HYP1 vs TJH HYP vs FTSE250 Review

[1nvest]

Well, you may consider those good reasons for choosing the FTSE250, but that fact is that the 250 was never the basis for HYP, so as a comparator for HYP1 it's the wrong index.

So you consider the FT100 to be a good choice of benchmark? A better choice than others?

HYP1 and TJH HYP tilt towards smaller cap. Any time you move away from market cap you weight the largest stocks less. How that tilt away from size is performed - what and how stocks are selected is irrelevant when looking at it from a size factors angle. Look at the broader trend lines since the mid 1980's and FT250 and TJH HYP overlap each other, near-as the same. FT100 aligns (parallelism) more with All-World - and both were distinctly different to both the FT250 and HYP.

Of course, we can all choose whatever benchmark we like, depending what we are trying to establish, but as regards HYP1 and TJH, there can be little doubt that the FTSE 250 is not the correct one. People should be aware of that. In the end it makes little diffference except informs one's own agenda.

The FT100 is hardly a good choice of benchmark for HYP, not even a apples/pears comparison and more like apples/lemons, but each to their own. To clarify, I have no hidden agenda, unlike some that might look to promote/sell newsletters/whatever. Standard practice for comparisons includes measuring/comparing total returns, yet over 19 years of history HYP1 hasn't recorded such comparisons at all, on the basis of 'ignore capital' type policy and seemingly intentionally directing away from those that advocate Total Return type metrics.

If a real world portfolio tracks its mathematical index broadly then that is clearly a reasonable choice of benchmark. If the differences are large then the validity of the choice of benchmark is questionable. The clear indications are that the FT250 is a vastly better choice of benchmark for HYP than is the FT100. But yes even the FT250 isn't the best choice, a more equal weighted sectors index would be the better choice - but as far as I am aware there is no such benchmark index available.

[1nvest]

HYP1 is a non-rebalanced style, TJH HYP is a rebalanced style, and comparing the two suggest non rebalancing as potentially being the more rewarding on average.

Measuring from a fixed start year up to 2018 when both portfolios had achieved near the same annualised rewards from around the same start date, and on a running basis (yearly reviews) HYP1 was ahead of TJH HYP in 79% of years.

Measuring each year as a start year to a fixed 2018 end year, and HYP1 was more rewarding in 86% of cases.

Not a ideal measure as starting from later years for HYP1 data reflected tilted initial weightings. However extending that test applied to other asset allocations/portfolios and different time periods where the initial weightings were equal was suggestive that pattern/difference repeats on average, buying in initial equal weightings and not rebalancing would seem to be the more productive on average than if rebalancing was applied. Perhaps a reflection of higher reward for higher concentration risk.

[funduffer]

All this thread goes to show is that HYP is a fairly good income strategy, and not a very good accumulation strategy.

If you want to build a pot to live off, don't use HYP. Instead, probably use index funds, with an appropriate asset allocation, unless you really fancy your stock picking skills.

If you want an income from a pot to live off, maybe use HYP, or other high yielding assets (eg IT's). HYP seems like a reasonable choice for an average UK investor, with or without periodic rebalancing.

FD

[Wizard]

All this thread goes to show is that HYP is a fairly good income strategy, and not a very good accumulation strategy.

If you want to build a pot to live off, don't use HYP. Instead, probably use index funds, with an appropriate asset allocation, unless you really fancy your stock picking skills.

If you want an income from a pot to live off, maybe use HYP, or other high yielding assets (eg IT's). HYP seems like a reasonable choice for an average UK investor, with or without periodic rebalancing.

FD

That pretty much accords with my views. I would add two things, first HYP's limitation to only UK listed shares is a significant weakness, probably more so now than when it was first discussed on TMF. If it is used for income I think using it alone adds an element of risk. Second, in the same way HYP is not good for accumulation, it is not focussed on capital growth or even retention, so as an income strategy it is fine if you are not worried about what you may leave to your heirs.

[Alaric]

so as an income strategy it is fine if you are not worried about what you may leave to your heirs.

If there's a need to maintain a minimum level of income, there will be a need to either hold some cash as a reserve, or be prepared to sell to supplement a dividend shortfall. Both these appear to conflict with rules that seem to imply that the investor should be both fully invested and retain for ever.

[Wizard]

so as an income strategy it is fine if you are not worried about what you may leave to your heirs.

If there's a need to maintain a minimum level of income, there will be a need to either hold some cash as a reserve, or be prepared to sell to supplement a dividend shortfall. Both these appear to conflict with rules that seem to imply that the investor should be both fully invested and retain for ever.

My recollection is that PYAD has said, not that long ago that if you can't withstand some significant cuts in income HYP is not for you. That suggests, in HYP parlance, that you need a very substantial 'safety margin' rather than a cash reserve. Put another way, I interpret that to mean that HYP is really for those with significantly more assets to start with than they need to create the income they want.

[tjh290633]

so as an income strategy it is fine if you are not worried about what you may leave to your heirs.

If there's a need to maintain a minimum level of income, there will be a need to either hold some cash as a reserve, or be prepared to sell to supplement a dividend shortfall. Both these appear to conflict with rules that seem to imply that the investor should be both fully invested and retain for ever.

It simply requires the old Rolls-Royce maxim about power, you need enough income. If you have achieved that level, then a minor setback such as we have this year, is of little consequence.

If you have to start nibbling at your capital, then you are on the slippery slope. As I see it, enough means that you can fund a comfortable care home for an indefinite period.

If you haven't concentrated on building that income flow, then you are a hostage to fortune.

TJH