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Specific discussion of Luni's zones, moved from earlier Vodafone thread

Practical discussions about equity High-Yield Portfolios (HYP) for income
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Lootman
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Re: Specific discussion of Luni's zones, moved from earlier Vodafone thread

#222414

Postby Lootman » May 16th, 2019, 10:07 am

moorfield wrote:
Arborbridge wrote:If excessively high yield were useful as an indicator, should we not be using it as a "sell and replace" signal?

As you may know Arb I already use twice x City of London IT (CTY) yield (which I find is a very good proxy for FTSE100) as a signal to not top up holdings rather than sell them - that encourages me to put new cash elsewhere in the meantime. Until yesterday that signal applied to VOD, but its “rebased” yield has now moved back into top-uppable range.

It’s certainly been useful for me to help limit the damage of the cut to my overall portfolio income this year. Lesson learnt and applied having been seduced too much by the Carillion yield.

A quick check indicates that CTY is currently yielding 4.5% The FTSE-100 itself yields about 4%.

That means that your danger zone starts at 9%. If that is what works for you then fine, but it seems awfully high to me. If anyone could get a 9% income with little risk then he should take it. Even if you bought a basket of shares yielding 8% I would not be confident of positive cashflows over time, and certainly not of doing better than a simple index fund yielding 4%.

In the late 1980s you could have bought a basket of gilts for an average yield of 12% with minimal risk to capital. Such a portfolio would have done spectacularly well. So a HY approach can work. But after it working for 35 years and political turmoil swirling around, I'd be less sure now. My own personal red flag is the number of sectors I find to be uninvestible right now - banks, support services, utilities, retail, phones . .

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Re: Specific discussion of Luni's zones, moved from earlier Vodafone thread

#222415

Postby Gengulphus » May 16th, 2019, 10:16 am

moorfield wrote:As you may know Arb I already use twice x City of London IT (CTY) yield (which I find is a very good proxy for FTSE100) ...

Why use a proxy - even a very good one - when the real thing is readily available???

Gengulphus

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Re: Specific discussion of Luni's zones, moved from earlier Vodafone thread

#222416

Postby Alaric » May 16th, 2019, 10:43 am

Gengulphus wrote:Why use a proxy - even a very good one - when the real thing is readily available???


Yield is dividend divided by price. Is there anything that just plots dividend? I suppose you would have to use the dividends on a FTSE 100 ETF or OIECs tracker as a proxy, bearing in mind that these are net of charges.

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Re: Specific discussion of Luni's zones, moved from earlier Vodafone thread

#222417

Postby tjh290633 » May 16th, 2019, 11:15 am

Lootman wrote:In the late 1980s you could have bought a basket of gilts for an average yield of 12% with minimal risk to capital. Such a portfolio would have done spectacularly well. So a HY approach can work. But after it working for 35 years and political turmoil swirling around, I'd be less sure now. My own personal red flag is the number of sectors I find to be uninvestible right now - banks, support services, utilities, retail, phones . .

Could you? I was looking after my mother-in-law's investments at the time, and shares with high coupons were usually at a premium. You could buy some gilts with lower yields which were at a discount, 8.75% T97 being a case in point. In 1980 I see that E12.25% 92 was at £86.25 and T13.75% 1993 was at £94.875 when bought, so yes, it was possible for a short period to buy below par with a guaranteed capital profit and a high income, buy later in the 1980s they were at a premium.

TJH

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Re: Specific discussion of Luni's zones, moved from earlier Vodafone thread

#222418

Postby Lootman » May 16th, 2019, 11:22 am

tjh290633 wrote:
Lootman wrote:In the late 1980s you could have bought a basket of gilts for an average yield of 12% with minimal risk to capital. Such a portfolio would have done spectacularly well. So a HY approach can work. But after it working for 35 years and political turmoil swirling around, I'd be less sure now. My own personal red flag is the number of sectors I find to be uninvestible right now - banks, support services, utilities, retail, phones . .

Could you? I was looking after my mother-in-law's investments at the time, and shares with high coupons were usually at a premium. You could buy some gilts with lower yields which were at a discount, 8.75% T97 being a case in point. In 1980 I see that E12.25% 92 was at £86.25 and T13.75% 1993 was at £94.875 when bought, so yes, it was possible for a short period to buy below par with a guaranteed capital profit and a high income, buy later in the 1980s they were at a premium.

Yeah, I thought I recalled that they were redemption yields, i.e. "yield to maturity". That would take into account any capital loss if held to maturity. But I could be wrong after all these years - it was probably 30 years ago, or more. And of course they are not callable.

I do recall holding a gilt with a nominal yield of 15.5%. It had been issued in the high-inflation early 1970s and I believe it expired in 1998 although I sold well before maturity. I think at one point it traded at about a 33% premium because rates were dropping.

Of course I also had a mortgage for a while that was 15%!

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Re: Specific discussion of Luni's zones, moved from earlier Vodafone thread

#222419

Postby moorfield » May 16th, 2019, 11:26 am

Lootman wrote:A quick check indicates that CTY is currently yielding 4.5% The FTSE-100 itself yields about 4%.

That means that your danger zone starts at 9%. If that is what works for you then fine, but it seems awfully high to me. If anyone could get a 9% income with little risk then he should take it. Even if you bought a basket of shares yielding 8% I would not be confident of positive cashflows over time, and certainly not of doing better than a simple index fund yielding 4%.



Gengulphus wrote:Why use a proxy - even a very good one - when the real thing is readily available???



Gengulphus posted the link I use, which shows 4.45% today. I use CTY as a proxy because that is what I would buy if I couldn’t find a suitable higher yielding candidate from FTSE100. Twice its yield may seem high but I wanted to start somewhere with the notion of a yield ceiling for (non) selection, and not averse to reducing the multiple in future. What I didn’t mention is that twice its yield is also my threshold for buying preference shares, in other words I’m happy to take a little risk of buying higher yield income provided that I’m ahead of ordinary shareholders in the queue (RE.B currently priced sub-par is one example I hold) – but prefs are O/T here of course.

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Re: Specific discussion of Luni's zones, moved from earlier Vodafone thread

#222420

Postby Arborbridge » May 16th, 2019, 11:59 am

Lootman wrote: My own personal red flag is the number of sectors I find to be uninvestible right now - banks, support services, utilities, retail, phones . .


Interesting comment:
Part 2: why do you find them "uninvestable"? Clearly, that isn't a majority view, or their shares would be worthless ;)

Banks? phones? retail?

Part 2: what do you find investable?

Arb.

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Re: Specific discussion of Luni's zones, moved from earlier Vodafone thread

#222421

Postby Lootman » May 16th, 2019, 12:09 pm

Arborbridge wrote:
Lootman wrote: My own personal red flag is the number of sectors I find to be uninvestible right now - banks, support services, utilities, retail, phones . .

Interesting comment:
Part 1: why do you find them "uninvestable"? Clearly, that isn't a majority view, or their shares would be worthless ;)

Not a majority view but not an unpopular view either. But as I said it's a personal view. I just can't bring myself to invest in them.

Arborbridge wrote:Part 2: what do you find investable?

Tech, healthcare, energy, engineering, chemicals, aerospace, property, consumer staples, autos, media, hospitality, gambling, defence, alcohol . .

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Re: Specific discussion of Luni's zones, moved from earlier Vodafone thread

#222422

Postby Arborbridge » May 16th, 2019, 1:13 pm

Lootman wrote:
Arborbridge wrote:
Lootman wrote: My own personal red flag is the number of sectors I find to be uninvestible right now - banks, support services, utilities, retail, phones . .

Interesting comment:
Part 1: why do you find them "uninvestable"? Clearly, that isn't a majority view, or their shares would be worthless ;)

Not a majority view but not an unpopular view either. But as I said it's a personal view. I just can't bring myself to invest in them.

Arborbridge wrote:Part 2: what do you find investable?

Tech, healthcare, energy, engineering, chemicals, aerospace, property, consumer staples, autos, media, hospitality, gambling, defence, alcohol . .



Thanks. I haven't checked, but I'm guessing several of those are not HYPable, though there is plenty to chew on in your list. A HYPer will naturally have some legacy sectors which you find uninvestable at present: but I believe that's the way diversification works. 8-)

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Re: Specific discussion of Luni's zones, moved from earlier Vodafone thread

#222423

Postby tjh290633 » May 16th, 2019, 4:57 pm

Lootman wrote:
Arborbridge wrote:
Lootman wrote: My own personal red flag is the number of sectors I find to be uninvestible right now - banks, support services, utilities, retail, phones . .

Interesting comment:
Part 1: why do you find them "uninvestable"? Clearly, that isn't a majority view, or their shares would be worthless ;)

Not a majority view but not an unpopular view either. But as I said it's a personal view. I just can't bring myself to invest in them.

Arborbridge wrote:Part 2: what do you find investable?

Tech, healthcare, energy, engineering, chemicals, aerospace, property, consumer staples, autos, media, hospitality, gambling, defence, alcohol . .

Engineering? Very brave, Lootman. Not sure about some of the others. Media? Aerospace?

I do have some of these, like IMI, PSON and BA., but the likes of CLLN, ITV and other lemons put me off.

TJH

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Re: Specific discussion of Luni's zones, moved from earlier Vodafone thread

#222424

Postby Luniversal » May 16th, 2019, 5:12 pm

Arborbridge wrote:It's interesting that Luni places great store by the idea of warnings zones for yield - but at the same time he will never sell (or at least that used to be his position). Once a choice has been made, it will stay in the portfolio come rain or shine.

If excessively high yield were useful as an indicator, should we not be using it as a "sell and replace" signal?


Arb.


Zones are for those buying a HYP all at one go, Nov. 2000-style. Whether they are any guide to drip-feeding or tinkering would require a lot more research and a somewhat speculative mindset.

Lacking any taste for gambling, I have never bought or sold a share for capital gain. It always seemed a bit vulgar, even immoral :oops: I would only eject a hopeless case (i.e. no signs of divis ever returning), and not always then-- see below.

Fiddling seems to me unnecessary in a HYP: too much trouble to gain a dubious edge. 'Market trading' suffices for my sole ambition, a rising real income over time.

At May 3, ten of the 41 LuniHYPs companies were in red zones, including six of the 18 in the FTSE 100 portfolio. In descending order of yield:

DANGER ZONE
Centrica
IG
Standard Life Aberdeen
William Hill
N Brown
TUI
British American Tobacco
SSE
Direct Life

WARNING ZONE
TP ICAP

(Additionally, Indivior in the LuniHYP100 has stopped paying and is in all sorts of lawyer bovver. I would have dumped it, but why sweat the small stuff? It is worth about £15; commission would be £9. Maybe it will flicker back into life.)

Some of the aforenamed will creak, some will crack; maybe most. But as a lumper, I think holistically. Data-quarrying for 2000-16, which embraced two serious bear markets, does not make me fear that either of my 'derisked' HYPs, with their stout income reserves, will stop furnishing upwards of 5.5% pa, inflation-proofed.

It's enough. Pace Mr Gekko, greed is not so good and does not always work.

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Re: Specific discussion of Luni's zones, moved from earlier Vodafone thread

#222425

Postby Lootman » May 16th, 2019, 5:26 pm

tjh290633 wrote:
Lootman wrote:
Arborbridge wrote:Part 2: what do you find investable?

Tech, healthcare, energy, engineering, chemicals, aerospace, property, consumer staples, autos, media, hospitality, gambling, defence, alcohol . .

Engineering? Very brave, Lootman. Not sure about some of the others. Media? Aerospace?

I do have some of these, like IMI, PSON and BA., but the likes of CLLN, ITV and other lemons put me off.

I have a soft spot for engineers. I like companies that make real things. They were mostly bought a good few years ago when many were on decent yields. They have done well so yields are compressed. My positions are IMI, Renishaw, Melrose, Rotork, Spirax-Sarco, Weir, Bodycote and Fenner. Also AIM share AB Dynamics has been a real winner - up over 400% in just a few years.

Aerospace I have BA. as noted, plus Boeing and Lockheed. No Rolls Royce though - those Dreamliner engne faults must be costing them a lot and the new 777-X category buster doesn't have a RR engine option.

There are some big winners in the media space. Like Disney and Netflix for instance. But obviously not UK or HY. I was just answering Arb's question literally in terms of which sectors I will invest in.

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Re: Specific discussion of Luni's zones, moved from earlier Vodafone thread

#222426

Postby monabri » May 16th, 2019, 5:41 pm

Direct Line ("Life" ;) ) pays a special - that's why the yield is high. The normal dividend (historical 12m) was 21p with a chunky special of 8.3p. Based on today's closing prices we have yields of 6.45% / 9.00%. The higher yield being covered 1.6x.

Debt is ~£325m (and has been reducing). The annual dividend is approx £225m, a small chunk (*) of which arrived just today in my account.

Their pension liabilities are well under control (assets in the fund exceed liabilites by ~16%) - according to JLT Benefits Report FTSE100 Jan 2019.

(I hold DLG along with a smaller holding of Admiral - totalling ~3% of the portfolio).




(*) a very small chunk!

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Re: Specific discussion of Luni's zones, moved from earlier Vodafone thread

#222427

Postby Luniversal » May 16th, 2019, 7:08 pm

monabri wrote:Direct Line ("Life" ;) ) pays a special - that's why the yield is high. The normal dividend (historical 12m) was 21p with a chunky special of 8.3p. Based on today's closing prices we have yields of 6.45% / 9.00%. The higher yield being covered 1.6x.

Debt is ~£325m (and has been reducing). The annual dividend is approx £225m, a small chunk (*) of which arrived just today in my account.

Their pension liabilities are well under control (assets in the fund exceed liabilites by ~16%) - according to JLT Benefits Report FTSE100 Jan 2019.

(I hold DLG along with a smaller holding of Admiral - totalling ~3% of the portfolio).
(*) a very small chunk!


Agree about the financials-- I bought Direct Line (sorry for the typo) recently, wrt the basic total dividend. I regard its 'special' extras like Admiral's: a way for it to hedge its bets on future increases by reclassifying part of the broadly established payment as conditional, kind of.

Grey area, to be sure. Thankfully this irritating practice is rare among larger businesses, though fairly common among ITs. PayPoint, another recent purchase, does it.

By keeping such equivocators on high headline yields, the market always seems to reckon that these are indeed, if only nominally, supplementary payouts; they are not valued as a near-cert, going forward. So I take the lofty yields at face value, being the prisoner of the consensus in zoning.

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Re: Specific discussion of Luni's zones, moved from earlier Vodafone thread

#222428

Postby Gengulphus » May 17th, 2019, 8:52 am

Alaric wrote:
Gengulphus wrote:Why use a proxy - even a very good one - when the real thing is readily available???

Yield is dividend divided by price. Is there anything that just plots dividend? I suppose you would have to use the dividends on a FTSE 100 ETF or OIECs tracker as a proxy, bearing in mind that these are net of charges.

Yes, the 'dividend' on the FTSE100 is a purely notional quantity, basically calculated as the total dividends paid by a 'unit' in it that holds all the shares in the index with the correct weightings and worth the index value (in pounds if you want the dividend in pounds, or in pence if you want the dividend in pence, etc), ignoring charges and rounding effects. A messy calculation!

But FTSE do that messy calculation - we can easily determine what the result is that FTSE calculated by reversing your formula to get dividend = yield * price. So if you can download historical FTSE100 values and yields (which is possible using the FT link I gave if you're a subscriber, and may be more cheaply or for free by other means) then you can calculate the historical sequence of FTSE100 'dividends' and chart it. (And it might indeed be interesting to chart it against the proxies you mention to see what the real effect of charges is...)

I'm not aware of any site that supplies such charts, though, so I suspect it needs to be a DIY job.

Gengulphus

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Re: Specific discussion of Luni's zones, moved from earlier Vodafone thread

#222429

Postby Gengulphus » May 17th, 2019, 9:03 am

moorfield wrote:
Gengulphus wrote:Why use a proxy - even a very good one - when the real thing is readily available???

Gengulphus posted the link I use, which shows 4.45% today. I use CTY as a proxy because that is what I would buy if I couldn’t find a suitable higher yielding candidate from FTSE100. ...

Thanks. Personally, I wouldn't regard that as using it as a "proxy" at all - at least to me, the word implies an almost-as-good substitute, i.e. that the difference between it and the real thing makes it less good, but only a little less good. If I understand you correctly, however, you regard it as a better substitute because it's something you can actually buy.

Gengulphus

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Re: Specific discussion of Luni's zones, moved from earlier Vodafone thread

#222430

Postby Gengulphus » May 17th, 2019, 9:22 am

As a general comment on this thread, could I suggest that someone interested in Luniversal's 'zoning' concept starts up a thread that is specifically about it and has a subject that clearly says what it's about? It would help those who are interested in the concept, both by bringing comments about it together in one place and by making it easier to locate them later (with thousands of threads on this board and material about it buried in a thread whose subject says it's about Vodafone, that won't necessarily be easy!). And it would help those who aren't interested in the concept, by giving them less to wade through in threads like this one...

Basically, if a side-issue to a thread's subject is worth an extended diversion, it's worth a thread of its own!

Gengulphus

Moderator Message:
This has now been done. It's a good and sensible suggestion, although quite time-consuming to carry out. -- MDW1954

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Re: Specific discussion of Luni's zones, moved from earlier Vodafone thread

#222431

Postby kempiejon » May 17th, 2019, 10:23 am

moorfield wrote:
Gengulphus wrote:Why use a proxy - even a very good one - when the real thing is readily available???

Gengulphus posted the link I use, which shows 4.45% today. I use CTY as a proxy because that is what I would buy if I couldn’t find a suitable higher yielding candidate from FTSE100. ...


I have a CTY holding but have not added since 2017 when I checked and saw that it'd only just out performed the FTSE100 index in the previous 10 years and I think over 1, 3 and 5 years the index had the trust. In fact I'd probably buy ISF the ishares FTSE100 ETF or VUKE the vanguard tracker over CTY, both offering me around 4.4% yield, what are City's managers doing for their money?
But as this is the HYP board and there are so many FTSE100 dividend payers yielding above that level I'd pick some of them? I'm not sure that historically there hasn't always been a suitable share over the CTY level available for my portfolio.

MDW1954
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Re: Specific discussion of Luni's zones, moved from earlier Vodafone thread

#222441

Postby MDW1954 » May 17th, 2019, 11:59 am

Gengulphus wrote:As a general comment on this thread, could I suggest that someone interested in Luniversal's 'zoning' concept starts up a thread that is specifically about it and has a subject that clearly says what it's about? It would help those who are interested in the concept, both by bringing comments about it together in one place and by making it easier to locate them later (with thousands of threads on this board and material about it buried in a thread whose subject says it's about Vodafone, that won't necessarily be easy!). And it would help those who aren't interested in the concept, by giving them less to wade through in threads like this one...

Basically, if a side-issue to a thread's subject is worth an extended diversion, it's worth a thread of its own!

Gengulphus

Moderator Message:
This has now been done. It's a good and sensible suggestion, although quite time-consuming to carry out. -- MDW1954


Moderator Message:
TLFer Alaric added the following observation to a thread endorsing Gengulphus' comment above:


Perhaps one should consider how a share gets into high yield territory in the first place. Dividend Yield is Amount of Dividend divided by Share Price. Either the first increases or the latter reduces.

There's a lot of Companies that have increased their dividends, sometimes dramatically. They don't tend to show up in "HYP" filters because the share price rises even faster than the dividend. That leaves the HYP filter showing shares where the price has fallen. I'd suspect there are at least three types of Company caught by this filter. Those like Vodafone perhaps, that look to be sound, but will cut their dividend back towards the average. There are those that are in a downturn in a share price cycle. Then there are those like Carillion that with hindsight are on the way to oblivion. You want to avoid the complete disasters presumably and concentrate on the recovery ones.

It may be logical to perhaps expect that a Company whose dividend is expected to increase faster than the FTSE 100 average would have a premium on its share price such that the running dividend yield was below that of the average.

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Re: Specific discussion of Luni's zones, moved from earlier Vodafone thread

#222467

Postby moorfield » May 17th, 2019, 1:29 pm

Gengulphus wrote:Thanks. Personally, I wouldn't regard that as using it as a "proxy" at all - at least to me, the word implies an almost-as-good substitute, i.e. that the difference between it and the real thing makes it less good, but only a little less good.


This was the definition of the word I had in mind when choosing to use it. I'm not going to labour the argument here, I think readers understand what I mean.
A figure that can be used to represent the value of something in a calculation.

https://en.oxforddictionaries.com/definition/proxy

Gengulphus wrote:If I understand you correctly, however, you regard it as a better substitute because it's something you can actually buy.


Correct, although I haven't actually bought any - yet.


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