HYP investing as a yield trap

[Itsallaguess]

I just know that I'd not be comfortable with a 'single income-IT' arrangement, and that I'd need to perhaps have at least five or six different income-IT's to dilute that concern to something that I could easily live with.

... also worth bearing in mind if you hold those five or six different income-IT's with the same broker / nominee account you are swapping one kind of 'single-technical-point-of-failure' risk for another, so presumably you would want to spread them across five or six providers too to eliminate that ...

That would be overkill for me personally - just a couple of brokers will be fine.

It's much less about eliminating perceived risks, and much more about finding a level of doing so that I'm comfortable with.

Cheers,

Itsallaguess

[Arborbridge]

If you had equal dividends from each, with 20 holdings you are bound to run foul of these rules.
TJH

The rules seem to say you can go up to 10% and you might need that for a FTSE 100 Tracker.

In the unlikely event that anyone did try to launch a fund with an equal dividend weighting premise, they would probably have to set the stock count at 30 or 40.

Sounds a bit like a UKDV- type 30 share IT. It would work, and I suppose it's never been done because there is insufficient demand, or it wouldn't work well enough to attract a following. Most punters and management companies prefer charts showing bold increases in capital - thus UKDV does not always pay out a regular dividend: I assume to allow some of the revenue to buy more shares to enhance the capital chart. That's pretty well what their people told me on the phone, anyway - it helps the marketing.

[OhNoNotimAgain]

If you had equal dividends from each, with 20 holdings you are bound to run foul of these rules.
TJH

The rules seem to say you can go up to 10% and you might need that for a FTSE 100 Tracker.

In the unlikely event that anyone did try to launch a fund with an equal dividend weighting premise, they would probably have to set the stock count at 30 or 40.

Sounds a bit like a UKDV- type 30 share IT. It would work, and I suppose it's never been done because there is insufficient demand, or it wouldn't work well enough to attract a following. Most punters and management companies prefer charts showing bold increases in capital - thus UKDV does not always pay out a regular dividend: I assume to allow some of the revenue to buy more shares to enhance the capital chart. That's pretty well what their people told me on the phone, anyway - it helps the marketing.

Why would you weight dividends equally?

[tjh290633]

Why would you weight dividends equally?

I wouldn't. But some people do funny things.

TJH

[Arborbridge]

Why would you weight dividends equally?

I wouldn't. But some people do funny things.

TJH

If anyone seriously promoted that idea, it would be based on their on theory - just like all the other theories. Whether HYP, UK dividend Aristos, Munro - they are all just pet ideas that each inventor believes in.

Arb.

[OhNoNotimAgain]

Why would you weight dividends equally?

I wouldn't. But some people do funny things.

TJH

If anyone seriously promoted that idea, it would be based on their on theory - just like all the other theories. Whether HYP, UK dividend Aristos, Munro - they are all just pet ideas that each inventor believes in.

Arb.

And now there are data to see how things have worked out in practise. Contrary to what some say past performance does provide guidance for rules based, i.e passive, funds

[Arborbridge]

And now there are data to see how things have worked out in practise. Contrary to what some say past performance does provide guidance for rules based, i.e passive, funds

That's debatable Markets could morph over time, making a conclusion reached in one era invalid in another.

All we can do is look at the data now and again to re-assess. Past performance is a poor guide, but it is the only one we have - whether passive or active funds are being reviewed.

Arb.

[OhNoNotimAgain]

And now there are data to see how things have worked out in practise. Contrary to what some say past performance does provide guidance for rules based, i.e passive, funds

That's debatable Markets could morph over time, making a conclusion reached in one era invalid in another.

All we can do is look at the data now and again to re-assess. Past performance is a poor guide, but it is the only one we have - whether passive or active funds are being reviewed.

Arb.

That is true.

The 7 years of QE from 2009 to 2016 favoured growth and momentum portfolios; the following 3 years were favourable to value stocks.

Could QE be repeated, possibly? If it was would it have the same effect, no one knows?

All we do know is that compound interest works and to maximise the effect you need to get the best possible income, for the longest possible time with the lowest possible costs with the maximum diversification.

[GoSeigen]

The 7 years of QE from 2009 to 2016 favoured growth and momentum portfolios; the following 3 years were favourable to value stocks.

Could QE be repeated, possibly? If it was would it have the same effect, no one knows?

OhNoNotimAgain periodically repeats this sort of claim, but it is at least half wrong, if not completely.

There were not 7 years of QE from 2009-2016. First of all that period is eight years, not seven. Secondly, over most of that period there was not any QE worth mentioning. Asset purchases occurred in three main phases, roughly:
-March 2009 to Oct 2009: £200 billion of asset purchases.
-Oct 2011 to end 2012: £175 billion.
-Aug 2016 to end 2016: £70 billion.

I make that roughly 28 months that the BoE was active in the gilt markets, which is less than three years, not eight years. The effect of this beyond the psychological must have been minimal so I think the author of the above claims needs to do a bit of work to convince anyone that the claims stack up, let alone predictions based on that single precedent.


GS

[Arborbridge]

All we do know is that compound interest works and to maximise the effect you need to get the best possible income, for the longest possible time with the lowest possible costs with the maximum diversification.

Fair enough comment, but then we are back in the realm of various manager's pet ideas for achieving that. In my reading, over the periods of five or ten years which are easily researchable, passive funds do not do well against the active ones. I know this goes against current fashion in some circles, but when I compare the funds I'm invested in, they thankfully appear above some well known passives - I haven't seem anything yet which would make me more away from the active (or semi active!) income funds.

Arb.

[OhNoNotimAgain]

The 7 years of QE from 2009 to 2016 favoured growth and momentum portfolios; the following 3 years were favourable to value stocks.

Could QE be repeated, possibly? If it was would it have the same effect, no one knows?

OhNoNotimAgain periodically repeats this sort of claim, but it is at least half wrong, if not completely.

There were not 7 years of QE from 2009-2016. First of all that period is eight years, not seven. Secondly, over most of that period there was not any QE worth mentioning. Asset purchases occurred in three main phases, roughly:
-March 2009 to Oct 2009: £200 billion of asset purchases.
-Oct 2011 to end 2012: £175 billion.
-Aug 2016 to end 2016: £70 billion.

I make that roughly 28 months that the BoE was active in the gilt markets, which is less than three years, not eight years. The effect of this beyond the psychological must have been minimal so I think the author of the above claims needs to do a bit of work to convince anyone that the claims stack up, let alone predictions based on that single precedent.


GS

Very odd to ignore the actions of the Fed and the ECB over the last decade when the scale of their operations was so much larger.

[OhNoNotimAgain]

All we do know is that compound interest works and to maximise the effect you need to get the best possible income, for the longest possible time with the lowest possible costs with the maximum diversification.

Fair enough comment, but then we are back in the realm of various manager's pet ideas for achieving that. In my reading, over the periods of five or ten years which are easily researchable, passive funds do not do well against the active ones. I know this goes against current fashion in some circles, but when I compare the funds I'm invested in, they thankfully appear above some well known passives - I haven't seem anything yet which would make me more away from the active (or semi active!) income funds.

Arb.

That's because QE boosted growth, momentum and medium/small cap stocks for the first 5 of the last 10 years. Active funds are overweight these stocks because they are viewed, wrongly, as being less well researched. Passive funds have more exposure to big caps and hardly any funds are overweight big caps.

In the 10 years to end February the FTA was up 182% while the UK All Companies was up 187% (which remember is after costs)

But over the previous 5 years the tables are reversesd with the FTA up 28% while the UK All Co was up only 22%

And over the 3 years to that date the effect is even more pronounced with the FTA up 30% and the UKA up 26% while funds with a bias to big caps beat both.

[Backache]

All we do know is that compound interest works and to maximise the effect you need to get the best possible income, for the longest possible time with the lowest possible costs with the maximum diversification.

Not really
You need the maximum possible income combined with the maximum capital growth for the maximum time.
Diversification is utterly irrelevant if you have the others.

[Arborbridge]

All we do know is that compound interest works and to maximise the effect you need to get the best possible income, for the longest possible time with the lowest possible costs with the maximum diversification.

Not really
You need the maximum possible income combined with the maximum capital growth for the maximum time.
Diversification is utterly irrelevant if you have the others.

But all three could work together. i.e. diversification might help to secure the other two via low term risk reduction.

So it generally comes back to pet theories again.

Arb.

[Arborbridge]

All we do know is that compound interest works and to maximise the effect you need to get the best possible income, for the longest possible time with the lowest possible costs with the maximum diversification.

Fair enough comment, but then we are back in the realm of various manager's pet ideas for achieving that. In my reading, over the periods of five or ten years which are easily researchable, passive funds do not do well against the active ones. I know this goes against current fashion in some circles, but when I compare the funds I'm invested in, they thankfully appear above some well known passives - I haven't seem anything yet which would make me more away from the active (or semi active!) income funds.

Arb.

That's because QE boosted growth, momentum and medium/small cap stocks for the first 5 of the last 10 years. Active funds are overweight these stocks because they are viewed, wrongly, as being less well researched. Passive funds have more exposure to big caps and hardly any funds are overweight big caps.

In the 10 years to end February the FTA was up 182% while the UK All Companies was up 187% (which remember is after costs)

But over the previous 5 years the tables are reversesd with the FTA up 28% while the UK All Co was up only 22%

And over the 3 years to that date the effect is even more pronounced with the FTA up 30% and the UKA up 26% while funds with a bias to big caps beat both.

Well, I'm willing to look and learn But whenever I have tested various charts to see what is happening, the passive funds have not shown any out performance (usually the opposite BTW) which would tempt me - and that's going back a couple of decades of my own pokes into the data. I'm willing to be proved wrong, if only because investing in a passive is an appealing idea in terms of effort and fretting - or lack of them.

Arb.

[Backache]

But all three could work together. i.e. diversification might help to secure the other two via low term risk reduction.

So it generally comes back to pet theories again.

Arb.

I am not trying to argue against diversification it is a very important part of risk management but in the case of getting the absolute maximum return as soon as you diversify away from the stock with the maximum return you reduce your return.

[OZYU]

Fair enough comment, but then we are back in the realm of various manager's pet ideas for achieving that. In my reading, over the periods of five or ten years which are easily researchable, passive funds do not do well against the active ones. I know this goes against current fashion in some circles, but when I compare the funds I'm invested in, they thankfully appear above some well known passives - I haven't seem anything yet which would make me more away from the active (or semi active!) income funds.

Arb.

That's because QE boosted growth, momentum and medium/small cap stocks for the first 5 of the last 10 years. Active funds are overweight these stocks because they are viewed, wrongly, as being less well researched. Passive funds have more exposure to big caps and hardly any funds are overweight big caps.

In the 10 years to end February the FTA was up 182% while the UK All Companies was up 187% (which remember is after costs)

But over the previous 5 years the tables are reversesd with the FTA up 28% while the UK All Co was up only 22%

And over the 3 years to that date the effect is even more pronounced with the FTA up 30% and the UKA up 26% while funds with a bias to big caps beat both.

Well, I'm willing to look and learn But whenever I have tested various charts to see what is happening, the passive funds have not shown any out performance (usually the opposite BTW) which would tempt me - and that's going back a couple of decades of my own pokes into the data. I'm willing to be proved wrong, if only because investing in a passive is an appealing idea in terms of effort and fretting - or lack of them.

Arb.

No, Arb, you are not wrong, and the very poster who is arguing with you runs a passive fund with a pathetic performance, having destroyed capital vs inflation since inception, and produced mundane yield and pathetic dividend growth in the process.

We only hold ONE passive across all our portfolios, for the NASDAQ, because we have found it quite easy to beat passives in general with either individual holding baskets or baskets of ITs for the rest. Not beating them all the time of course, but measured over a suitable rolling period. Like always you have to try to choose the best and keep your eye on it, it does not always work out, so one must be prepared to occasionally change tack and accept mistakes. With passive you are just accepting mediocrity. Progress was never achieved that way in history.

This, by the way, should really be my last post, I increasingly feel that posting is a waste of time. On another thread some posters have demonstrated a lack of curiosity for something I was trying, in a hurry, to show them, yet the method I outlined quickly I have used often, is very sound, and they are making a pigs ear of theirs, being anal rather than analytical. There are errors and misunderstood methods all over these boards, but few listeners imho. So I will concentrate while I can health-wise on the investing online newsletter I produce occasionally for a few dozen family and friends, all of whom have no trouble with their methodology, maths, portfolios, unitising,and generally results. They can be sharp in their replies, but are invariably helpful and correct. They share my curiosity for progress, but are not trying to just score points.

One of my brothers posted on TMF for a while, he did mention you once or twice, and was driven away by the same aspects he tells me.



Ozyu

[OhNoNotimAgain]

Fair enough comment, but then we are back in the realm of various manager's pet ideas for achieving that. In my reading, over the periods of five or ten years which are easily researchable, passive funds do not do well against the active ones. I know this goes against current fashion in some circles, but when I compare the funds I'm invested in, they thankfully appear above some well known passives - I haven't seem anything yet which would make me more away from the active (or semi active!) income funds.

Arb.

That's because QE boosted growth, momentum and medium/small cap stocks for the first 5 of the last 10 years. Active funds are overweight these stocks because they are viewed, wrongly, as being less well researched. Passive funds have more exposure to big caps and hardly any funds are overweight big caps.

In the 10 years to end February the FTA was up 182% while the UK All Companies was up 187% (which remember is after costs)

But over the previous 5 years the tables are reversesd with the FTA up 28% while the UK All Co was up only 22%

And over the 3 years to that date the effect is even more pronounced with the FTA up 30% and the UKA up 26% while funds with a bias to big caps beat both.

Well, I'm willing to look and learn But whenever I have tested various charts to see what is happening, the passive funds have not shown any out performance (usually the opposite BTW) which would tempt me - and that's going back a couple of decades of my own pokes into the data. I'm willing to be proved wrong, if only because investing in a passive is an appealing idea in terms of effort and fretting - or lack of them.

Arb.

Indeed.

If you think about it an active fund manager works full time for 8 hours a day, 200 days a year. Over 3 years that is almost 5,000 man hours of work and since in the UK All Companies Sector alone there are 200 active funds that is the best part of one million man hours. Yet over that period passive funds have beaten 80% of the competition and the time needed to run a passive fund can be as a little as a few hours a month.

Most of the man hours spent in managing active funds is in activity that essentially cancels out on a net basis so is absolutely valueless, even worse it destroys value for the investor.

It is has taken a long time for the industrial financial equivalent of the spinning jenny to challenge the labour intensive cottage industry of fund management but the economics are undeniable.

[StepOne]

But all three could work together. i.e. diversification might help to secure the other two via low term risk reduction.

So it generally comes back to pet theories again.

Arb.

I am not trying to argue against diversification it is a very important part of risk management but in the case of getting the absolute maximum return as soon as you diversify away from the stock with the maximum return you reduce your return.

Yeah, but if you diversify away from the stock with the minimum return...

[Arborbridge]

Yeah, but if you diversify away from the stock with the minimum return...