pyad wrote:
There's no mystery here if we're talking HYPs.
HY meant simply a yield above the FTSE100 at the time of selection, since HYP shares were selected primarily from that index.
On the face of it this definition includes super high yielders but HYP selection was never a purely mechanical process; it required some fundie checks to try and ensure divs were sustainable in the near future of a year or two, as far as this could be done.
There is no "too high" and it was always incorrect imo to ignore super high yielders automatically, for that reason alone. Surely they are worth some examination so that even though many might well be junk, there could be some irrational HYs which market sentiment has valued wrongly. Anyone who has followed the market for more than five minutes must be aware that irrational valuations can last a long time and can be seriously extreme at times. This can deliver opportunity to the HYPer.
The trick is to try and distinguish junk from irrational valuations which is not easy.
One aspect of your push-back against the idea of a 'mechanical process' that might try to avoid ultra-high-yield junk is that it doesn't seem to recognise that the HYP process already has two
default 'mechanical processes' that many income-investors might actually question
ahead of the one that might potentially avoid most of that junk...
Here, of course, I'm talking about the two existing 'mechanical processes' that tell HYP investors that they should only look for investments in UK markets, and then the additional mechanical process of discounting even some of
those limited options, based on an additional 'large market-cap requirement'...
One thing I'm struggling to square a little based on the related HYP Practical discussion around the idea of 'ultra high yield junk' issues, is that there seems to be a common theme where the lack of a requirement for a mechanical-screen for 'ultra high yield junk' is being made by suggesting that
all income-investments need
a good level of understanding in terms of their underlying Company Accounts, with the suggestion that income-investors should have a good feel for any potential investments before committing any funds in the first place...
If that's always been the case though, why then is there a need for a
UK-only 'mechanical filter', and then underlying that,
an additional 'Market-Cap' filter for the HYP process?
Surely, as income-investors, if we're always having to rely on a very good understanding of all income-investment Company Accounts, then no further restrictions of those types would be needed, would they?
Cheers,
Itsallaguess