moorfield wrote:
So I argue there comes a point at which HYPsters must tinker to increase their portfolio yield.
Where is the event horizon of the LYP black hole, and how can one recognize and avoid it?
That's the question I am exploring with my [CTY] comparison.
I was very reluctant to get involved with this side-discussion on the original HYP-Practical portfolio-review thread, but now Chris has helpfully split this section of the discussion off onto the
High Yield Shares & Strategies board, then I'm happy to reply to the above without risking the original thread being spoiled...
Before doing so, I think it's worth reflecting on the original HYP portfolio being discussed, and specifically regarding the first post on the review which clearly stated this -
Running Yield = 4.02%https://www.lemonfool.co.uk/viewtopic.php?f=15&t=26799Given that this was the running yield from a HYP containing almost 50 FTSE-based holdings, I think it then became important to remember what the over-riding aim of the portfolio was -
Over 17 years I can see the approach is 'good enough' for me to deliver a supplementary income stream with minimal effort on my part. Staying away from too many buying and selling decisions is part of the attraction.Whilst it's clearly delivering on that aim, and noting here that the OP also now recognises the benefit of at least
some sort of HYP portfolio-management pruning tasks every so often, I think it's still worth asking the question if the particular
method of producing that relatively low yield could be improved...
To answer that question, I suppose we'd have to make sure that any proposed improvement would still deliver on those primary aims -
1. Good enough to deliver a supplementary income with minimal effort.
2. Stay away from buying and selling decisionsThe Investors Chronicle article linked below reviews two income-oriented Investment Trust portfolios over the past 12 months.
One IT portfolio yielded around 4.6%, with the other yielding around 5%.
The first suffered a capital loss of around 14.7%, with the second losing around 8.9%.
Both income-IT portfolios are broadly diversified in both global reach and sectors.
Note - when using the URL below, the first search-result should be selected, headed '
Our investment trust income portfolios 2019: 12 months on' (dated 20th Nov 2020) -
https://www.google.com/search?source=hp&q=our-investment-trust-income-portfolios-2019-12-months-onI wouldn't be in a position to recommend either of the two income-IT portfolios mentioned in the above article, but I post the link here to hopefully show two things -
1. It's
possible to deliver an
improved yield over the OP's
4.02% HYP yield with a collection of globally and sectorally diverse income-IT's (4.6% and 5% with the two IT portfolios linked above)
2. It's
possible to deliver on
both of the primary aims of the OP ('
good enough to deliver a supplementary income with minimal effort, and also, stay away from buying and selling decisions') with a collection of globally and sectorally diverse income-IT's
I would even go so far as to argue that the original HYP portfolio, with nearly 50 underlying holdings, would be likely to need
more hands-on lifetime management than a broadly-selected range of global income-IT's, but the primary reason for me posting the above on this thread would be to simply ask -
Is a 4% HYP yield worth the narrow single-market risk of holding nearly 50 individual shares from that FTSE market?If the overall yield was 6%, or even 5%, and depending on the long and nearer-term capital performance of the overall HYP portfolio (which might be
critical, given the FTSE performance over the past 12 months, mind...), then I
might consider it worth it, but with such a large number of individual holdings delivering such a relatively
low overall yield, I think I would definitely begin to ask myself to what advantage that single-market risk is being taken on for...
But even with the above said, and getting back to the quote at the top of the post ('
So I argue there comes a point at which HYPsters must tinker to increase their portfolio yield.'), I think that almost gets to the heart of the issue with HYP for me, which is that where a HYPer is 'by design' market-restricted, then even if they
do end up deciding that they
want to tinker and aim for a higher yield, they do so with one hand tied behind their backs in terms of just where they might seek out those higher-yielding entities...
Hopefully then, the above Investors Chronicle article might at least provide some food for thought for anyone who might prefer to take a wider net, and look at the possibility of broader income-producing entities being available to both deliver on that higher-yield that they might seek out, whilst perhaps gaining additional diversification in terms of global or sectoral reach, and at the same time, still
importantly delivering on the 'suplementary income, hands-off' approach required from the holder of the original HYP...
Cheers,
Itsallaguess