MDW1954 wrote:The board guidance couldn't be clearer: REITs and quasi-REITs (eg infrastructure companies) are perfectly permissible.
I don't doubt it, but when I first started my HYP, they would not have been, indeed REITs weren't invented then
My desire has always been to keep my HYP "pure" and separate from my ITs. Unfortunately, REITs came along and placed a foot in both camps which made it more difficult for me. In the case of 3iN the decision was easy: the yield was too low, so if I wanted to buy it, it had to be part of the IT basket.
Give me another ten years, and I might get thoroughly used to this new idea of companies investing in other companies being part of a HYP.
It's not a new idea! I'm pretty certain that every
company I've ever had in my HYP has a long list of subsidiaries and/or other companies that it's invested in listed in its annual reports (a subsidiary just being a company that it owns more than half the shares of, and so is able to fully control its normal operations). And while that only goes back as far as 2003, I've had a few shareholdings in companies back to 1984 of which the same is true - and the idea of companies investing in other companies was by no means new then - I'm fairly certain from various bits of reading that it's been around for centuries!
What's going on IMHO is that some
ways that companies invest in other companies are much more compatible with how HYPers invest in companies than others. The two main areas of potential (in)compatibility I know of are the amount of short-term trading and the amount of sector spread. HYPs work on the basis that short-term trading is generally to be avoided and the HYPer is in charge of the sector diversification: those are completely undermined if the companies they invest in routinely trade their holdings in other companies and/or the other companies they invest in are spread across a wide range of sectors. But if an investment company avoids doing those things significantly more than a non-investment company does, that undermining doesn't happen. E.g. a HYPer who invests in Greencoat UK Wind (UKW) actually has a rather clearer picture of what types of business activity they're invested in than one who invests in SSE, and like UKW, SSE does some trading in the companies it's invested in (see e.g. https://investegate.co.uk/sse-plc--sse- ... 00025303H/
So the point is that HYPers generally want to have reasonably good control over their HYP's levels of trading and sector diversification - not perfect control, which is unachievable given that companies do acquire and dispose of their stakes in other companies from time to time, as the SSE RNS above illustrates, but a reasonably high level of confidence that the companies they're invested in will remain invested in the same business area and will be spending the vast majority of their time, effort and other resources to running or holding those companies rather than trading their shares. The board guidance that MDW1954 mentions basically identifies some types of investment company for which that level of confidence is reasonable.