Admiral exceeds weight

[Arborbridge]

This week, Admiral has been consistently overweight at >2x median, for capital.

According to my rules, I should trim it - I'm sure Tjh would without hesitation. However, the problem is that with a forecast yield of 7.5%, there is hardly a valid topup share available which would have a similar yield. The nearest seems to be VOD at 6.7% - others are either close to median weight already, or close to 5% weight for income - or lower yield, such as UKW.

Arb.

[monabri]

With ADM...I'd do......nothing.

[moorfield]

Unless you can ratchet up your overall income by buying/topping up a higher yielder, I would do nothing. You will counterweight ADM over time by topping up elsewhere, rather than by handing over more commission to your broker.

My overall portfolio (forecast) income is already exceeding its target for the year, and my next "checkpoint" on how that is progressing will now likely be January 2023. For the next eighteen months or so, I should have no pressing reason to sell anything (acts of god permitting). My fingers aren't jittering.

[MDW1954]

This week, Admiral has been consistently overweight at >2x median, for capital.

According to my rules, I should trim it - I'm sure Tjh would without hesitation. However, the problem is that with a forecast yield of 7.5%, there is hardly a valid topup share available which would have a similar yield. The nearest seems to be VOD at 6.7% - others are either close to median weight already, or close to 5% weight for income - or lower yield, such as UKW.

Arb.

Remind me... A week ago you were complaining that your long-term returns lagged those of another poster. And that you were groping for reasons as to why.

Gosh <<scratches head>>, who could that other poster have been? Ah yes, TJH, who as you say, would have unhesitatingly done what you are posting to say that you are reluctant to do.

Just sayin' , Arb.

MDW1954

[Arborbridge]

This week, Admiral has been consistently overweight at >2x median, for capital.

According to my rules, I should trim it - I'm sure Tjh would without hesitation. However, the problem is that with a forecast yield of 7.5%, there is hardly a valid topup share available which would have a similar yield. The nearest seems to be VOD at 6.7% - others are either close to median weight already, or close to 5% weight for income - or lower yield, such as UKW.

Arb.

Remind me... A week ago you were complaining that your long-term returns lagged those of another poster. And that you were groping for reasons as to why.

Gosh <<scratches head>>, who could that other poster have been? Ah yes, TJH, who as you say, would have unhesitatingly done what you are posting to say that you are reluctant to do.

Just sayin' , Arb.

MDW1954

Sorry, I don't see any read across here at all. There's nothing to link the two thoughts is there? and certainly not in any particular case like this in which the clearest choices would lead to a reduction in income.

Your sarcasm is hardly warranted - and unless you can explain some genuine rationale behind your comment which I haven't spotted, what you are saying is nonsense.

Arb.

[Dod101]

I am not a HYPer and I find confirmation for this stance most weeks. Arb seems to be a sensible fellow but for him even to consider cutting Admiral at this juncture seems to irrational. It must be the heat that is getting to him. Here we have a decent share offering a nice big increase in the dividend (manna from heaven to HYPers) and Arb worries about it being overweight!

I too hold Admiral and think it may be a little overweight (like me!) but so what? It produces the goods.

Dod

[moorfield]

I am not a HYPer and I find confirmation for this stance most weeks. Arb seems to be a sensible fellow but for him even to consider cutting Admiral at this juncture seems to irrational. It must be the heat that is getting to him. Here we have a decent share offering a nice big increase in the dividend (manna from heaven to HYPers) and Arb worries about it being overweight!

I too hold Admiral and think it may be a little overweight (like me!) but so what? It produces the goods.

Dod

So what indeed, the devil makes work for idle hands?

I no longer buy the "strategic ignorance" or "never sell" approach, however (I have written before) I do think there is too much navel gazing here vis a vis individual holdings, weights, medians etc. and not enough examination of trading decisions through the lens of one's overall portfolio income.

"What if" ADM suddenly cuts its dividend by 50%, say? So what, how does that change overall portfolio income? In the meantime, are dividends being reinvested and companies announcing dividend increases (or cuts) elsewhere?

[Dod101]

Ah moorfield, you are getting the message. Strategic Ignorance was always silly and 'never sell' almost as bad. However the point about this thread is surely that if things are looking good leave them alone and stop fretting if a share's value gets above some magical percentage of the portfolio. It is there for good reason.

Dod

[moorfield]

Ah moorfield, you are getting the message. Strategic Ignorance was always silly and 'never sell' almost as bad. However the point about this thread is surely that if things are looking good leave them alone and stop fretting if a share's value gets above some magical percentage of the portfolio. It is there for good reason.

Dod

I got it a long while ago. We've discussed this here before but I think Strategic Indolence better encapsulates how HYP can be improved on. There is a subtle but important difference between those two words, and it creates wiggle room for tinkering.

"If things are looking good", perhaps the such posts should begin along the lines of "I'm thinking of trimming ADM and buying X because it might increase my overall (forecast) income by Y%". Another question I like to ask of sellers here before they press the button is "Where does the money go?".

[idpickering]

This week, Admiral has been consistently overweight at >2x median, for capital.

According to my rules, I should trim it - I'm sure Tjh would without hesitation. However, the problem is that with a forecast yield of 7.5%, there is hardly a valid topup share available which would have a similar yield. The nearest seems to be VOD at 6.7% - others are either close to median weight already, or close to 5% weight for income - or lower yield, such as UKW.

Arb.

It is a problem I grant you Arb. OK, I'm the first to admit that I do tinker sometimes, as I did recently when I sliced the top off my mining shares, because imho they'd become to overweight in my HYP in capital value terms. But there was more to the story for me as both my mining shares, RIO and BHP, are cyclical, and the commodity share tide is rising high currently (pun). Therefore I took advantage of that by selling some of their shares in the face of, what seems obvious (to me at least) the down turn in the sector that'll surely come.

With regards to Admiral Group, which I hold, they're a special case. We all have to have car insurance by law, which sort of gives them a captive custom base. In the non life insurance sector and only Direct Line Group compare imho, but I favour ADM. In short, I think that 7.5% forward yield from ADM should not be ignored. In your shoes, I'd accept that ADM offer me diversification for my HYP, and a crackingly good yield, and hold onto the shares. If I was uncomfortable with it's capital value weight in my HYP, I'd address that by targeting my investments elsewhere. Legal & General are my largest holding, and I'm ok with that, and am happy to just let them be, as I am with my Admiral Group holdings. Either way, good luck with whatever you decide to do.

Ian.

[OLTB]

Morning Arb

If I were in your shoes (and I wish I were - oh to have a HYP share in profit!) I would leave ADM alone for many of the reasons you and others have stated.

Good luck with whatever decision you arrive at.

Cheers, OLTB.

[scrumpyjack]

This week, Admiral has been consistently overweight at >2x median, for capital.

According to my rules, I should trim it - I'm sure Tjh would without hesitation. However, the problem is that with a forecast yield of 7.5%, there is hardly a valid topup share available which would have a similar yield. The nearest seems to be VOD at 6.7% - others are either close to median weight already, or close to 5% weight for income - or lower yield, such as UKW.

Arb.

It is a problem I grant you Arb. OK, I'm the first to admit that I do tinker sometimes, as I did recently when I sliced the top off my mining shares, because imho they'd become to overweight in my HYP in capital value terms. But there was more to the story for me as both my mining shares, RIO and BHP, are cyclical, and the commodity share tide is rising high currently (pun). Therefore I took advantage of that by selling some of their shares in the face of, what seems obvious (to me at least) the down turn in the sector that'll surely come.

With regards to Admiral Group, which I hold, they're a special case. We all have to have car insurance by law, which sort of gives them a captive custom base. In the non life insurance sector and only Direct Line Group compare imho, but I favour ADM. In short, I think that 7.5% forward yield from ADM should not be ignored. In your shoes, I'd accept that ADM offer me diversification for my HYP, and a crackingly good yield, and hold onto the shares. If I was uncomfortable with it's capital value weight in my HYP, I'd address that by targeting my investments elsewhere. Legal & General are my largest holding, and I'm ok with that, and am happy to just let them be, as I am with my Admiral Group holdings. Either way, good luck with whatever you decide to do.

Ian.

Yes miners are cyclical and though their SPs are high, they are forecast to pay massive dividends. Rio's forecast yield is 12% and BHP 9.2%. Rio will be the largest dividend payer in the FTSE100, ahead of BAT, Shell, Unilever etc etc.

I'm happy just to hold them long term and not worry about the cyclical bit. To try and time your sales implies that you think your judgement of the 'correct' share price is better than Mr Market. I am certainly not confident that I am a better judge of when their SP is too high, so I do not bother trying to make that call. At least for the time being the boards seem to have learned their lessons of previous peaks when they blew vast amounts buying other companies at the top of the cycle.

[Itsallaguess]

I'm happy just to hold them long term and not worry about the cyclical bit.

To try and time your sales implies that you think your judgement of the 'correct' share price is better than Mr Market. I am certainly not confident that I am a better judge of when their SP is too high, so I do not bother trying to make that call. At least for the time being the boards seem to have learned their lessons of previous peaks when they blew vast amounts buying other companies at the top of the cycle.

I always considered that credit should be given to the HYP approach for spreading income-investments across a large number of different sectors.

One of the benefits of that approach might be to consider that different sectors will wax and wane within a portfolio over many market-cycles, but creating an overall cross-cycle benefit of generally maintaining some level of balance at portfolio-level over those long periods...

To then start messing with those underlying sector-cycles, by trading into or out of them, seems to me to be missing one of the primary benefits of the portfolio approach over the long term...

Cheers,

Itsallaguess

[idpickering]

I'm happy just to hold them long term and not worry about the cyclical bit.

To try and time your sales implies that you think your judgement of the 'correct' share price is better than Mr Market. I am certainly not confident that I am a better judge of when their SP is too high, so I do not bother trying to make that call. At least for the time being the boards seem to have learned their lessons of previous peaks when they blew vast amounts buying other companies at the top of the cycle.

I always considered that credit should be given to the HYP approach for spreading income-investments across a large number of different sectors.

One of the benefits of that approach might be to consider that different sectors will wax and wane within a portfolio over many market-cycles, but creating an overall cross-cycle benefit of generally maintaining some level of balance at portfolio-level over those long periods...

To then start messing with those underlying sector-cycles, by trading into or out of them, seems to me to be missing one of the primary benefits of the portfolio approach over the long term...

Cheers,

Itsallaguess

Ok, fair points both. I can’t tell the future of any share, but made the call for my own peace of mind. Each to their own and all that.

Ian.

[daveh]

I'm happy just to hold them long term and not worry about the cyclical bit.

To try and time your sales implies that you think your judgement of the 'correct' share price is better than Mr Market. I am certainly not confident that I am a better judge of when their SP is too high, so I do not bother trying to make that call. At least for the time being the boards seem to have learned their lessons of previous peaks when they blew vast amounts buying other companies at the top of the cycle.

I always considered that credit should be given to the HYP approach for spreading income-investments across a large number of different sectors.

One of the benefits of that approach might be to consider that different sectors will wax and wane within a portfolio over many market-cycles, but creating an overall cross-cycle benefit of generally maintaining some level of balance at portfolio-level over those long periods...

To then start messing with those underlying sector-cycles, by trading into or out of them, seems to me to be missing one of the primary benefits of the portfolio approach over the long term...

Cheers,

Itsallaguess

But a method that top slices when a share becomes too large and recycles into either a new share or tops up a share that has become a low proportion of your portfolio is one way of forcing you to sell high and buy low - which is what you want to be doing. I'll admit I find it hard to sell my winners (and also hard to sell my losers - as I don't like selling at a lose). So far I've only top sliced SEGRO (twice) as it has kept growing to beyond my 2x median soft limit. However SEGRO was also low yield as it has grown so well, so as well as selling high to (hopefully) buy low I was also ratcheting up my income at the same time. Admiral is a bit more difficult to justify a top slice as it will be/is difficult to see where you would go to get as good an income without increasing the risk of that income being cut. If it was also making up a large percentage of my income as well as a large percentage of my capital I might be tempted but for me, if I held it and decided to top slice - two big ifs, it would probably get recycled into HFEL or one of the green infrastructure companies.

[tjh290633]

This week, Admiral has been consistently overweight at >2x median, for capital.

According to my rules, I should trim it - I'm sure Tjh would without hesitation. However, the problem is that with a forecast yield of 7.5%, there is hardly a valid topup share available which would have a similar yield. The nearest seems to be VOD at 6.7% - others are either close to median weight already, or close to 5% weight for income - or lower yield, such as UKW.

Arb.

Indeed I would probably have trimmed it back a number of times. I did trim mine in March 2020 when it got to 2170p, over 50% above median weight..

A forecast yield of 7.5% presumably takes into account the suggested special dividends from the Penguin Portals sale and the indication of an interim in the range 110-125p, see https://www.investegate.co.uk/admiral-g ... 0000H5690/ whereas my historic yield is a mere 4.8%, with those dividends last time of 70.5p. We shall have to wait until 11th August to see the whites of their eyes. However currently I am only seeing ADM 14% above median weight, so for me the question of trimming is academic.

IMI is a different matter, as that was about 40% above median the other day, having risen by 47% so far this year.

TJH

[Dod101]

I am not sure anyway where the 7.5% yield comes from. The indication for the interim dividend is a fairly wide range of 110p to 125p . That compares I think to 70.5p for 2020. They say they do not expect that to continue into the second half so we may see something like 95 to 100p(?) compared to 86p for the second half. These figures presumably include what used to be called a special dividend, that is the periodic reserves release.

The £400 million return from the sale of Penguin Portals is actually a return of capital and I do not understand why they are paying it over two years. In fact as I said earlier I think, I would prefer that they buyback some shares although it would not amount to much if they did. I would not count that as part of the yield on Admiral. All of that then would give a yield on the current price of about 6.7% (2.20/32.87) and of course the actual dividend need only be around £2 which would give a yield of 6.5% or so.

Dod

[scrumpyjack]

Whether to sell or hold some of a shareholding when it has performed very well is a topic quite often discussed on TLF.

I think it comes down to ones attitude to risk as well as the strength of ones view that the share may be overpriced and headed for a fall. If the latter, one should sell the lot, not just some, but one needs to ask oneself very carefully why you think Mr Market is wrongly pricing it. (and Mr Market can often be wrong and present great opportunities for the canny investor to do very well).

As for risk, there may be a risk in one share representing too large a percentage of ones portfolio, but that goes both ways (risk of a loss and risk of missing a gain) and history has shown that often the biggest gains are made by huge sustained rises over many years in one share (Amazon, Apple etc etc). So excessive diversification incurs the risk of missing out on the best gains on your winners.

As HYP is designed as a replacement for an annuity, there clearly is a strong argument for spreading risk widely. I don’t subscribe to HYP and if I did I think I would prefer an IT based approach to get a much wider spread of investments, but that’s another issue.

So it comes down what you are comfortable with. There isn’t a right or wrong answer. I prefer to do nothing most of the time and let the winners run and run and the losers recover or collapse. I can quiet appreciate that if your portfolio is an annuity replacement, that approach is not suitable!

[Itsallaguess]

I always considered that credit should be given to the HYP approach for spreading income-investments across a large number of different sectors.

One of the benefits of that approach might be to consider that different sectors will wax and wane within a portfolio over many market-cycles, but creating an overall cross-cycle benefit of generally maintaining some level of balance at portfolio-level over those long periods...

To then start messing with those underlying sector-cycles, by trading into or out of them, seems to me to be missing one of the primary benefits of the portfolio approach over the long term...

But a method that top slices when a share becomes too large and recycles into either a new share or tops up a share that has become a low proportion of your portfolio is one way of forcing you to sell high and buy low - which is what you want to be doing.

I'll admit I find it hard to sell my winners (and also hard to sell my losers - as I don't like selling at a loss). So far I've only top sliced SEGRO (twice) as it has kept growing to beyond my 2x median soft limit. However SEGRO was also low yield as it has grown so well, so as well as selling high to (hopefully) buy low I was also ratcheting up my income at the same time.

Admiral is a bit more difficult to justify a top slice as it will be/is difficult to see where you would go to get as good an income without increasing the risk of that income being cut. If it was also making up a large percentage of my income as well as a large percentage of my capital I might be tempted but for me, if I held it and decided to top slice - two big ifs, it would probably get recycled into HFEL or one of the green infrastructure companies.

I agree that it's sensible to have some level of over-weighting (either capital or income, or both) where personal portfolio-management processes might kick in and be due some action, but I think where people start to talk about 'cycles' as being a driver for trading then that starts to sound like a level of tinkering that may not necessarily be aligned with that initial process...

In my experience it's fairly unusual to have income-holdings go too far ahead in capital-weighting without some level of corresponding yield drop, so without looking at the Admiral figures, I'd have to put that one into the 'nice problem to have' box, which may warrant a subsequently unusual method of handling, given the rare number of occasions that scenario seems to crop up..

It's been mentioned a few times on this thread already though, that it's sometimes very easy to get fixated on single-holding yields, like this 7%-plus one that's being talked about with Admiral, and start to think that the world would fall in if some over-weight capital were to be rotated into something yielding slightly less, and I think that's a trap that should be avoided if possible if there are other portfolio-level management processes such as weightings-management that are important to people, and the best way to avoid that trap is to remind ourselves that it's 'portfolio-yield' and 'portfolio income' that's important over the long term, and quite often when we view things at portfolio level where weightings-management like this might be warranted, we can see that there's often little to be overly concerned with if some of these portfolio-management processes take some priority too...

As an example of this, let's take a dummy HYP with 15 holdings, where holding number 15 (Admiral in this case...) has gone overweight in capital terms, but also seems to currently enjoy a relatively high yield when compared to other holdings -



Image Source - my own demonstration spreadsheet...

As we can see with the above example, splitting the £5000 overweight capital across two existing lower-yielding holdings (Company M and Company N on the right hand side..) results in an overall portfolio income reduction of just £75 per year, which equates to 0.8% of the remaining portfolio income of £8675.

Now if weighting-management are an important part of portfolio-processes, then we might consider 0.8% of income to be 'noise' in the grand scheme of things, and perhaps likely to be over-ridden by other sub-holding income-movements that more or less blur it out of existence over the short to medium term, so given that these types of 'nice problem to have' events are relatively rare (where quite often over-weight capital events occur with a subsequent lowering of yields, and thus often mark an opportunity for ratcheting up these types of income-changes), then I think it's going to generally come down to making a call on what people think is of overarching importance - balanced weightings or maximising income, perhaps at the cost of that balance...

I'm not particularly trying to say what's right or wrong here, but what I wanted to do was to highlight that focussing on one holding with a 7% yield and comparing some of that excess capital with a possible move to a 5.5% yield (as in the above example) can sometimes 'mentally overstate' the difference in yields when we re-consider such a change at portfolio-level, instead of just concentrating on that particular slug of capital....

Cheers,

Itsallaguess

[monabri]

With ADM...I'd do......nothing.

Here's ADM's dividend pedigree over quite a time period. What would one suggest as an alternative which matches both yield and divi growth.

To top slice into Companies M & N would come with an attendant income loss which might be viable in the short term if one believes M&N are going to put on a spurt in dividend growth in the coming years. Back to the question above..suggestions for alternatives that might mean a better income outcome long term (preferably with a growth in share price to match).

https://www.dividenddata.co.uk/dividend ... y?epic=ADM

I'm only peeved as I split funds several years ago between ADM and DLG with a weight towards DLG.

Code: Select all

Year End | Interim | Final  | Specials               | Total   | Growth
12/2020  | 55.00p  | 63.60p | 15.50p, 22.40p         | 156.50p | 11.79%
12/2019  | 41.80p  | 56.30p | 21.20p, 20.70p         | 140.00p | 11.11%
12/2018  | 40.80p  | 49.10p | 19.20p, 16.90p         | 126.00p | 10.53%
12/2017  | 37.90p  | 39.50p | 18.10p, 18.50p         | 114.00p | -0.35%
12/2016  | 36.80p  | 15.00p | 14.20p, 11.90p, 36.50p | 114.40p |  0.00%
12/2015  | 25.10p  | 33.60p | 25.90p, 29.80p         | 114.40p | 16.26%
12/2014  | 23.70p  | 22.50p | 25.70p, 26.50p         | 98.40p  | -1.11%
12/2013  | 22.50p  | 24.40p | 26.40p, 26.20p         | 99.50p  |  9.82%
12/2012  | 21.30p  | 21.40p | 23.80p, 24.10p         | 90.60p  | 19.84%
12/2011  | 19.40p  | 17.40p | 19.70p, 19.10p         | 75.60p  | 11.01%
12/2010  | 15.10p  | 17.30p | 17.50p, 18.20p         | 68.10p  | 18.43%
12/2009  | 12.80p  | 13.70p | 14.90p, 16.10p         | 57.50p  |  9.52%
12/2008  | 12.30p  | 12.40p | 13.70p, 14.10p         | 52.50p  | 19.86%
12/2007  | 10.30p  | 11.60p | 10.30p, 11.60p         | 43.80p  | 21.33%
12/2006  | 8.40p   | 9.60p  | 3.70p, 14.40p          | 36.10p  | 46.75%