Hi everyone, this is my second annual HYP report, the first was on TMF.
As before the post has ended up quite long as I decided to include all of the introductory context again for the TLF platform - so please bear with me. I don't plan to include all of the introduction in future TLF updates.
All feedback welcome
Context
- I am saving towards early retirement which will happen in 5 years at the earliest.
- While I’m saving my HYP represents approximately 15% of my total investments. The rest of my investments are in cash, Buy-To-Let and a Tim Hale style passive index portfolio.
- My plan is that, in retirement, I will use a HYP as my main tool to generate income (rather than, for example, buying an annuity) eg at the point of "retiring" I plan to transfer most, or possibily all, of my other investments into the HYP.
- My investments are spread across ISA, SIPP and tax exposed accounts.
- I started investing in 2010 and bought my first HYP shares (IMT, SSE, TSCO) in March 2012.
HYP guidelines*
* Note that "guidelines" are a little looser than "rules".
This section looks like a lot of rules but most of the detail is handled by an excel spreadsheet. I update the spreadsheet with current values whenever a dividend arrives, when I make a purchase or sale and at the end of each month. I use the HYP Top Up Spreadsheet extensively. A spreadsheet update when a dividend arrives takes about 1 minute. The monthly update takes less than 10 minutes. A purchase takes longer, depending on how much money I have to invest and my free time it typically takes about an hour.
1. New share selection
- min 5 years rising dividend
- p/e <= 15
- cover >= 1.5 (depends on sector)
- yield > FSTE 100 average and ideally > portfolio median
- look at history of net debt and free cash flow (actually this inconsistently applied as my ability to read and interpret annual reports evolves).
2. Diversification (purchases and top-ups)
- Don’t top or buy a share if that causes it to break any of the following limits:
---Max cost, current value or forecast income from share >= 5% HYP total
---Max cost, current value or forecast income from sector >= 10% HYP total
---Max cost, current value or forecast income from super-sector >= 20% HYP total
- Consider trimming share > twice HYP median current value
- Consider trimming share > twice HYP median forecast dividend
- Consider trimming share with forecast yield <= 2%
3. Other top-up / purchase guidelines
- Don’t top-up a share you would not buy using new share selection guidelines
- Don’t buy REITs (they are overweight in the overall portfolio)
- Max costs 1% (including all platform commission and all taxes) – aim for much less
- No foreign (non-UK) tax regimes
4. Activity
- In general this is a LTBH HYP.
5. Dividend reinvestment
Dividend income is considered as income to the WHOLE portfolio (not just the HYP) and is reinvested to maintain overall asset allocation whenever an "economic" amount is avaliable to invest.
6. Unitisation
I started to unitise my HYP in January 2016. A consequence of the dividend reinvestment strategy is that I only calculate income units and yield per unit (not accumulation units).
Portfolio @ 3/01/17
Shares
------
Code: Select all
Share EPIC Weight F Yield
===== ==== ====== ======
Admiral Group ADM 3.0% 6.8%
AMEC Foster Wheeler AMFW 2.0% 4.4%
AstraZeneca AZN 2.8% 5.0%
BAE Systems BA. 4.2% 3.7%
British American Tobacco BATS 3.3% 3.9%
BHP Billiton BLT 1.7% 3.7%
BP BP. 4.5% 6.2%
Carillion CLLN 4.6% 8.1%
Cobham COB 3.0% 4.4%
G4S GFS 3.7% 4.2%
GlaxoSmithKline GSK 3.7% 5.2%
HSBC Holdings HSBA 4.8% 6.0%
Imperial Tobacco Group IMT 3.1% 4.9%
Interserve IRV 2.8% 7.1%
Legal & General Group LGEN 4.4% 6.1%
Lloyds Banking Group LLOY 2.5% 5.8%
Marston's MARS 3.7% 5.6%
National Grid NG. 2.8% 4.8%
Pennon Group PNN 2.7% 4.6%
Pearson PSON 3.2% 6.2%
Royal Dutch Shell 'B' RDSB 4.0% 6.3%
Rio Tinto RIO 2.5% 4.4%
Stagecoach Group SGC 3.4% 5.7%
Standard Life SL. 3.1% 5.7%
DS Smith SMDS 4.2% 3.7%
Scottish & Southern Energy SSE 3.8% 6.0%
Taylor Wimpey TW. 4.2% 9.0%
Unilever ULVR 3.1% 3.4%
United Utilities Group UU. 2.7% 4.4%
Vodafone Group VOD 2.4% 6.2%
===== ==== ====== ======
Count/Median 30 3.2% 5.4%
Sectors
-------
Code: Select all
Sector Shares Weight
====== ====== ======
Aerospace and Defence 2 7.2%
Banks 2 7.3%
Consumer staples 1 3.1%
Education 1 3.2%
Energy 2 6.6%
Homebuilding 1 4.2%
Insurance (life) 2 7.6%
Insurance (non-life) 1 3.0%
Mining 2 4.2%
Oil & Gas Producers 2 8.6%
Oil Services 1 2.0%
Packaging 1 4.2%
Pharmaceuticals 2 6.5%
Security (Support Services) 1 3.7%
Outsourcing (Support Services) 2 7.4%
Telecommunications 1 2.4%
Tobacco 2 6.4%
Travel & Leisure 2 7.1%
Water 2 5.3%
====== ====== ======
Count/Median 19 30 5.3%
Super-Sectors
-------------
Code: Select all
Super Sector Shares Weight
============= ====== ======
Financials 5 17.9%
Resources 5 14.7%
Health Care 2 6.5%
Industrials 6 22.5%
Consumer Goods 4 13.8%
Consumer Services 3 10.3%
Utilities 5 14.3%
============= ====== ======
Count/Median 7 30 14.3%
Activity in last twelve months
- Purchases: 4 (LLOY, COB, GFS, SGC); 2015 8
- Top-ups: 10 (SSE, RDSB, COB*, LGEN, MARS, BP., TW., CLLN, IRV, SL.); 2015 6
- Sales: 2 (S32, TSCO); 2015 1
(*= rights issue)
Others stats
As at 03/01/17
- HYP Unit value: 109.4; 2015 100.0 - 9.4% increase
- FTSE-All Share (unitised): 105.1; 2015 100.0 - 5.1% increase
- RPI: 264.5; 2015 259.8 - 1.8% increase
- Unit Yield (dividends received in last 12 months / current portfolio unit value): 4.70%; 2015 4.11% - 14.4% increase
- Forecast Yield (as per HYPTUSS ): 5.5%; 2015 5.4% - 1.9% increase
- Costs (stamp duty, platform fees, commission): 0.32%; 2015 0.38% - 15.8% reduction
Commentary - small stuff
- I got bored of TSCO and sold - probably a mistake in a HYP that is currently in savings mode. Maybe because of that I am holding onto BLT despite it yielding below 2%. Maybe another mistake?
- Vodafone is top of my current top-up list but the low cover worries me.
- Persimmon is top of my current wish list for new shares but adding another cyclical share in a sector that is already covered (by TW.) worries me.
Commentary - big stuff
- Capital and actual yield outperformed my benchmarks (FTSE-AllShare and RPI).
- The increase in forecast yield outperformed RPI, but only just.
- I expect that the strong increase in actual yield is due to dividend lag effects.
- The HYP section of my overall investments lagged behind my overall portfolio in TR terms (by about 1%).
- The HYP section is also more volatile (judged by standard deviation) than the overall portfolio (by about 2%).
- The HYP income is higher than my other shares / gilts but lower than my Buy-to-Let investments.
- The rate of increase HYP income is higher than my other shares / gilts and my Buy-to-Let investments.
My conclusion are that:
--- HYP isn't the best savings vehicle for me but remains my first choice for post-retirement drawdown;
--- Keeping a small HYP section is very valuable for me to learn / practice how HYP works in reality;
--- Keeping a small HYP section is very valuable for me to play with, helping me to resit "tinkering" with the more passive parts of my portfolio.
Finally
Many thanks to all of the readers and contributors to the HYP Practical Board, your contributions area really appreciated. Special thanks to Stooz and Clariman for keeping this amazing forum alive.
SDN
Jan 2017