Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to johnstevens77,Bhoddhisatva,scotia,Anonymous,Cornytiv34, for Donating to support the site

HYP1 is 20 - thread discussing income and capital diversification

General discussions about equity high-yield income strategies
Itsallaguess
Lemon Half
Posts: 9129
Joined: November 4th, 2016, 1:16 pm
Has thanked: 4140 times
Been thanked: 10023 times

HYP1 is 20 - thread discussing income and capital diversification

#356568

Postby Itsallaguess » November 14th, 2020, 5:45 pm

Pyad has released his 'HYP1 is 20' anniversary post here -

https://www.lemonfool.co.uk/viewtopic.php?f=15&t=26213

I've started this separate thread looking at the HYP1 income and capital diversification so as not to disrupt that thread with this analysis, as I completely understand that it may not interest everyone, and I do want to be respectful of Pyad's great ongoing HYP1 experiment by not including discussion of this specific aspect on that anniversary thread.

The data discussed in this thread is specifically looking at the ongoing lumpiness of the income and capital derived from HYP1.

Over the years, HYP1 has developed in a way that relies on a really quite small subset of holdings to deliver the bulk of its income and capital performance, and even though this year has seen a near 50% reduction in dividend income, we can still see that the current HYP1 portfolio stands at new highs when considering the percentage of overall dividend-income and capital delivered from its current top five holdings -

Image

The underlying historical HYP1 income and capital data for the above table can be found here - https://i.imgur.com/IugDcmx.png

Here's a chart showing the reliance that HYP1 has continued to develop on it's top five holdings for both income and capital over the last eleven years -

Image

Pyad has reported that HYP1 has seen a 47.6% drop in dividend income since last year, which equates to a loss of £5024 over the 2019 HYP1 income.

Given that loss of £5024 of income, I think it might be instructive to see how much of that fall actually came from the top five income-holdings highlighted from last year (https://tinyurl.com/y5f85quv) -

Image

As we can see from the above table, the top five income-delivering shares from last year took a hit of £3909.08‬, which is 78% of the total loss of income seen this year of £5024.

The final table that I show below is an aggregated-income table, showing how much income is currently being delivered by HYP1 when we look at the ranking of top income-producing shares -

Image

As we can see from the above table, no less than 60.3% of HYP1 income is currently being delivered from just two holdings, with nearly 75% of HYP1 income being delivered from just four...

Whilst I've no doubt that the overall income from HYP1 will recover somewhat over the coming years, I think this exercise to look 'under the bonnet' a little regarding the income and capital concentration of HYP1 is instructive to those of us who might be interested in how a largely 'hands-off' income-portfolio can develop over the years, and in ways that might not be immediately obvious to anyone just looking at the headline HYP1 numbers...

Cheers,

Itsallaguess

Darka
Lemon Slice
Posts: 773
Joined: November 4th, 2016, 2:18 pm
Has thanked: 1819 times
Been thanked: 704 times

Re: HYP1 is 20 - thread discussing income and capital diversification

#356579

Postby Darka » November 14th, 2020, 6:10 pm

I think HYP1 is a great experiment, I would however be very unhappy with those numbers.

Imagine the nerves of steel you would need if you were living on that in retirement with no other income....

no thanks.

Lootman
The full Lemon
Posts: 18681
Joined: November 4th, 2016, 3:58 pm
Has thanked: 628 times
Been thanked: 6563 times

Re: HYP1 is 20 - thread discussing income and capital diversification

#356585

Postby Lootman » November 14th, 2020, 6:22 pm

Darka wrote:I think HYP1 is a great experiment, I would however be very unhappy with those numbers.

Imagine the nerves of steel you would need if you were living on that in retirement with no other income....

no thanks.

And if nobody in their right mind would buy a portfolio like this for retirement income, then why would anyone in their right mind hold one either?

GrahamPlatt
Lemon Quarter
Posts: 2059
Joined: November 4th, 2016, 9:40 am
Has thanked: 1032 times
Been thanked: 823 times

Re: HYP1 is 20 - thread discussing income and capital diversification

#356605

Postby GrahamPlatt » November 14th, 2020, 7:30 pm

It’s only a demo. To buy into for retirement is just a matter of scale. Factor of 10 & you could probably rest easy. OTOH with a factor of 10 at your disposal, you’d probably be running other strategies in parallel, and HYP’s performance would just be a side interest. I’d imagine that’s what mostly happens. Does anyone not have a share or two which could qualify as HYP material? If you have, you have an HYP!

88V8
Lemon Half
Posts: 5769
Joined: November 4th, 2016, 11:22 am
Has thanked: 4098 times
Been thanked: 2560 times

Re: HYP1 is 20 - thread discussing income and capital diversification

#356614

Postby 88V8 » November 14th, 2020, 7:55 pm

There was an article in The Times a couple of weeks ago about poor annuity rates, and what to do when retiring.
Not a word about HYP.

We know better.....

V8

Gengulphus
Lemon Quarter
Posts: 4255
Joined: November 4th, 2016, 1:17 am
Been thanked: 2628 times

Re: HYP1 is 20 - thread discussing income and capital diversification

#356621

Postby Gengulphus » November 14th, 2020, 8:09 pm

GrahamPlatt wrote:It’s only a demo. To buy into for retirement is just a matter of scale. Factor of 10 & you could probably rest easy. OTOH with a factor of 10 at your disposal, you’d probably be running other strategies in parallel, and HYP’s performance would just be a side interest. I’d imagine that’s what mostly happens. Does anyone not have a share or two which could qualify as HYP material? If you have, you have an HYP!

No, a share or two doesn't qualify - you need at least about fifteen...

Gengulphus

tjh290633
Lemon Half
Posts: 8209
Joined: November 4th, 2016, 11:20 am
Has thanked: 913 times
Been thanked: 4097 times

Re: HYP1 is 20 - thread discussing income and capital diversification

#356666

Postby tjh290633 » November 14th, 2020, 11:27 pm

Itsallaguess wrote:Pyad has reported that HYP1 has seen a 47.6% drop in dividend income since last year, which equates to a loss of £5024 over the 2019 HYP1 income.

Given that loss of £5024 of income, I think it might be instructive to see how much of that fall actually came from the top five income-holdings highlighted from last year (https://tinyurl.com/y5f85quv) -

Image

As we can see from the above table, the top five income-delivering shares from last year took a hit of £3909.08‬, which is 78% of the total loss of income seen this year of £5024.

It might be worth looking at Special Dividends in that context. I have RIO in mind.

TJH

PinkDalek
Lemon Half
Posts: 6139
Joined: November 4th, 2016, 1:12 pm
Has thanked: 1589 times
Been thanked: 1801 times

Re: HYP1 is 20 - thread discussing income and capital diversification

#356670

Postby PinkDalek » November 15th, 2020, 12:29 am

tjh290633 wrote:It might be worth looking at Special Dividends in that context. I have RIO in mind.


Yes, as per:

pyad, in the referenced thread, who wrote:The second and less obvious major influence was that RIO paid large specials last year which were not repeated in 2020.

Itsallaguess
Lemon Half
Posts: 9129
Joined: November 4th, 2016, 1:16 pm
Has thanked: 4140 times
Been thanked: 10023 times

Re: HYP1 is 20 - thread discussing income and capital diversification

#356674

Postby Itsallaguess » November 15th, 2020, 5:51 am

tjh290633 wrote:
Itsallaguess wrote:
Pyad has reported that HYP1 has seen a 47.6% drop in dividend income since last year, which equates to a loss of £5024 over the 2019 HYP1 income.

Given that loss of £5024 of income, I think it might be instructive to see how much of that fall actually came from the top five income-holdings highlighted from last year (https://tinyurl.com/y5f85quv) -

Image

As we can see from the above table, the top five income-delivering shares from last year took a hit of £3909.08‬, which is 78% of the total loss of income seen this year of £5024.


It might be worth looking at Special Dividends in that context. I have RIO in mind.


Hi Terry,

I agree that the RIO special dividend last year has tended to skew things somewhat, and I know many of us don't include 'special dividends' when we're trying to judge the more 'regular dividends' being generated by our income-portfolios, but I am very consciously aware that I should play my yearly HYP1 comparisons with as 'straight a bat' as possible, and if Pyad is wanting to include specials in his 'good year' data, then that's entirely up to him, and my comparisons will then of course need to stick to that approach too...

I did cover this specific topic in last years comparison thread -

https://www.lemonfool.co.uk/viewtopic.php?f=15&t=20386&start=20#p264695

Cheers,

Itsallaguess

Wizard
Lemon Quarter
Posts: 2829
Joined: November 7th, 2016, 8:22 am
Has thanked: 68 times
Been thanked: 1029 times

Re: HYP1 is 20 - thread discussing income and capital diversification

#356683

Postby Wizard » November 15th, 2020, 8:45 am

Itsallaguess wrote:...current top five holdings -

Image

...

This table suggests to me that the vast majority of the 'imbalancing' of the portfolio took place before year 10, with only modest movements against the year 10 position since.

Itsallaguess
Lemon Half
Posts: 9129
Joined: November 4th, 2016, 1:16 pm
Has thanked: 4140 times
Been thanked: 10023 times

Re: HYP1 is 20 - thread discussing income and capital diversification

#356686

Postby Itsallaguess » November 15th, 2020, 8:55 am

Wizard wrote:
Itsallaguess wrote:
...current top five holdings -

Image

...


This table suggests to me that the vast majority of the 'imbalancing' of the portfolio took place before year 10, with only modest movements against the year 10 position since.


To be honest - whilst I'd personally be concerned at the figures in the above table if I owned HYP1, it's actually quite often the trends in this sort of data that I find much more interesting, which is why I always include the following chart as well -


Image

If you're able to shrug off the steadily growing influence of the top-five income-producers from Year 14 (65.72%) to Year 20 (79.29%) as 'modest', then you've clearly got a different yard-stick in that area than the one I'm using, and that's before we get to highlight the fact that nearly 68% of HYP1 income is currently being generated from just THREE share-holdings (https://i.imgur.com/VWSz50l.png)..

Cheers,

Itsallaguess

Wizard
Lemon Quarter
Posts: 2829
Joined: November 7th, 2016, 8:22 am
Has thanked: 68 times
Been thanked: 1029 times

Re: HYP1 is 20 - thread discussing income and capital diversification

#356689

Postby Wizard » November 15th, 2020, 9:16 am

Itsallaguess wrote:
Wizard wrote:
Itsallaguess wrote:
...current top five holdings -

Image

...


This table suggests to me that the vast majority of the 'imbalancing' of the portfolio took place before year 10, with only modest movements against the year 10 position since.


To be honest - whilst I'd personally be concerned at the figures in the above table if I owned HYP1, it's actually quite often the trends in this sort of data that I find much more interesting, which is why I always include the following chart as well -


Image

If you're able to shrug off the steadily growing influence of the top-five income-producers from Year 14 (65.72%) to Year 20 (79.29%) as 'modest', then you've clearly got a different yard-stick in that area than the one I'm using, and that's before we get to highlight the fact that nearly 68% of HYP1 income is currently being generated from just THREE share-holdings (https://i.imgur.com/VWSz50l.png)..

Cheers,

Itsallaguess

I am not trying to shrug off the risk, on the contrary. What I was trying to say is that the root cause of the majority of the imbalance (and therefore the risk) lies in the first 10 years. Assuming the top five shares accounted for say 35% of income at the outset, by year 10 the proportion of income they accounted for had doubled ie increased by 100%. Between year 10 and 20 the proportion of income the top 5 contributes has increased by roughly a further 12%.

Now clearly the rate of increase had to slow, there is after all only 100% of the income cake to share out. My point is that HYP1 has IMHO been dangerously risky since year 10 and possibly before, it is not a new state of affairs.

The point you make on top 3 concentration is an interesting one. I do not have the app needed to see your raw figures. Can you share the top 3 income percentage figure in year 10? Maybe that is the bigger issue here, what was produced by the top 10 in year 1, was provided by the top 5 in year 10 and the top 3 now? Interesting to see if the figures bear that out.

PS I have just been back and read some of the equivalent thread from last year, in light of the last 12 months and the dramatic drop in income this year some of the posts make very interesting reading.

Itsallaguess
Lemon Half
Posts: 9129
Joined: November 4th, 2016, 1:16 pm
Has thanked: 4140 times
Been thanked: 10023 times

Re: HYP1 is 20 - thread discussing income and capital diversification

#356764

Postby Itsallaguess » November 15th, 2020, 1:42 pm

Wizard wrote:
The point you make on top 3 concentration is an interesting one. I do not have the app needed to see your raw figures.

Can you share the top 3 income percentage figure in year 10 ?

Maybe that is the bigger issue here, what was produced by the top 10 in year 1, was provided by the top 5 in year 10 and the top 3 now? Interesting to see if the figures bear that out.


Sure - here's the HYP1 Year 10 to Year 20 data, showing the percentage of overall dividend income that was provided from the highest three payers in each year -

Image

It should be noted that the specific shares in the top-three payers did sometimes change from year to year, but it's clear from the above chart that the trend is to add more and more income-dependency over time to a very small number of HYP1 holdings.

Wizard wrote:
I have just been back and read some of the equivalent thread from last year, in light of the last 12 months and the dramatic drop in income this year some of the posts make very interesting reading.


Well it does make for some very interesting reading, and of course even more so given the near 50% drop in HYP1 income being seen this year...

Link here to last year's 'HYP1 is 19' thread specifically looking at the underlying income and capital diversification at that time - https://www.lemonfool.co.uk/viewtopic.php?f=15&t=20386

I maintain the view that anyone trying to defend the current HYP1 portfolio would be akin to someone standing on top of a very tall step-ladder, carefully balanced right on the edge of a high cliff, and trying to convince those getting an already glorious view from a safer distance, that if only they took on a little more risk, the additional views from the highest step were just magnificent....

Cheers,

Itsallaguess

Itsallaguess
Lemon Half
Posts: 9129
Joined: November 4th, 2016, 1:16 pm
Has thanked: 4140 times
Been thanked: 10023 times

Re: HYP1 is 20 - thread discussing income and capital diversification

#356771

Postby Itsallaguess » November 15th, 2020, 2:08 pm

ReallyVeryFoolish wrote:
Kind of interesting that 2010 to 17 the share of income from the top three payers was consistently around 50 per cent. It diverged markedly in the last three years.


I think what's been most interesting for me this year is to see that even when HYP1 has been hit with a near 50% reduction in dividend income, the exposure of income and capital to a tiny sub-set of holdings is still managing to be at the highest points they've ever been for both metrics...

Image

I think I might be able to take such a massive whollop to my income if I thought that what was left might be more reliably diversified, but we're not even seeing that, and in fact it's still trending in the opposite direction...

Cheers,

Itsallaguess

IanTHughes
Lemon Quarter
Posts: 1789
Joined: May 2nd, 2018, 12:01 pm
Has thanked: 730 times
Been thanked: 1117 times

Re: HYP1 is 20 - thread discussing income and capital diversification

#356781

Postby IanTHughes » November 15th, 2020, 2:31 pm

ReallyVeryFoolish wrote:Not to defend HYP at all, but this is a symptom demonstrated also by the FTSE100. A very small number of stocks/sectors paying the lions share of dividend. It is a very unhealthy situation. I am not all surprised at what has happened in HYP since it is to a large degree simply a subset of the 100 index anyway. The entire 100 index is now less valuable than some of the single mega-companies in the new economy and is becoming less and less relevant on the world stage anyway.

HYP is designed so that an equal value is invested in each share at purchase. Very different from the FTSE 100.

The different value and income percentages we are now seeing in HYP1 are a result of 20 years of growth by the winners compared with the plodders, not to mention the losers. Of course one could have sold part of those winners, just as soon as they started to diverge from those plodders and losers. But how would the portfolio look now if that had been done?

Of course, no-one knows the answer to that because such an exercise in "trimming the winners" has not been done. However, I am prepared to bet that the resulting portfolio would now be lower in value and would have produced less income over the years.

Mind you, the portfolio would be perfectly balanced - hooray!


Ian

funduffer
Lemon Quarter
Posts: 1328
Joined: November 4th, 2016, 12:11 pm
Has thanked: 122 times
Been thanked: 831 times

Re: HYP1 is 20 - thread discussing income and capital diversification

#356787

Postby funduffer » November 15th, 2020, 3:06 pm

I think what we need to see is a HYP that does not re-invest dividends (like HYP1), but does rebalance to prevent over-concentration.

tjh’s does the rebalancing, but also reinvests, so this is not that instructive.

One would also need to understand how rebalancing is achieved. Does it involve top-slicing winners? Does it involve replacing shares that cut or stop dividends? There are several possibilities.

I am not sure I have seen such a HYP reported, as most HYPers reporting seem to be building, I.e. reinvesting allow some or all of their dividends.

My instinct is to prevent over-concentration, but not using too rigid rules. I generally don’t tinker, but I have top-sliced over-weight shares to re-invest in higher yielding alternatives. Difficult to know what the long term effect will be.

Maybe Ian Hughes could do a version of the new pyad HYP (income withdrawn version), which uses some over-concentration rules to rebalance periodically. It would the be interesting to see how things unfold. Perhaps some simple rules could be used that involves just top-slicing over-weight shares and re-investing in higher yielding shares in the same portfolio (I.e. not selecting new shares).

Just some thoughts.

FD

Alaric
Lemon Half
Posts: 6033
Joined: November 5th, 2016, 9:05 am
Has thanked: 20 times
Been thanked: 1399 times

Re: HYP1 is 20 - thread discussing income and capital diversification

#356789

Postby Alaric » November 15th, 2020, 3:16 pm

funduffer wrote:One would also need to understand how rebalancing is achieved.


There's one simple approach. At any time a new lump sum HYP can theoretically be constructed. So take the market value of any existing HYP and reconstruct it as if its portfolio value was new money. There's a cost involved, but if in a tax shelter it's thirty dealing costs at a maximum,assuming fifteen holdings.

IanTHughes
Lemon Quarter
Posts: 1789
Joined: May 2nd, 2018, 12:01 pm
Has thanked: 730 times
Been thanked: 1117 times

Re: HYP1 is 20 - thread discussing income and capital diversification

#356793

Postby IanTHughes » November 15th, 2020, 3:30 pm

funduffer wrote:I think what we need to see is a HYP that does not re-invest dividends (like HYP1), but does rebalance to prevent over-concentration.

tjh’s does the rebalancing, but also reinvests, so this is not that instructive.

One would also need to understand how rebalancing is achieved. Does it involve top-slicing winners? Does it involve replacing shares that cut or stop dividends? There are several possibilities.

I am not sure I have seen such a HYP reported, as most HYPers reporting seem to be building, I.e. reinvesting allow some or all of their dividends.

My instinct is to prevent over-concentration, but not using too rigid rules. I generally don’t tinker, but I have top-sliced over-weight shares to re-invest in higher yielding alternatives. Difficult to know what the long term effect will be.

Maybe Ian Hughes could do a version of the new pyad HYP (income withdrawn version), which uses some over-concentration rules to rebalance periodically. It would the be interesting to see how things unfold. Perhaps some simple rules could be used that involves just top-slicing over-weight shares and re-investing in higher yielding shares in the same portfolio (I.e. not selecting new shares).

Just some thoughts.

Yeah, sure ... I have nothing better to do :D

But you are right in that the only way to do this so that the results might be considered instructive, is if the same "Drawdown" portfolio is managed the two different ways - one with "Buy and Hold" and the other with "Re-balancing".

It would appear to be a lot of work but I will consider it, I promise you. Mind you, if I do decide to do it, like the "Re-investment" version of this virtual portfolio, I will make all the decisions, there will be no attempt at democracy :D

However in the meantime, any comments pertaining to the "Re-balancing" rules will be gratefully received. But perhaps a separate thread on the "Practical" board should be used


Ian

dealtn
Lemon Half
Posts: 6072
Joined: November 21st, 2016, 4:26 pm
Has thanked: 441 times
Been thanked: 2324 times

Re: HYP1 is 20 - thread discussing income and capital diversification

#356799

Postby dealtn » November 15th, 2020, 3:55 pm

IanTHughes wrote:
The different value and income percentages we are now seeing in HYP1 are a result of 20 years of growth by the winners compared with the plodders, not to mention the losers. Of course one could have sold part of those winners, just as soon as they started to diverge from those plodders and losers. But how would the portfolio look now if that had been done?

Of course, no-one knows the answer to that because such an exercise in "trimming the winners" has not been done. However, I am prepared to bet that the resulting portfolio would now be lower in value and would have produced less income over the years.



I'm not sure I would be making that bet. Of course it will all depend on how the "rules" for such a strategy were constructed, but you could certainly end up with a portfolio that is higher in both Capital and Income terms.

Now obviously it is cheating to construct such "rules" after the event, but that is easily achievable.

However, in general terms only, you can consider the 3 biggest companies, which are BATS, RIO and PSN. Consider their 20 year histories. In the case of the former the share has grown in a gradual fashion, so nothing hugely interesting to say. But in the cases of RIO and PSN there are periods where the share price has grown rapidly in relatively short periods (and fallen in such manner too!).

It is easily conceivable to have a strategy of "harvesting" rapid gains - such as 100% gains in 2 years. By doing so you would capture strong growth, and avoid periods of large falls. No doubt there are many "HYPable" shares that didn't feature in HYP1 that could have been (re)invested in, with similar "gains" crystalized, and "losses" avoided.

Of course, as you say, no such "rules" were published in advance, nor tested (to my knowledge), nor would there be any guarantees such a system would continue to work. But to suggest that HYP1 would beat ALL other possible rules based systems is a stretch to say the least.

The problem with HYP1 is that it is a single result population from a statistical perspective, and is being used as "proof" of the HYP systems success. It is of course a very successful system (on some but not all metrics), which is problematic in that sense (a nice problem to have admittedly). Were it a failure I doubt the majority of posters (or posts) would be here.

In a parallel universe there may be a HYP1 that didn't chose all, or any, of those 3 shares, and the discussion would look very different. Indeed in a future part of this universe there maybe a point where the 3 shares collapse due to a currently unknowable fraud, recession or legislation against their products. We don't know. But to extrapolate from a single experiment, and make claims about "success" in whatever form, is disingenuous statistically speaking.

IanTHughes
Lemon Quarter
Posts: 1789
Joined: May 2nd, 2018, 12:01 pm
Has thanked: 730 times
Been thanked: 1117 times

Re: HYP1 is 20 - thread discussing income and capital diversification

#356807

Postby IanTHughes » November 15th, 2020, 4:12 pm

dealtn wrote:
IanTHughes wrote:The different value and income percentages we are now seeing in HYP1 are a result of 20 years of growth by the winners compared with the plodders, not to mention the losers. Of course one could have sold part of those winners, just as soon as they started to diverge from those plodders and losers. But how would the portfolio look now if that had been done?

Of course, no-one knows the answer to that because such an exercise in "trimming the winners" has not been done. However, I am prepared to bet that the resulting portfolio would now be lower in value and would have produced less income over the years.

I'm not sure I would be making that bet. Of course it will all depend on how the "rules" for such a strategy were constructed, but you could certainly end up with a portfolio that is higher in both Capital and Income terms.

Of course, that is why I called it a bet, there are no guarantees with any bet!

dealtn wrote:The problem with HYP1 is that it is a single result population from a statistical perspective, and is being used as "proof" of the HYP systems success.

Not by me I can assure you. What it shows to me is that HYP1 itself, has created a better income and capital result than many Investment Funds would have, that is all. No, it cannot on its own "prove" that the HYP Strategy will always succeed, but its results should not be ignored. That is what I think for what it is worth.

Seriously, all I am suggesting here is that HYP1 has been successful, when measured against some other possible ways of creating the income which is of course the sole aim of the strategy. I do find it strange that others disagree and would dearly wish that they would back up their disagreement with results from other strategies that beat HYP1. So far I have seen none, although I am sure that there must me some out there.


Ian


Return to “High Yield Shares & Strategies - General”

Who is online

Users browsing this forum: No registered users and 8 guests