Alaric wrote:Gengulphus wrote:The answer is a case where a judicious trimming and reinvestment of the proceeds might well have proved to have a positive long-term effect on HYP1 portfolio income - and I have archived evidence in the form of
this TMF post that I was nervous about the size of the HYP1 holding at what would have turned out to be a good point to trim (warning: that link is a 'spoiler' for the trivia question!).
From your link
Gengulphus wrote:For example, if your worry is that too much of your income will be coming from one company, making you too vulnerable to that company cutting its dividend, you could specifically trigger tinkering on the proportion of income coming from each share. In a 15-share HYP with reasonably large holding sizes, for instance, "review the ordinary dividend income at the end of each year; sell 20% of any share that provided 10% or more of that income and reinvest the proceeds" might be a reasonable tinkering strategy.)
Did anyone at that time pick up HYP1's increasing reliance on tobacco for returns?
You seem to have missed my point, possibly due to your browser not properly going to the specific post in the thread the link points to. The link does that with the "#10550997" at its end - if you need to find it manually, it is the post labelled "Number: 35491 of 75484" and dated "Date: 24/05/2007 16:41", slightly over halfway through the thread.
The nervousness about the size of a HYP1 holding that I expressed in it was:
Indeed, to my mind the long-term danger of not tinkering is that it permits a lack of diversification to build up. If I had to pick out the danger spot in HYP1, for example, it would be the big holding of BT, which accounted for 12.8% of the portfolio's value in the last review and (given BT's relatively high yield) probably a somewhat higher proportion of its income. If disaster strikes that holding for some reason, it will affect the portfolio a lot more than disaster on an average holding would...
So it wasn't about a tobacco holding, and my point was that the high exposure to BT had resulted in a large reduction to HYP1's income a few years later. Specifically,
the "last review" the quote refers to was in April 2007 and had the BT holding value at £17,714, which is 12.8% of the portfolio total of £138,179. I didn't have a convenient income figure for it at that time because it contributed no income to the
November 2006 annual review, having been added to HYP1 as the
replacement for Associated British Ports in August 2006, but its contribution to the income reported in the
November 2007 annual review was £858, 19.3% of the total £4,452. I don't have pyad's detailed figures for November 2008, due to him being absent from TMF at the time, but
kool4kats produced a figure of £898 for 5682 shares at 10.4p+5.4p = 15.8p each in pyad's absence, and on checking, that share count was stated by pyad both
before and
after his absence. The portfolio total of £4,664 stated by kool4kats was wrong, because it missed counting the £550 income from the taken-over Alliance & Leicester. Also, the revised total of £5214 that correcting that produces differs quite markedly from pyad's figure of £5,040 for the same year to November 2008, which is easily explained if one knows the background: the figure kool4kats produced was for the TMF-board-maintained version of HYP1 (later known as CHYP1) rather than pyad's version, and the two deviated quite noticeably from each other in 2008 due to happening to choose different replacements for the three shares taken over during the year (Resolution, Scottish & Newcastle and Alliance & Leicester). So the BT income figure for that year was £898, 17.8% of the portfolio total of £5,040, still a very high percentage compared with a 'fair share' of 6.7% in a 15-holding portfolio.
And then in the
November 2009 annual review, the portfolio income dropped to £3,187, an income fall of £1,853. That review doesn't give any breakdown of the income by company, but
dividenddata tells us that BT paid 5.4p+1.1p = 6.5p during the year, so with the share count still being 5682, its contribution to that income was 5682*6.5p = £369. So BT's income fall was £898-£369 = £529, 28.5% of the total portfolio income fall of £1,858 - and more extensive calculations along the same lines that I've done in the past say that it was easily the biggest contributor to that income fall. Indeed, most of them didn't even have £529 income that they could possibly lose!
So my point was that BT was the biggest contributor to portfolio income at the time of my post expressing nervousness about the holding, on both a backward and a forward view (easily checked from the links to the November 2006 and November 2007 annual reviews above) and so the prime candidate for trimming at that time - and trimming it then would have turned out to be a good idea. Its dividends have recovered a lot, but they're still not quite up to the 15.8p total for 2007, making its income performance decidedly substandard for HYP1.
So finally to answer your question as best I am able, I don't remember anyone picking up HYP1's increasing reliance on tobacco for returns, or indeed income, at the time of that post. But there are special circumstances: the original tobacco share Gallaher had been
taken over and replaced with BATS only about a month before, so BATS hadn't yet made any contribution to HYP1's income. And the November 2007 annual review only shows a dividend of £120 paid by BATS in the year, which is easily checked to be its interim and so only around 30% of its normal annual total at the time, and nothing from Gallaher. An RNS search on Investegate would probably show that either its normal dividend payment schedule didn't have any dividends going 'ex' between November 2006 when the HYP1 year started and April 2007 when the takeover went through, or that a condition of the takeover was that it wouldn't declare its normal dividend - but I'm not going to bother doing that RNS search! Then pyad was absent for the November 2008 annual review, but kool4kats calculated £601 based on 862 BATS shares (pyad later said the count was actually 863, which would make it £602 instead, but that's hardly a difference worth worrying about!). So the income due to tobacco shares was £602/£5,040 = 11.9% of the total portfolio income for that year, rather large but nowhere near as large as the 17.8% BT contribution. There are a few comments on dividend safety in the thread that followed from kool4kats's report - in particular, TJH said he would trim 6 of HYP1's shareholdings if he were running the portfolio by his rules, including both BT and BATS, and Luniversal said the following:
Luniversal wrote:(1) Two thirds of the income is reasonably safe, if not buoyant, but the following sources, perhaps two-fifths of it, lie under clouds:
LAND (big debts, not rallied much on base rate cut)
BT.A (see this thread, passim, and no less than 18% of the total income)
LLOY (resumption of payments uncertain, toxicity worries)
DSGI (at 20p probably discounting far worse than no divis)
AV. (also has a toxicity problem)
But it's in the following year that BATS became the most-productive dividend income source in HYP1: the combination of the portfolio total dropping 36.8% to £3,187, BT's contribution to it dropping 58.9% to £369 and BATS's contribution to it rising 28.2% to £772 really put a rocket under its percentage of portfolio total income, more than doubling it from 11.9% to 24.2%. That high percentage doesn't seem to come up in the November 2009 annual review thread in any significant way, at least that I can spot in a quick skim plus a few searches for likely words like "balance", but around then is when I remember the issue of HYP1's major imbalances really becoming a big discussion point. Certainly I was aware of the issue, and aware that other people were aware of it, by a few months later when I posted
this poll, since I took care to make it clear that I was
only asking about a change of reinvestment-of-corporate-action-proceeds policy,
not moving from non-tinkering to rebalancing-through-sales-and-reinvestment policy.
Gengulphus