* demerged from Hays in 2004

The estimated value including reinvested income is £126,860, an increase of 69.1% on the original investment in 2.33 years. Equating to a compound 25.3% a year, this leaves cash behind completely.

Readers should not expect this extremely high annual growth rate to continue into the longer term. It has occurred because I set up HYP2 in the depths of the recent bear market and the sharp gain includes the effect of the recovery, not a sustainable long-term growth rate. Note though that this portfolio is beating the market at its own recovery game, something which is remarkable. Generally I would expect an HYP to underperform during periods of very rapid market growth and outperform during periods showing a fall, static or modest growth.

The portfolio capital is up 51.8%, ahead of the FTSE 100 which is up 40.3%. The result is that excluding income it is 8% ahead of it on capital alone but with income reinvested the lead is even greater because of the higher income of the portfolio.

General Comment

Nothing so far has altered my belief that HYPs are a great long-term equity strategy, both for income and growth investors. That is why I have devoted a section of Value Investor each month exclusively to the approach.

We haven't reached the long term yet, though HYP1 will have done five years by November, but the above returns to date have beaten cash, inflation and the FTSE 100. In the case of HYP1 this, it has achieved this through both bull and bear periods. This suggests that HYPs are not just a fad that works only in certain circumstances but a strategy which should cope over time with everything the market can throw at it. And all with no more risk than shares generally, with no regular costs and with very little involvement required from the investor.

If it all sounds to good to be true, well, for a change it is true, look at the figures. They show that this cliché can be wrong. The reason high yield works and isn't arbitraged out as some might expect is that most investors don't have the patience to follow it. It does take a certain personality to stick with it for years including the inevitable bad times and to avoid almost all dabbling. These are traits not in common supply amongst a lot of investors.

When comparing HYP income with cash, note that interest suffers a much higher tax liability than dividends. The latter are tax free to basic rate payers and charged at 25% on higher rate payers. The effect is that gross interest would have to be 25% higher than dividend income in order that the net incomes after tax are the same. So for example a dividend yield of 4% gives the same after tax income as gross interest of 5%, whichever tax rate is applicable.

To build your own portfolio from my latest high yield selections, all you need to do is sign up here for a free 30-day trial to Value Investor.

Stephen holds shares in Alliance & Leicester, Lloyds TSB, Royal & SunAlliance and United Utilities.