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HYP1 is 20

For discussion of the practicalities of setting up and operating income-portfolios which follow the HYP Group Guidelines. READ Guidelines before posting
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pyad
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HYP1 is 20

#356551

Postby pyad » November 14th, 2020, 4:14 pm

Income trashed

Here is the data for the year ended 12 November 2020, the twentieth year of this non-tinker portfolio.

..........................................Income......................Value

Anglo American              283.71             10,011
BA Tobacco 1,799.79 24,164
BT Group 262.51 6,983
Dixons Carphone 27.92 1,438
Glaxo 281.60 5,095
InterCon Hotels 0.00 18,425
Land Sex 78.30 4,585
Lloyds 0.00 2,590
Mitch & But 0.00 1,479
Persimmon 422.80 28,920
Pearson 173.75 5,325
RD Shell B 289.22 4,411
Rio Tinto 1,536.58 24,697
RSA 38.16 3,103
United Utilities 339.10 7,401

Total £ 5,533.44 148,627




Cost                                           75,000

Gain 73,627 98.2%


FTSE100 at start 6,274.8

Now 6,338.9

Gain 64.1 1.0%

HYP1 capital outperformance 96.2%





Income History

2001                               3,451
2002 3,474
2003 3,197
2004 3,205
2005 3,546
2006 4,131
2007 4,452
2008 5,040
2009 3,187
2010 3,297
2011 3,843
2012 4,289
2013 5,828
2014 5,601
2015 6,093
2016 6,124
2017 7,327
2018 8,882
2019 10,557
2020 5,533

Total to date £ 101,057




Corporate events in year
None.

Income
This is the purpose of HYPs and the £5,533 for 2020 was lousy, down 47.6% on last year and making it only the fourth ever year on year fall in the twenty year history of HYP1 - and definitely the worst. The previous record yoy fall was in 2009, down 36.8%, but the other two were far smaller at 8.0% in 2003 and 3.9% in 2014. From year one the increase is still though ahead by 60.3% over the 20 years.

Total income to date is £101,057, averaging £5,053 per year which is 6.74% pa on the £75,000 cost.

BA Tobacco was the single largest income contributor with 32.5% of total income and second was Rio Tinto with 27.8%. All others were far below these two. At the other end, there were three zeros, InterContinental Hotels, Lloyds Banking Group and Mitchells & Butlers.

There are two main reasons for the big fall. Firstly the pandemic causing many companies to suspend and cut dividends. The second and less obvious major influence was that RIO paid large specials last year which were not repeated in 2020.

However, note that much of the reduced income is likely to be made up next year when many companies, as far as I can establish at this stage, resume and increase dividends and in addition pay out sums that were originally due in 2020 but withheld. Persimmon in particular, previously one of the very largest HYP1 dividend contributors, has stated it will pay its postponed sums next year and if they follow through on that, it will make a very large boost to income recovery.

In effect, if I’m right, what is happening is that there will be a large timing difference in payouts between 2020 and 2021 rather than a long term impairment of the dividend stream so that the average of the two years may not be as awful as 2020 in isolation appears. No guarantees of course, dividend income is always risk income.

Capital
This is irrelevant or very much secondary depending on your viewpoint.

The value of £148,627 is up 98.2% since the outset and continues to murder the market with the FTSE100 over the 20 years up just 1.0%. Thus HYP1 is outperforming it by 96.2%. Last year the portfolio beat the market by 81.4% so has improved well upon that in 2020 due to the figures below. These results do not include any reinvested dividends.

In the last twelve months the FTSE100 has fallen 13.9% whilst HYP1 is down 6.9%, thus outperforming the index quite well this year.

Persimmon remains the largest holding at 19.5% of portfolio value with Rio Tinto at 16.6% and BA Tobacco at 16.3%. The smallest holdings are Mitchells and Butlers and Dixons Carphone at 1.0% with Lloyds at 1.7%.

Conclusions
No I don't think the HYP strategy is dead.

Breelander
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Re: HYP1 is 20

#356558

Postby Breelander » November 14th, 2020, 4:38 pm

pyad wrote:Income trashed


Says it all, really....
:(

Conclusions
No I don't think the HYP strategy is dead.


No, neither do I. Already several of mine have restored postponed payments, for example Persimmon.

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Re: HYP1 is 20

#356565

Postby moorfield » November 14th, 2020, 5:33 pm

pyad wrote:This is the purpose of HYPs and the £5,533 for 2020 was lousy, down 47.6% on last year and making it only the fourth ever year on year fall in the twenty year history of HYP1 - and definitely the worst. The previous record yoy fall was in 2009, down 36.8%, but the other two were far smaller at 8.0% in 2003 and 3.9% in 2014. From year one the increase is still though ahead by 60.3% over the 20 years.

...

However, note that much of the reduced income is likely to be made up next year when many companies, as far as I can establish at this stage, resume and increase dividends and in addition pay out sums that were originally due in 2020 but withheld.


Thanks again for the update. A more savage drop than 2008/09 and it will be interesting to see how long it does take to catch up again with 2019 income. It took another four years from 2009, so 2024 perhaps?

Itsallaguess
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Re: HYP1 is 20

#356569

Postby Itsallaguess » November 14th, 2020, 5:47 pm

I've started a separate thread below that continues to look at the underlying income and capital concentration of HYP1 as it develops over the years -

HYP1 is 20 - thread discussing income and capital diversification -

https://www.lemonfool.co.uk/viewtopic.php?f=15&t=26214

Cheers,

Itsallaguess

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Re: HYP1 is 20

#356578

Postby idpickering » November 14th, 2020, 6:07 pm

Itsallaguess wrote:I've started a separate thread below that continues to look at the underlying income and capital concentration of HYP1 as it develops over the years -

HYP1 is 20 - thread discussing income and capital diversification -

https://www.lemonfool.co.uk/viewtopic.php?f=15&t=26214

Cheers,

Itsallaguess



With respect, why? Surely it’s better to keep all the discussion about the HYP in one thread? Why complicate things?

Ian.

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Re: HYP1 is 20

#356582

Postby Lootman » November 14th, 2020, 6:13 pm

moorfield wrote:
pyad wrote:This is the purpose of HYPs and the £5,533 for 2020 was lousy, down 47.6% on last year and making it only the fourth ever year on year fall in the twenty year history of HYP1 - and definitely the worst. The previous record yoy fall was in 2009, down 36.8%, but the other two were far smaller at 8.0% in 2003 and 3.9% in 2014. From year one the increase is still though ahead by 60.3% over the 20 years.

However, note that much of the reduced income is likely to be made up next year when many companies, as far as I can establish at this stage, resume and increase dividends and in addition pay out sums that were originally due in 2020 but withheld.

Thanks again for the update. A more savage drop than 2008/09 and it will be interesting to see how long it does take to catch up again with 2019 income. It took another four years from 2009, so 2024 perhaps?

The 2003 income drop took 2 years to recover to exceed the previous high. The 2008 drop took 5 years as you note, until 2013.

The 2020 drop is significantly bigger than either.

In total, income has been lower than a previous year in 8 of the 20 years.

Arborbridge
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Re: HYP1 is 20

#356584

Postby Arborbridge » November 14th, 2020, 6:21 pm

Lootman wrote:
moorfield wrote:
pyad wrote:This is the purpose of HYPs and the £5,533 for 2020 was lousy, down 47.6% on last year and making it only the fourth ever year on year fall in the twenty year history of HYP1 - and definitely the worst. The previous record yoy fall was in 2009, down 36.8%, but the other two were far smaller at 8.0% in 2003 and 3.9% in 2014. From year one the increase is still though ahead by 60.3% over the 20 years.

However, note that much of the reduced income is likely to be made up next year when many companies, as far as I can establish at this stage, resume and increase dividends and in addition pay out sums that were originally due in 2020 but withheld.

Thanks again for the update. A more savage drop than 2008/09 and it will be interesting to see how long it does take to catch up again with 2019 income. It took another four years from 2009, so 2024 perhaps?

The 2003 income drop took 2 years to recover to exceed the previous high. The 2008 drop took 5 years as you note, until 2013.

The 2020 drop is significantly bigger than either.

In total, income has been lower than a previous year in 8 of the 20 years.


But may or may not revert quicker 8-) Let's see in the 21st year report.

I do feel a bit sorry for the guy who got used to spending all his enhance income over the past decade or so, then saw it crash this year. No doubt, the prudent investor would have been paying out only a fraction of the total income and investing the rest along the lines HYPers have devised. A 50% crash is always to be expected and planned for.

In fact, I am a little surprised at the extent of HYP1's suffering, though it seems to be a matter of the concentration of income in a few companies, compounded by lack of a special from RIO.
This may be avoided with a tinkering version of HYP.

Arb.

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Re: HYP1 is 20

#356587

Postby Lootman » November 14th, 2020, 6:26 pm

Arborbridge wrote:
Lootman wrote:
moorfield wrote:Thanks again for the update. A more savage drop than 2008/09 and it will be interesting to see how long it does take to catch up again with 2019 income. It took another four years from 2009, so 2024 perhaps?

The 2003 income drop took 2 years to recover to exceed the previous high. The 2008 drop took 5 years as you note, until 2013.

The 2020 drop is significantly bigger than either.

In total, income has been lower than a previous year in 8 of the 20 years.

I do feel a bit sorry for the guy who got used to spending all his enhance income over the past decade or so, then saw it crash this year. No doubt, the prudent investor would have been paying out only a fraction of the total income and investing the rest along the lines HYPers have devised. A 50% crash is always to be expected and planned for.

The implication there is that HYPs need to be far larger in amount, so that you only need (say) 50% of the income and can reinvest the rest.

Or that you need a large cushion of cash on the side as well.

Either way it means building a much higher capital sum than one might think. That 50% fall in income could happen in year one where you have not yet built up any reserves.

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Re: HYP1 is 20

#356613

Postby 88V8 » November 14th, 2020, 7:51 pm

Arborbridge wrote:But may or may not revert quicker 8-) Let's see in the 21st year report.

I think so.
Already some of the cuts have been restored.
In 2008 it was about what did happen, in 2020 it was more about what might happen.

V8

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Re: HYP1 is 20

#356635

Postby Arborbridge » November 14th, 2020, 8:58 pm

Lootman wrote:The implication there is that HYPs need to be far larger in amount, so that you only need (say) 50% of the income and can reinvest the rest.

Or that you need a large cushion of cash on the side as well.

Either way it means building a much higher capital sum than one might think. That 50% fall in income could happen in year one where you have not yet built up any reserves.


This is nothing new. I started a HYP in 2006-7 and after the credit crunch realised I might face a 50% fall in income. It was widely explored on TMF as you know and I several contributors have mentioned that they recommend drawing down less income than is generated for such an eventuality.
The rough minimum concensus seems to be draw 80%, reinvest the 20% and additionally have a year or more's income in reserve. Interestingly, we are in the throes of testing that theory right now!

BTW, if it happened in "year one" meaning year one of drawing your pension income, you would presumably have already set up the system with a big enough pot, or if it were "year one" of building a pot you would have a long time to go. In any case, it would be bad luck to find yourself actually in a big market rout in your first year. Come to think of it, that happened to me in 1987. Though I did not have much capital then, it was an interesting lesson in being sanguine to the slings and arrows of investing fortune.

Arb.

Arb.

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Re: HYP1 is 20

#356649

Postby Wizard » November 14th, 2020, 10:00 pm

I am not sure the choice of FTSE100 as a benchmark is a great one. Without wishing to divert the thread in an inappropriate direction, CTY may be better. The comparison is still positive for HYP1, by my calculation CTY has delivered income of c.£81k over the 20 year period and capital growth of c.45%. However, there have been no drops in income in any year and the income in the most recent year has been about £5.8k, a bit more than HYP1.
The trade off may be seen as stabilty versus absolute performance.

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Re: HYP1 is 20

#356651

Postby Dod101 » November 14th, 2020, 10:10 pm

To go back a bit on this thread, it is no fault of pyad's but the fact is this is not a good year to be drawing any conclusion as it has been such an unusual year and for instance had the year ended on 5 November rather than 12th, the capital outcome would have been quite different. Even so I cannot imagine anyone in the real world, relying on this HYP for income, to have allowed it to be become so unbalanced.

Dod

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Re: HYP1 is 20

#356653

Postby IanTHughes » November 14th, 2020, 10:20 pm

Wizard wrote:I am not sure the choice of FTSE100 as a benchmark is a great one. Without wishing to divert the thread in an inappropriate direction, CTY may be better. The comparison is still positive for HYP1, by my calculation CTY has delivered income of c.£81k over the 20 year period and capital growth of c.45%. However, there have been no drops in income in any year and the income in the most recent year has been about £5.8k, a bit more than HYP1.
The trade off may be seen as stabilty versus absolute performance.

I have made a study of HYP1 against various Investment Trusts, including The City of London Investment Trust plc (CTY), which for some reason is a favourite around here. The results of my investigation are as follows:

Income

According to my records, CTY would have produced a total income of £79,228.68, as opposed to the £101,057.44 provided by HYP1 - a reduction of 27.55%

Capital Value

According to my records, CTY would now have a Capital Value of £109,459.46, as opposed to the £148,627.00 provided by HYP1 - a reduction of 35.78%


So, if CTY is to be the benchmark, HYP1 wins hands down!


Ian

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Re: HYP1 is 20

#356680

Postby Dod101 » November 15th, 2020, 7:58 am

I am no great fan of City of London IT but it would have produced a much more balanced outcome, and thus a 'safer' one, than the totally unrealistically unbalanced outcome we have from HYP1.

I would go so far as to say that as a realistic income producer to live off, HYP1 has now become absurd. No one could say it has produced the sort of outcome that any IT manager or anyone else with a modicum of common sense would want to use as a source of day to day income.

Dod

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Re: HYP1 is 20

#356682

Postby OldPlodder » November 15th, 2020, 8:40 am

All I can say is that I am glad that only 15% of my portfolio vaguely resembles HYP(my holding in MRCH, the rest basically ignores the UK market). If I only had around £148k for every £75k invested twenty years ago, I would certainly not be proud of myself, but would be apologising to my family for mismanaging our affairs.

As Dod says, the gross variability of income is, imho, totally unsuitable for your average retiree, in particular those on tighter means. I am confident, as a new retiree, that my portfolio income will be more stable, and that I will grow that income(by occasionally rebalancing my portfolio, which I posted in outline recently, to milk some growth from time to time to nudge income if needed) in line with our requirements.

If any of our children should go anywhere near a HYP, or get too close to the FTSE100 as their investing mainstay, I would be horrified, needless to say they know better.

Plodder

PS As a long duration experiment, HYP1 is interesting I suppose. As a portfolio, a ‘lucky’ rubbish portfolio imho. That pyad should have a following is a real surprise to me, but I suppose Trump has a following, so...

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If folks want to talk about the suitability of HYP as a strategy, please do it elsewhere, such as on HYS&S. Not here. --MDW1954

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Re: HYP1 is 20

#356684

Postby MrFoolish » November 15th, 2020, 8:46 am

How about a comment on the diversity aspect, pyad? If BATS got into trouble - as it easily could - where is this going to leave the income from this portfolio?

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Re: HYP1 is 20

#356694

Postby IanTHughes » November 15th, 2020, 9:30 am

OldPlodder wrote:All I can say is that I am glad that only 15% of my portfolio vaguely resembles HYP(my holding in MRCH, the rest basically ignores the UK market). If I only had around £148k for every £75k invested twenty years ago, I would certainly not be proud of myself, but would be apologising to my family for mismanaging our affairs.

The Merchants Trust Plc (MRCH) is another one of those Investment Trusts that I have compared with HYP! The results of my investigation are as follows:

Income

According to my records, MRCH would have produced a total income of £86,782.89, as opposed to the £101,057.44 provided by HYP1 - a reduction of 16.45%

Capital Value

According to my records, MRCH would now have a Capital Value of £118,000.00, as opposed to the £148,627.00 provided by HYP1 - a reduction of 25.96%

So, MRCH has been historically better than The City of London Investment Trust plc (CTY), but still very inferior to HYP1.


As happens every year, this thread descends into a bleating about the variability of Equity Income, but anyone with even a smidgeon of understanding of the risks associated with such an investment would not have been surprised at all. The portfolio has produced a better result, both Income and Capital, than many professional investment managers can produce. What on earth is the problem?

If you cannot cope with the income variability, or do not want the risk associated with Equity Investment, then don't do it. But be prepared to accept a much inferior Income result, and probably an inferior capital value as well


Ian

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Re: HYP1 is 20

#356700

Postby moorfield » November 15th, 2020, 9:57 am

OldPlodder wrote:If I only had around £148k for every £75k invested twenty years ago, I would certainly not be proud of myself, but would be apologising to my family for mismanaging our affairs.


Don't forget the £101k of dividends paid. I've computed the overall XIRR of HYP1 to be 8.0%. Framed against the backdrop of a 64 (yes sixty four) point increase in the FTSE100 over the same period that's not too bad. I don't think one would need to be apologising for that.

Your family must have high expectations. Out of interest, what average annual return do they expect from their investments?
Last edited by moorfield on November 15th, 2020, 10:02 am, edited 1 time in total.

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Re: HYP1 is 20

#356702

Postby IanTHughes » November 15th, 2020, 10:00 am

moorfield wrote:
OldPlodder wrote:If I only had around £148k for every £75k invested twenty years ago, I would certainly not be proud of myself, but would be apologising to my family for mismanaging our affairs.

Don't forget the £101k of dividends. I've computed the XIRR of HYP1 to be 8.0%. Framed against the backdrop of a 64 (yes sixty four) point increase in the FTSE100 over the same period and that's not to bad. I don't think one would need to be apologising for that.

Your family must have high expectations. Out of interest, what average annual return to they expect from their investments?

It is extraordinary that those worried about Capital Value always forget that dividends received equals cash received. It is almost as if they do not understand that cash has a value


Ian

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Re: HYP1 is 20

#356703

Postby dealtn » November 15th, 2020, 10:01 am

moorfield wrote:
OldPlodder wrote:If I only had around £148k for every £75k invested twenty years ago, I would certainly not be proud of myself, but would be apologising to my family for mismanaging our affairs.


Don't forget the £101k of dividends paid. I've computed the overall XIRR of HYP1 to be 8.0%. Framed against the backdrop of a 64 (yes sixty four) point increase in the FTSE100 over the same period that's not too bad. I don't think one would need to be apologising for that.



Well to "frame" it properly you would need to include the dividends in the FTSE100 too!


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