Bree's HYPish Portfolio - Christmas Review 2016

[Breelander]

Seasons greetings to all, but especially to stooz and Clariman for setting up this forum. It's good to see so many familiar names have made the transition. I've learned a lot from you all in the past, I'm grateful to have the opportunity to continue my education.


Now I don't mean to alarm you, mates, but the years are going backwards

2015 review: https://web.archive.org/web/20161104222 ... 09137.aspx

2016 Interims: Q1, Q2, Q3 (#67468, #68863, #70621)
(and yes - you can find posts on the Wayback machine by typing the post number and clicking the green 'GO' button, just like on TMF)


Once upon a time, or maybe twice

Last year I ended by saying...

I think the only really safe prediction is that the biggest Surprise will (as always) come from the unknown unknowns...

Well, the biggest surprise of the year must be the closure of the TMF UK boards. Perhaps not unexpected, but a shock none the less. A heartfelt thanks to stooz and Clariman setting up the Lemon Fool. In celebration, this year's guest heading are 'Yellow-ish'. As for other surprises: Brexit and Trump - who could have predicted that a year ago? Or that the markets would react so (apparently) well in the circumstances? Or did they? The Devil is in the Detail (of the exchange rates, that is).


Nothing you can make that can't be made

This is how my HYP looked at the close of business on 23rd December 2016.

                                           Weight   Weight  Yield   Yield 
Share               Epic    Sector         by Cap.  by div* Hist*   F/cast*
Electrocomponents   ECM   support serv.    6.9%     4.1%    2.5%    2.5%
BAe Systems         BA.   aero/defence     6.2%     5.2%    3.5%    3.5%
Reckitt Benckiser   RB.   H/hold goods     5.5%     2.8%    2.2%    2.2%
Persimmon           PSN.L constr&mat       5.3%     8.0%    6.4%    6.4%
Lloyds 9.75% pref.  LLPD  fixed int.       4.5%     7.0%    6.6%    6.6%
Shell               RDSB  oil&gas prod.    4.5%     6.4%    6.0%    6.1%
Aviva               AV.   ins. life        4.3%     4.5%    4.5%    4.5%
United Utilities    UU.   util gas/water   4.3%     4.3%    4.3%    4.3%
Diageo              DGE   beverage         4.2%     2.8%    2.9%    2.9%
Glaxo Smithkline    GSK   pharm/biotec     4.2%     5.1%    6.5%    5.2%
SSE plc             SSE   util.electricity 4.1%     5.7%    5.9%    5.9%
BT Group            BT.A  tel.fix          4.0%     3.7%    3.9%    3.9%
Unilever            ULVR  food prod/proc   4.1%     3.1%    3.2%    3.2%
British Land        BLND  REITs            3.5%     3.8%    4.5%    4.6%
Halfords            HFD   retail gen.      3.4%     3.8%    4.8%    4.8%
IMI                 IMI   indust. eng.     3.3%     3.0%    3.8%    3.8%
Vodaphone           VOD   tel.mob          3.2%     4.9%    6.6%    6.6%
Marks & Spencer     MKS   retail gen.      3.1%     4.8%    6.6%    6.6%
Rio Tinto           RIO.L mining           2.8%     1.7%    3.5%    2.6%
RSA Insurance Gp.   RSA   ins. gen         2.7%     1.3%    2.1%    2.1%
Lloyds Group        LLOY  banks            2.6%     2.5%    4.6%    4.0%
Carillion           CLLN  support serv.    2.4%     4.3%    7.7%    7.7%
Pearson             PSON  media            2.3%     3.5%    6.3%    6.3%
Centrica            CNA   util gas/water   2.0%     2.4%    5.2%    5.2%
De La Rue           DLAR  support serv.    1.8%     1.7%    4.0%    4.0%
Tesco               TSCO  retail food/drg  1.4%     0.0%    0.0%    0.0%
Amec Foster Wheeler AMFW  Oil equip/serv.  1.4%     1.6%    4.7%    4.8%
Sainsbury (J)       SBRY  retail food/drg  1.1%     1.2%    4.7%    4.9%
Barclays            BARC  banks            0.9%     0.4%    2.0%    2.0% 
Current Yield*: 19 Dec 2016        median: 3.41%    4.32%   4.24%

* Definitions:
Historic Yield: the trailing twelve-month yield (ttm) - sum of latest declared dividends over past year. May contain dividends from two reporting years.
Forecast Yield: My own conservative forecast for next year. Basically same as Historic, except where there is an explicit dividend policy. My 'forecast' for Persimmon's yield is based on their declared Capital Return Plan. My 'same as last year' forecast for AMFW isn't believed by the market, which currently forecasts around 7%.
Current Yield: Historic Yield / current portfolio value.
Weight by Dividend: calculated using my forecast yield.

[Breelander]

It's all in the mind

Costs: Costs this year were lower than last year as activity was less... well... none actually. Total management fees (no dealing this year) were 0.043% of the portfolio's starting value for the year (at Christmas 2015). A worrying trend amongst brokers is a move towards fees based on a pecentage of the portfolio. My costs may well be significantly higher by this time next year.

Capital: The HYP rose in value over the year. The Income Unit value rose by 6.46% compared to a rise of 12.8% for the FTSE100.

Income: The HYP's trailing income per unit as calculated from the Trailing Twelve-month yield (ttm) shows a rise of 6.70%. On the basis of money in the bank and actual payment dates the gross dividend/unit for 2016 was 5.957p (2015: 5.480p), against the 5.974p indicated by the ttm yield. After deducting costs the net dividend/unit was 5.906p (2015: 5.402p). The actual income is less than the Trailing income because the ttm yield is based on declaration dates while actual dividends received use the pay dates. Shares (such as BT) that both declare an increased dividend and have declaration and pay dates that straddle the calendar year-end are to blame. Starting in my 2012 review I restated my figures from earlier years in Income Unit and Trailing Yield terms. Note that the 'Income(p) per Unit' figures are calculated by from the 'Trailing Yield' and the 'Unit Price'.

       Review        # Units   Unit   Trailing Income(p)  FTSE      Year-on-year rise (fall)
   Date     (Post#) (rebased) Price(p) Yield   per Unit   100   Price  Inc./unit  FTSE  Dec.RPI
24 Dec 2007            38.8   136.33   4.95%   6.742    6479.3     -       -       -     4.0%
24 Dec 2008            36.6    84.01   7.92%   6.656    4216.6  (38.4%)  (1.3%) (34.9%)  3.0%  [1]
24 Dec 2009            40.7    96.36   3.35%   3.227    5402.4   14.7%  (51.5%)  28.1%   2.4%  [2]
24 Dec 2010 (15984)    51.7   107.73   4.11%   4.428    6009.0   11.8%   37.2%   11.2%   4.8%
23 Dec 2011 (24645)   100.0   100.00   4.89%   4.894    5512.7   (7.2%)  10.5%   (8.3%)  4.8%
24 Dec 2012 (33748)   103.2   115.30   4.75%   5.474    5954.2   15.3%   11.8%    8.0%   3.1%
24 Dec 2013 (44121)   103.3   132.38   4.01%   5.314    6694.2   14.8%   (2.9%)  12.4%   2.6%
24 Dec 2014 (55230)   103.7   133.00   4.00%   5.314    6609.9    0.5%    0.0%   (1.3%)  1.6%
24 Dec 2015 (65058)   105.0   125.67   4.46%   5.599    6254.6   (5.5%)   5.4%   (5.4%)  1.2%  
23 Dec 2016           105.0   133.78   4.47%   5.974    7058.2    6.5%    6.7%   12.8%   2.2%(Nov)

Notes:
[1] The trailing yield for 2008 looks so high because most dividends are from pre-crisis profits, while the unit price shows the post-crisis fall.
[2] My 2009 drop in income was exacerbated by being over-weight in financials.

Total Return: The capital rose this year but not by as much as the ftse200. Income Units rose from 125.667p to 133.781p. The net dividend/unit was 5.906p. This gives a TR of 14.019p or 11.16% (2015: -1.4%). For comparison, over the same period the FTSE100-TR rose from 4900.3 to 5761.3 or 17.6% (2015: -1.8%).

[Breelander]

Where should I go? No time for trivialities

One night in June the world turned upside down. At least, it felt like that in the markets. In the run up to the referrendum there was much talk on the HYP board of "how to Brexit-proof my HYP" and in the aftermath it was "well, what do we do now?". On the priciple that 'I don't know enough and what little I do know is likely to make me to jump the wrong way' I sat on my hands, putting my trust in SI and Diversity to see me through. Of course, we're still nowhere near 'through' yet, but so far 'doing nothing' looks as good a choice as any (certainly the cheaper option).

Of course, for individual shares fortunes have been mixed - depending, it seems, on which side of the UK border their earnings are derived. Those purely UK based have in general seen their price and dividend prospects fall, while those who earn their crust outside the UK have be sought after. Indeed, with the Pound falling their apparent value seen from inside the UK has risen (both the shares and future dividends). An unexpected side-effect of having selected shares for diverity seems to be that the country of origin for their income is quite diverse too.


Who did it? Who is responsible for this? (Rimsky-Korsakov? - Guy Lombardo?)

After the Brexit vote surprise (well, a surprise to the markets anyway) the knee-jerk reaction was a sharp fall. But since then the ftse100 has gone on to recover - and then some, testing previously unseen heights. All very reassuring from a UK investor's point of view - but it's all an exchange rate illusion. Some 70% of the ftse100's earning come from abroad. Indeed, many of the largest ftse constituents use the US$ or the euro as their accounting currency (and the currency for setting dividends). With a falling pound it can surely be no surprise that such international-based companies are 'apparently' soaring in value.

But what does the world look like from outside this little island? It's a little-known fact that the FT Actuaries calculate the ftse100 index in both GB Pounds (FTSE:FSI) and euros (UKX:FSI). Both took a sharp intake of breath after the Brexit vote, falling by nearly 5% (FTSE:FSI) or 10% (UKX:FSI) - only to recover their composure about a week later. We all know what the local headline ftse100 has done since then - up 12.8% by Christmas on the 23rd June's closing price. But that's its value in a currency that has weakened by much the same percentages. What does a view from the outside look like? Well, in euro terms up to December the ftse100 had hardly changed since the day before the Brexit vote. In fact, the euro value of the FTSE is little changed over the year. Just moving sideways is hardly a sparkling performance, the ftse's performance in the local currency says more about Sterling's weakness than the ftse's strength, apparently. See the comparative charts for 2016 here:
https://markets.ft.com/data/indices/tea ... 7871%22%7D


Well, in my humble opinion, we've become involved in Einstein's time space continuum theory (Oh, right) Relatively speaking, that is

So what of the dividends? Dividends set in dollars/euros convert to far more GB pounds now. At least they're really benefiting from the exchange rate, aren't they? Well... yes... but... It's all relative - the same exchange rate makes the goods we have to buy (imported food, fuel etc.) more expensive by a similar amount. We'll need all those extra pounds to pay for them.

RPI inflation is rising - not just since Brexit (though that may have accelerated the trend slightly). It has risen steadily since touching a low of 0.7% in October 2015 and is currently at 2.2% this November (the latest figure we have). The government's preferred measure CPI has done much the same, rising from -0.1% to 1.2% for the same period. This trend shows no sign of stopping any time soon.

Why has inflation risen? Well, each month the analysts point to this that or the other that's added to the cost of the 'basket' this month. But in the end it just boils down to 'the exchange rate'. What we buy is (for the most part) imported and we have to pay for much of it in dollars (and much of the rest in euros). The GBP/USD exchange rate is not a pretty sight this past year. For a clear and easy to read history of the the Pound/Dollar exchange rate you can do no better than visit Mike Todd's excellent site...

...a 4-page history of the pound/dollar exchange rate (with graphs) from around 1915.

...but I suspect he's going to have to redraw the graph on page 4, the Pound now drops off the bottom at the end of 2016!

In fact 2016 started with the pound at its lowest level in 7 years, at only $1.42, and the February announcement of a referendum on the UK's continued membership of the EU seems not to have done much to address the uncertainty... The vote to leave the EU came as a surprise to just about everyone, and the pound's value on the world stage dropped dramatically. Over the space of a week it dropped from $1.47 to $1.29 ... The announcement of the Brexit timetable in early October added further downward pressure, stabilising at around $1.22 in the middle of the month.

http://www.miketodd.net/encyc/dollhist-graph3.htm

So, just as well that a significant part of my HYP's dividends are from earnings outside the UK - the same exchange rate effects are inflating them too.


It's all too much

I usually finish off these monologues with a few thoughts on what the future may hold. To be honest, this year its hard to guess how things may pan out, here or on the other side of the Atlantic. All I can say for certain is that it looks like we'll be living in Intersting Times for some years to come.


If I spoke prose you'd all find out / I don't know what I talk about

Merry Christmas and a Prosperous New Year,

Bree.

[TUK020]

Cracking set of posts, Bree.
Where's the "Rec" button?
TUK020

[jackdaww]

Cracking set of posts, Bree.
Where's the "Rec" button?
TUK020

===================

agreed , a sort of poetry.

perhaps not having recs will get more people to post and say something.

i think lemon fool is a BIG improvement on TMF .

.

[Breelander]

Cracking set of posts, Bree.

agreed , a sort of poetry.
... i think lemon fool is a BIG improvement on TMF

Thank you for your kind words.

Yes, LMF is a big improvement. Though being a 'mobile friendly' site adds some new issues to be aware of when posting. One is the horizontal scroll bar that appears at the bottom of a post when it's too wide for the screen. That's why this is a 'set' of posts this year, so that each table gets its own scroll bar if/when needed.

[Raptor]

Hi Bree, great portfolio and update.

I have posted a link from the "portfolio's board" to here. Hope you do not mind.

May 2017 be less turbulent and prosperous.

Raptor.

[Bubblesofearth]

Where should I go? No time for trivialities

What does a view from the outside look like? Well, in euro terms up to December the ftse100 had hardly changed since the day before the Brexit vote. In fact, the euro value of the FTSE is little changed over the year. Just moving sideways is hardly a sparkling performance, the ftse's performance in the local currency says more about Sterling's weakness than the ftse's strength, apparently.

Bree.

The view from from someone living, earning and spending in the UK, and investing in the FTSE 100, is an increase in capital of some 12-13% over the year whilst the spending power of that capital has reduced some 1-2% due to inflation. So still a pretty good year.

BofE

[Markblox]

My portfolio has had a total return including costs of 19.5% compared with the FT total return off 18% I believe, so quite happy with that

[YeeWo]

My portfolio has had a total return including costs of 19.5% compared with the FT total return off 18% I believe, so quite happy with that

I'm 27% Up in 2016 so far. On 1 Jan 16 £/$ = 1.4739 as of 23 Dec 16 £/$ = 1.2284, this equates to a circa 17% drop in Sterling. In this context Everybody should of had a "decent" year. The question is would you of been better-off on a risk adjusted basis converting your portfolio at the beginning of 2016 into USD and just letting Brexit do the job for you?! I, tartly and nothing offensive meant, would maintain that anything <20% in 2016 is simply not be worth the additional risk of equity investing! I will post a full review on the dedicated page on 1st January.

http://www.lemonfool.co.uk/viewforum.php?f=56

[idpickering]

My portfolio has had a total return including costs of 19.5% compared with the FT total return off 18% I believe, so quite happy with that

My income from my HYP has risen by 13.6% more than 2015, which is what I'm more concerned about. It is an income strategy after all.

Ian.

[Markblox]

My portfolio has had a total return including costs of 19.5% compared with the FT total return off 18% I believe, so quite happy with that

My income from my HYP has risen by 13.6% more than 2015, which is what I'm more concerned about. It is an income strategy after all.

Ian.

Good point, well made!

[ADrunkenMarcus]

I'm 27% Up in 2016 so far. On 1 Jan 16 £/$ = 1.4739 as of 23 Dec 16 £/$ = 1.2284, this equates to a circa 17% drop in Sterling. In this context Everybody should of had a "decent" year.

I think that's very true: in sterling terms we've lost purchasing power, whether we feel it right now or not. (One of my benchmarks is the FTSE All World TR, which is reported in Dollars.) My SIPP has had a great year, with the accumulation unit value rising 51.5 percent from 27 December 2015 to 27 December 2016. I don't have period-comparative data for my dividend growth portfolio but, since it was unitised in April 2016, the accumulation unit value had risen about 33 percent to mid-December 2016.

I will post a full review on the dedicated page on 1st January. viewforum.php?f=56

I'll look forward to that, YeeWo. We have a number of holdings in common. I'm a bit wierd as I do my reviews on the tax year basis rather than the calendar year, so mine will be following in April!

Best wishes

Mark.

[Breelander]

I'm 27% Up in 2016 so far. On 1 Jan 16 £/$ = 1.4739 as of 23 Dec 16 £/$ = 1.2284, this equates to a circa 17% drop in Sterling. In this context Everybody should of had a "decent" year.

I think that's very true: in sterling terms we've lost purchasing power, whether we feel it right now or not...

Yes, that was the issue I wanted to highlight this year. In Sterling terms it's difficult not to have had a "decent" year. but we need to be aware that it's not through any skill on our part. The international nature of a lot of our HYP stalwarts is the main reason, particularly for the rising income. But it's only one side of the equation, our spending is likely to rise too. Looks like I'm not suddenly richer after all. At a first approximation the two effects seem to cancel each other out, for my HYP's income at least.

[Bubblesofearth]

In Sterling terms it's difficult not to have had a "decent" year. but we need to be aware that it's not through any skill on our part.

Is it ever?

The international nature of a lot of our HYP stalwarts is the main reason, particularly for the rising income. But it's only one side of the equation, our spending is likely to rise too. Looks like I'm not suddenly richer after all.

Yes you are. If in the FTSE 100 you are about 10% richer thanks to capital appreciation minus inflation. Your capital has 10% more purchasing power.

At a first approximation the two effects seem to cancel each other out, for my HYP's income at least.

Income rising with inflation with capital rising in real terms seems a pretty good result to me.

Seems like some people need a reminder of what a bad year looks like.....

BofE

[Breelander]

Seems like some people need a reminder of what a bad year looks like.....

Seen a few...

Here's one I made earlier...
As this is my first annual review I'd like to start with a brief history. My portfolio began around the start of the dot-com bubble, turned HYPish before 9/11 and recently endured the banking crisis...

May you live in Interesting Times
In September 2008, consensus opinion was that 'The Sky is Falling' and 'We're all Doomed'. https://web.archive.org/web/20161228154 ... 53566.aspx For a fleeting moment I found myself seriously considering liquidating the entire portfolio. The herd instinct was almost irresistible. Then again, where would I stash the cash? Banks were expected to fall like dominoes, nowhere was safe...

https://web.archive.org/web/20110104081 ... 33209.aspx

[Arborbridge]

Well done Bree - a good read as ever, and first out of the starting block.

I'm too full of Christmas Pud and mince pies to get my head around compiling such figures for the moment:)

However, at a guess, I'd say my HYP hasn't done nearly so well as yours this year - but it's more than kept the wolf from the door, so I'm happy.

Arb.

[Deev8]

The income from my HYP held in a SIPP has been 11.9% higher in calendar year 2016 than it was in 2015*. No new money was contributed to the SIPP during either year and none was withdrawn, all dividends received have been retained in the account and (eventually) reinvested which of course contributes to the income growth. Dividends received during 2016 were equivalent to 4.4% of the portfolio's value at the start of the year. Total return over the course of 2016 was 8.0%.

* I haven't looked into any factors that might affect the year-on-year income growth such as the timings of dividend payments that fall inside/outside of each calendar year.

Dave

[JMN2]

2016 dividends increased by 14.66%. Some new money went in late in the year and only one new purchase of it had time to pay a dividend. Half of the ISA subscription and a minimum HMRC SIPP tax element still to happen this tax year. Next tax year £10k + £10k ISA subcription to be paid into HYP unless I buy a small terraced property. Most likely in a year or two my HYP (ISA side of it) will go into dividends paid "drawdown" to support an income from a part-time job or a small business.

[Arborbridge]

Question: how do people achieve such racey increases in dividends?

Bree's 6% odd is excellent and reasonable, but increases of the order of 11%-12% seem astonishing. Looking down a list of typical HYP shares, such an increase must show a great knack or luck at the investment game.

OK, sour grapes here, because it looks as though my income per unit may have barely increased at all, and may even have declined My result is as yet unaudited, so I'm hoping to find some errors on the right side!

My total dividend income has increased, but that's not the same as income per unit, naturally.


Arb.