfolios. If you want detailed information about the components in those baskets, I'll post them on another board. They all started at 100p in early 2010.



Arb.


After seeing this post, I did my own comparison and came out with very similar figures (sorry, the other way round to Arb's)

(N/a means I don't have the data to get credible results)

The HYP is 30 shares - yer usual suspects. The Sipp, simply put, is 30% ITs, then mostly regional ETFs split into standard indexes, and higher yielding ETFs. There is no money being added or taken from either over the period apart from dividends. I top slice the HYP perhaps one share/year and gently rebalance the Sipp maybe every 18 months or longer.
(There's no point in pasting the portfolio components because that's just a snapshot of now)

Although the HYP lags the Sipp in Unit price increase, the increase in dividend income each year is above inflation, so it's doing what it's supposed to. And unlike Arb, I've still got steadily rising income per unit - hopefully Carillion loss will not hit too hard in 2018.

torata

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Re: Arb's HYP 11th year - Impractical Question

#108894

Postby Wizard » January 8th, 2018, 11:20 pm

Well, the evidence seems to be building that over the last six or seven years HYP has not been as good a strategy for accumlation as ITs / OIECs / ETFs.

Terry.

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Re: Arb's HYP 11th year - Impractical Question

#108925

Postby kempiejon » January 9th, 2018, 9:53 am

Wizard wrote:Well, the evidence seems to be building that over the last six or seven years HYP has not been as good a strategy for accumlation as ITs / OIECs / ETFs.

Terry.

There is some evidence to support that, but only certain IT/ETF/OIECs of course; now what to buy for the next 6 years? Perhaps we are seeing that some HYPers or disillusioned HYPers are really good at picking collectives for accumulation? In my own investing my FTSE250 value strategy is beating my HYP income strategy on a capital and total return basis but the income is lower than my HYP.

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Re: Arb's HYP 11th year - Impractical Question

#108926

Postby Wizard » January 9th, 2018, 10:13 am

kempiejon wrote:
Wizard wrote:Well, the evidence seems to be building that over the last six or seven years HYP has not been as good a strategy for accumlation as ITs / OIECs / ETFs.

Terry.

There is some evidence to support that, but only certain IT/ETF/OIECs of course; now what to buy for the next 6 years? Perhaps we are seeing that some HYPers or disillusioned HYPers are really good at picking collectives for accumulation? In my own investing my FTSE250 value strategy is beating my HYP income strategy on a capital and total return basis but the income is lower than my HYP.

Indeed, as you rightly say 'horses for courses'. It does somewhat chime with the point raised on one of the threads on the Portfolio Review board, maybe HYP is not so great in a build phase where income is being reinvested and therefore TR is the objective. Maybe better to accumulate by other means and then at the point where the income is required look at HYP as an option.

Sure others will be along soon to correct me, but isn't that what was originally proposed i.e. HYP as an alternative to buying an annuity and therefore much more at the point where the income is required to be 'consumed'?

Terry.


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