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## Unitisation question

Practical discussions about equity High-Yield Portfolios (HYP) for income
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moorfield
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### Re: Unitisation question

Wizard wrote:I am not withdrawing income from the portfolio, and in all but one case could not as it is in my SIPP and I am not yet at an age where I can access it.

Also worth mentioning both acc and inc units should produce identical returns when you commence SIPP drawdown (ie units * price, you will just end up with higher value acc units, or more inc units).

To draw an analogy, its a choice between using miles or kilometers to measure your investment journey, but do you know your destination?

EssDeeAitch
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### Re: Unitisation question

EssDeeAitch wrote:I am only included new money invested in the portfolio as well as capital changes to the holdings.

All dividends and Return of Capital are ignored for Unitisation calcs but I do have a "Dividends/Unit" calculation which I annualise by simply dividing dividends for the period by units held and multiplying by 365.

This may be wrong, it may be crude but it does give me a simple, understandable comparison of the value movements.

That's wrong ; I divide the dividends received within the time period by the book value of the portfolio and then divide the result by the days in the time period and multiply by 365.

Arborbridge
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### Re: Unitisation question

tjh290633 wrote:I think that the alternative method might be to roll up dividends in the income units until you are ready to reinvest them, then create new units with the reinvested dividends. Effectively your income units go XD.

I cannot see any good reason for not including retained cash in the portfolio value.

TJH

That would see a sort of half way house between income and accum units - and actually more bother too (at least, the way my investments are accounted for). Why would I want the extra hassle of "booking out" income and surrendering units if I decide subsequently, to spend the money instead of buying more shares?
I really don't see the point of doing it - after all, the very definition of an income unit is that all the income is withdrawn (or ignored) and the definition of an accumulation unit is that all cash is (sooner or later) re-invested.

Arb.

Arborbridge
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### Re: Unitisation question

moorfield wrote:
Wizard wrote:I am not withdrawing income from the portfolio, and in all but one case could not as it is in my SIPP and I am not yet at an age where I can access it.

Also worth mentioning both acc and inc units should produce identical returns when you commence SIPP drawdown (ie units * price, you will just end up with higher value acc units, or more inc units).

To draw an analogy, its a choice between using miles or kilometers to measure your investment journey, but do you know your destination?

I've never thought about that. Could be correct assuming you "cancel" the accumulation units to pay for the equivalent cash being drawn down from the income units. Although I've never published accumulation unit prices, I do keep them to see what would happen if I re-invested all my dividends instead of spending some of them. So, in effect it's an imaginary result, and I do notcancel units.

Arb.

Arborbridge
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### Re: Unitisation question

EssDeeAitch wrote:
EssDeeAitch wrote:I am only included new money invested in the portfolio as well as capital changes to the holdings.

All dividends and Return of Capital are ignored for Unitisation calcs but I do have a "Dividends/Unit" calculation which I annualise by simply dividing dividends for the period by units held and multiplying by 365.

This may be wrong, it may be crude but it does give me a simple, understandable comparison of the value movements.

That's wrong ; I divide the dividends received within the time period by the book value of the portfolio and then divide the result by the days in the time period and multiply by 365.

Sounds elaborate, but I have something even more elaborate It was explained to me by (GoSeigen? or someone) that one should calculate the value of the dividend in pence per unit on the day (i.e. daily dividend/number of units in existence) and then accumlate them as time goes by. Once the spreadsheet is set up, it's very easy to do, and I've done for three years now.

At the end of the year, my usual method (as used in my annual reports) is Total annual dividend per unit = total income received/units at year end. This gives a similar result. I find that the first method gives an answer about 2% higher than this second more direct method. The obvious reason is that not all units produce income in their first few months of life so they are a dead weight. The advantage of the simple method is that it is more or less fool proof - assuming you keep the record of unit number properly

Whatever we do, we should be consistent for the sake of YOY comparisons, as someone pointed out.
Arb.

OZYU
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### Re: Unitisation question

This thread is full of inaccuracies on what is a very simple and well honed method, developed many decades ago. There is, imho, a proper way of doing it once a few choices are decided on at the outset. But some of what I read is not correct, full stop. Not enough energy (as some of you know I am in seriously failing health) to go through the errors in detail, but I will enhance a write up I keep on the subject and post it to any new unitisers interested by PM, if requested. Older unitisers can carry on doing it 'their way', ie plain wrong some of them, at their leisure. I say that because when I have posted PMs to various, even some experienced, unitisers on various mistakes/discrepancies I noted in their posts in the past, they basically mostly carried on doing it wrong anyway on some lame excuse, typically 'this is how I do it'.

I was lucky enough to be introduced to it in some detail in early 1980s by a visiting speaker from the City( from HTR iirc) to our then investment club, used it immediately, as treasurer and systems chap, to sort out members joining and leaving using acc units. We nearly all started to use it on our own portfolios. I must say that we did not have any trouble using the same method, although there were plenty of very sharp members well equipped (as investors and IT/mathematically) to comment and criticise, being mostly senior managers from industry and commerce.

I have unitised all our portfolios, both acc and inc since doing both is a doddle anyway while you are at it, and dozens of other portfolios for family and friends since 1982 and run a few workshops on the subject as part of a general finance and investment after hours 'class' I ran for some years in the 1990s for students, which was increasingly attended by their parents and lecturers as part of our community programme! One of my sons now runs one occasionally.

Whatever unitisation you implement should work identically if you re invest, partially re invest, or take all divi income. If it does not and requires changes as your needs change, then your system and method are wrong. Some of what I read will fail in that respect. Whatever type of investor you are, acc and inc units will both cope equally well with you portfolio(s) and work perfectly if properly implemented.

I would encourage any newish investor to consider unitising. Post the initial, one of, set up, it does not require ANY work beyond the normal recording of portfolio EVENTS as they occur. Proper system design is they key. In my career, in industrial automation/robotics/AI mostly, we came across many new employees or interviewees who had brilliant spreadsheet/IT, mechanics and mathematical skills(else we not have been interested in them), but so few who could design robust systems to save their life. We had to teach them that before they were of any use, and bear in mind that these systems were immensely complex and critical to end users, unlike portfolios which are very simple entities. They key was to get them to analyse before diving in. Good design starts by defining your required OUTPUTs, diving in with a spreadsheet to be re hashed ad nauseum is the source of disaster and hours of un necessary work. Data should be entered once and once only, if not, then your system is badly designed. Never store what you can calculate or extract anyway, it leads to extra work.

Good investing to all in 2019 and beyond, we certainly live in interesting times!

Les Mis beckons. Not a patch on the Jean Gabin film so far,

Ozyu

IanTHughes
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### Re: Unitisation question

Arborbridge
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### Re: Unitisation question

OZYU wrote:This thread is full of inaccuracies on what is a very simple and well honed method, developed many decades ago. There is, imho, a proper way of doing it once a few choices are decided on at the outset. But some of what I read is not correct, full stop. Not enough energy (as some of you know I am in seriously failing health) to go through the errors in detail, but I will enhance a write up I keep on the subject and post it to any new unitisers interested by PM, if requested. Older unitisers can carry on doing it 'their way', ie plain wrong some of them, at their leisure. I say that because when I have posted PMs to various, even some experienced, unitisers on various mistakes/discrepancies I noted in their posts in the past, they basically mostly carried on doing it wrong anyway on some lame excuse, typically 'this is how I do it'.

Les Mis beckons. Not a patch on the Jean Gabin film so far,

Ozyu

Les Mis must have affected me last night: I dreamt of watching a poor girl die and trying to reassure her that she was going to be with Jesus in a better world. Not my usual sort of dream, so it must have come from Les Mis: that at least attests to the power of the production, or it's appeal to my sentimental, maudling mind

Thanks for your comments about unitisation. I do hope you will reconsider and post some more details about what the errors are which you see. I followed a method described on TMF years ago and as far as I know it is correct and quite simple to operate. I'm certain that if you had pointed out that it was all bunkum at that time, I would have taken notice and changed what I was doing since after all, I was still learning to implement a system and had no fixed ideas.

If you can dig out any description you may have written previously, I've no doubt that newer people would be interested to read it.

BTW, the link given by Ian Hughes in the previous post points to a description which seems to me perfectly to sum up the various methods. If you believe this is incorrect, it would be helpful if you would throw a light on it, because this is the guide that most people have used for some years.

Arb.

nmdhqbc
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### Re: Unitisation question

I think the trouble is that this is a difficult topic to explain / discuss in words. There's a chance everyone here is doing it right (or maybe not) but it gets lost in translation from numbers to words. Maybe examples with numbers may be less prone to misunderstandings.

Arborbridge
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### Re: Unitisation question

PS to my previous post for OZYU:

I understand that you may not be in a position to write further details, but I find the problem with the kind of post you wrote, whilst intended to be helpful, will actually cause some dismay amongst old and new hands alike. When some general criticism is made, no one will know if it applies to what they are doing, or whether it is someone else who has the problem. Therefore doubt and confusion could be the result rather than resolution of whatever problem there was you were trying to correct. This will surely only discourage those who were trying to unitise and had been told how simple it was!

staffordian
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### Re: Unitisation question

As the author of the article which IanTHughes mentioned, I'd echo Arb's request with regard to whether OZYU feels the linked write up is correct.

I asked for comments and criticism at the time I first posted it on Motley Fool so hopefully any obvious howlers have been eliminated, but I'm no expert and did little more than summarise my understanding. So if anything needs amending, I'd be grateful to hear.

staffordian
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### Re: Unitisation question

nmdhqbc wrote:I think the trouble is that this is a difficult topic to explain / discuss in words. There's a chance everyone here is doing it right (or maybe not) but it gets lost in translation from numbers to words. Maybe examples with numbers may be less prone to misunderstandings.

The article IanTHughes refers to above has worked examples, but I'm hoping OZYU will either endorse or correct any errors in it before anyone else takes it as gospel...

Raptor
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### Re: Unitisation question

This maybe helpful. http://lemonfoolfinancialsoftware.weebl ... folio.html From LF Financial Software web-site. Still in development

Raptor.

Arborbridge
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### Re: Unitisation question

staffordian wrote:As the author of the article which IanTHughes mentioned, I'd echo Arb's request with regard to whether OZYU feels the linked write up is correct.

I asked for comments and criticism at the time I first posted it on Motley Fool so hopefully any obvious howlers have been eliminated, but I'm no expert and did little more than summarise my understanding. So if anything needs amending, I'd be grateful to hear.

It might be not our basic methods which he regarded as "wrong" but some of the views in the discussion.
For example, one factor I commented on - but freely admit I'd never thought about - was whether income and accum units amount to the same thing, in the end. In my case, they do not because they are not recording the same transactions: they are, and have to be different. This is because the dividends in my income units may not be reinvested as I draw some out to live on, whereas my accum units the dividends are held until reinvested: I've never tried to account for the cash withdrawn to live on. The income units are real world, the accum units are a virtual world.

But what I'm doing is clearly nothing to do with the "industry standard" of accum units -and that's why I have never quoted them.

Arb.

doug2500
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### Re: Unitisation question

I've done it a la Staffordian, and I'm very happy with it so thanks for the help. I chose acc units.

Here's a screenshot showing my spreadsheet if it helps anyone:
https://imgur.com/6O5802y

IMO it looses some value if not done in a 'standard' way as you loose the ability to easily compare results. Some people may not care but I want to check my progress to ensure I'm not wasting time and effort. This is easily done if there is no money leaving or joining the portfolio but if there was cashflows I found it messed up every other method I tried.

ElectronicFur
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### Re: Unitisation question

I've always been meaning to look into this unitisation lark, but never had the time.

I have a spreadsheet containing data for all my trades, corporate actions and dividends, covering my 6 different trading accounts. But I did not keep track of the cash flows in and out of the accounts, as I treated excess cash, as cash in the bank. I saw some posts about unitisation previously saying that you need that cashflow data. But I'm thinking it should be possible without it, is that correct?

Also is there a definitive post somewhere that advises how to do untisation?

Breelander
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### Re: Unitisation question

ElectronicFur wrote:I've always been meaning to look into this unitisation lark, but never had the time.

I have a spreadsheet containing data for all my trades, corporate actions and dividends, covering my 6 different trading accounts. But I did not keep track of the cash flows in and out of the accounts, as I treated excess cash, as cash in the bank.

That, by definition, would allow you to calculate Income Units where dividends are treated as being 'paid away'. However, there is more data required if you want to retrospectively unitise. You also need the valuation of the portfolio every time a share was purchased or sold. This is so you can calculate the number of units you 'bought' or 'sold' in the transaction.

Unless you kept records at the time (as I did) historic share prices can be difficult/impossible to find. In the event of a takeover a share may no longer be listed (try looking up the historic prices of Scottish & Newcastle, for example). Even if a share is still listed, currently available historic prices have usually been adjusted for corporate actions such as consolidations/splits.

Take it from one who did have all the data required, retrospectively calculating Income Units is a nightmare. Calculating units going forwards however is a simple task, either for Income or Accumulation Units.

These TMF posts were my guides when starting out.

https://web.archive.org/web/20161104225 ... sort=whole

https://web.archive.org/web/20161104225 ... sort=whole

Also, see the Lemon Fool Financial Software repository...

http://lemonfoolfinancialsoftware.weebl ... folio.html

ElectronicFur
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### Re: Unitisation question

Breelander wrote:That, by definition, would allow you to calculate Income Units where dividends are treated as being 'paid away'. However, there is more data required if you want to retrospectively unitise. You also need the valuation of the portfolio every time a share was purchased or sold. This is so you can calculate the number of units you 'bought' or 'sold' in the transaction.

Thanks for the links. Now I understand. I didn't realise I'd need the valuation of the portfolio at each point.

All sounds like too much effort. I will just go back to forgetting all about unitisation I think!

Breelander
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### Re: Unitisation question

ElectronicFur wrote:All sounds like too much effort. I will just go back to forgetting all about unitisation I think!

No, don't forget about it - just start unitising from today onwards. Calculation units as you go along is no real effort at all. It's only if you try to work it back in time that you get headaches.

doug2500
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### Re: Unitisation question

Breelander wrote:
No, don't forget about it - just start unitising from today onwards. Calculation units as you go along is no real effort at all. It's only if you try to work it back in time that you get headaches.

I totally agree. I didn't go back, just started at the beginning of one tax year. I chose to do acc unit because in my situation it meant less entries as it's not that often I add or remove cash from my portfolios.

One thing to add though is that I had a dormant bank account which now receives all my non ISA dividends and is included within my portfolio for unitisation purposes. This is well worth considering and makes life easier. It would be worth opening an account just for this IMO.