Stephen Bland reviews the performance of his high yield portfolios.
Here is the quarterly review of my three completed HYPs as at 31/12/06. All were started with £5,000 into each of fifteen shares making a total of £75,000 in each case including costs.
HYP1 start date 13/11/00
| Company |
Cost
£ |
Value
£ |
Gain/
(loss) %
|
|
United Utilities (LSE: UU) |
5,000 |
6,295 |
25.9 |
|
Gallaher (LSE: GLH) |
5,000 |
13,367 |
172.7 |
|
Scottish & New. (LSE: SCTN) |
5,000 |
5,636 |
12.7 |
|
Royal & Sun (LSE: RSA) |
5,000 |
1,935 |
(61.3) |
|
Alliance & Leic (LSE: AL) |
5,000 |
8,740 |
74.8 |
|
Resolution (LSE: RSL) |
5,000 |
3,431 |
(31.4) |
|
Lloyds TSB (LSE: LLOY) |
5,000 |
4008 |
(19.8) |
|
Intercon. Hotels (LSE: IHG) |
2,500 |
7,963 |
218.5 |
|
Mitchells & But (LSE: MAB) |
2,500 |
4,892 |
95.7 |
|
Alliance Boots (LSE: AB) |
5,000 |
6,847 |
36.9 |
|
Land Secs. (LSE: LAND) |
5,000 |
15,038 |
200.8 |
|
BT (LSE: BT-A.L) |
5,000 |
17,131 |
242.6 |
|
Ladbrokes (LSE: LAD) |
5,000 |
9,273 |
85.5 |
|
Rio Tinto (LSE: RIO) |
5,000 |
11,996 |
139.9 |
|
Anglo American (LSE: AAL) |
5,000 |
13,807 |
161.7 |
|
RD Shell (LSE: RDSB) |
5,000 |
4,437 |
(11.3) |
|
Total
|
75,000
|
134,346
|
79.1
|
|
FTSE100
|
6274.8
|
6220.8
|
(0.9)
|
Income
Year to
13 Nov |
£ |
| 2001 |
3,451 |
| 2002 |
3,474 |
| 2003 |
3,197 |
| 2004 |
3,205 |
| 2005 |
3,546 |
| 2006 |
4,131 |
For an income investor withdrawing dividends, the capital gain of 79.1% in 6.12 years is equivalent to a compound annual return of 10.0%. When compared with the index loss of 0.9% the portfolio capital is about 81% ahead of it, a decisive outperformance whilst in addition delivering a higher income too.
For a saver reinvesting dividends I estimate the value now to be £164,377, an increase of 119% on the original investment and equivalent to a compound annual return of 13.7%. This performance is well ahead of cash, inflation and the market.
HYP2 start date 02/04/03
|
Company
|
Cost
£
|
Value
£
|
Gain/
(loss)%
|
|
Lloyds TSB
(LSE: LLOY)
|
5,000 |
8,445 |
68.9 |
|
Scottish & Newc.
(LSE: SCTN)
|
5,000 |
8,012 |
60.2 |
|
DSGI
(LSE: DSGI)
|
5,000 |
11,005 |
120.1 |
|
United Utilities
(LSE: UU.)
|
5,000 |
8,627 |
72.5 |
|
Hays
(LSE: HAS)
|
5,000 |
10,248 |
105 |
|
Legal & General
(LSE: LGEN)
|
5,000 |
10,529 |
110.6 |
|
BAT
(LSE: BATS)
|
5,000 |
12,318 |
146.4 |
|
Bradford & Bingley
(LSE: BB.)
|
5,000 |
7,911 |
58.2 |
|
Hanson
(LSE: HNS)
|
5,000 |
12,012 |
140.2 |
|
Land Securities
(LSE: LAND)
|
5,000 |
15,708 |
214.2 |
|
BT (LSE: BT-A.L) |
5,000 |
12,600 |
152.0 |
|
Pearson (LSE: PSON) |
5,000 |
10,433 |
108.7 |
|
RD Shell
(LSE: RDSB)
|
5,000 |
6,530 |
30.6 |
|
AMVESCAP
(LSE: AVZ)
|
5,000 |
9,557 |
91.1 |
|
Anglo American
(LSE: AAL)
|
5,000 |
12,838 |
156.8 |
|
Total invested
|
75,000
|
156,773
|
109.0
|
|
FTSE 100
|
3,753.4
|
6220.8
|
65.7
|
Year to
02 Apr |
£ |
| 2004 |
4,564 |
| 2005 |
4,347 |
| 2006 |
5,008 |
For an income investor withdrawing dividends the capital gain of 109.0% in 3.67 years is equivalent to a compound annual return of 22.3%. When compared with the index gain of 65.7% the portfolio capital is about 26% ahead of it, a strong outperformance whilst in addition delivering a higher income too.
For a saver reinvesting dividends I estimate the value now to be £183,437, an increase of 145% on the original investment and equivalent to a compound annual return of 27.6%. This performance is way ahead of cash, inflation and the market.
HYP3 start date 31/07/06
Company | Cost
£ | Value
£ | Gain/
(loss)% |
|---|
Lloyds TSB(LSE: LLOY) | 5,000 | 6,064 | 21.3 |
United Utilities (LSE: UU) | 5,000 | 5,983 | 19.7 |
Alliance & Leicester (LSE: AL) | 5,000 | 6,327 | 26.5 |
DSGI (LSE: DSGI) | 5,000 | 5,980 | 19.6 |
L&G (LSE: LGEN) | 5,000 | 7,031 | 40.6 |
BT (LSE: BT.A) | 5,000 | 7,091 | 41.8 |
William Hill (LSE: WMH) | 5,000 | 3,552 | (29.0) |
F&C AM (LSE: FCAM) | 5,000 | 5,821 | 16.4 |
Rentokil (LSE: RTO) | 5,000 | 5,093 | (1.9) |
Scottish & New. (LSE: SCTN) | 5,000 | 5,413 | 8.3 |
| Gallaher (LSE: GLH) | 5,000 | 6,544 | 30.9 |
| RD Shell (LSE: RDSB) | 5,000 | 4,598 | (8.0) |
Unilever (LSE: ULVR) | 5,000 | 5,910 | 18.2 |
Pearson (LSE: PSON) | 5,000 | 5,262 | 5.2 |
ITV (LSE: ITV) | 5,000 | 5,435 | 8.7 |
Total invested | 75,000 | 86,104 | 14.8 |
| FTSE 100 | 5572.9 | 6220.8 | 11.6 |
Completed only five months ago, it is far too early to draw any conclusions regarding HYP3. Encouragingly though It is already moving well in the right direction with a gain nicely above the index and delivering a higher yield too.
With HYP3, unlike the two earlier portfolios, I am permitting myself the luxury of trading though perhaps it may prove more of a liability given my belief that the great majority of HYPers will do better by never selling voluntarily. There has been one voluntary trade to date, Rank was sold at a loss following a dividend cut and replaced by William Hill. Gallaher has received a bid and if this is successful I will have to replace it in due course. That though comes under the heading of involuntary trading.
General Observations
The success of the strategy continues unabated. Index trackers continue to lag way behind all these portfolios along with I suspect most other strategies out there. This performance is even better on a risk adjusted basis because the HYP approach is lower risk, ie. lower volatility, than most others too.
Some readers find my suggested eternity holding view rather difficult to accept. In practice though even an eternity holder is highly likely to experience quite a few involuntary changes in their portfolio over time.
Let's look at eternity portfolio HYP1 because it has been around the longest. In its six years there have been quite a few examples of corporate activity. Blue Circle, a cement producer, was taken over for cash and replaced with Hilton, a hotel and gambling business, itself now changed in character after disposal of its hotel interests to become Ladbrokes which is purely in gambling.
Bass, originally a brewery and hotel/pub/restaurant chain disposed of its brewing side and split into two companies, Intercontinental and Mitchells, for its hotel and pub/restaurant interests respectively. Each of those two companies has reorganised their capital with returns of cash to shareholders. Shell reorganised after merging with its Dutch side. Land Securities has become a REIT after going through a capital reorganisation and return of cash a while back. Tobacco share Gallaher has received a bid and will have to be replaced if that goes through. And so on. Quite a lot of action and decision making required for what is a non trading portfolio.
Note that the strong capital performance of all these portfolios has been achieved despite the appearance of some substantial losses in a few of the holdings. An excellent illustration of the crucial need for good diversification, the effect of which is so powerful that it enables excellent portfolio performance to be achieved in time despite the odd duff share. Similar thinking applies to the income. The effect of dividend holders and slashers has been more than overcome by the increases in other shares' dividends over time.
Although my regular reviews focus on the capital situation because that is the feature that changes short term and thus provides something of interest for the purposes of an article, readers should not forget that the HYP story is primarily about income. That is my view for both income investors and dividend reinvesting savers.
I don't think that there are many other investment ideas around, if any, either in the stock market or in anything else, that deliver a similar combination of decent performance of both income and capital whilst allowing total liquidity, low risk, low maintenance, unfettered flexibility to switch between income or savings, low taxation, almost no costs and full unrestricted control over your capital.
Of the shares shown I hold Alliance & Leicester, BT, DSGI, F&C AM, Legal & General, Lloyds, Pearson, Rentokil, United Utilities
