Jam's HYP - First Outing as of 11th June 2022

[Dod101]

There are other factors to consider (at least for most investors) than simply ease of admin. There is a lower risk profile but in return for that the investor is depriving himself of the ability to take advantage of any surge in the price of an individual share such as Shell currently,

Hmm, the opposite is also true. Not so long ago Shell remember was priced higher than it was now, and paid a much higher dividend. I suspect many long term holders might still be sitting on a capital loss. I could also add to the list VOD, IMB, HSBA... the list goes on... My sense is that ITs especially bought below NAV have less volatile share prices and dividends.

I am sure ITs have less volatility (with at least one notable exception, SMT, but I guess you are referring to income ITs) My point about Shell is though that you have the opportunity with say Shell to have bought it at a really low point and so selling at or near to its all time high makes sense, and something unlikely to occur with an income IT.

Dod

[Itsallaguess]

I should have acknowledged that there is what some might see as a lot of work in handling a 'mixed' portfolio. I am long retired and so have the time and enjoy it.

I also have what I think is a fairly conservative outlook and so avoided the [single-share HYP] disasters of the last few years

I think we're probably much closer with our investment attitudes than we might think Dod, and as someone who's completely happy with my income-portfolio running yield of around 4.2%, I think one of the key questions I had to ask myself with regards to UK single-share holdings was why I would want to have the additional hassle of taking on those more granular single-share UK components if I was able to achieve a similar yield from a number of UK-centric income-IT options, delivering a single-shot solution with built-in diversification by design?

For me there simply isn't, on balance, enough positive benefits in holding those single-share UK-centric holdings when taking a portfolio-level view against a broader set of non-UK income-IT holdings, and so rolling up that single-share UK section of my income portfolio into an income-IT solution makes by far the most sense to me...

I would point out though, that separate to my income-portfolio, I do tend to have a couple of 'value plays' on the go at any given time, and these *separately* provide a nice diversion for me in the 'it would be nice to get some capital returns' sphere, so I do appreciate that area of investment interest and the need to scratch that particular itch, but for me personally it's been very beneficial to mentally segregate those more risky 'plays' well away from my longer-term income-portfolio, and I do think that giving myself such smaller-scale distractions does allow the 'time in the market' aspect of my larger income-portfolio to just keep plodding away...

Cheers,

Itsallaguess

[Dod101]

I should have acknowledged that there is what some might see as a lot of work in handling a 'mixed' portfolio. I am long retired and so have the time and enjoy it.

I also have what I think is a fairly conservative outlook and so avoided the [single-share HYP] disasters of the last few years

I think we're probably much closer with our investment attitudes than we might think Dod, and as someone who's completely happy with my income-portfolio running yield of around 4.2%, I think one of the key questions I had to ask myself with regards to UK single-share holdings was why I would want to have the additional hassle of taking on those more granular single-share UK components if I was able to achieve a similar yield from a number of UK-centric income-IT options, delivering a single-shot solution with built-in diversification by design?

For me there simply isn't, on balance, enough positive benefits in holding those single-share UK-centric holdings when taking a portfolio-level view against a broader set of non-UK income-IT holdings, and so rolling up that single-share UK section of my income portfolio into an income-IT solution makes by far the most sense to me...

I would point out though, that separate to my income-portfolio, I do tend to have a couple of 'value plays' on the go at any given time, and these *separately* provide a nice diversion for me in the 'it would be nice to get some capital returns' sphere, so I do appreciate that particular area of investment interest and the need to scratch that particular itch, but for me personally it's been very beneficial to mentally segregate those more risky 'plays' well away from my longer-term income-portfolio, and I do think that giving myself such smaller-scale distractions does allow the 'time in the market' aspect of my larger income-portfolio to just keep plodding away...

Cheers,

Itsallaguess

Thanks. I agree with you (mostly!) Hopefully these exchanges may help Jam to put our earlier comments in some sort of context.

Dod

[moorfield]

I am sure ITs have less volatility (with at least one notable exception, SMT, but I guess you are referring to income ITs) My point about Shell is though that you have the opportunity with say Shell to have bought it at a really low point and so selling at or near to its all time high makes sense, and something unlikely to occur with an income IT.

Sure, but we are discussing high yield income strategies here, not momentum investing, and at no point in the last 3 years has Shell offered a high yield entry point for buying, less so now it's price is higher again. CTY's yield is currently greater by nearly half, 4.8% vs 3.3%, which (like AZN) brings us back to that favourite question of mine - why buy or hold Shell now, for income ?

[Dod101]

I am sure ITs have less volatility (with at least one notable exception, SMT, but I guess you are referring to income ITs) My point about Shell is though that you have the opportunity with say Shell to have bought it at a really low point and so selling at or near to its all time high makes sense, and something unlikely to occur with an income IT.

Sure, but we are discussing high yield income strategies here, not momentum investing, and at no point in the last 3 years has Shell offered a high yield entry point for buying, less so now it's price is higher again. CTY's yield is currently greater by nearly half, 4.8% vs 3.3%, which (like AZN) brings us back to that favourite question of mine - why buy or hold Shell now, for income ?

You are of course correct. To answer your question the answer has to be because with its current earnings a decent increase in its dividend is surely on the cards notwithstanding the threatened (or real?) windfall tax and its ongoing share buyback programme (which was in progress before the current profits surge)

However, I forget that these days I am not a very dedicated income investor and favour a total return, where I can get it, rather than concentrating on the dividend.

Dod

[CryptoPlankton]

It's the disproportionate effect of one "bad apple" in a HYP-style portfolio that I find the greatest irritant. For instance, if you select a lovely equally-weighted portfolio of 15 shares, with an average annual dividend increase of 7%, it should provide a pretty satisfactory rising income. However, if just one share were to hit the buffers and stop paying, you would find that, rather than keeping up with inflation (almost!), your annual income would actually fall. All of the research that went into finding those 14 excellent shares would be completely negated by one (quite possibly unforeseeable) failure. Investment trusts have the capacity to absorb these hiccups and continue to provide a steady and increasing payout. Consequently, as far as income is concerned at least, I no longer look to "single-share" holdings, though a few do remain in my portfolio.

[IanTHughes]

Investment trusts have the capacity to absorb these hiccups and continue to provide a steady and increasing payout. Consequently, as far as income is concerned at least, I no longer look to "single-share" holdings, though a few do remain in my portfolio.

Sometimes, that is true but at other times ..........

https://www.dividenddata.co.uk/dividend ... ?epic=TMPL
or
https://www.dividenddata.co.uk/dividend ... ?epic=EDIN

Ok, that was the pandemic but contrary to your findings, my research indicates that a well selected HYP of at least 15 holdings can absorb the odd failure, every bit as well as many Investment Trusts can.

The "virtual" drawdown portfolio, set up by pyad back in March 2019 and being monitored by myself, has so far shown that when it comes to income, HYP is right up there:

viewtopic.php?f=15&t=33976&p=491983#p491983

Annual Income: HYP Compared with Various Other Income Investments

During this third year, the HYP’s Income is in the middle of what might have been achieved with the chosen alternatives. An improvement on Year Two!



Average Annual Income: HYP Compared with Various Other Income Investments

Because of the income received during the first year being somewhat higher, the HYP’s Average Annual Income for the three years is still on a par with the average of the chosen alternatives.

I have also back-tested various Investment Trusts against HYP1, the original HYP portfolio set up by pyad 20 odd years ago and never tinkered. It knocks spots off most Investment Trusts that I have found - for value and income.


HYP may not be everyone's cup of tea, but I think it would be a mistake to believe that putting one's funds into Investment Trusts, will solve all problems, and provide an improved result. Maybe it will, but then again, maybe it will not.

If you do have evidence to the contrary, it would be great if you could share it.


Ian

[Charlottesquare]

I have also back-tested various Investment Trusts against HYP1, the original HYP portfolio set up by pyad 20 odd years ago and never tinkered. It knocks spots off most Investment Trusts that I have found - for value and income.


HYP may not be everyone's cup of tea, but I think it would be a mistake to believe that putting one's funds into Investment Trusts, will solve all problems, and provide an improved result. Maybe it will, but then again, maybe it will not.

If you do have evidence to the contrary, it would be great if you could share it.


Ian

But are you backtesting HYP1 against just one single IT or against a basket of ITs?

I act as trustee for a small life interest trust arising from from my late father's estate, we settled the funds into it circa November 2013 , the report I received last week from the family solicitors up to 30th April 2022 had capital value up 70% with all dividends (Just under 3% current yield) distributed to the party with the life interest since its inception.

It held originally 7 ITS namely :

Black Rock World Mining, +58.8%
City of London,+11.4%
Henderson Far East, -7.5%
JPM European Growth & Inc+50.9%
North American Inc Trust,+75.6%
Scottish Mortgage+350.6% (well down from peak and of course has sunk since)
Standard Life Property+18.4%

Originally all holdings roughly equal in value

The trustees original intention was to achieve roughly same return to capital as to income, though we have no idea how long trust will last (death of the party with the life interest)

Scottish Mortgage got trimmed quite a few years back and we purchased from its proceeds a 3/4 holding in Scottish American +35.6% but that is the only trade made since inception.

I have no idea what HYP1 did in similar period (Nov 2013 to April 2022) re both inc and growth but no doubt you can advise?

[CryptoPlankton]

HYP may not be everyone's cup of tea, but I think it would be a mistake to believe that putting one's funds into Investment Trusts, will solve all problems, and provide an improved result. Maybe it will, but then again, maybe it will not.

If you do have evidence to the contrary, it would be great if you could share it.

Hello Ian

I know you are an ardent HYPer and I am certainly not going to tell anyone that my approach to income investing is better than anyone else's. All I would say is that, in my experience, Investment Trusts have proved more reliable than single-company portfolios when it comes to a steady and generally increasing annual dividend income. The three income IT's I am most familiar with (wrt to largely UK listed companies) are CTY, MRCH and LWDB. Two of these have increased dividends every year this century and the third has only ever held at worst. In contrast, I am unaware of a single HYP portfolio that has avoided at least a couple of annual cuts in dividends over that period. Indeed, HYP1 has actually had a cut in income four times (nearly 50% on the last occasion). It may be that some HYPs do produce better results in the long term, but I need a more reliable (and less volatile) income and I am satisfied that I get that through a portfolio of geographically and sectorally diverse ITs. However, this is simply what suits me, and if you believe your approach will satisfy your requirements then we are both happy investors - which is all that matters!

Regards, CP

[IanTHughes]

HYP may not be everyone's cup of tea, but I think it would be a mistake to believe that putting one's funds into Investment Trusts, will solve all problems, and provide an improved result. Maybe it will, but then again, maybe it will not.

If you do have evidence to the contrary, it would be great if you could share it.

I know you are an ardent HYPer and I am certainly not going to tell anyone that my approach to income investing is better than anyone else's. All I would say is that, in my experience, Investment Trusts have proved more reliable than single-company portfolios when it comes to a steady and generally increasing annual dividend income. The three income IT's I am most familiar with (wrt to largely UK listed companies) are CTY, MRCH and LWDB. Two of these have increased dividends every year this century and the third has only ever held at worst. In contrast, I am unaware of a single HYP portfolio that has avoided at least a couple of annual cuts in dividends over that period. Indeed, HYP1 has actually had a cut in income four times (nearly 50% on the last occasion). It may be that some HYPs do produce better results in the long term, but I need a more reliable (and less volatile) income and I am satisfied that I get that through a portfolio of geographically and sectorally diverse ITs. However, this is simply what suits me, and if you believe your approach will satisfy your requirements then we are both happy investors - which is all that matters!

It is true that I do follow the High Yield Portfolio (HYP) strategy, but the only thing that I am ardent about is attempting to find an income strategy that at least matches HYP in results, whilst remaining simple enough for me to follow. So far no such luck!

You are of course correct about the cuts in annual income suffered by HYP1 over its history although, if one takes HYP1's income over the whole period - 2000 to 2021 - to be 100%, CTY has only managed 75% of that total while MRCH did a little better at 82%. Furthermore both CTY and MRCH would have been significantly behind with regards to capital value, 76% and 69% respectively. I do not have details for LWDB but I will investegate.

But of course, if you are content to receive what I would call a significantly lower return, both income and capital value, then go for it.

However, I was actually commenting on your assertion:

Investment trusts have the capacity to absorb these hiccups and continue to provide a steady and increasing payout.

I just think that when one makes such an assertion, one should add the caveats that: only three Investment Trusts have been investegated and, with at least two of those selections, there could be a significant loss of return, based on current historical records.


Ian

[Jam1]

It is in part reassuring that there is a debate here, based on decades of experience, and find myself supportive of both perspectives! A hybrid HYP and IT approach is attractive to me. I also recognise that there may well be a personal interest for direct involvement in investing that HYP provides beyond the absolute income generated. This motivation may well change as I get closer to retirement.

Perhaps the discounts to NAV on ITs will widen and I will focus top-ups there for a period, if the markets weaken further, but I do not want to rush into any substantive change whilst things appear somewhat volatile.

Sorry, no contribution here, but wanted to highlight I have read through the thread several times and very much appreciate the feedback.

Jam (tomorrow)

[CryptoPlankton]

HYP may not be everyone's cup of tea, but I think it would be a mistake to believe that putting one's funds into Investment Trusts, will solve all problems, and provide an improved result. Maybe it will, but then again, maybe it will not.

Of course, to a large degree that depends on what you perceive as "problems" and how you would define "an improved result". For me, provided I have sufficient income, minimising the volatility of that income and avoiding an overly concentrated and unbalanced portfolio are important objectives.

You are of course correct about the cuts in annual income suffered by HYP1 over its history although, if one takes HYP1's income over the whole period - 2000 to 2021 - to be 100%, CTY has only managed 75% of that total while MRCH did a little better at 82%. Furthermore both CTY and MRCH would have been significantly behind with regards to capital value, 76% and 69% respectively. I do not have details for LWDB but I will investegate.

That is a good overall performance, though personally I would have found the volatile income and increasingly unbalanced portfolio uncomfortable to live with.

But of course, if you are content to receive what I would call a significantly lower return, both income and capital value, then go for it.

Than HYP1? I'm not sure I (or anyone, for that matter) would be prepared to buy that portfolio as it is weighted today, so I don't really know what you are suggesting? I have bought many single company shares over the years, and still happily hold a few that have grown both in capital value and dividend payout. My "UK income" investment trusts only form a small part of the rest of my portfolio, which includes a variety of both "income" and "growth" investments. I am quite content to "go for it" in this way rather than focus solely on a small corner of the investment universe. But, if you are convinced you have found the Holy Grail of investing then you should most definitely continue to "go for it" yourself, and the best of luck to you.

However, I was actually commenting on your assertion:

Investment trusts have the capacity to absorb these hiccups and continue to provide a steady and increasing payout.

I just think that when one makes such an assertion, one should add the caveats that: only three Investment Trusts have been investegated and, with at least two of those selections, there could be a significant loss of return, based on current historical records.

Perhaps, when making such an assertion as "a significant loss of return, based on historical records", one should also add the caveat that only one HYP portfolio's historical records have been investigated in drawing that conclusion?

Anyway, I'm not one for rabbit holes, and I doubt this is adding anything useful for the OP, so no more on the matter from me...

ATB, CP

[IanTHughes]

However, I was actually commenting on your assertion:

Investment trusts have the capacity to absorb these hiccups and continue to provide a steady and increasing payout.

I just think that when one makes such an assertion, one should add the caveats that: only three Investment Trusts have been investegated and, with at least two of those selections, there could be a significant loss of return, based on current historical records.

Perhaps, when making such an assertion as "a significant loss of return, based on historical records", one should also add the caveat that only one HYP portfolio's historical records have been investigated in drawing that conclusion?

Anyway, I'm not one for rabbit holes, and I doubt this is adding anything useful for the OP, so no more on the matter from me...

When commenting on only one HYP - whether HYP1 or the "virtual" portfolio set up by pyad in 2019 - I believe the fact that one is commenting on only one HYP has been clearly demonstrated. However, to make it clear I am happy to confirm that when I was comparing possible investment in Investment Trusts to only HYP1, or only the "virtual" portfolio set up by pyad in 2019, I was of course using the results of only one HYP.

The "problem" being addressed was of course the one that you raised with regard to possible "hiccups" occurring to an HYP's income, and your apparent assertion that such "hiccups" would not occur if one invested in Investment Trusts. An assertion which I do believe I have categorically shown to be incorrect. I suspect that Jam is now fully aware that Investment Trusts can easily suffer income drops from time to time, just like an HYP can, while at the same time possibly offering a significantly lower return.


Ian

[IanTHughes]

I have no idea what HYP1 did in similar period (Nov 2013 to April 2022) re both inc and growth but no doubt you can advise?

First of all, the overall progress of HYP1 and The City of London Investment Trust plc (CTY).

          | Capital    | Performance |    |           | Income    | Performance
Date      | HYP1       | CTY         |    | Date      | HYP1      | CTY        
20-Nov-00 |  75,000.00 |   75,000.00 |    |           |           |            
20-Nov-01 |  75,414.00 |   74,064.45 |    | 20-Nov-01 |  3,451.00 |    1,765.06
20-Nov-02 |  66,180.00 |   59,251.56 |    | 20-Nov-02 |  3,474.00 |    2,476.08
20-Nov-03 |  72,177.00 |   60,654.89 |    | 20-Nov-03 |  3,197.00 |    2,516.63
20-Nov-04 |  80,450.00 |   65,800.42 |    | 20-Nov-04 |  3,205.00 |    2,597.71
20-Nov-05 |  98,367.00 |   75,704.78 |    | 20-Nov-05 |  3,546.00 |    2,688.14
20-Nov-06 | 127,330.00 |   93,555.09 |    | 20-Nov-06 |  4,131.00 |    2,918.92
20-Nov-07 | 138,966.00 |   88,175.68 |    | 20-Nov-07 |  4,452.00 |    3,212.06
20-Nov-08 |  76,826.00 |   59,485.45 |    | 20-Nov-08 |  5,040.00 |    3,617.46
20-Nov-09 |  97,485.00 |   74,688.15 |    | 20-Nov-09 |  3,187.00 |    3,842.00
20-Nov-10 | 113,893.00 |   87,411.64 |    | 20-Nov-10 |  3,297.00 |    3,948.02
20-Nov-11 | 114,218.00 |   85,197.51 |    | 20-Nov-11 |  3,843.00 |    4,116.42
20-Nov-12 | 124,335.00 |   95,675.68 |    | 20-Nov-12 |  4,289.00 |    4,284.82
20-Nov-13 | 144,000.00 |  115,914.76 |    | 20-Nov-13 |  5,828.00 |    4,459.46
20-Nov-14 | 150,543.00 |  118,690.23 |    | 20-Nov-14 |  5,601.00 |    4,602.92
20-Nov-15 | 149,974.00 |  120,561.33 |    | 20-Nov-15 |  6,093.00 |    4,771.32
20-Nov-16 | 153,721.00 |  121,247.40 |    | 20-Nov-16 |  6,124.00 |    4,958.42
20-Nov-17 | 172,485.00 |  132,068.61 |    | 20-Nov-17 |  7,327.00 |    5,207.90
20-Nov-18 | 155,583.00 |  122,401.25 |    | 20-Nov-18 |  8,882.00 |    5,519.76
20-Nov-19 | 159,682.00 |  130,041.58 |    | 20-Nov-19 | 10,557.00 |    5,800.42
20-Nov-20 | 148,627.00 |  109,459.46 |    | 20-Nov-20 |  5,533.44 |    5,925.16
20-Nov-21 | 159,773.00 |  121,153.85 |    | 20-Nov-21 | 11,339.00 |    5,956.34

                                          | Total     |112,396.44 |   85,185.02

I can only comment on the period between November 2013 and November 2021 as follows:

Date      | HYP1       | CTY       
20-Nov-13 | 144,000.00 | 115,914.76
20-Nov-21 | 159,773.00 | 121,153.85
Increase  |   10.95%   |    4.52%  

Between Nov 2013 and Nov 2021, as well as the capital increase, the following % of Nov 2013 capital would have been received as income

Date      | HYP1       | CTY       
20-Nov-21 |  61,456.44 |  42,742.24
Income    |   42.68%   |   36.87%  

I hope that helps


Ian

[Itsallaguess]

A hybrid HYP and IT approach is attractive to me.

I also recognise that there may well be a personal interest for direct involvement in investing that HYP provides beyond the absolute income generated.

Hi Jam,

Just in case you're not aware, I'd like to highlight a very useful and interesting long-term history of Arb's multi-strategy real-life income portfolio, where he's been absolutely brilliant in tracking three separate groups of income-related holdings that he uses -

• ArbHYP - HYP (single shares)

• ArbIT - Income-related investment trusts

• OEIC - Open ended investment funds

Source thread (Arbit, HYP and OEICs 2022 Q1) - https://www.lemonfool.co.uk/viewtopic.php?f=31&t=34027

This is the time of year when Arb's often gallivanting around the seas in his boat, so I hope he doesn't mind me highlighting the great work he continues to do with these portfolio trackings of his, and I hope he'll soon be updating the above charts with his 2nd Quarter 2022 data...

It should be noted here that the ArbIT portfolio above (income Investment Trust holdings - pink line) is a mix of IT's from many different global geographies and sectors, including an element of UK-centric IT holdings, but also containing a number of other, non-UK facing IT's as well, so ArbIT is a broadly diversified set of income-IT's.

I would like to think that any sensible discussion that's wanting to compare the resilience of income between a HYP-like basket of purely UK-centric single-shares and that of a basket of global income-IT's that also contains an element of UK-facing income-IT holdings (such as the ArbIT sub-portfolio shown above) would be able to agree that the pink ArbIT line above clearly shows two useful long-term characteristics that I imagine many income-investors might look for -

• Steady and reliable long-term growth of income

• Resilience of income-delivery to general market turbulence

If we compare that ArbIT pink line to the ArbHYP dark blue line, we can clearly see the really quite drastic income-shock that the ArbHYP portfolio has gone through over recent years, and which is still some way off from recovering back to both it's general pre-COVID level, and it's pre-COVID trend line.

We can see a similar UK-facing single-share portfolio income-rout when we look at the income history from the original HYP1 portfolio, which turned 21 last November, which went from delivering an income of £10,557 in 2019 to nearly a halving of income (£5533) in 2020 -

HYP1 Income History -

2018    £8,882
2019    £10,557
2020    £5,533
2021    £11,338

HYP is 21 - https://www.lemonfool.co.uk/viewtopic.php?f=15&t=32154

Please note that the 2021 HYP1 income above is flattered by large special payouts from Rio Tinto and Anglo American, so I am keen to see how the 2022 HYP1 income looks against that yearly trend this November, when we might have a view on more 'regular' HYP1 income without it being influence by those large special payments...

Whilst we're talking about HYP1, which is the original HYP portfolio, you might be interested in a long-term study I've been carrying out below, which looks at how a hands-off UK-centric income-portfolio develops over time, in terms of income and capital weightings, and how HYP1 has become really quite imbalanced when looking at it's reliance on a really small sub-set of very largely-weighted sub-holdings.

As a stark example of this, my thread linked below will show that a full 90% of HYP1 dividend income is now reliant on just FIVE HYP1 holdings -

HYP1 is 21 - thread discussing income and capital diversification - https://www.lemonfool.co.uk/viewtopic.php?f=31&t=33582

Cheers,

Itsallaguess

[Itsallaguess]

Investment trusts have the capacity to absorb these hiccups and continue to provide a steady and increasing payout. Consequently, as far as income is concerned at least, I no longer look to "single-share" holdings, though a few do remain in my portfolio.

Sometimes, that is true but at other times ..........

https://www.dividenddata.co.uk/dividend ... ?epic=TMPL
or
https://www.dividenddata.co.uk/dividend ... ?epic=EDIN

Ok, that was the pandemic but contrary to your findings, my research indicates that a well selected HYP of at least 15 holdings can absorb the odd failure, every bit as well as many Investment Trusts can.

Hi Ian,

What do those two UK-facing IT income drops look like when shown in percentage terms, and when compared to the largest drops seen in both your Virtual draw-down HYP income and also HYP1 please?

Income resilience doesn't mean there won't ever be any impact to income - surely it's about how large such impacts are, and on a quick glance I would hope we'd agree that your Virtual draw-down HYP and HYP1 have seen recent drops in income of a scale that simply isn't reflected in the size of drops you've highlighted above from Temple Bar or Edinburgh, but I'd be interested if you were able to show those comparisons in percentage terms if you could please?

From a quick look at the data, it might be difficult to align year-on-year payouts from all four sources, so would it be good to compare just the single largest drop in income from all four over recent years, do you think?

Also, a couple of UK-facing income IT's that I own are City of London (CTY) and Law Deb (LWDB), which have actually shown increases in dividend payouts over a similar period -

CTY - https://www.dividenddata.co.uk/dividend-history.py?epic=CTY

LWDB - https://www.dividenddata.co.uk/dividend-history.py?epic=lwdb

Unless I'm mistaken, we've yet to see a HYP-like, single-share, UK-facing income-portfolio that's not suffered from really quite large cuts in income over recent years, but if you've got an example that we're not aware of, could you show it please?

Cheers,

Itsallaguess

[IanTHughes]

A hybrid HYP and IT approach is attractive to me.

I also recognise that there may well be a personal interest for direct involvement in investing that HYP provides beyond the absolute income generated.

I would like to think that any sensible discussion that's wanting to compare the resilience of income between a HYP-like basket of purely UK-centric single-shares and that of a basket of global income-IT's that also contains an element of UK-facing income-IT holdings (such as the ArbIT sub-portfolio shown above) would be able to agree that the pink ArbIT line above clearly shows two useful long-term characteristics that I imagine many income-investors might look for -

• Steady and reliable long-term growth of income

• Resilience of income-delivery to general market turbulence

If we compare that ArbIT pink line to the ArbHYP dark blue line, we can clearly see the really quite drastic income-shock that the ArbHYP portfolio has gone through over recent years, and which is still some way off from recovering back to both it's general pre-COVID level, and it's pre-COVID trend line.

There is no doubting that what you claim above is correct. Comparing the "managed" income returns from a portfolio of Investment Trusts with the "un-managed" income returns of an HYP-type portfolio, does show income shocks appearing in the latter that do not appear in the former. If you do not mind me saying so, a somewhat predictable outcome!

What is needed is a comparison where HYP income is similarly "managed" in order to avoid the income shocks that will otherwise occur. I have yet to investigate this fully but will be working on it soon.

For now all I will say is that, if Arborbridge had withdrawn from his HYP portfolio only that amount of income received from his Investment Trust portfolio, I believe that his HYP portfolio would now be sitting on a significant reserve of undrawn income. I believe the same can be said of HYP1, if only having drawn the income that would have been received from a basket of Investment Trusts.


Ian

[IanTHughes]

Investment trusts have the capacity to absorb these hiccups and continue to provide a steady and increasing payout. Consequently, as far as income is concerned at least, I no longer look to "single-share" holdings, though a few do remain in my portfolio.

Sometimes, that is true but at other times ..........

https://www.dividenddata.co.uk/dividend ... ?epic=TMPL
or
https://www.dividenddata.co.uk/dividend ... ?epic=EDIN

Ok, that was the pandemic but contrary to your findings, my research indicates that a well selected HYP of at least 15 holdings can absorb the odd failure, every bit as well as many Investment Trusts can.

What do those two UK-facing IT income drops look like when shown in percentage terms, and when compared to the largest drops seen in both your Virtual draw-down HYP income and also HYP1 please?

My, you don't ask for much do you!

The comparison with HYP1 would require some more work, but for the "virtual" Drawdown Portfolio .....

 Year-End |   HYP     |   +/-   |   TMPL   |   +/-   |   EDIN    |   +/-  
05-Apr-20 | 14,675.24 |         | 9,937.29 |         | 11,193.90 |        
05-Apr-21 |  8,566.45 | -41.63% | 7,444.44 | -25.09% | 11,014.95 |  -1.60%
05-Apr-22 | 11,518.06 |  34.46% | 7,637.80 |   2.60% |  7,119.18 | -35.37%

Income resilience doesn't mean there won't ever be any impact to income - surely it's about how large such impacts are, and on a quick glance I would hope we'd agree that your Virtual draw-down HYP and HYP1 have seen recent drops in income of a scale that simply isn't reflected in the size of drops you've highlighted above from Temple Bar or Edinburgh, but I'd be interested if you were able to show those comparisons in percentage terms if you could please?

With respect, I disagree. What is important to me is how much total income one can withdraw over a given period. Also, to use a facetious example, a £10,000 income dropping by 50% is still an improvement on a £4,500 income increasing by 10%!

As I said in my previous post, if one "managed" an HYP income in a similar way as income from Investment Trusts is already "managed", I think the results would show HYP to be quite capable of producing an ever increasing annual payout, as well as a superior total income to that provided by many Investment Trusts. Not all of course, but HYP does not claim to be the best income strategy, simply a good one!


Ian

[Itsallaguess]

The comparison with HYP1 would require some more work, but for the "virtual" Drawdown Portfolio .....

 Year-End |   HYP     |   +/-   |   TMPL   |   +/-   |   EDIN    |   +/-  
05-Apr-20 | 14,675.24 |         | 9,937.29 |         | 11,193.90 |        
05-Apr-21 |  8,566.45 | -41.63% | 7,444.44 | -25.09% | 11,014.95 |  -1.60%
05-Apr-22 | 11,518.06 |  34.46% | 7,637.80 |   2.60% |  7,119.18 | -35.37%

Thanks Ian - but can you please explain how you generated the largest Edinburgh income drop to be -35.37%?

Looking at the EDIN yearly dividend figures linked to earlier, which are shown underneath the dividend-chart in the URL below, that's only showing a drop of -16.23%?



Source - https://www.dividenddata.co.uk/dividend-history.py?epic=EDIN

Cheers,

Itsallaguess

[Alaric]

As I said in my previous post, if one "managed" an HYP income in a similar way as income from Investment Trusts is already "managed", I think the results would show HYP to be quite capable of producing an ever increasing annual payout,

Investment Trust management of their assets would include not distributing all the income and reinvesting the surplus. That gives them a buffer to stabilise the payouts when as in 2020 there are drastic dividend cuts in the underlying investments. They would probably have to sell assets in order to raise the cash to pay uncovered dividends.

A private investor seeking an annuity replacement or income supplement could manage their assets in a similar manner although what's called "the HYP strategy" appears to preclude sales to finance income shortfalls. Instead the investor is required to suck the income loss. That may not matter to the reinvestor,, but does to those requiring the income to finance everyday spending.