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HYP?-So Yesterday!

General discussions about equity high-yield income strategies
TahiPanas
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HYP?-So Yesterday!

#24600

Postby TahiPanas » January 20th, 2017, 7:20 am

Is it simply confirmation bias on my part?

I seem to see increasing numbers of TMF/TLF HYPers mentioning going over, in whole or in part, to ETFs and ITs.

Are more posters showing willingness to contemplate such an approach? If so, the reasons are undoubtedly many but, where mentioned, include: the buy and forget nature of a huge holding, the need to hand over an easily managed investment to spouses, etc., and increased diversification. The recent demise of the pound tends to justify the latter even allowing for FTSE income being 70% non-UK. Current bad boy Pearson would be unlikely to appear in a world ETF but would be a mere blip if it did.

Even if my suspicions are true, there will always be a place for a HYP. I don't think you can get nearly so high a yield from an ETF/IT...... or such fun!

My own income portfolio is, by value, 77% HYP-type shares, 17% ETFs and 7% ITs. I will only add or transfer into ETFs/ITs from now on.

TahiPanas
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Re: HYP?-So Yesterday!

#24603

Postby TahiPanas » January 20th, 2017, 7:37 am

FredBloggs wrote:I have long been interested in such an approach but regarded asking about it as being rather heretical and maybe even resulting in a virtual burning at the stake, so to speak!

Burning at the stake may be a smidgeon extreme but is metaphorically possible. How about getting barred from the forum? Any comment Lootman?

Raptor
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Re: HYP?-So Yesterday!

#24609

Postby Raptor » January 20th, 2017, 8:37 am

There were a couple of great posts on TMF about moving to IT's as a way of avoiding the problem of going ga-ga, no longer having the will or handing over to someone else your portfolio. At that time I decided to run a parallel IT portfolio and see how they go. I see the HYP as part of a long term and diversified trading system. I know there are some who also have "value" portfolio's. At the moment the IT side is getting more investment, purely as it is in my SIPP and all dividends are re-invested into more IT's.

I do not see it as "heresy" but as a wider look at your portfolio's.

Raptor.

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Re: HYP?-So Yesterday!

#24613

Postby Wizard » January 20th, 2017, 8:47 am

FredBloggs wrote:I have long been interested in such an approach but regarded asking about it as being rather heretical and maybe even resulting in a virtual burning at the stake, so to speak!

Surely OK on this board, just don't ask on the HYP Practical board. This board does not have HYP in the title and as it says "Strategies" so by definition I would think it is intended not to be a discussion of only one approach.

Terry.

TahiPanas
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Re: HYP?-So Yesterday!

#24645

Postby TahiPanas » January 20th, 2017, 10:09 am

Snorvey wrote:Well it's cost isn't it? A typical HYP costs nothing to run other than the initial set up costs per purchase and the odd trim/purchase if you are that way inclined. A typical IT or ETF might have ingoing costs of between 0.2 to, say, 0.5% per annum...which is cheap compared to some funds that are well over 1%.....but when you start to amass a decent amount it takes a fair chunk of your cash.

It was reported recently that most folk would like around twenty grand per year to retire on. £20k @ 4% yield is £500,000 and ever at 0.2%, that's a grand a year going in ongoing charges.


Absolutely true. Whilst costs are trending down they are still significant.

As usual, everyone's situation is different. Whether you pay through the nose for unit trusts or choose nice cheap Vanguard ETFs, the costs are a factor.

The trick will be to time your exit from a low cost HYP while you are still able.

You will have few expensive activities when you're ga-ga. At that point you, or your spouse, will be unable to manage a HYP and you won't care about fees. Your monthly expenditure will go right down until you need to go into care. Your need for cash will then rocket up but few could afford that on 20k a year. At that point Maybe your enterprising offspring will bail you out with a one way ticket to Zurich!

Alaric
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Re: HYP?-So Yesterday!

#24648

Postby Alaric » January 20th, 2017, 10:21 am

TahiPanas wrote: Your need for cash will then rocket up but few could afford that on 20k a year.


You are sitting on half a million of realisable assets though. If it's in ISAs there are no tax consequences in selling up. If it's in a taxable account, there's CGT and if in a SIPP then Higher Rate Tax.

BarrenWuffett
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Re: HYP?-So Yesterday!

#24657

Postby BarrenWuffett » January 20th, 2017, 10:42 am

TahiPanas wrote:Is it simply confirmation bias on my part?

I seem to see increasing numbers of TMF/TLF HYPers mentioning going over, in whole or in part, to ETFs and ITs.

Are more posters showing willingness to contemplate such an approach? If so, the reasons are undoubtedly many but, where mentioned, include: the buy and forget nature of a huge holding, the need to hand over an easily managed investment to spouses, etc., and increased diversification. The recent demise of the pound tends to justify the latter even allowing for FTSE income being 70% non-UK. Current bad boy Pearson would be unlikely to appear in a world ETF but would be a mere blip if it did.

Even if my suspicions are true, there will always be a place for a HYP. I don't think you can get nearly so high a yield from an ETF/IT...... or such fun!

My own income portfolio is, by value, 77% HYP-type shares, 17% ETFs and 7% ITs. I will only add or transfer into ETFs/ITs from now on.


The main reason I decided to abandon the hyp strategy was the volatility of the share prices combined with the frequent disappointment from shares which tanked - Tesco, Billiton, Centrica, Next, Pearson etc. I realised that my portfolio of 20 shares was far too few to mitigate the effects.

I have since moved to a combination of investment trusts and Vanguard Lifestrategy 60 and find the combination much simpler to manage, leave alone and the returns have been good - the ITs provided 16% incl 4% income in 2016 and the VLS60 return was 19% from which I took 5% 'income' by selling units.

I suspect most investors would be better rewarded over the long term by using low cost index funds/collectives rather than a handful of UK shares.

dspp
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Re: HYP?-So Yesterday!

#24666

Postby dspp » January 20th, 2017, 11:03 am

My opinion ...

As I'm sure you know I run a mixture of low cost Vanguard index trackers, and 30+ HYP. To my mind the concentration risk inherent in a 15 HYP over a prolonged period is too great. I do not see trusts as being worth the cost unless one is deliberately using them to attack a specific sector in a way that is unachievable through a cheap index tracker, and I am not convinced that such a situation really exists anymore as cheap index trackers have become so readily available for a wide variety of sectors/situations (not all of which will survive either IMHO, though they'll take out a load of trusts meanwhile).

However for shorter term dividend yield the HYP approach is generally better (although there are copycat index trackers out there) and certainly more fun (not a good reason in a downmarket) and so probably still has a place. Trying to explain to someone how to live on 2% yield + 5% growth is much more difficult than trying to explain 5% yield + 2% growth. They both get you to roughly the same place but the conceptual leap for many people starting out is too great. So I think HYP has a place, though not as great a place as 15-20 years ago. It is also a good starting point for anyone learning who is wishing to move on to other approaches but wants to test their understanding first.

regards, dspp

tjh290633
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Re: HYP?-So Yesterday!

#24683

Postby tjh290633 » January 20th, 2017, 11:43 am

TahiPanas wrote:I seem to see increasing numbers of TMF/TLF HYPers mentioning going over, in whole or in part, to ETFs and ITs.

Are more posters showing willingness to contemplate such an approach? If so, the reasons are undoubtedly many but, where mentioned, include: the buy and forget nature of a huge holding, the need to hand over an easily managed investment to spouses, etc., and increased diversification. The recent demise of the pound tends to justify the latter even allowing for FTSE income being 70% non-UK. Current bad boy Pearson would be unlikely to appear in a world ETF but would be a mere blip if it did.

Even if my suspicions are true, there will always be a place for a HYP. I don't think you can get nearly so high a yield from an ETF/IT...... or such fun!

My own income portfolio is, by value, 77% HYP-type shares, 17% ETFs and 7% ITs. I will only add or transfer into ETFs/ITs from now on.


The reasons are many, but as I see it, using any type of collective investment is likely to underperform an HYP, provided that the HYP is subjected to a certain amount of oversight and maintenance. The main underperformance is, of course, in income growth from an acceptably high level.

ITs offer income growth, but mostly from a lower level. ETFs are, in my view, possibly a transient phenomenon. Like OEICs they are liable to be amalgamated or transformed, with no choice to the holder and are mostly domiciled outside the UK.

Having something easily managed to hand on to a spouse is certainly a valid reason for switching into ITs, as is becoming unable through age or infirmity to look after an HYP.

I agree with your penultimate sentence.

TJH

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Re: HYP?-So Yesterday!

#24711

Postby Lootman » January 20th, 2017, 12:57 pm

TahiPanas wrote:
FredBloggs wrote:I have long been interested in such an approach but regarded asking about it as being rather heretical and maybe even resulting in a virtual burning at the stake, so to speak!

Burning at the stake may be a smidgeon extreme but is metaphorically possible. How about getting barred from the forum? Any comment Lootman?

I haven't been barred from this forum but have been yelled at. Better than being ignored, I suppose . .

More generally I understand why people might migrate from a shares-based strategy to a collective-based strategy. It's less work, particularly if it's a taxable account. You don't have to mess about with corporate actions. You are more diversified. You will participate in newer issues and sectors as they grow. And, in the case of trackers, you are assured to not under-perform the market, which it is often said that most individual investors do.

What's changed more recently is that ETFs are becoming very cheap - less than 0.1% a year in some cases, and with no stamp duty. If a portfolio is almost free to run, requires no work and gives you a market return, then it's tempting to just do that. Judging by some of the discussions here, however, the fact that HYP gives people lots to do is considered a benefit. The hobby aspect.

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Re: HYP?-So Yesterday!

#25092

Postby Gengulphus » January 21st, 2017, 11:30 pm

Snorvey wrote:Well it's cost isn't it? A typical HYP costs nothing to run other than the initial set up costs per purchase and the odd trim/purchase if you are that way inclined.

The odd trim if you are that way inclined, yes, but the odd purchase is near-essential: the only way to avoid it is never to make a purchase with any cash the portfolio returns to you. If HYP1 had completely avoided both sales and purchases, I think it would be down to 12 holdings by now: Anglo American, Banco Santander (from its takeover of Alliance & Leicester), Intercontinental Hotels (derived from Bass originally), Land Securities, Lloyds, Mitchells & Butlers (derived from Bass originally), two 'splinter' holdings in Mondi (demerged from Anglo American), Rio Tinto, RSA, Shell and United Utilities.

So no BATS, no Persimmon, no BT - and a look at http://www.lemonfool.co.uk/viewtopic.php?f=15&t=432 says that's about half of both HYP1's income and its capital gone. No Pearson, Dixon's Carphone or Ladbrokes either - which are much less significant than the first three, but still total a bit more than 10% of its income and a bit less than 10% of its capital, putting it on somewhere around 40% of each. And most or all of the holdings it does have would be smaller, as chunks of returned capital would neither have been put back into the share that produced them nor used to top up another holding. The only holdings possibly not affected by that are Banco Santander and the two 'splinter' holdings of Mondi, which the actual HYP1 doesn't have because of sales, and which I therefore haven't tracked. I haven't tried any sort of calculation of where that would leave its income and capital value, but a crude guestimate is somewhere in the rough region of a third of the actual HYP1's.

It would of course also have a large cash balance consisting of all the takeover proceeds and other corporate action proceeds that it hadn't put back into shareholdings - but it's pretty clear that it would essentially be a deposit account with a small, badly-diversified HYPish appendage rather than a HYP!

Gengulphus

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Re: HYP?-So Yesterday!

#25250

Postby Lootman » January 22nd, 2017, 8:01 pm

tjh290633 wrote:ITs offer income growth, but mostly from a lower level. ETFs are, in my view, possibly a transient phenomenon. Like OEICs they are liable to be amalgamated or transformed, with no choice to the holder and are mostly domiciled outside the UK.

Define "transient". The oldest ETF is over 20 years old and alone has more assets than the entire IT sector.

ETFs now have over $3 trillion under management. ITs have a few billion.

Although ETFs can and do vanish, so far that has been exclusively smaller, more specialised ETFs. The major market index ETFs from the three biggest providers (Blackrock, State Street and Vanguard) have all endured.

And yes, mostly domiciled outside the UK, for tax reasons. Unlike ITs, ETFs have no stamp duty when you buy and pay no corporation tax. Other than having to use a different box on your tax return, why is that a problem?

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Re: HYP?-So Yesterday!

#25267

Postby tjh290633 » January 22nd, 2017, 10:34 pm

Lootman wrote:Define "transient". The oldest ETF is over 20 years old and alone has more assets than the entire IT sector.

ETFs now have over $3 trillion under management. ITs have a few billion.

Although ETFs can and do vanish, so far that has been exclusively smaller, more specialised ETFs. The major market index ETFs from the three biggest providers (Blackrock, State Street and Vanguard) have all endured.

And yes, mostly domiciled outside the UK, for tax reasons. Unlike ITs, ETFs have no stamp duty when you buy and pay no corporation tax. Other than having to use a different box on your tax return, why is that a problem?


As far as I know the first ETF available here was the set from iShares, about 10 years ago. You are, of course, including the USA in your global totals, and as they don't go in for ITs very much, the difference is understandable. As you will know, iShares was swallowed by Blackrock. I don't know if all the iShares ETFs survived that take over.

All my investments are inside an ISA, so UK tax is not a factor. Tax on foreign holdings could well be.

TJH

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Re: HYP?-So Yesterday!

#25280

Postby Lootman » January 22nd, 2017, 11:54 pm

tjh290633 wrote:As far as I know the first ETF available here was the set from iShares, about 10 years ago. You are, of course, including the USA in your global totals, and as they don't go in for ITs very much, the difference is understandable. As you will know, iShares was swallowed by Blackrock. I don't know if all the iShares ETFs survived that take over.

All my investments are inside an ISA, so UK tax is not a factor. Tax on foreign holdings could well be.

Yes, UK ETFs are newer but one advantage for the providers of ETFs is that they can be managed globally whilst marketed locally. So for instance the Blackrock ETF operation (formerly iShares as you note) is managed out of San Francisco but they have satellite operations in London, Tokyo, Hong Kong, Sydney and a few other places.

I can't swear that no iShares ETF has even vanished but, if they did, they'd be the smaller more illiquid issues. Much the same can be said for OEICs and ITs, which do vanish from time to time. In fact the biggest IT in the 1980s, Globe, vanished.

Actually the US does have an equivalent to ITs. They are called closed-end funds and mostly trade on AMEX. But they are classified as funds and not companies, so if you like ITs because of their corporate structure then you could argue they aren't the same.


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