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VALUE INVESTING
By
This is the latest two-monthly review of my two public high yield portfolios (HYP). I am constructing by monthly instalments a third HYP for readers of my Value Investor newsletter in which nine shares have been selected to date. HYP1 The estimated value including reinvested income is £91,087, an increase of 21.4% on the original investment in 3.8 years. Equating to a compound 5.2%pa, this is a little ahead of cash. The portfolio capital is up 4.1% and continues to leave behind the market, the latter having fallen 26.7%. Comparison with trackers on a reinvested income basis would show it to be even more ahead because its yield of over 4% has always been higher than the market. HYP2 The estimated value including reinvested income is £104,419, an increase of 39.2% on the original investment in 1.5 years. Equating to a compound 24.7%pa, this is way more than cash. Don't expect this exceptionally strong rate of growth to continue though. The portfolio capital is up 28.8%, slightly more than the market which is up 22.5%. Comparison with trackers on a reinvested income basis would show it to be even more ahead because its 6% yield is substantially over the market yield. General Comment Both portfolios are beating the market but the interesting thing is that HYP2 has beaten it during a rise and HYP1 during a fall. This is the case both on the capital alone and even more so on a reinvested dividend basis. However the winning margin is much narrower for HYP2 than HYP1 which is what I would expect. Note that in both cases too little time has elapsed to draw any long-term conclusions though nothing that has happened so far has shaken my faith in this strategy. Quite the reverse in fact. I am so convinced that HYPs are the way to go for both long-term savers and income investors who are happy with the risks of equities that I have devoted a section of my Value Investor newsletter each month exclusively to the strategy. HYPs have just about everything that such investors seek. Things like, control without the need to interpose a third party like a fund manager or insurer between you and your shares, simplicity, lack of management charges, the ability to switch seamlessly from growth to income without having to realise the investments and so on. With these kinds of advantages, plus my belief that they will beat the market long term, HYPs win very strongly in my view against alternatives like index tracker funds, equity income funds, pension plans and other institutional investments. The newsletter HYP has been doing quite well so far though on average it is only a few months old, having started in January 2004 with one new share a month being added. Unlike the public HYPs I feature on TMF which are no-dabble, I am allowing trading with this portfolio, though this will occur only infrequently. I expect to sell shares that are showing large gains coupled with low prevailing yields provided a suitable higher yielding alternative is available. In that way the portfolio realises a gain plus it increases total income. More: Sign up for a free 30-day trial to the Value Investor newsletter. Stephen holds shares in Alliance & Leicester, Lloyds, Mitchells & Butlers, Royal & Sun, Scottish & Newcastle and United Utilities.HYP1 start date 13 November 2000
£ orig. no. price val move
invest price shs. now now %
Un. Util. (LSE: UU.) 5000 620 807 558 4503 -9.9
Gallaher (LSE: GLH) 5000 416 1190 642 7640 +52.8
Scot. & New. (LSE: SCTN) 5000 490 1010 378 3818 -23.6
Royal & Sun (LSE: RSA) 5000 393 1271 72 915 –81.7
All. & Leic. (LSE: AL.) 5000 645 768 884 6789 +35.8
Britannic (LSE: BRT) 5000 1020 485 395 1916 –61.7
Lloyds TSB (LSE: LLOY) 5000 705 702 435 3054 -38.9
Intercon. Hotel (LSE: IHG) 2500 380 658 636 4185 +67.4
Mitchells & But(LSE: MAB) 2500 356 691 269 1859 -25.6
Boots (LSE: BOOT) 5000 575 861 640 5510 +10.2
Land Sec. (LSE: LAND) 5000 771 651 1184 7708 +54.2
Ass. Br. Ports (LSE: ABP) 5000 321 1542 442 6816 +36.3
Hilton (LSE: HG.) 5000 232 2275 280 6370 +27.4
Rio Tinto (LSE: RIO) 5000 1120 442 1477 6528 +30.6
Anglo American (LSE: AAL) 5000 942 526 1313 6906 +38.1
Shell (LSE: SHEL) 5000 572 865 408 3529 -29.4
Totals 75000 78046 +4.1
FTSE100 6274.8 4599.6 -26.7
Income Yield on capital invested %
Year ended 13/11/01 £3,451 4.6
13/11/02 £3,474 4.6
13/11/03 £3,197 4.3
HYP2 start date 02 April 2003
£ orig. no. price val move
invest price shs. now now %
Lloyds TSB (LSE: LLOY) 5000 338 1479 435 6434 +28.7
Scot. & New. (LSE: SCTN) 5000 348 1436 378 5428 +8.6
Dixons (LSE: DXNS) 5000 87 5762 169 9738 +94.8
Un. Util. (LSE: UU.) 5000 546 915 558 5106 +2.1
Hays (LSE: HAS) 5000 78 6435 131 8430 +68.6
Legal & Gen. (LSE: LGEN) 5000 75 6696 100 6696 +33.9
BA Tobacco (LSE: BATS) 5000 580 862 807 6956 +39.1
Brad. & Bing. (LSE: BB.) 5000 297 1685 288 4853 -2.9
Hanson (LSE: HNS) 5000 320 1563 415 6486 +29.7
Land Sec. (LSE: LAND) 5000 736 680 1184 8051 +61.0
The BOC Group (LSE: BOC) 5000 795 628 885 5558 +11.2
BAA (LSE: BAA) 5000 465 1075 558 5998 +20.0
Shell (LSE: SHEL) 5000 394 1271 408 5186 +3.7
AMVESCAP (LSE: AVZ) 5000 311 1609 303 4875 -2.5
Anglo American (LSE: AAL) 5000 970 516 1313 6775 +35.5
Totals 75000 96570 +28.8
FTSE100 3753.4 4599.6 +22.5
Income Yield on capital invested %
Year ended 02/04/04 £4,564 6.1