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HYP1 versus the baskets: 2000-21

General discussions about equity high-yield income strategies
Luniversal
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HYP1 versus the baskets: 2000-21

#459591

Postby Luniversal » November 20th, 2021, 12:55 pm

Here is a 21st year comparison of income delivery and capital performance, including volatility, between the inventor pyad's specimen High Yield Portfolio, HYP1, and income investment trusts. HYP1's results were reported by pyad on Nov. 17:

viewtopic.php?f=15&t=32154&start=40

My alternatives are 'baskets' of seven (B7) or eight (B8) (1) investment trusts. These are tasked with the same objective as a High Yield Portfolio. All seek a sizeable, steadily growing and reasonably stable income from a lump sum, to supplement if not replace pensions on retiral. Voluntary 'tinkering' with the original components is deemed superfluous by your correspondent.

The B7 and B8 were selected in 2010 and back-calculated to HYP1's launch date on Nov. 12, 2000. To provide for hindsight bias (though any such would have dissipated after a decade's onward evolution) average outcomes are also shown for all larger UK Equity Income sector trusts available when HYP1 was launched: the 'Universe of 24' (U24) (2).

Three dividends payable by Dec. 31 are guesses pending declarations: ASEI 5.1p, (2020: 5.2p); BCI, 3.8p (3.75p); KPC, 20p (20p).

The assumption is that £75,000 gross was invested in equal amounts before 1% purchase expenses, without dividend reinvestment or capital additions. Compound annual growth rates (CAGR) are timed to eliminate random variations in dividend entitlements arising before Jan. 2002. Deflation is by the Retail Prices Index; inflation averaged 2.9% pa through the timespan. At the moment it is twice that. It is assumed Oct.'s unwonted 6.1%, the month's worst since 1990, will be Dec.'s as well.


INCOME

Totals for 2021 (£)...Change from 2020 (%)...Totals since launch (£)...CAGR 2002-21 (%)...Number of falls year-on-year (out of 19 changes, 2002-21)

HYP1: 11,339...+104.9...112,397...6.3...4
B7: 6,650...-16.1...93,757...5.2...3
B8: 5,557...+4.9...83,261...3.8...3
U24: 5,166...-6.7...80,026...3.2...2



HYP1's income had all but halved in 2019-20: the latest year resembles 2018-19 with large one-off distributions by Persimmon and Rio Tinto. Some post-pandemic restorations aided a record haul of more than £11,000.


The Basket of Seven is intended to grow income in real terms, but the trickle down from the period of cuts among companies, together with caution among trusts' own directorates-- most froze payouts or raised them below inflation-- brought about the B7's weakest annual collection. It shrank by almost a quarter in real terms.


The tally would have smelt much sweeter save for the distribution of PLI's revenue reserve when it was taken over at the end of 2020. Ignoring this prior-year windfall, the B7's year-on-year drop in income was below 1%. Nevertheless, HYP1 easily outran the B7 on any measure and has moved well ahead for lifelong growth: an income CAGR of 6.3% versus the B7's 5.2%.

The Basket of Eight was planned for shorter-term income-seekers, on a 'juicier' immediate yield. The concomitant was lower income growth potential. The B7's cumulative total delivery surpassed the B8's after eight years, and in 2021, impaired or not, will be £1,100 more.


Yet the B8 has been robust in the cuts crisis: its income grew by 4.9%, little less than inflation. Its long-term CAGR is still about one percentage point a year in real terms, against the Seven's 2+ points; but normally the B8 yields around a percentage point more on acquisition.

The 'Universe' takes in mavericks such as Nick Train's Finsbury, which lingers in the official UK Income sector despite a low yield; Securities Trust of Scotland and Aberdeen Diversified Income & Growth, with their mercurial policy shifts; and the family-dominated Brunner, which arguably should never have been included. These have been less able or willing to increase generous dividends steadily than vanilla trusts which, like HYP1, lean largely on British blue chips. The U24/22 houses two (then under the same management) which broke down, labouring for ever after to repair their payouts: Shires Income and Troy, the former Glasgow Investment Trust. Troy has 'reset' again, while Shires's dividend has shown little buoyancy.

Hence payouts from the Universe run below the B8's, besides always being more erratic. The benchmark's CAGR, from a depressed base in 2000, has dipped below the B8's.


In retrospect my winnowing of candidates for baskets 11 years ago was fairly prescient. Smoothness of delivery and freedom from decision-taking were sought then and have continued on the whole. Edinburgh's and Temple Bar's dividends were 'rebased' by new managers recently, but last spring's replacement of Invesco Income Growth by Aberdeen Standard Equity Income (2) did a lot to compensate-- ASEI joined the B8 on a highish yield.

All three optiosn mostly swelled their income streams in nominal (and mostly in real) terms year by year. HYP1 missed the mark four times out of 18, with an average dip of 24%. Trusts failed on this front only once or twice, and trivially so in baskets... before 2021. Then every member failed to deliver a rise matching presumed 6.1% inflation. That alerts income-seekers to the necessity of a revenue reserve, and for


DERISKING

Amount withdrawn (£)...Safety margin (%)...CAGR of withdrawn amount (%)...Average reserve, 2000-21 (months)...Reserve at end-2021 (months)...Average yield on capital (%) for amount withdrawn:

HYP1: 102,698..9...7.2...11...11...4.4
B7: 83,889...11...13.5..20...16...3.0
B8: 78,298...6...4.0...7...11...4.1
U24: 72,643...9...4.3...12...17...3.6



HYP1's superior revenue generation is the flip side of its waywardness. If income finances necessities, set part of your' receipts aside to safeguard purchasing power over time.


In hard times like these, your kitty will be belt to the trusts' braces, their revenue reserves: rainy-day earnings retained if current receipts come up short .Extra provision is needful if, as now, boards trumpet 'unbroken records' of dividend rises which do not keep up with the cost of living.

My way of building an income reserve is to fix a withdrawal rate once the first year's money is in the bank, somewhat below your total haul. Uplift the spendable portion by inflation annually and let the surplus accumulate until it shields you: ideally, 12 months' worth of whatever is the current amount being withdrawn. Thereafter you may have room now and then to withdraw more, but be wary.

'Derisking' income accumulates a margin of safety between received and spent. In my model of HYP1 it has averaged 9% of raw income; the CAGR for spendable income has been 7.2% against 6.3% from receipts. Thanks to the Rio Tinto/Persimmon boom-- and despite that unexpected post-lockdown inflation surge this autumn-- Year 21 is set to close with a reserve of 11 months' spendable. That is no less than the average throughout HYP1's life.


The baskets seem at least as well protected, with 16 months in reserve at the B7 and 11 at the B8. Investment trusts often say they have reshuffled their portfolios since Q1 2020 to make inflows more dependable. They assert that a benign reason why increases were some way below RPI was that juicy but wheezy old Value plodders, with tempting but dubious running yields, are being swapped out for 'growthier' shares selling on smaller starting yields. More dividend jam tomorrow? We shall see.

So what did these variances in policy and method, and holding back part of raw inflows, do for folks who want a stabilised running return from equities, not delight followed by dearth?


ANNUAL WITHDRAWAL YIELDS (%)

HYP1: Years 1-5: 3.5...6-16: 4.4...17,18: 5.3...19-21: 6.3
Time-weighted average: 4.5
Maximum reserve: 19 months (2019)

B7: Years 1-6: 2.5...7-11: 3.3...12-17: 4.1...18-21: 5.7
Time-weighted average: 3.8
Maximum reserve: 24 months (2012, 2017)

B8: Years 1-9: 3.3...10-21: 3.9
Time-weighted average: 3.6
Maximum reserve: 11 months (2020, 2021)

U24: Years 1-8: 3.0...9-14: 3.3...15-21: 3.8
Time-weighted average: 3.4
Maximum reserve: 18 months (2020)


The table above shows what set-asides could have meant for your pocket; how spendable income, as a yield on the £75,000 subscription, might have grown, if jacking up the abstraction was feasible without imperilling the reserve. All yields are RPI-index-linked, so rises boost purchasing power.

Fixing the withdrawal rate is art, not science, though in each case the starting withdrawal yield was at least as high as that of the All-Share Index at the time, honouring the H in HYP. Patterns reflect smoothness and size of the raw intake, and so are very mutable.


In conditions haunted by uncertainty, it would be rash to raise a withdrawal rate right now. Regarded as an indexed payer, without guarantees of capital maintenance but a sporting chance of profit if held long enough, the three options are viable. Just don't expect to cash in at any old moment without fear of a loss.

HYP1 kicked off on a 3.5% withdrawal rate, improved to 4.4% after six years. Until Year 17 inflow was too erratic to venture a higher rate that might come unstuck. The latter-day boom in divis until spring 2020 eased the dilemma: it would have permitted 5.3%+RPI for two years, and a point more from 2019. But it would be too bold to lift it to 4% or more. Too many imponderables.

The Basket of Seven could only offer 2.5%+RPI over its first six years, but buoyancy has allowed three rises (which lie behind its spendable CAGR of 13.5%). They took the rate to 5.7% by 2020.

The B8 could have paid a derisked 3.3% for the first nine years, 3.9% thereafter but with no more hikes in the past 12 years. Its stasis, compared with the B7, appears unlikely to be rectified if B8 trusts go on reposing confidence in dull FTSE 100 stocks. They are too fond of diverting their cash surpluses to buybacks and bolt-on acquisitions rather than giving the owners a sniff: Shell and SSE are egregious examples at this writing.


The time-weighted average withdrawal rate, calculated from the market value of the starting capital each Nov., descends from 4.5% for HYP1 to 3.4% for the Universe. HYP1 is sizeably ahead of the Basket of Seven, though with a thinner reserve; I have always found in tests that a bunch of high yielders will furnish more income even after safety measures.


Basket trusts are less disposed to shoot for elevated running yields because most except the juiciest, such as Merchants, also aim to pin down capital gains. For a High Yield Portfolio, that is not the principal goal, or in my case a goal at all.


Beyond such distinctions, remember the purpose of these portfolios: all would have given secure purchasing power, growing it at different speeds but all beat riskless but miserly cash deposits, wrestled to the canvas by central banks.


interest from cash or gilts latterly has been ~1% without indexing. The new 'green bond' has a 0.65% coupon and a three-year lockup. Index-linked annuities for single male retirees reflect stingy rewards from the government securities which underwrite them, quoted at under 3%+RPI: riskless but with capital forfeited.


Caveat: for those making a lump-sum investment, a 4% initial withdrawal rate, as was feasible with these 2000-vintage examples, may turn out too demanding. Inflation may notch up again while dividends are pegged to higher earnings or free cash flow cover than in the past two decades: directors reconsidering payout levels after the pandemic are fond of flaunting their prudence.


In 1950-80 inflation was 7.3%, in 1980-2021 under 3%. It has been suggested, in the context of Safe Withdrawal Rates for those contemplating drawdown of capital without eroding its real value, that a 3% SWR may be wiser than 4% henceforth. Similar caution may be advisable in derisking income, if only until more dust settles.


All the same, cavernous disparities between yields on asset types remain, and ordinary shares will retain charm if the principal originally committed is not eroded. Which brings us to


CAPITAL

Value at Nov. 12, 2020 (£)...Real change in year (%)...Real CAGR since launch (%)...Number of falls year-on-year (out of 21 changes, 2000-21)

HYP1: 159,773... +1.4...3.6...5
B7: 205,009...+11.1...4.9...7
B8: 125,819...+17.9...2.7...8
U24: 150,001...+10.6...3.4...7
-----------------------------------------------
FTSE 100: 7347.91...+9.8...0.8...8
FT All-Sh.: 4094.89...+11.4...1.6...8



Against 2.9% inflation, only the B8 has shed some of its original real worth, compounding at 2.7% pa. Most of the past two decades have seen it a smidgin ahead of inflation, however.


The Universe broke £150,000, doubling one's money, and the B7 £200,000. Both are all-time highs. HYP1 rose by 1.4%, below its lifetime average of 3.6%.


For the eternity investor the question is what valuations may predict for HYP1's dividends compared with basket revenues. Share prices are supposed to anticipate future earnings from a business. Is the B7's more spirited advance, notwithstanding its failure to grow purchasing power in 2020-21, discounting its repositioning towards more foreign and/or 'growthier' dividend streams?


Contrariwise, HYP1's anti-tinkering stance has left it very reliant on three or four constituents-- though not always the same ones-- for its income. (That said, my untinkered 'LuniHYPs' have never exhibited such pronounced biases, which I ascribe to a more mechanical discipline when reinvesting capital proceeds.)


The B7 is now worth one-third more than HYP1. Granted, other factors (gearing and discount control in the trusts, HYP1's stock selection in the past) can be adduced. The B8's modus operandi is closer to HYP1's, but despite overall sluggishness it has shown the best turn of speed for capital growth in the past year. Discounts have tautened, indicating that savers are as avid for immediate income as at any time since the Global Financial Crisis 10-13 years ago; but perhaps they want professional management with it. The IT trade body's 'dividend heroes' spiel is somewhat misleading but has struck a chord: probably the most successful marketing wheeze the industry ever pushed.

The High Yield Portfolio lost value, year/year, in five of 21 periods: fewer than the baskets, albeit HYP1's ups and downs, like its income's, were wider. But HYP1 has outperformed the B7 on capital only once since 2013, when HYP1's income nosedived in Year 20. Perhaps it was anticipating Year 21's upsurge in dividends, but not expecting it to follow through. Since the GFC the portfolio's relative weakness against the B7 may be to do with widespread forebodings about 'old economy' and 'mature' Footsie companies: qualms which have rendered the London stock market historically cheap and less and less important globally.


For the rest, I reiterate the doubts stated in last year's comparative review under 'Conclusions':

viewtopic.php?f=31&t=26279&p=357776#p357776
---------------------------------------------------------------------------------------------------------------------------
(1) Latest detailed annual reviews on the 'Investment Trusts and Unit Trusts' board:

B7:
viewtopic.php?f=54&t=28791&p=401947#p401947
B8:
None for year to June. Will try harder.­­­­ Review for 2020 here:
viewtopic.php?f=54&t=25362&p=342370#p342370

(2) Now a U22. Murray Income Trust (MUT) absorbed Perpetual Income & Growth, but it is assumed that the share-swap option was exercised when the offer was closing. The Universe thus contains a double portion of MUT and of ASEI, which was substituted for Invesco Income Growth (IVI) last Apr.


Besides the fifteen, now thirteen, basket members, the others are Aberdeen Diversified Income and Growth (formerly BlackRock Income Strategies, previously British Assets) (ADIG); Brunner (BUT); Finsbury Growth & Income (FGT); Keystone Progressive Change (KPC, formerly KIT, see below); Scottish American Investment (SAIN); Securities Trust of Scotland (STS); Shires Income (SHRS); and Troy Income & Growth (TIGT).


Keystone was a UK Equity Income sector trust which sacked its manager, Invesco. It recruited Baillie Gifford to relaunch with a growth mandate plus trendy ESG trappings. KPC will no longer care about either the size or steadiness of dividends. My proposed replacement in the Universe will be Diverse Income Trust (DIVI), which does. The change will happen before KPC's new distribution policy comes into effect.

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Re: HYP1 versus the baskets: 2000-21

#459677

Postby monabri » November 20th, 2021, 6:38 pm

Divis are summarised for years 2007 to 2021 - income data for the baskets started later than HYP1.

For the strict income fan, HYP1 has received significantly more dividends than the baskets. I included the valuations as well but these are not up to the minute as the portfolios are valued at different times of the year, hence the latest data for C5 is not (yet) available - i.e. L'uni has yet to summarise.

Interested to see what the turn out for C5 valuation will be!


Image



data sources:

"HYP1 is 21" [Nov 2021] viewtopic.php?f=15&t=32154

"HYP1 versus the baskets: 2000-2021" [Nov 2021] viewtopic.php?f=31&t=32198

"The Growth Ten in the Pandemic" [Jun 2021] viewtopic.php?f=96&t=30086&p=423161#p423161

"Basket of Seven: 2020 review " [ Jun 20] viewtopic.php?f=54&t=23743

"The Conviction Five: 2006 -20" [Jan 2021] viewtopic.php?f=96&t=27375

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Re: HYP1 versus the baskets: 2000-21

#463502

Postby Luniversal » December 6th, 2021, 2:01 pm

Thank you for this tabulation.

Missing capital values (B7/B8):

2007: 125563/89300
2008: 85011/64360
2009: 97275/72996
2010: 112387/84488
2011: 109907/83117
2012: 124379/90775
2013: 163719/112792
2014: 159909/112965
2015: 164282/106367
2016: 168307/107550
2017: 198022/119717
2018: 179757/111719
2019: 190161/118277

The Conviction Five (C5) received income of 7226 in 2020-21 and was worth 300522 at Nov. 12. Note that it dates from Jan. 13, 2006, whereas the baskets are calculated from Nov. 12, 2000 like HYP1.

I hope to do my annual comparison of B7, B8 and C5 with my 'Hyp-othetical' portfolio HYP06 at the latter's 16th anniversary-- Jan. 16, 2022.

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Re: HYP1 versus the baskets: 2000-21

#463542

Postby monabri » December 6th, 2021, 3:52 pm

Table updated to reflect values advised. I thought I would include HYP06 by way of addition. I've tried to reflect the fact the baseline months for (HYP1,B7,B8 & G10) and for (C5 & HYP06). However, after ~15 years of investment, the overall trend in income & value is of interest.


Image


References

Background on the baskets viewtopic.php?p=120011#p120011

HYP06 viewtopic.php?p=275629#p275629

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Re: HYP1 versus the baskets: 2000-21

#463690

Postby Luniversal » December 7th, 2021, 12:50 am

HYP06 note should read 'Portfolio of 20 FTSE100 companies'.

HYP06 income in 2020-21 rose from 4241 (amended) to 4902 (provisional).

Valuation at Nov. 12, 2021 was 141105.

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Re: HYP1 versus the baskets: 2000-21

#463735

Postby 1nvest » December 7th, 2021, 9:18 am

Luniversal wrote:The B7 and B8 were selected in 2010 and back-calculated to HYP1's launch date on Nov. 12, 2000. To provide for hindsight bias (though any such would have dissipated after a decade's onward evolution)

There is a risk with any backtest of data mining/survivorship bias, albeit unintentionally (i.e. not suggesting you intentionally did).

Comparing forward time for actual start dates and for total returns using monabri's data (thanks monabri) and a total return calculation of

(current portfolio value + dividend value - prior years portfolio value ) / prior years portfolio value and C5 looked good, but I note that did have relatively high concentration (one of the five (Lindsell)) into a single great case outcome. Potential concentration 'luck').

Also comparing to a simple US S&P500 tracker in forward time from inception (2010 for B7/B8) and/or 2012 for C5) that blew all of the others totally out of the water. As did a 50/50 FT250/S&P500 blend. I'm also seeing distinctly different risk-adjusted reward figures (crude Sharpe of annualised / standard deviation in yearly total returns). C5 for instance came with higher rewards than HYP1 from 2010 but a lower risk-adjusted reward value.

It appears to me that the different choices/blends are just reflective of variations in outcomes from sub-sets of the whole. I haven't looked up changes in relative discount/premiums to NAV and as to whether that might have had some bearing.

Income smoothing is very subjective, for instance a SWR approach provides very stable inflation adjusted income. There seems to be no distinct benefit of grabbing a bunch of straws over that of buying the entire haystack, rather more a case of luck according to whichever handful of straws that might be grabbed/held.

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Re: HYP1 versus the baskets: 2000-21

#463747

Postby Arborbridge » December 7th, 2021, 9:30 am

1nvest wrote:
Luniversal wrote:The B7 and B8 were selected in 2010 and back-calculated to HYP1's launch date on Nov. 12, 2000. To provide for hindsight bias (though any such would have dissipated after a decade's onward evolution)

There is a risk with any backtest of data mining/survivorship bias, albeit unintentionally (i.e. not suggesting you intentionally did).

Comparing forward time for actual start dates and for total returns using monabri's data (thanks monabri) and a total return calculation of

(current portfolio value + dividend value - prior years portfolio value ) / prior years portfolio value and C5 looked good, but I note that did have relatively high concentration (one of the five (Lindsell)) into a single great case outcome. Potential concentration 'luck').

Also comparing to a simple US S&P500 tracker in forward time from inception (2010 for B7/B8) and/or 2012 for C5) that blew all of the others totally out of the water. As did a 50/50 FT250/S&P500 blend. I'm also seeing distinctly different risk-adjusted reward figures (crude Sharpe of annualised / standard deviation in yearly total returns). C5 for instance came with higher rewards than HYP1 from 2010 but a lower risk-adjusted reward value.

It appears to me that the different choices/blends are just reflective of variations in outcomes from sub-sets of the whole. I haven't looked up changes in relative discount/premiums to NAV and as to whether that might have had some bearing.

Income smoothing is very subjective, for instance a SWR approach provides very stable inflation adjusted income. There seems to be no distinct benefit of grabbing a bunch of straws over that of buying the entire haystack, rather more a case of luck according to whichever handful of straws that might be grabbed/held.


It seems that if you wanted a high income payout directly, HYP1 was the one which "blew them out of the water". Not on a TR basis, but I don't believe any of us recommended HYP for max TR, so no surprise.

Monabri:

A really interesting table with much to ponder on, particularly with regard to which ITs I should use in my own basket.

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Re: HYP1 versus the baskets: 2000-21

#463758

Postby 1nvest » December 7th, 2021, 9:54 am

Arborbridge wrote:It seems that if you wanted a high income payout directly, HYP1 was the one which "blew them out of the water". Not on a TR basis, but I don't believe any of us recommended HYP for max TR, so no surprise.

US CHY (Calamos Convertible) did high yield for me some years back, 10%/year dividends, paid out monthly. Combined with buying the dips/reducing at the highs and capital gains were OK as well. Bought my last chunk in 2008 when the yield rose north of 12%, but then was cut to around 8% IIRC, but sold the lot in 2010 due to regulation changes where capital gains were being modified to being counted as income (near doubled the capital value of the 2008 purchased stock :D ).

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Re: HYP1 versus the baskets: 2000-21

#463787

Postby absolutezero » December 7th, 2021, 11:16 am

1nvest wrote:Also comparing to a simple US S&P500 tracker in forward time from inception (2010 for B7/B8) and/or 2012 for C5) that blew all of the others totally out of the water.

That's my question answered...

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Re: HYP1 versus the baskets: 2000-21

#463790

Postby monabri » December 7th, 2021, 11:20 am

When one looks at total return (income + current valuation), the differences between UK companies and Investment Trusts containing UK companies and those that invest in other markets seems to be one thing that is apparent to me. I highlighted the C5 and G10 total return values in the last 5 years. Of course, what is going through my mind is the influence of Brexit. Another conclusion is that B8 has not done that brilliantly..once again, looking at the ITs in the basket, one sees that it is very UK biased but it has performed poorly even when compared to HYP1 & HYP06. Clearly PYAD and L'uni are better at cherry picking than certain IT managers in the B8 family.

Image

Image

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Re: HYP1 versus the baskets: 2000-21

#463851

Postby 1nvest » December 7th, 2021, 1:19 pm

monabri wrote:When one looks at total return (income + current valuation), the differences between UK companies and Investment Trusts containing UK companies and those that invest in other markets seems to be one thing that is apparent to me. I highlighted the C5 and G10 total return values in the last 5 years. Of course, what is going through my mind is the influence of Brexit. Another conclusion is that B8 has not done that brilliantly..once again, looking at the ITs in the basket, one sees that it is very UK biased but it has performed poorly even when compared to HYP1 & HYP06. Clearly PYAD and L'uni are better at cherry picking than certain IT managers in the B8 family.

Image

Image

A factor with sampling (straws) rather than the haystack, is that there will be natural variations. Compare for instance end of 2010 to end of 2013 years and HYP06 was only second to B7 whilst C5 was the worst. Both of which compared relatively closely to a UK investor holding the S&P500 (or the FT250).

The indications I see are more that comparing to a broad and well structured index sub-set choices can lag, and lag potentially significantly. I wouldn't however consider the FT100 as such a well structured index. The S&P500 is more manual, selected/managed by a committee, on the manual front the FT250 more fits that bill (includes around 50 IT's that each individually diversify, sources around half of its earnings from foreign, feeds in and out of both its top and bottom and is more toward a equal weighted type index, rarely sees a single stock exceed 2% of the weighting, similar to the S&P500).

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Re: HYP1 versus the baskets: 2000-21

#464141

Postby funduffer » December 8th, 2021, 8:48 am

Is there a reason for the large increase in income in the B7 for 2020?

It increased from £4941 in 2019 to £7929 in 2020! That's a hell of an increase!

I seem to remember there were a lot of dividends cut in 2020 for some reason!!!!

Otherwise - interesting table, many thanks to monabri for producing this.

My own HYP, started in 2013, has so far been way behind my IT portfolio over 8 years in both income and capital. I will post a comparison at year end maybe.

Of course 'one swallow does not make a summer', so maybe HYP1 is an outlier in the universe of HYPs, and other examples with different constituents, started at different times might tell a different story.

FD

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Re: HYP1 versus the baskets: 2000-21

#464179

Postby monabri » December 8th, 2021, 10:59 am

funduffer wrote:Is there a reason for the large increase in income in the B7 for 2020?

It increased from £4941 in 2019 to £7929 in 2020! That's a hell of an increase!

I seem to remember there were a lot of dividends cut in 2020 for some reason!!!!

Otherwise - interesting table, many thanks to monabri for producing this.

My own HYP, started in 2013, has so far been way behind my IT portfolio over 8 years in both income and capital. I will post a comparison at year end maybe.

Of course 'one swallow does not make a summer', so maybe HYP1 is an outlier in the universe of HYPs, and other examples with different constituents, started at different times might tell a different story.

FD


Good question....I can't see why the divi should have increased so much....

B7 contains 7 Investment Trusts - a cursory check on the 2019 v 2020 dividend for each one using Hargreaves Lansdown website as a reference indicates that dividends were increased by small percentages from 2019 to 2020.

I think there was an error by L'Uni here in this post when he says the income increased from 2019 by 14%..

viewtopic.php?p=357776#p357776

I'll PM L'Uni and ask him to have a shufty!


Erratum
NB. I made a mistake listing out the B7 basket : It should read
Basket of 7 Investment Trusts (BNKR, BCI, JCH,LWI,MRC,MYI,PLI) ….PLI merged with MUT (2021)

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Re: HYP1 versus the baskets: 2000-21

#464183

Postby monabri » December 8th, 2021, 11:16 am

monabri wrote:
I'll PM L'Uni and ask him to have a shufty


I can't PM L'Uni, he's disabled it!

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Re: HYP1 versus the baskets: 2000-21

#464210

Postby Luniversal » December 8th, 2021, 12:29 pm

Monabri

The income and capital figures you have used for the B7, B8 and G10 between 2007 and 2019 relate to results from Jan. 13, 2006, the putative launch dates of the C5 and HYP06; whereas to be on all fours with HYP1 figures should be from Nov. 12, 2000. The two latest years are OK.

Correct values for 2007-21 are as follows:

B7 B8
INCOME

3151 3488
3656 3744
4120 3840
4024 3916
4192 4042
4483 4170
4866 4246
5200 4356
5562 4571
5748 4541
6031 4710
6553 4950
6930 5234
7929 5296
6650 5557

CAPITAL
125563 89300
85011 64360
97275 72996
112387 84488
109911 83117
124379 90775
163719 112792
159909 112965
164282 106367
168307 107551
198022 119717
179757 111720
190161 118277
174902 101441
205009 125818
===============
G10
INCOME

1861
2052
2225
2079
2239
2488
2596
2800
2995
3114
3286
3792
4015
4567
4305

CAPITAL
101536
64766
84836
100864
98315
108439
145369
149803
159563
175370
224873
221799
238316
282951
362939

I would prefer any revised table to exclude the C5 or HYP06, or at least to make it clear that these are not comparable with the others, which had a 'start' of more than five years in building their income streams.

PS: There is a typo in the last table of the OP. It should read
"CAPITAL
Value at Nov. 12, 2021 (£)"

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Re: HYP1 versus the baskets: 2000-21

#464212

Postby 1nvest » December 8th, 2021, 12:30 pm

A sixth initial weighting into each of those for 2008 to 2021 inclusive yielded a total return gain factor of 2.69 . FT250, which holds around 50 IT's, has around 50% of earnings sourced from foreign, includes HYP style sets with it ...etc. yielded a 3.09 gain factor.

One of the set over that period excelled the 'average' (FT250), the majority lagged it. Similar to stocks, a small proportion tend to excel, the larger majority lag the broad index average.

Diversification is sometimes said to be a 'free lunch'. The concentration risk of the FT100 resulting in relatively poor performance is indicative of how concentration risk can be costly.

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Re: HYP1 versus the baskets: 2000-21

#464256

Postby monabri » December 8th, 2021, 2:30 pm

Tables updated to reflect a common point in time for HYP1 comparison (*)

Image


(*) I think I'm being bamboozled by the numbers changing depending on the snapshot date! I can understand Capital values changing from day to day but it's the yearly incomes that was foxing me. Example for G10 from: viewtopic.php?p=374593#p374593

Capital reported - December 31st 2020
Image

Income reported
Image

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Re: HYP1 versus the baskets: 2000-21

#464289

Postby TUK020 » December 8th, 2021, 4:33 pm

monabri wrote:Tables updated to reflect a common point in time for HYP1 comparison (*)

Image


(*) I think I'm being bamboozled by the numbers changing depending on the snapshot date! I can understand Capital values changing from day to day but it's the yearly incomes that was foxing me. Example for G10 from: viewtopic.php?p=374593#p374593

Capital reported - December 31st 2020
Image

Income reported
Image

Apologies, but I am now a mite confused.
The figures represent what starting capital invested when?

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Re: HYP1 versus the baskets: 2000-21

#464819

Postby 1nvest » December 10th, 2021, 5:37 pm

The 2007 start date is subject to high earlier years sequence of return risk factor coming to light (2008/9 financial crisis). For instance a investor concerned about SORR might have opted for 25% in each of BRK, FT250, Gold, Cash (fixed income), buy and hold (no rebalancing), taking 4% SWR income from whatever asset had the highest value at the start of each year. Comparing that to TJH HYP accumulation and from a start date of 1987 the % of gold being held relative to total portfolio value declined progressively, down into single digits. There were opportunities to migrate that (and the cash) over to stocks, for instance 22 odd years into the sequence (when the SWR relative to ongoing portfolio value was down at around 1.5% levels) migrating cash and gold over to stocks when the more volatile HYP was relatively down, and subsequently that achieved the same/similar overall total return from then on (and forever more). In contrast started in 2001 and there were similar opportunities to migrate cash/gold across to stocks at considerable discount, in effect ended up with 75% more capital value from that point onward.

Lower risk (early years SOR risk in holding a initial more defensive asset allocation), potential for around the same (1987 start date i.e. prior to a strong Bull run) or possibly considerably more reward (75% higher capital value in the 2000 start date case that preceded a more Bear/Bunny type era).

The C5 is in effect painting that sort of similar picture.

Buy and hold is the same as cost-less lumping in every day. The indications I see are that lumping into a HYP at the point of transition from accumulation into retirement is riskier than other options that are less prone to SORR. That risk looks to be uncompensated or relatively marginal if a strong Bull era follows, or quite costly if a Bear/Bunny era follows. All-stock/HYP can be fine once retirement is established, where the capital value might have grown to levels where the income being drawn was a relatively small percentage compared to the ongoing portfolio value, but where the volatility is such that other more defensive initial choices could migrate over to all-stock/HYP at a later date to end up having achieved the same or a better overall outcome.


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