Wednesday 1 January 2020

2019 HYP Review

It’s now a little over 8 years ago that I started to build my UK High Yield Portfolio (HYP).  It was a much talked about strategy back in the Motley Fool forum days and today still gets plenty of attention on the Lemon Fool forums today.  I built the portfolio between November 2011 and July 2015 by which time I’d amassed 17 shares across multiple sectors.  That included a token amount of Royal Mail Group (ticker: RMG) during the initial public offering in 2013 and the spin-off of S32 by BHP in 2015.

Today the portfolio is down to 16 shares because of the forced Amlin sale in 2016.  It was set up to be close to a low tinker portfolio with only a few mechanical rules that would trigger a sale if there were big changes to a share.  For example if the actual value of a holding became 50% larger than the median share holding I would sell 25% (I’m looking at you Astra Zeneca, ticker: AZN, who is now 2.4 times the median) or if the actual dividend yield dropped below 50% of the FTSE All Share.

As it’s turned out to date I’ve done precisely zero tinkering unless forced by corporate events.  This means in 2019 there were again no buys or sells.  The complete HYP and the respective values of each share are shown in the chart below.  The purchasing rule that I followed while building the HYP was the amount of the next purchase was the median share value of the current portfolio (with the exception of RMG and S32).

Retirement Investing Today High Yield Portfolio
Click to enlarge, Retirement Investing Today High Yield Portfolio

Sainsbury’s, Astra Zeneca and SSE were all bought on the same day back in late 2011.  The big divergence in values continues to nicely demonstrate why I no longer actively trade or invest.  I’m rubbish at it...  The annualised capital gains/losses of my complete HYP shown in the chart below further demonstrate this.

Retirement Investing Today HYP Annualised Gains/Losses
Click to enlarge, Retirement Investing Today HYP Annualised Gains/Losses

I stopped adding to the HYP in 2015 with my overall investment strategy, as my wealth and knowledge grew, simply moving on to be a mechanically diversified collection of low expense, physical (as opposed to synthetic), income based (as opposed to accumulation) ETFs tracking enough indices to give me diversification across asset classes and countries held within low expense SIPP/ISA/Trading Account wrappers.  That said I never sold the HYP as to date it has formed an important part of my overall portfolio, although admittedly as time has progressed and as my total portfolio of dividend paying assets has grown it’s becoming less important, because while it’s only 4.9% of my wealth in 2019 (8.0% of my dividend paying wealth) it delivered 13.1% of my total dividend income.  In investing total return (dividends plus capital gains) is what matters but this over performance in dividend yield has served/s the following purposes:
  • One of the aims of a HYP was as a substitute for an annuity in retirement and I wanted to use it similarly to help me continue to live off dividends only in FIRE and in that regard it’s still punching above its weight.  In 2019 it spun off £4,224 (vs £3,587 in 2018) in dividends.
  • When we registered as self sufficient in Cyprus we used the HYP dividends as part of our application to prove that we wouldn’t be a potential burden on the Cyprus state.  

Along the lines of replacing an annuity I also want to see the dividends spun off by the HYP to increase at a rate which is equal to or greater than inflation if it is to be called a successful investment strategy.  I unitised my HYP a long time ago so I know in 2019 this goal was achieved with dividend income per unit (including specials) increasing by 17.8% while inflation (RPI) was 2.2%.  Since the end of 2012 dividend income per unit is up by 122% while inflation has been 19%.

So given the HYP is doing its job on the income front if it comes close to matching the total return (dividends + capital gains) of a simple FTSE tracker over the long term I’m still happy to stay with it.  If it can’t I’d be better off selling up and merging the funds into my ETF tracker asset allocations.

So looking at portfolio performance:
  • Dividends.  The trailing dividend yield of the HYP for 2019 was 6.0% (including specials).  In contrast the FTSE100 was 4.2% (now using dividend yield information from because of the Financial Times pay wall on their market data) and the FTSE250 is 2.8%.  The FTSE100 most closely resembles the type of companies held within the HYP.  Not unexpectedly so far so good.
  • Capital Gains.  Over 2019 the HYP has seen a capital gain of 9.4%.  In contrast the FTSE100 gained 12.1% while the FTSE250 gained 25.0%.  Of course short term share price fluctuations are in the noise so if I look back since inception the HYP gains are 55.7% compared with the FTSE100 at 42.0% and the FTSE250’s far more healthy 120.9%.
  • Total Return.  For 2019 my HYP total return is therefore 15.3% while the FTSE100 has total returns of 16.3% and the FTSE250 27.8%.

So a poor year in 2019 against its comparator UK indices.  Compared to something like the S&P500 the HYP’s performance could be described as nothing more than a joke.  Looking longer term I know that in every year since inception the HYP has paid more dividends than the tracked indices (on average about 0.9% more than the FTSE100 and about 2.1% more than the FTSE250) it’s still outperforming the FTSE100 but under performing the FTSE250 by a long way.

So what does 2020 hold for the HYP?  With it now being only 4.9% of total wealth and with 85% of my total dividends (including those in my not yet accessible SIPP) now being greater than my planned 2.5% Withdrawal Rate I’d expect some of the HYP will now be sold to use up some of my annual capital gains tax allowance.  The proceeds of those sales will then be used to either eat and/or put into next year’s ISA allowance where I’ll likely just buy the most underperforming ETF trackers I own.  Thanks HYP but over the next few years it’s probably time to gradually say au revoir.

As always DYOR.


  1. Funny how with a focused selection of just 16 shares the RIT fund still offers double digit returns and a generous dividend.
    You must be a financial genius.
    If I gave you 1% a year would you look after my money for me too?

    1. Happy New Year GFF!
      That wasn't quite the message I was trying to communicate... :-)

  2. Hi RIT - Happy New Year.
    Have you built up significant capital gains on some of these HYP holdings for you to need to consider selling and re-purchasing to crystallise your gains, but not exceeding your CGT anual allowance ? If you continue to accumulate without realising some gains your overrall portfolio will become much less flexible as your sell decisions will become more and more influenced by CGT implications. Use it or lose it .. Happy New Year - Happy New Decade

    1. Happy New Year and Happy New Decade to you as well stringvest.

      In total I'm currently only sitting on about £16.5k of capital gains that are eligible (I also have some legacy non-distributing active fund gains that aren't) for using against my CGT annual allowance. Of these about £10.5k are HYP related so I can clear the whole HYP gains outside of my ISA without an issue. As I'll be likely buying different assets I won't have to worry about the 30d bed and breakfast rules either which will make it a little easier.

      I agree with the use it or lose it. It's no different to ISA's in that regards.

  3. I am sure you will keep a careful eye on the CG's within your portfolios. If returns continue to be favourable - it is surprising how quickly those gains can build up and if you want to retain full freedoms in them ( portfolios ) you will need to make some sales ( and re-purchases ? into ISA wrapper ). I realise sales / purchases are a bit of an anathema as they incur expenses !

    1. I agree it's important to keep a watchful eye as it can run away (in a good way). Those of us who were able to save more than the annual ISA limits will all (hopefully) eventually have the problem. It definitely makes sense to stay on top of it without throwing the baby out with the bathwater via excessive trading.

      My aim, provided I stay in the UK, is to spend down the non-ISA/SIPP stuff first while also transferring what is tax efficiently left (if anything) into the ISA. Then I'd move onto the ISA until I can get access to the SIPP. Then I'll take the amount from the SIPP to ensure I manage BCE's while optimising tax with the remainder from ISA. It definitely takes a plan and knowledge of all the allowances/limits to do it efficiently.

  4. Hi RIT, I've been a keen reader of your posts for about a year now, and have recently decided to keep track of my own progress in an anonymous blog.

    I am using your helpful breakdown of save hard/invest wisely/retire early to structure my own status updates -- I think this is a really clear way to view progress and hold myself accountable.

    Have a great New Year,