How is HYP doing in the Covid-19 crisis vs alternatives?

[Wizard]

It does seem to me that HYP, as an income strategy, has not faired well in this crisis. It appears to have underperformed bonds, prefs, income ITs and realising capital growth for income by some considerable margin

Something to consider...

While my view is that HYP as commonly practised is really not an approach I like (but each to their own etc.), in regards my bolded bit above, bear in mind that there will likely be IMO a future market crisis where the type of growthy stocks that have held up very well / rebounded very strongly in this crisis get taken behind the woodshed with an axe.

My hunch is - and has been for some years now - that the current secular bull market will eventually end (NB years away yet IMO) with extremes of equity valuations akin to or beyond those seen at the end of the previous secular bull market (ie. the peak of the tech/dotcom bubble in 2000). That being the case, broad-based indexes dominated by stocks with extreme valuations, and growthy portfolios tilted even further to those stocks, will at that future time experience very large and sustained falls, whereas other portfolios with some sort of value tilt, even if using a weaker value proxy such as divi yield, may fair much, much better. Somewhat akin to what happened 20 years ago, a period and experience that quite possibly launched many current investors' initial strong interest in value and HYP-type investing...

Back to the present, today's situation will serve to fuel greater interest in more growthy strats and corresponding lesser interest in other strats such as value, thereby helping to effectuate the outcome I envisage above: some existing "value" focused investors will begin tilting away from their previous approaches, and newer investors will be drawn less to those methods that have struggled and more to those that have relatively or absolutely prospered in recent times. So the wheel turns.

I cannot conclude anything other than HYP has performed poorly in the Covid-19 crisis versus the alternatives discussed here.

Yup. But for investors, it's the future that matters most.

An excellent post, thank you for that.

[PinkDalek]

An excellent post, thank you for that.

There may even be a way of thanking a poster on TLF without repeating the entire post. Failing that it is possible not to repeat the entirety (which is becoming more and more prevalent nowadays).

[JamesMuenchen]

It does seem to me that HYP, as an income strategy, has not faired well in this crisis. It appears to have underperformed bonds, prefs, income ITs and realising capital growth for income by some considerable margin

Yes, and high-yield investing was being substantially outperformed by Growth before that too. For a long time and by a large margin.

bear in mind that there will likely be IMO a future market crisis where the type of growthy stocks that have held up very well / rebounded very strongly in this crisis get taken behind the woodshed with an axe.

I totally disagree with this.

That's a very mixed bag of stocks you're talking about and if they were all to be brought low by some crisis then the idea that the sort of stuff that props up the high yield end of the FTSE 100 would somehow escape is pretty fantastic to me. And if everything is getting the same treatment then I'd rather be holding the ones that had the biggest run up and had furthest to fall.

And by the way, HYP shares are not exempt from being growthy. They're supposed to provide a high and growing income with capital growth being "icing on the cake"

My hunch is - and has been for some years now - that the current secular bull market will [/i]eventually end (NB years away yet IMO) with extremes of equity valuations akin to or beyond those seen at the end of the previous secular bull market (ie. the peak of the tech/dotcom bubble in 2000). That being the case, broad-based indexes dominated by stocks with extreme valuations, and growthy portfolios tilted even further to those stocks, will at that future time experience very large and sustained falls, whereas other portfolios with some sort of value tilt, even if using a weaker value proxy such as divi yield, may fair much, much[i] better. Somewhat akin to what happened 20 years ago, a period and experience that quite possibly launched many current investors' initial strong interest in value and HYP-type investing...

Again, I really disagree with this. But even if it were true, what's to say that the current crop of high-yielders, bought and held for ever remember, would be the right shares to be holding if/when value makes a comeback?

I cannot conclude anything other than HYP has performed poorly in the Covid-19 crisis versus the alternatives discussed here.

Yup. But for investors, it's the future that matters most.

That's true.

But I'd rather base my view of the future on the present than the distant past.

And looking out the window, I don't see fair weather for high-yield shares. Even I can borrow at -ve interest rates today - ok, only 1000EUR, its a gimmick, but still.


I wonder if instead of all the back and forth HYP-centric bickering the way to go on this would be to just do a PYAD, and construct a demo synthetic income portfolio?

[tjh290633]

Yes, and high-yield investing was being substantially outperformed by Growth before that too. For a long time and by a large margin.

Not for a long time, certainly in recent years, but before that it was the other way round. For proof consider the relative values of the FTSE350HY (HIX) and FTSE350LY(LIX) Indices in their Total Return versions. You can get the lastest values by Googling "World Markets at a glance".

Both indices started at 100 on the same day, and diverged for many years.

TJH

[Wizard]

There

I do not use the system as it is completely unclear to me if it is intended to be thanks or a recommendation for others to read a post. In the instance referenced it is possible that I could have used it as the post was good and I was grateful for it, but that is rare, usually it is one or the other and the system is muddled.

I usually quote complete posts and if necessary highlight a specific part of it if I am referencing one point. I do that deliberately, what I dislike is when people pick out just a few words and quote them, often out of context. I do not do it every time, but mostly I will.

[IanTHughes]

There are two virtual HYPs that I am currently monitoring, and I can report the following with regard to the last 12 months:

Capital Value

HYP – Capital Invested Unchanged - Dividends Re-Invested

Measured from the portfolio reported here: viewtopic.php?p=299931#p299931

Last 12 Months | Date      | Value       | P/L (£)     | P/L (%)
Start Value    | 23-May-19 | 247,388.43  |           - |       -
Minimum Value  | 23-Mar-20 | 186,405.36  | -60,983.07  | -24.65%
Maximum Value  | 27-Dec-19 | 296,970.45  |  49,582.02  |  20.04%
Current Value  | 22-May-20 | 222,223.90  | -25,164.53  | -10.17%

Compared with:

FTSE100 – Total Return

Measured from the data reported here: https://uk.investing.com/indices/ftse-1 ... rical-data

Last 12 Months | Date      | Value     |     P/L    | P/L (%)
Start Value    | 23-May-19 | 6,533.18  |          - |       -
Minimum Value  | 23-Mar-20 | 4,675.50  | -1,857.68  | -28.43%
Maximum Value  | 17-Jan-20 | 7,106.61  |    573.43  |   8.78%
Current Value  | 22-May-20 | 5,629.10  |   -904.08  | -13.84%

HYP – Capital Invested Unchanged - Dividends Drawn

Measured from the portfolio reported here: viewtopic.php?p=297566#p297566

Last 12 Months | Date      | Value       | P/L (£)     | P/L (%)
Start Value    | 23-May-19 | 247,164.31  |           - |       -
Minimum Value  | 23-Mar-20 | 176,006.86  | -71,157.45  | -28.79%
Maximum Value  | 27-Dec-19 | 284,068.42  |  36,904.11  |  14.93%
Current Value  | 22-May-20 | 207,872.25  | -39,292.06  | -15.90%

Compared with:

FTSE100

Last 12 Months | Date      | Value     |     P/L    | P/L (%)
Start Value    | 23-May-19 | 7,231.04  |          - |       -
Minimum Value  | 23-Mar-20 | 4,993.89  | -2,237.15  | -30.94%
Maximum Value  | 29-Jul-19 | 7,686.61  |    455.57  |   6.30%
Current Value  | 22-May-20 | 5,993.28  | -1,237.76  | -17.12%

Income Amount

I will of course be reporting on the Income received over the coming months, but for now, I would suggest that it is too early to say. The current forecasts are unreliable to say the least.


Summary

I would suggest that, for both portfolios, the drop in Capital Value over the past 12 months, which of course includes the current Covid 19 crisis, has not been excessive. In fact, both portfolios appear to have outperformed what I believe to be appropriate benchmarks. Whether other types of portfolio – Growth, Value – may have done better still I do not know, as I have not monitored any such portfolios over the period in question. Perhaps someone who has such records - without the benefit of hindsight of course - could report on them for the benefit of us all.

For the change in Income, we shall just have to be patient.


Ian

[Alaric]

Thanks, will be very interesting how the next 3 years or so goes with respect to dividend income.

#

Worst case wouldn't be too difficult to work out. Only count expected dividends where Companies have made an announcement and not suspended or cancelled. Something like 50% of the FTSE 100 have already cut, cancelled or suspended.

[funduffer]

Coming back to the original post.......

I have held a HYP and a portfolio of income generating IT's for about 7 years, of roughly equal magnitude in terms of capital invested. I unitise both portfolios. Last year (2019) the HYP yielded 5.7% and the IT's had a yield of 4.3%

If I look at the period 1/2/20 to 2/5/20 then I see:

Capital

Unit price of the HYP has declined by 26%
Unit price of the IT's has declined by 19%

Income

I have had cut or suspended dividends in more than half of the HYP companies (so far!).
I have had no dividends cuts at all in my IT portfolio (so far!). All have announced flat or increased dividends since 1/2/20.

Of course the situation may reverse - HYP dividends may recover, and IT dividends may decline as income reserves are depleted. I think this will depend on the shape and speed of the economic recovery. If the bounce back is relatively quick, then I think it is clear an Income IT investor, who relies on dividends, will have weathered this particular crisis much better. On the other hand, if it is slow, IT's may inevitably have to reduce dividends to rebuild income reserves. Of course, it remains to be seen what the recovery is like.

FD

[Arborbridge]

Coming back to the original post.......


FD

Thanks FD. I will come up with my own comparisons, but I thought to leave it until the end of this month. I'll be back to see if mine tells the same story - I suspect it will.

Of course, we should preface all these numbers by saying that they are all exceedingly short term, and any results now could be reversed in time. We are but answering the original question.

Arb.

[JamesMuenchen]

Yes, and high-yield investing was being substantially outperformed by Growth before that too. For a long time and by a large margin.

Not for a long time, certainly in recent years,

Since 2008 is not a long time?

but before that it was the other way round.

Maybe so. But I would then argue that that was for even less long, about 5 years between the tech crash and the GFC.

Whatever, there needs to be some macro reason for it to switch again. Do you see one? If not, then it ISTM silly to be holding on to value.

By the way, when I talk about growth stocks I mean the across world, not the FTSE.

[tjh290633]

Yes, and high-yield investing was being substantially outperformed by Growth before that too. For a long time and by a large margin.

Not for a long time, certainly in recent years,

Since 2008 is not a long time?

but before that it was the other way round.

Maybe so. But I would then argue that that was for even less long, about 5 years between the tech crash and the GFC.

Whatever, there needs to be some macro reason for it to switch again. Do you see one? If not, then it ISTM silly to be holding on to value.

By the way, when I talk about growth stocks I mean the across world, not the FTSE.

There is a non-sequitur there. You might like to look at See viewtopic.php?p=130590#p130590
which gives some figures for a 20-year period.

I have evidence that Income-related shares in the UK outpaced growth-related shares. Do you have any evidence to the contrary for world stocks?

TJH

[moorfield]

Indeed. The rate at which former star income stocks start to pay out and at what post covid19 levels per share will be extremely interesting. I am wondering if some of the higher quality businesses may even pay a one off special dividend once the economy settles down. Or is that a simply forlorn hope?

I am wondering if some of the higher quality businesses may start tapping cash by rights issues. Once one does it ....

Remember, you read it here first.

[Wizard]

There are two virtual HYPs that I am currently monitoring, and I can report the following with regard to the last 12 months:

Capital Value

HYP – Capital Invested Unchanged - Dividends Re-Invested

Measured from the portfolio reported here: viewtopic.php?p=299931#p299931

Last 12 Months | Date      | Value       | P/L (£)     | P/L (%)
Start Value    | 23-May-19 | 247,388.43  |           - |       -
Minimum Value  | 23-Mar-20 | 186,405.36  | -60,983.07  | -24.65%
Maximum Value  | 27-Dec-19 | 296,970.45  |  49,582.02  |  20.04%
Current Value  | 22-May-20 | 222,223.90  | -25,164.53  | -10.17%

Compared with:

FTSE100 – Total Return

Measured from the data reported here: https://uk.investing.com/indices/ftse-1 ... rical-data

Last 12 Months | Date      | Value     |     P/L    | P/L (%)
Start Value    | 23-May-19 | 6,533.18  |          - |       -
Minimum Value  | 23-Mar-20 | 4,675.50  | -1,857.68  | -28.43%
Maximum Value  | 17-Jan-20 | 7,106.61  |    573.43  |   8.78%
Current Value  | 22-May-20 | 5,629.10  |   -904.08  | -13.84%

HYP – Capital Invested Unchanged - Dividends Drawn

Measured from the portfolio reported here: viewtopic.php?p=297566#p297566

Last 12 Months | Date      | Value       | P/L (£)     | P/L (%)
Start Value    | 23-May-19 | 247,164.31  |           - |       -
Minimum Value  | 23-Mar-20 | 176,006.86  | -71,157.45  | -28.79%
Maximum Value  | 27-Dec-19 | 284,068.42  |  36,904.11  |  14.93%
Current Value  | 22-May-20 | 207,872.25  | -39,292.06  | -15.90%

Compared with:

FTSE100

Last 12 Months | Date      | Value     |     P/L    | P/L (%)
Start Value    | 23-May-19 | 7,231.04  |          - |       -
Minimum Value  | 23-Mar-20 | 4,993.89  | -2,237.15  | -30.94%
Maximum Value  | 29-Jul-19 | 7,686.61  |    455.57  |   6.30%
Current Value  | 22-May-20 | 5,993.28  | -1,237.76  | -17.12%

Income Amount

I will of course be reporting on the Income received over the coming months, but for now, I would suggest that it is too early to say. The current forecasts are unreliable to say the least.


Summary

I would suggest that, for both portfolios, the drop in Capital Value over the past 12 months, which of course includes the current Covid 19 crisis, has not been excessive. In fact, both portfolios appear to have outperformed what I believe to be appropriate benchmarks. Whether other types of portfolio – Growth, Value – may have done better still I do not know, as I have not monitored any such portfolios over the period in question. Perhaps someone who has such records - without the benefit of hindsight of course - could report on them for the benefit of us all.

For the change in Income, we shall just have to be patient.


Ian

Interesting, I am no expert so no idea if the FTSE100 is the best benchmark. Is buying the FTSE100 an alternative income strategy to HYP? Also, are all the shares in the two portfolios from the FTSE100 or were some from the FTSE250? However, notwithstanding any of that the portfolio appears to have held up better in capital terms than I would have expected, certainly better than my HYP shares. Especially as it includes Carnival which last I looked had been very badly hit.

But, as HYP is primarily an income strategy I think that is the primary measure rather than capital. What was the income in the year to 22nd May? Then in a years time we can make a clear comparison versus the HYP objective of a "high and increasing income".

[Wizard]

Actually, having looked it seems to make much more sense to just work off the actual start date of Apr 6th, so in the first year the income was £14,673. The first opportunity to see how things are going will come in early July when a qtr on qtr comparison can be made.

[IanTHughes]

Interesting, I am no expert so no idea if the FTSE100 is the best benchmark. Is buying the FTSE100 an alternative income strategy to HYP? Also, are all the shares in the two portfolios from the FTSE100 or were some from the FTSE250? However, notwithstanding any of that the portfolio appears to have held up better in capital terms than I would have expected, certainly better than my HYP shares. Especially as it includes Carnival which last I looked had been very badly hit.

I did not keep exact records but, as far as I am aware, only IG Group Holdings (IGG) and Ibstock PLC (IBST) were outside of the FTSE 100 at the time of the portfolio selection. I would therefore suggest that the FTSE 100 is indeed the most appropriate benchmark but if anyone has any other ideas please state them. Mind you, whatever is chosen must be easily accessed and, just as importantly, easily and freely downloadable from the web.

For what it is worth, Carnival PLC (CCL), with a current ranking of 184, is certain to be out of the FTSE 100 at the next reorganisation of the index, which I believe is due at the end of June. British Land PLC (BLND) and ITV PLC (ITV) with respective rankings of 104 and 105 are also both skirting with ejection from the FTSE 100, although but not yet certain.

But, as HYP is primarily an income strategy I think that is the primary measure rather than capital. What was the income in the year to 22nd May? Then in a years time we can make a clear comparison versus the HYP objective of a "high and increasing income".

You are of course correct, I was simply responding to your original post:

I posted these numbers on a thread on HYP-Practical where it was heading off topic for the board. I thought I would post here in the hope others would share their performance numbers.

HYP portfolio - capital down 27%, expected income down 47%
Bond portfolio - capital down 7%, expected income down 0%
Preference Share portfolio - capital down 17%, expected income down 0%

Given this, as far as it has performed for me, the answer is HYP has performed badly. Very badly.

I hope you will now agree that, however badly your own HYP may have done, or indeed how well these two virtual HYPs may have done, no single HYP can be said to have much of a bearing on the HYP world as a whole.

With regards to income, the two portfolios have just passed their first anniversary and I am now recording the income received during the past 12 months for each date going forward. The amount recorded for 22 May 2020, for the "PYAD HYP 2019_04 DRAWDOWN" portfolio was: £14,665.53.

For the "PYAD HYP 2019_04 REINVEST" portfolio, where dividends are being re-invested, some of any extra income arises simply from holding more shares. I will therefore need to calculate the amount as a "Dividend per Unit" figure. Not difficult to do of course, I have just not yet got around to it, sorry

But yes, I will be recording the dividend amount received per quarter, using an annual start date of 6 April. Although please be aware that, because some holdings were originally purchased while ex-dividend, the amount received during the first quarter of this current year cannot be directly compared with the equivalent amount for the previous year for this reason alone.

As I said, we shall see, we just have to be patient


Ian

[Arborbridge]

I hope you will now agree that, however badly your own HYP may have done, or indeed how well these two virtual HYPs may have done, no single HYP can be said to have much of a bearing on the HYP world as a whole.


Ian

That is a major difficulty with all these discussions, and why they are doomed to proceed without firm conclusion. We are trying to generalise from the particular, but even worse, when it comes to it, whatever conclusion we might draw, if any, would presumably be applied back to the particular - that is to say, to guide a personal portfolio.

I've been investing since 1986, I've tried all sorts of different schemes to study markets, different portfolio types etc. It's always fun, but never conclusive and often, when one tries it for real, it doesn't work because the economic situation or the market has morphed once more.

But, that never stops us from trying to make sense of it all!

As regards my own comparison benchmark, it just has to be whatever else I'm doing! i.e. at present, that's a basket of income ITs, for that is my own alternative for now. Not that this is much use as a general comparator, but it's what is relevant to "informing" my own investment activity.

Arb.

[Wizard]

... I would therefore suggest that the FTSE 100 is indeed the most appropriate benchmark but if anyone has any other ideas please state them. Mind you, whatever is chosen must be easily accessed and, just as importantly, easily and freely downloadable from the web...

As the FTSE100 is not, as an entire index, really an income portfolio I wonder if our old friend CTY would be a good benchmark. It is a realistic alternative to setting up an HYP for an income seeker and fishes in the same UK equity pool. On that basis CTY would be as follows:
23rd May 2019: 411.5
22nd May 2020: 325.5
A loss of 20.9%
Obviously at the moment it has not indicated any reduction in income.

But, as HYP is primarily an income strategy I think that is the primary measure rather than capital. What was the income in the year to 22nd May? Then in a years time we can make a clear comparison versus the HYP objective of a "high and increasing income".

You are of course correct, I was simply responding to your original post:

I posted these numbers on a thread on HYP-Practical where it was heading off topic for the board. I thought I would post here in the hope others would share their performance numbers.

HYP portfolio - capital down 27%, expected income down 47%
Bond portfolio - capital down 7%, expected income down 0%
Preference Share portfolio - capital down 17%, expected income down 0%

Given this, as far as it has performed for me, the answer is HYP has performed badly. Very badly.

I hope you will now agree that, however badly your own HYP may have done, or indeed how well these two virtual HYPs may have done, no single HYP can be said to have much of a bearing on the HYP world as a whole.

I completely agree. To be fair to myself I did write that it had performed badly for me, I also asked for others to share numbers so that there were additional data points. I am therefore grateful for the time you took to provide the detailed analysis on the two demo portfolios.

[kempiejon]

... I would therefore suggest that the FTSE 100 is indeed the most appropriate benchmark but if anyone has any other ideas please state them. Mind you, whatever is chosen must be easily accessed and, just as importantly, easily and freely downloadable from the web...

As the FTSE100 is not, as an entire index, really an income portfolio I wonder if our old friend CTY would be a good benchmark. It is a realistic alternative to setting up an HYP for an income seeker and fishes in the same UK equity pool. On that basis CTY would be as follows:
23rd May 2019: 411.5
22nd May 2020: 325.5
A loss of 20.9%
Obviously at the moment it has not indicated any reduction in income.

The trouble with comparing HYPs to indexes or collectives is that those other things are not really like the HYP> Yes a HYP will contain mostly FTSE100 shares but it won't contain anything like 100 different ones, it won't contain all the industries in the index and initially it'll be equally weighted. There was a short-lived ETF that was equally weighted and picked all 100 shares from the FTSE100. I cannot remember what it was called now but it was wound up, presumably as it was too niche and wasn't able to reach a profitable fund size. But that equal weighted ETF stop being like a HYP as the HYP does't re-balance.
The trouble with comparing to CTY or another UK-centric income IT is that same question of concentration in holdings and then the styles or predictions of the managers and although not truly mechanical a HYP investor doesn't, well shouldn't make such opinions on the economy. I take an opinion that I can easily buy a FTSE100 index tracker and get a yield form that, I would like my HYP to offer me an income of better than such a tracker and so far over my history of HYPing I've managed that. ITs have an attraction in their income reserves but an investor has been paying for that out of held back dividends and the trust can borrow to maintain that income.

[Alaric]

The trouble with comparing HYPs to indexes or collectives is that those other things are not really like the HYP>

For some HYP provides a retirement income. For those who reinvest, it grows their wealth. Other methods of doing either are available, so there's no reason why it should be exempted from comparisons.