What to top up and HYP strategy going forward

[dealtn]

It really is not that difficult


Ian

So can you share that research then in that case?

[IanTHughes]

What I do is investigate the returns achieved on publicly available HYP's and what might have been achieved if the same funds had been invested in a series of Investment Trusts.

How many "publicly available" HYPs are operated with safety margins? Particularly as maintaining payouts during 2008 would have involved either selling or holding cash reserves.

So? All one has to do is a few amendments to the published results and voila! You of all people must know this, I mean how else would you come up with your claim that ITs are a better solution than HYP? Surely you must have done a similar exercise. Or did you just make it up?

But that's not totally the point. The comparison is ITs against HYPs operated without safety margins. A series of articles last year about how to select shares for a HYP made no mention of a need to hold back part of the dividend income if using the HYP as an annuity replacement.

Oh well, if you want no safety margins that makes it so much easier for HYP to trounce ITs.

If you do not believe me just do the research yourself!


Ian

[IanTHughes]

It really is not that difficult

So can you share that research then in that case?

Sorry, but no.

A few months ago I did start such a thread but I had it pulled as a result of the anti-HYP Trolls that rather spoiled the exercise. You will just have to accept what I now call the Lootman proof. "It is true because I say it is"!

Also, I find it curious that you are asking me to provide my research but, when Alaric claims:

On the other hand, if an investor's primary investment objective is a reasonably secure and rising income from dividends, a collection of ITs is likely to be better at delivering that than a strategy of selecting higher yielding shares with an added self imposition of not being willing to sell to supplement or maintain income.

You simply accept it as valid. Why is that?


Ian

[dealtn]

It really is not that difficult

So can you share that research then in that case?

Sorry, but no.

A few months ago I did start such a thread but I had it pulled as a result of the anti-HYP Trolls that rather spoiled the exercise. You will just have to accept what I now call the Lootman proof. "It is true because I say it is"!

Also, I find it curious that you are asking me to provide my research but, when Alaric claims:

On the other hand, if an investor's primary investment objective is a reasonably secure and rising income from dividends, a collection of ITs is likely to be better at delivering that than a strategy of selecting higher yielding shares with an added self imposition of not being willing to sell to supplement or maintain income.

You simply accept it as valid. Why is that?


Ian

Well I think he is making a claim that it is likely, and that is because the stated aim of (many) ITs is that they use reserving to smooth the dividend, particularly in "down" years, and as such there is a testable suite of IT performance to show that is true (or not). Evidence should of course be produced, and I would hope that to be forthcoming. (But I can undertake such a test myself). In addition I have sought clarification as to what this claim of "rising" and "reasonably secure" actually means. I am fairly certain I have been somewhat neutral in this.

On the other hand you appear to be making a claim that this isn't true, and in the general case, HYPs as held and operated, have a better record with respect to this, as yet undefined, "rising" and "reasonably secure". Two contributors have asked whether this is indeed the general case, or just specific to your own HYP. Further I am unable to test your counter hypothesis having no (or at least relatively little) data on HYP performance

(I remember the thread you refer to, and again I don't think it was a general case at all, but I may be mistaken. In fact the two threads you started I participated in and effusively defended you from the posting you refer to as "trolling".

[Alaric]

You simply accept it as valid. Why is that?

Investing directly in ordinary shares gives no guarantee or certainty of any sort of maintenance of dividend income. Dividends are vulnerable not only to economic conditions but also the whims of boards of directors and to a lesser extent other shareholders.

If security and maintenance of dividend income is a primary concern, investing in a collective that at least attempts this as a matter of policy takes some of the unknowns out of the picture. It's something ITs can offer, a unique selling point even, which parallel alternatives such as OEICs and ETFs are unable to deliver.

As far as IT past performance on dividends is concerned, are there not several long established ones with a history of dividend maintenance and dividend increases stretching back decades? They may come under pressure in the next year or two, but no immediate cuts unlike many other collective equity investments.

[IanTHughes]

You simply accept it as valid. Why is that?

Investing directly in ordinary shares gives no guarantee or certainty of any sort of maintenance of dividend income. Dividends are vulnerable not only to economic conditions but also the whims of boards of directors and to a lesser extent other shareholders. If security and maintenance of dividend income is a primary concern, investing in a collective that at least attempts this as a matter of policy takes some of the unknowns out of the picture. It's something ITs can offer, a unique selling point even, which parallel alternatives such as OEICs and ETFs are unable to deliver.

Who ever said otherwise?

As far as IT past performance on dividends is concerned, are there not several long established ones with a history of dividend maintenance and dividend increases stretching back decades? They may come under pressure in the next year or two, but no immediate cuts unlike many other collective equity investments.

Well, all I can do is repeat that, according to my research based on my records, HYP comes out ahead of many ITs for Income generation, capital appreciation and total return.

To be clear, I am not saying that HYP beats ALL ITs but, according to the ones that I have investigated, HYP beats most of them, sometimes in all of those three categories, enough for me to conjecture that HYP would beat a basket of ITs.

As I said, just do the research yourself, it really is not that hard to do.


Ian

[Alaric]

To be clear, I am not saying that HYP beats ALL ITs but, according to the ones that I have investigated, HYP beats most of them, sometimes in all of those three categories, enough for me to conjecture that HYP would beat a basket of ITs.

How does your "HYP" handle dividend cuts and cancellations? It's an investor reliant on withdrawing dividend income, therefore cuts have to be managed out of the system even if asset sales are necessary to maintain withdrawal levels.

[Wizard]

If, as Arb says, an HYP as described by PYAD or the TLF rules cannot include multiple ITs, why would HYPTUSS include ITs as an option to be tracked? Maybe to allow for the Breelander Convetion, but surely that does not need the now provided AIC sectoral granularity. I therefore formally object to the use of the name HYPTUSS, from now on that tool can only be called hypTUSS or HYTUSS. Alternatively, as we now have PYADic or pure HYP and TLF HYP I insist we also add HYPTUSSHYP to the lexicon, as it seems the parties behind the so called HYPTUSS believe ITs should be included in an HYP. Why else would they provide the functionality to allow it?

Please take this in the light hearted way it is intended

Well, it happens to be called HYPTUSS because it developed as a tool for that use. However, I use a HYPTUSS for all of my ITs and find it very useful. The IT basket is easily accounted for separately from the HYP by using this spreadsheet.

To conclude that the existence of a possibility of using the spreadsheet for ITs means that developers suggest ITs £should be included" as part of a HYP is wide of the mark. It developed because it was possible using the same software, so why not do it?
I may be wrong, but I think one might also train a HYPTUSS to pick up OIECs, though I;m not sure about that.

Arb.

...or not

[IanTHughes]

To be clear, I am not saying that HYP beats ALL ITs but, according to the ones that I have investigated, HYP beats most of them, sometimes in all of those three categories, enough for me to conjecture that HYP would beat a basket of ITs.

How does your "HYP" handle dividend cuts and cancellations?

Very easily!


Ian

[Gengulphus]

So very much like an IT's methods of dividend-smoothing in those respects, which is hardly surprising because the main difference between them is that the HYPer is managing the dividend-smoothing themselves and the IT investor is getting IT managers to do it for them.

My term "unmanaged HYP" was intended to describe the HYP run without IT style safety margins, which has been the case for the demonstration HYPs. Clearly that's more volatile in terms of income and thus less suitable as an annuity replacement than a set of ITs investing in at least some of the same stocks. That's presuming the ITs follow the usual practice of not distributing all the dividends received in normal circumstances but over distributing when there's a dividend shortfall. Without rules inhibiting selling, ITs would also be better able to maintain sector diversification if that formed part of their investment objectives.

A terminology question here: what are you talking about when you say "IT style safety margins"? I can see two ways of reading what you've said: the first is that you're just using the phrase as shorthand for what you later describe more fully as the "usual practice of not distributing all the dividends received in normal circumstances but over distributing when there's a dividend shortfall". The other is that if one presumes that the ITs follow that usual practice, something follows about HYPs run without something else which you call "IT style safety margins" but haven't defined.

It may be worth adding that the usual use of the phrase "safety margin" in relation to HYPs for the percentage by which the dividend income generated by the HYP exceeds (or falls short of if negative) the income the HYPer requires from the HYP. A HYPer can choose not to bother calculating it, of course, but it's not something they can choose to have or not have - so it's clear to me that you're talking about something else when you say "IT style safety margins", but not what that something else is.

If the answer to my question is that you're using "IT style safety margins" to mean the same thing as the "usual practice of not distributing all the dividends received in normal circumstances but over distributing when there's a dividend shortfall", then I've already answered your point: sensible real-life HYPs are generally run with something of that kind, even if demonstration HYPs often aren't for simplicity in showing their results ("generally" because there are exceptions - for example, see Luniversal's LuniHYP100 and LuniHYP250 demonstration HYPs - though just to add to the terminology muddle, he calls the practice "derisking"!). And another point I've already answered is that "rules inhibiting selling" are by no means universal among HYPs - for instance, TJH quite frequently reports on a sale in his HYP, and while I don't report on my main HYP, I do sell from it from time to time - most recently last Wednesday.

If the answer to my question is that you're using "IT style safety margins" to mean something else, I'll need to know what before I can respond sensibly about it!

Gengulphus

[Alaric]

If the answer to my question is that you're using "IT style safety margins" to mean something else, I'll need to know what before I can respond sensibly about it!

An IT style safety margin would be where only a percentage, say 85% of dividend income was withdrawn as income and the balance reinvested or possibly held as cash.

If there was a shortfall in dividend income, then assets would be sold or cash withdrawn. Alternatively if cheap finance was available, the shortfall would be made up by borrowing.

It doesn't have to be a technique used only in conjunction with higher yielding equities, someone financing their income from ETFs or OEICs might use a similar method.

A portfolio being started with a lump sum has to bootstrap itself somehow. Only investing 85% of the available funds is a possible approach. That corresponds to around three years of income if the running yield is around 5%.

[Wizard]

To be clear, I am not saying that HYP beats ALL ITs but, according to the ones that I have investigated, HYP beats most of them, sometimes in all of those three categories, enough for me to conjecture that HYP would beat a basket of ITs.

How does your "HYP" handle dividend cuts and cancellations?

Very easily!


Ian

As presumably will any portfolio where income is not being drawn. My recollection is you are still in the build phase.

[IanTHughes]

How does your "HYP" handle dividend cuts and cancellations?

Very easily!

As presumably will any portfolio where income is not being drawn. My recollection is you are still in the build phase.

Just to be clear, my research of HYP Vs Investment Trusts is not based on my own real HYP, although my management does compare favourably.


Ian

[Charlottesquare]

You simply accept it as valid. Why is that?

Investing directly in ordinary shares gives no guarantee or certainty of any sort of maintenance of dividend income. Dividends are vulnerable not only to economic conditions but also the whims of boards of directors and to a lesser extent other shareholders. If security and maintenance of dividend income is a primary concern, investing in a collective that at least attempts this as a matter of policy takes some of the unknowns out of the picture. It's something ITs can offer, a unique selling point even, which parallel alternatives such as OEICs and ETFs are unable to deliver.

Who ever said otherwise?

As far as IT past performance on dividends is concerned, are there not several long established ones with a history of dividend maintenance and dividend increases stretching back decades? They may come under pressure in the next year or two, but no immediate cuts unlike many other collective equity investments.

Well, all I can do is repeat that, according to my research based on my records, HYP comes out ahead of many ITs for Income generation, capital appreciation and total return.

To be clear, I am not saying that HYP beats ALL ITs but, according to the ones that I have investigated, HYP beats most of them, sometimes in all of those three categories, enough for me to conjecture that HYP would beat a basket of ITs.

As I said, just do the research yourself, it really is not that hard to do.


Ian

Over what time period is your study?

Are you picking the ITs at random or is there a method re their selection like there is with the HYP shares, nothing yielding below x%?

What I do is forget the "rules" re individual holdings but instead blend them, effectively creating my own bespoke IT which holds both shares and ITs, covers most of the world, covers growth, emerging etc but also provides an income should I choose to take it.

I have no need that each and every holding has a high yield only that the portfolio as a whole has a 4% yield, that is I may have HFEL but I also have SMT or Fidelity China Spec Sits, both with pretty decent percentage gains over recent years.

In my opinion there is nothing that prevents a high yield strategy having a mix of high and low yielders providing the overall portfolio yield is above average (high), in my case that means overall aiming for 4% or higher and that includes the above two low yielders plus other low yielders like Monks, Mid Wynd and JP Morgan Emerging plus no yielders like Berkshire and JP Morgan Indian IT, despite holding these when last I checked my overall dividend yield was 4.05%. In addition comparing yesterday with say 31/1/20 before Covid I am now only down 9% with steady progress since March closing that gap.

Still, each to his/her own, I am not sold your typical HYP basket really outperforms a well chosen basket of ITs covering the world, in fact I suspect (though not checked) that a world tracker in the long haul might beat both.

[Itsallaguess]

What I do is forget the "rules" re individual holdings but instead blend them, effectively creating my own bespoke IT which holds both shares and IT's, covers most of the world, covers growth, emerging etc but also provides an income should I choose to take it.

One thing the HYP approach gets almost zero credit for, lost as it seems to be amongst the long stream of criticism over the years, is for acting as a stepping stone for many investors towards the more blended approach you've highlighted in your post, and I think that's a great shame really, because for many of us here that's exactly what it's been, and I think many of us are very grateful for that to have happened.

That quite natural and beneficial process, often from a standing-start for many inexperienced investors, never seems to get the credit it deserves, and although I agree with you that there's often long-term benefits to casting much wider nets, I think we also need to remember it's important to get into the boat in the first place, too....

Cheers,

Itsallaguess

[TopOfDaMornin]

I have no need that each and every holding has a high yield only that the portfolio as a whole has a 4% yield, that is I may have HFEL but I also have SMT or Fidelity China Spec Sits, both with pretty decent percentage gains over recent years.

In my opinion there is nothing that prevents a high yield strategy having a mix of high and low yielders providing the overall portfolio yield is above average (high), in my case that means overall aiming for 4% or higher and that includes the above two low yielders plus other low yielders like Monks, Mid Wynd and JP Morgan Emerging plus no yielders like Berkshire and JP Morgan Indian IT, despite holding these when last I checked my overall dividend yield was 4.05%.

I too am now reaching this conclusion. Wish I had reached it 10 years ago.

Off course, it opens the question, what is a 'well choosen IT'?

I too suspect , going forward, a world tracker, with dividend and drawdown may out perform my HYP. I bought VWRL earlier this year.


From reading this thread, I am still unclear on my next course of actions.

1. Sell some HYPs to buy the existing ITs (I feel about 35% ITs is about right) ? If so, should I sell part of the highest value HYP shares to bring them down to the mean? I would have to 'move' approx £35k of HYP into ITs. That seems a lot of selling but maybe best for the long term.

2. Buy new ITs focused on growth, or world tracker?

3. Do nothing? This is what I have done for the last 9 months. Not sure if this plan has worked.

The aim of the portfolio is steady annual income in 10 years time, mostly thru natural yield, but maybe thru part selling growth shares e.g. VWRL.


TDM

[TopOfDaMornin]

One thing the HYP approach gets almost zero credit for, lost as it seems to be amongst the long stream of criticism over the years, is for acting as a stepping stone for many investors towards the more blended approach you've highlighted in your post, and I think that's a great shame really, because for many of us here that's exactly what it's been, and I think many of us are very grateful for that to have happened.

Itsallaguess

Well said. The HYP approach had helped me and others on the road to investing. Even if we now adopt other approaches.

[Alaric]

The aim of the portfolio is steady annual income in 10 years time, mostly thru natural yield, but maybe thru part selling growth shares e.g. VWRL.

One test you might wish to carry out is to check that the annual income isn't over concentrated in a handful of holdings. That can also apply to trackers as witnessed by the collapse in dividend income from ETF trackers of the FTSE100. ITs by the nature of their management process pose less of a cancellation risk.

[Arborbridge]

One thing the HYP approach gets almost zero credit for, lost as it seems to be amongst the long stream of criticism over the years, is for acting as a stepping stone for many investors towards the more blended approach you've highlighted in your post, and I think that's a great shame really, because for many of us here that's exactly what it's been, and I think many of us are very grateful for that to have happened.

Itsallaguess

Well said. The HYP approach had helped me and others on the road to investing. Even if we now adopt other approaches.

I concur with that. HYP is meant for the unsophisticated investor, and it's a good way to get started - but more particularly a good way to secure an income stream, whilst maintaining capital.

Arb.

[Charlottesquare]

I have no need that each and every holding has a high yield only that the portfolio as a whole has a 4% yield, that is I may have HFEL but I also have SMT or Fidelity China Spec Sits, both with pretty decent percentage gains over recent years.

In my opinion there is nothing that prevents a high yield strategy having a mix of high and low yielders providing the overall portfolio yield is above average (high), in my case that means overall aiming for 4% or higher and that includes the above two low yielders plus other low yielders like Monks, Mid Wynd and JP Morgan Emerging plus no yielders like Berkshire and JP Morgan Indian IT, despite holding these when last I checked my overall dividend yield was 4.05%.

I too am now reaching this conclusion. Wish I had reached it 10 years ago.

Off course, it opens the question, what is a 'well choosen IT'?

I too suspect , going forward, a world tracker, with dividend and drawdown may out perform my HYP. I bought VWRL earlier this year.


From reading this thread, I am still unclear on my next course of actions.

1. Sell some HYPs to buy the existing ITs (I feel about 35% ITs is about right) ? If so, should I sell part of the highest value HYP shares to bring them down to the mean? I would have to 'move' approx £35k of HYP into ITs. That seems a lot of selling but maybe best for the long term.

2. Buy new ITs focused on growth, or world tracker?

3. Do nothing? This is what I have done for the last 9 months. Not sure if this plan has worked.

The aim of the portfolio is steady annual income in 10 years time, mostly thru natural yield, but maybe thru part selling growth shares e.g. VWRL.


TDM

For what it is worth here is my current list that melded gives me just ahead of 4%, the holding are not equal, things like niche sector trusts/emerging markets /smaller companies tend to get smaller holdings and some like Mid Wynd and Monks are recent add on investments so are still very small until I add to the holdings- the bigger beasts tend to get bigger holdings (consequently Shell was an ouch moment)

Begbies Traynor
Braemar Shipping
Royal Dutch Shell
Smith (DS)
Unilever
Urban Logistics REIT
Warehouse REIT
Aberdeen Asian Fund
Aberdeen New Thai IT
Aberdeen Standard European Logistics
Athelney Trust
Berkshire Hathaway
Blackrock North American Income
City of London IT
Edinburgh investment Trust
European Assets Trust
Fidelity China Special Situation
Henderson Far East Income
Hipgnosis Songs Fund
JP Morgan Global Growth & Inc
International Biotech Trust
J P Morgan Emerge Markets
JP Morgan Indian Invest Trust
Merchants Trust
Mid Wynd IT
Monks IT
Murray International
North American IT
Schroder Oriental
Scottish Mortgage IT
VinaCapital Vietnam Op Fund
Cash in hand