Re: HYP - August 2023 (for 88V8)

[moorfield]

If I had £100,000 and was creating a High Yield Portfolio (HYP) today, from the FTSE350, it would look like this:

If I had £100,000 and was creating a - well, let's call it a Portfolio of High Yield (PHY), or a Bazball-HYP - it would look like this.

Enjoy!

     Business Sector      | EPIC |      Company Name        | Yield  |     Value   |   Income 
Consumer: Telecom         | VOD  | Vodafone                 | 10.19% |    2,500.00 |    254.75
Financial: Fund Manager   | MNG  | M&G                      |  9.72% |    2,500.00 |    243.00
Insurance: Life           | PHNX | Phoenix Holdings         |  9.22% |    2,500.00 |    230.50
Consumer: Tobacco         | BATS | British American Tobacco |  8.72% |    2,500.00 |    218.00
Insurance: Life           | LGEN | Legal & General          |  8.26% |    2,500.00 |    206.50
House/Leisure: Builders   | TW.  | Taylor Wimpey            |  8.15% |    2,500.00 |    203.75
House/Leisure: Builders   | BDEV | Barratt Developments     |  7.82% |    2,500.00 |    195.50
Consumer: Tobacco         | IMB  | Imperial Brands          |  7.64% |    2,500.00 |    191.00
Resources: Oil and Gas    | HBR  | Harbour Energy           |  7.58% |    2,500.00 |    189.50
Resources: Mining         | GLEN | Glencore Xstrata         |  7.33% |    2,500.00 |    183.25
Media: TV                 | ITV  | ITV                      |  6.91% |    5,000.00 |    345.50
UK Equity                 | AEI  | Abrdn UK Equity Income   |  6.90% |   70,000.00 |  4,830.00
Real Estate: REIT         | BLND | British Land             |  6.74% |    2,500.00 |    168.50
Resources: Mining         | RIO  | Rio Tinto                |  6.30% |    2,500.00 |    157.50
Investment: Management    | INVP | Investec                 |  6.29% |    2,500.00 |    157.25
Financial: Gambling       | IGG  | IG Group                 |  6.25% |    5,000.00 |    312.50
Consumer: Telecom         | BT.A | BT Group                 |  6.20% |    2,500.00 |    155.00
Financial: Fund Manager   | ABDN | Abrdn                    |  6.20% |    2,500.00 |    155.00
Renewable: Infrastructure | TRIG | The Renewables Infra.    |  6.11% |    2,500.00 |    152.75
Real Estate: REIT         | LAND | Land Securities          |  6.07% |    2,500.00 |    151.75
Industrial: General       | SMDS | Smith (DS)               |  5.82% |    5,000.00 |    291.00
Utilities: Electric       | SSE  | SSE                      |  5.78% |    5,000.00 |    289.00
Renewable: Infrastructure | UKW  | Greencoat UK Wind        |  5.63% |    2,500.00 |    140.75
Investment: Management    | STJ  | St James's Place         |  5.61% |    2,500.00 |    140.25
Financial: Banks          | LLOY | Lloyds Banking           |  5.59% |    2,500.00 |    139.75
Financial: Banks          | NWG  | NatWest Group            |  5.50% |    2,500.00 |    137.50
Utilities: Infrastructure | NG.  | National Grid Transco    |  5.37% |    5,000.00 |    268.50
Retailers: General        | KGF  | Kingfisher               |  5.02% |    5,000.00 |    251.00
Retailers: Supermarkets   | SBRY | Sainsbury (J)            |  4.64% |    2,500.00 |    116.00
Media: Advertising        | WPP  | WPP                      |  4.63% |    5,000.00 |    231.50
Utilities: Water          | UU.  | United Utilities         |  4.56% |    2,500.00 |    114.00
Resources: Oil and Gas    | BP.  | BP Amoco                 |  4.41% |    2,500.00 |    110.25
Utilities: Water          | SVT  | Severn Trent Water       |  4.19% |    2,500.00 |    104.75
Retailers: Supermarkets   | TSCO | Tesco                    |  4.17% |    2,500.00 |    104.25
                          |      |                          |        |             |          
                          |      |                          | Total  | £100,000.00 | £6,310.00 £7,291.25

[88V8]

If I had £100,000 and was creating a High Yield Portfolio (HYP) today, from the FTSE350, it would look like this:

If I had £100,000 and was creating a - well, let's call it a Portfolio of High Yield (PHY), or a Bazball-HYP - it would look like this!

     Business Sector      | EPIC |      Company Name        | Yield  |     Value   |   Income 
Consumer: Telecom         | VOD  | Vodafone                 | 10.19% |    2,500.00 |    254.75
Financial: Fund Manager   | MNG  | M&G                      |  9.72% |    2,500.00 |    243.00
Insurance: Life           | PHNX | Phoenix Holdings         |  9.22% |    2,500.00 |    230.50
Consumer: Tobacco         | BATS | British American Tobacco |  8.72% |    2,500.00 |    218.00
Insurance: Life           | LGEN | Legal & General          |  8.26% |    2,500.00 |    206.50
House/Leisure: Builders   | TW.  | Taylor Wimpey            |  8.15% |    2,500.00 |    203.75
House/Leisure: Builders   | BDEV | Barratt Developments     |  7.82% |    2,500.00 |    195.50
Consumer: Tobacco         | IMB  | Imperial Brands          |  7.64% |    2,500.00 |    191.00
Resources: Oil and Gas    | HBR  | Harbour Energy           |  7.58% |    2,500.00 |    189.50
Resources: Mining         | GLEN | Glencore Xstrata         |  7.33% |    2,500.00 |    183.25
Media: TV                 | ITV  | ITV                      |  6.91% |    5,000.00 |    345.50
UK Equity                 | AEI  | Abrdn UK Equity Income   |  6.90% |   70,000.00 |  4,830.00
                          |      |                          | Total  | £100,000.00 | £6,310.00 £7,291.25

Ye gods and little fishes, Moorfield ditches CTY...

OK, so eggs, basket.
I see your AEI and I raise you DEC Diversified Energy yield 14.5% income on £70k = £10,150 in a SIPP.

V8

[MDW1954]

AEI is something of a puzzle to me. As far as I can tell, it's the old SLET, which is what the FT calls it. HL calls it AEI. And it's a total minnow at circa £145 million. As opposed to CTY's £2.04 billion.

MDW1954

[BullDog]

I have to say in principle I think combining income IT(s) and (a small selection of) income stocks is sound. In fact, I do so.

However, looking at the medium and longer term total return performance, I certainly would not use AEI. I would go for a little lower yield to hopefully generate a better all round portfolio return.

But then again, I suppose I would say that because that's what I do.

[moorfield]

Ye gods and little fishes, Moorfield ditches CTY...

Not necessarily. I've always written here that CTY imo is a benchmark for the minimum acceptable performance of an HYP. AEI looks like a sound choice for this experiment - it has increased its dividend for 22 years, and its dividend growth and cover figures through the Covid pandemic have been impressive, see: https://www.hl.co.uk/shares/shares-sear ... /dividends

OK, so eggs, basket.
I see your AEI and I raise you DEC Diversified Energy yield 14.5% income on £70k = £10,150 in a SIPP.

No. The point of using an equity income IT of course is that you are delegating and mitigating your diversification risk. Going "eggs, basket" on DEC is doing quite the opposite and amplifying it enormously to the point of plain bonkers!

[moorfield]

AEI is something of a puzzle to me. As far as I can tell, it's the old SLET, which is what the FT calls it. HL calls it AEI. And it's a total minnow at circa £145 million. As opposed to CTY's £2.04 billion.

Well one way of looking at that is that the "market cap" of most HYPs here is considerably smaller than £145 million, and less diversified to boot.

Mere gnats.

[BullDog]

AEI is something of a puzzle to me. As far as I can tell, it's the old SLET, which is what the FT calls it. HL calls it AEI. And it's a total minnow at circa £145 million. As opposed to CTY's £2.04 billion.

Well one way of looking at that is that the "market cap" of most HYPs here is considerably smaller than £145 million, and less diversified to boot.

Mere gnats.

Well..... From HL AEI has eroded your capital by about 31% over the last three years. All it's done is give you your money back as income. You might have just as well kept the cash under the bed and drawn down the equivalent yield every year. You're no worse off for doing so. It's a terrific example of why over reaching for yield is often not a great idea.*

I'd substitute LWDB for AEI, draw down the approx 4% income. I can't be bothered doing the numbers on this but I suspect drawing down 6.9% a year from LWDB you're still going to be better off than buying AEI? (Edited to add - a quick check at HL suggests yes, over 5 years you would be better off buying LWDB and drawing down 6.9% a year from it).

It's absolute nonsense to pretend capital value doesn't matter. IMO of course.

* I'm not going to even bother looking because I would never buy one. But there's quite a few high yield shares doing this too.

[moorfield]

Well..... From HL AEI has eroded your capital by about 31% over the last three years. All it's done is give you your money back as income. You might have just as well kept the cash under the bed and drawn down the equivalent yield every year. You're no worse off for doing so. It's a terrific example of why over reaching for yield is often not a great idea.*

The same can be said of several of the lines I've scrubbed out above, not to mention a few that I haven't!

[BullDog]

Well..... From HL AEI has eroded your capital by about 31% over the last three years. All it's done is give you your money back as income. You might have just as well kept the cash under the bed and drawn down the equivalent yield every year. You're no worse off for doing so. It's a terrific example of why over reaching for yield is often not a great idea.*

The same can be said of several of the lines I've scrubbed out above, not to mention a few that I haven't!

Absolutely. That's why I don't subscribe to the pyadic philosophy.

[moorfield]

Well..... From HL AEI has eroded your capital by about 31% over the last three years.

That's the last five years, and that was the covid market drop. The last three years on HL is +20%. Swings and roundabouts. What caught my eye is the dip and recovery in dividend growth and cover through the covid pandemic.

[BullDog]

Well..... From HL AEI has eroded your capital by about 31% over the last three years.

That's the last five years, and that was the covid market drop. The last three years on HL is +20%. Swings and roundabouts. What caught my eye is the dip and recovery in dividend growth and cover through the covid pandemic.

Yes, three is a typo. I meant five. It's not just AEI though. Rubbish like HFEL is in the same basket. I'm sure there's any number of wealth destroyers out there masquerading as income investment.

[88V8]

That's the last five years, and that was the covid market drop. The last three years on HL is +20%. Swings and roundabouts. What caught my eye is the dip and recovery in dividend growth and cover through the covid pandemic.

It's not just AEI though. Rubbish like HFEL is in the same basket. I'm sure there's any number of wealth destroyers out there masquerading as income investment.

I have quite a large chunk of AEI, and slightly more HFEL.
There's scope for launching a Wealth Destroyers Portfolio

V8

[BullDog]

It's not just AEI though. Rubbish like HFEL is in the same basket. I'm sure there's any number of wealth destroyers out there masquerading as income investment.

I have quite a large chunk of AEI, and slightly more HFEL.
There's scope for launching a Wealth Destroyers Portfolio

V8

There's quite a few of those already. IMO of course.

But then one man's meat etc......

[moorfield]

There's quite a few of those already. IMO of course.

But then one man's meat etc......

Wealth destruction is not exclusive to ITs of course, there are plenty in that HYP portfolio above, VOD for starters...

[BullDog]

There's quite a few of those already. IMO of course.

But then one man's meat etc......

Wealth destruction is not exclusive to ITs of course, there are plenty in that HYP portfolio above, VOD for starters...

Absolutely. One share I wouldn't look twice at.

[CryptoPlankton]

That's the last five years, and that was the covid market drop. The last three years on HL is +20%. Swings and roundabouts. What caught my eye is the dip and recovery in dividend growth and cover through the covid pandemic.

Yes, three is a typo. I meant five. It's not just AEI though. Rubbish like HFEL is in the same basket. I'm sure there's any number of wealth destroyers out there masquerading as income investment.

It is fascinating to read other people's perspectives. I have to say that, despite its poor performance since Covid, HFEL has been a quite satisfactory contributor to my "income" portfolio. In fact, over the first four years from purchase (Feb 2016) it produced a very healthy TR of about 60%, 25% of which was in the share price. Of course, that 25% only comes to fruition if you sell and, since then, that gain has turned into a capital loss of 13%. However, the 35% of dividends over the first four years was obviously locked in and, together with the dividends since then, it still all adds up to a TR of about 57% over the 7.5 years.

Okay, so that means a small loss over the past three years or so, I hear you say. Well, yes, but that is why I like income investing - I'm really not concerned, the income has been edging up each year. Is it a "wealth destroyer"? I'm not really sure what is meant by this. The dividend is fully covered by income so it isn't eating into the capital that way. The capital performance was decent (given the size of the dividend) over the first four years, and poor (assuming no major twists in the next few months) over the next four. Who can tell me what the next four years have in store? If the decline in SP is what makes it a wealth destroyer, then the same can be said about nearly all equities over a selected period. Scottish Mortgage (SMT) has often been touted as a great growth investment which, of course, it was if you bought at the right time. However, if you had bought in November 2021, you'd be sitting on a loss of 50% compared with a loss (TR) of 6% if you had bought HFEL at the same time. So, by that token, it appears SMT is actually a huge wealth destroyer!

Seriously though, I think there is a danger of attributing too much significance to past performance, particularly over arbitrary time periods. A 5-year performance today could look dramatically different (better or worse) if looked at again in six months time. And it really doesn't tell us anything about the future (that's Investing 101, isn't it?). Looking at HFEL today, I see a fully covered 10% dividend and no reason to believe the SP will tank at a sustained rate to significantly offset this over the coming years. Equally, I see nothing preventing the possibility that the SP trend could reverse. Obviously, I could be wrong but, in the context of my wider portfolio, it feels like a pretty good bet as a small contributor to my pension over the long term.

[moorfield]

Is it a "wealth destroyer"? I'm not really sure what is meant by this. The dividend is fully covered by income so it isn't eating into the capital that way. The capital performance was decent (given the size of the dividend) over the first four years, and poor (assuming no major twists in the next few months) over the next four. Who can tell me what the next four years have in store? If the decline in SP is what makes it a wealth destroyer, then the same can be said about nearly all equities over a selected period. Scottish Mortgage (SMT) has often been touted as a great growth investment which, of course, it was if you bought at the right time. However, if you had bought in November 2021, you'd be sitting on a loss of 50% compared with a loss (TR) of 6% if you had bought HFEL at the same time. So, by that token, it appears SMT is actually a huge wealth destroyer!

Excellently put. HFEL, SMT I would keep out of this discussion though. AEI was the choice here because it works with the same raw materials as HYP portfolios ie. FTSE350 shares, yields > FTSE100, and is reasonably expected to sustain and grow its dividends. Sound familiar?

Anyway, you may see more analysis of HYPs here as has been done above in coming weeks. 88V8 has given me an idea for an interesting experiment.

[BullDog]

Is it a "wealth destroyer"? I'm not really sure what is meant by this. The dividend is fully covered by income so it isn't eating into the capital that way. The capital performance was decent (given the size of the dividend) over the first four years, and poor (assuming no major twists in the next few months) over the next four. Who can tell me what the next four years have in store? If the decline in SP is what makes it a wealth destroyer, then the same can be said about nearly all equities over a selected period. Scottish Mortgage (SMT) has often been touted as a great growth investment which, of course, it was if you bought at the right time. However, if you had bought in November 2021, you'd be sitting on a loss of 50% compared with a loss (TR) of 6% if you had bought HFEL at the same time. So, by that token, it appears SMT is actually a huge wealth destroyer!

Excellently put. HFEL, SMT I would keep out of this discussion though. AEI was the choice here because it works with the same raw materials as HYP portfolios ie. FTSE350 shares, yields > FTSE100, and is reasonably expected to sustain and grow its dividends. Sound familiar?

Anyway, you may see more analysis of HYPs here as has been done above in coming weeks. 88V8 has given me an idea for an interesting experiment.

Yes, I wouldn't take issue with anything CP said there really. As in many aspects of life, an individual's mileage may vary greatly. It's all in the timing.

[daveh]

A comment on HFEL.

I was buying IAPD (a high yield ETF investing in the Asia pacific region, presumably invested mechanically as "The Fund seeks to track the performance of an index composed of 50 stocks with leading dividend yields selected from eligible Asia Pacific countries." to quote Blackrock) and decided to diversify and buy HFEL as an alternative to topping up IAPD. Out of interest I recorded what would have happened if I bought IAPD instead.

Overall I would have been 1.14x better off on the total return if I'd bought IAPD. With the capital performance of IAPD being 1.25x better, but IAPD's dividends are only 0.77x those received from HFEL. So IAPD would have given a better capital and overall performance at the expense of lower dividends. Neither has been particularly good though, as both are showing a capital loss. HFEL is also slightly down on total return and IAPD slightly up by the same measure.