What is a HYP?

Practical discussions about equity High-Yield Portfolios (HYP) for income
monabri
Posts: 47
Joined: January 7th, 2017, 9:56 am

What is a HYP?

Postby monabri » January 11th, 2017, 1:47 pm

I'm sure this question has been asked/answered before on TMF in days of old..... but what is a "HYP"? :oops: Obviously it is a High Yield Portfolio but is it not a form of a cut down FTSE100 tracker where all the low yields have been removed? OK, the financial metrics need to be assessed for the new candidate share and it ain't just a case of buying a share because it currently has a high yield.

If this is the case, then I guess the value of the portfolio will move more or less in line with the general market - after all, some of the favourite HYP shares are the big boys (shell/BP/GSK/AZN etc).

So, just as one might "drip" money (divvis perhaps) back into a tracker, is this the general rule of thumb for a HYP? I guess that you select the sector based on on "one that you have not currently covered in your portfolio" when you are considering adding a new buy.

If this is the case then most HYPers must be riding high at the moment with the record FTSE 100 share level. It seems also to be a case of buy and forget to a degree - if the market goes down, then simply take advantage of divvis to buy shares at a lower price?

Also, I might add, I could put my money in a LYP (low yield portfolio with my local build soc :cry: ) but I'm working on the priciples that if I leave the money for 20 years ..or more..at 5% and providing the companies still exist and divvis increase yearly or at least remain constant, I should do ok!

Is this a fair understanding of a HYP?

idpickering
Lemon Slice
Posts: 278
Joined: November 4th, 2016, 5:04 pm

Re: What is a HYP?

Postby idpickering » January 11th, 2017, 1:56 pm

monabri wrote:I'm sure this question has been asked/answered before on TMF in days of old..... but what is a "HYP"? :oops: Obviously it is a High Yield Portfolio but is it not a form of a cut down FTSE100 tracker where all the low yields have been removed? OK, the financial metrics need to be assessed for the new candidate share and it ain't just a case of buying a share because it currently has a high yield.

If this is the case, then I guess the value of the portfolio will move more or less in line with the general market - after all, some of the favourite HYP shares are the big boys (shell/BP/GSK/AZN etc).

So, just as one might "drip" money (divvis perhaps) back into a tracker, is this the general rule of thumb for a HYP? I guess that you select the sector based on on "one that you have not currently covered in your portfolio" when you are considering adding a new buy.

If this is the case then most HYPers must be riding high at the moment with the record FTSE 100 share level. It seems also to be a case of buy and forget to a degree - if the market goes down, then simply take advantage of divvis to buy shares at a lower price?

Also, I might add, I could put my money in a LYP (low yield portfolio with my local build soc :cry: ) but I'm working on the priciples that if I leave the money for 20 years ..or more..at 5% and providing the companies still exist and divvis increase yearly or at least remain constant, I should do ok!

Is this a fair understanding of a HYP?


It is apparent that each of us run our HYPs in our own way regarding certain aspects of the HYP and it's management, but the basic principles all started here;

The High Yield Portfolio

"Stephen Bland introduced the concept of the High Yield Portfolio (HYP) on the Fool website in November 2000, and wrote articles about the strategy for several years thereafter.

It’s an income investing strategy designed as an alternative to purchasing an annuity. The total dividends received should ideally rise above the rate of inflation, therefore protecting the purchasing power of your income stream. A secondary aim is for the capital performance of the shares picked to outperform the UK market, as measured by the FTSE 100 index.

The strategy involves picking a portfolio of 15-20 high-yield shares from a wide variety of different industries. The intention is hold each share forever. In practice though, as the years go by, a number of shares are taken over and a new share has to be selected in their place.:

http://www.fool.co.uk/investing-basics/ ... portfolio/

Have a look through the attached links and all will be revealed.

Regards,

Ian.

monabri
Posts: 47
Joined: January 7th, 2017, 9:56 am

Re: What is a HYP?

Postby monabri » January 11th, 2017, 2:44 pm

Thanks Ian, a bit of bedtime reading.

OLTB
Lemon Pip
Posts: 55
Joined: November 4th, 2016, 9:55 am

Re: What is a HYP?

Postby OLTB » January 11th, 2017, 2:58 pm

One of the key fundamentals that I have picked up (still early days for me as well) is that the companies selected should be sector diversified and all holdings to be of equal value (as far as possible). This means that if one sector goes through a bad spell, you are sufficiently diversified and therefore this wouldn't affect your HYP disproportionally (one bank, one oil company, one tobacco, one utility, one drug man. etc. etc.). If you decided to invest say £5,000 into each sector, you could of course hold two companies in the same sector (many HYPers hold BP and RDSB in the oil sector) but the individual investments would be £2,500 each, rather than £5,000 each. Other HYPers may have their own preferences and rules, but I think that's the general principle.

Cheers, OLTB.

Raptor
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Joined: November 4th, 2016, 1:39 pm

Re: What is a HYP?

Postby Raptor » January 11th, 2017, 3:03 pm

IMO, it also depends where you are in the process, building or taking income. Shares you choose because they meet your criteria, may, further down the line, not meet your "buy" criteria anymore but what do you do with them?

I found that as I "matured" my criteria for both buying and top-up changed and now I am taking part of the income am not seriously considering anymore purchases, but that may change.......

Raptor.

tjh290633
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Re: What is a HYP?

Postby tjh290633 » January 11th, 2017, 3:51 pm

monabri wrote:I'm sure this question has been asked/answered before on TMF in days of old..... but what is a "HYP"? :oops: Obviously it is a High Yield Portfolio but is it not a form of a cut down FTSE100 tracker where all the low yields have been removed?


Good question, but it is not quite that simple. The ETF IUKD originally did that, but was indiscriminate. The result was that it was heavily into financial shares and took the 50 highest yielding shares willy nilly. A one-off HYP selecting 15 or more shares will not duplicate sectors, so will have only one bank, one pharmaceutical, one oil, and so on. Furthermore it weighted its constituents by yield, whereas a one-off HYP will initially be equal weighted.

I have the composition on 21 Mar 2007, as published by iShares:

Weight%
3.23 ELECTROCOMPONENTS PLC
2.84 UNITED UTILITIES PLC
2.66 LLOYDS TSB GROUP PLC
2.57 BRIT INSURANCE HOLDINGS PLC
2.56 DRAX GROUP PLC
2.52 TOMKINS PLC
2.42 PREMIER FARNELL PLC
2.31 JARDINE LLOYD THOMPSON GROUP
2.30 RENTOKIL INITIAL PLC
2.29 DSG INTERNATIONAL PLC
2.28 WOOLWORTHS GROUP PLC
2.26 PROVIDENT FINANCIAL PLC
2.23 ALLIANCE&LEICESTER PLC
2.21 BT GROUP PLC
2.18 VODAFONE GROUP PLC
2.12 KINGFISHER PLC
2.12 BRADFORD&BINGLEY PLC
2.09 CATLIN GROUP LTD
2.08 FKI PLC
2.00 SEVERN TRENT PLC
2.00 HSBC HOLDINGS PLC
2.00 BARCLAYS PLC
1.96 ROYAL BANK OF SCOTLAND GROUP
1.95 ROYAL DUTCH SHELL PLC-B SHS
1.93 MAPELEY LTD
1.93 DS SMITH PLC
1.92 TRINITY MIRROR PLC
1.91 SCOTTISH&NEWCASTLE PLC
1.90 TOPPS TILES PLC
1.90 BP PLC
1.89 HMV GROUP PLC
1.88 EMAP PLC
1.87 CARPETRIGHT PLC
1.83 NORTHUMBRIAN WATER GROUP PLC
1.82 CATTLES PLC
1.77 KESA ELECTRICALS PLC
1.76 SCOTTISH&SOUTHERN ENERGY
1.75 JJB SPORTS PLC
1.70 NATIONAL GRID PLC
1.67 GKN PLC
1.64 HALFORDS GROUP PLC
1.64 DAIRY CREST GROUP PLC
1.62 LEGAL&GENERAL GROUP PLC
1.61 PENNON GROUP PLC
1.54 HALMA PLC
1.54 COMPASS GROUP PLC
1.49 ROYAL&SUN ALLIANCE INS GRP
1.43 NORTHERN FOODS PLC
1.39 CENTRICA PLC
1.05 RANK GROUP PLC

Fairly obviously, looking at the list, it used the FTSE350 to pick its constituents. The FTSE devised a special index for it, the FTSE UK Dividend+ Index

It had 6-monthly reviews originally, but I believe that this changed to 3-monthly at some stage.

In that respect it was an index tracker, but not an index that the HYP ressembles in any way. There is also the FTSE350 Higher Yield index, which is again indiscriminate and varies daily in its make up.

The "Classic HYP" evolves gradually, and does not change as the market changes.

TJH


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