[Stephen Bland]

I don’t see them as in the same sector Jeff. I would not have chosen both for the current HYP if I did.

WPP is an ad agency meaning that principally, it earns income from creating ads for its customers. ITV earns income from selling advertising time, not creating the ads. Also differentiating the two, ITV is a producer of TV programmes, many of which it can then sell to others or have them sponsored as a further revenue source. I don’t think the business of a commercial television company and an ad agency are sufficiently close as to be in the same sector for our HYP purposes.

Sector classification is often a matter of opinion so yes, some may argue that these two are sufficiently similar to be in the same sector. However I don’t follow any official sectors or others’ views but make up my own mind on this. I appreciate that other people may see things differently but I just put forward my own views here.

As for SKY, if and when it eventually gets taken out I’ll give my views then on how to reinvest the proceeds in those portfolios which hold it but it’s far too early at present to consider that. The current bids are wholly for cash, no paper. Incidentally, SKY and ITV are in the same sector in my opinion.

Thanks for the nice comments. HYP investing is indeed mildly contrarian, which is the reason that portfolios may show capital growth long term even though that is not the purpose at all of the strategy.

[Stephen Bland]

I have always counselled against reinvesting dividends automatically in the originating share, the reason being that this may not be the optimum choice at the time for the cash. My advice is to accumulate the dividends and then reinvest this cash when economic to do so having regard to costs, in what is at that stage the most attractive sector/share in your HYP. As you say, my suggested way of doing this was described in TDL of 05 June and on many previous occasions too. Essentially it’s a combination of the most currrently undervalued sector/share with the most attractive yield where still a Buy in the latest TDL.

There is one minor exception I’d make to this method of dealing with reinvesting dividends, which is where an investor has a very small HYP. In that case the dividends will also be small and it might take a very long time, maybe several years, to accumulate an economically sufficient amount of cash for reinvestment. In such a case, I’d probably relax the above method and just go for auto reinvestment even though it is not ideal.

All this applies to topping-up existing sectors. If though you wish to add a completely new sector, perhaps for example by a mix of accumulated dividends plus new money or maybe the proceeds of a cash bid for a share taken out, the amount to invest in it is your then current sector average value but no more.

[Stephen Bland]

I don’t understand why your shares are in euros. RDSB is quoted on the UK market in sterling and pays dividends in sterling after they convert from the dollar original amounts. RDSB dividends suffer no withholding tax, unlike RDSA which does. That’s why UK investors should hold RDSB and not RDSA.

I do not have the answers to your other points.

[Stephen Bland]

There is no bid for SLA. You may be referring to the disposal of their life insurance interests and consequent return of cash to shareholders, with a share consolidation, later in the year though the full details are yet to be announced. I wrote about this in the TDL update for week commencing 04 June. As a result of this deal SLA becomes purely a fund manager and is no longer in the insurance sector.

[Stephen Bland]

Thanks Nigel.

[Stephen Bland]

Thanks for pointing this out and I confirm that they are both in the same sector. I’ll get the descriptions changed to be the same for both.

[Stephen Bland]

Glad the HYP approach has worked for you David.

[Stephen Bland]

David, your questions are mostly personal to you and any answer would constitute prohibited personal financial advice (PPFA) which I am not permitted by law to to offer individual readers. Others are welcome to comment though.

I can say a few things.

I have never advocated rebalancing which would mean some sales and as you may know, my view is never sell except in very rare technical circumstances. So it’s up to you alone if you wish to do that and I won’t comment.

There is no limit on the number of sectors or shares that should be held, that is up to each investor. My HYPs aim to hold between 15-20 sectors, some of which may be Multiple Choice with more than one share but although 15 is the minimum number of sectors, there is no maximum. Any decision to add to, or otherwise alter one of my HYPs as featured in TDL has to be the investor’s alone.

On my advised sale of NXG, I wrote earlier this month on how I reinvested the cash in HYPs 2 and 3 which held the share. Any other decision you might make falls under PPFA. SKY is a Hold and has never been a sale in TDL so if you have sold, that was your own decision and again PPFA rules on the reinvestment.

If you want to start again, I do not maintain any kind of permanent recommended asset allocation because that changes constantly with market fluctuations and the varying desirability of different shares at the time of selection. All I can suggest here is that you look at my latest portfolio under construction, HYP7. Any further comment would be PPFA.

I’d add if you may not be aware that I’m not trying to be awkward or shirk any responsibility by quoting PPFA at you. The reason is that financial services legislation is very clear that whilst I am both qualified and authorised to write on investments to a group of readers in general via TDL, I am banned from offering personal financial advice to any individual.

[Stephen Bland]

It’s a convoluted story Kathleen.

In a complex series of corporate deals and name changes that became final on 30 December 2016 involving the old ICAP and Tullet Prebon, two new shares emerged to replace the old ICAP, NEX Group (NXG) and TP ICAP (TCAP). So from that date if you were a former ICAP holder, you would instead have become a holder in NXG and TCAP and the old ICAP ceased to exist in its original form.

You would never as a result of these deals held shares in Tullet Prebon but the way they arranged things TCAP is actually Tullet Prebon renamed. But that fact is just a technicality having no bearing on anything.

Having sold NXG, you are left with TCAP shares as I mentioned in the article. TCAP is currently a Hold in TDL.

[Stephen Bland]

Yes I agree. Private investors are much more prevalent in the US which is probably why things work better there for them, as you say.

[Stephen Bland]

Good question Inaam.

When adding new money, which could arise from accumulated dividends, new cash or both, the amount to invest in a new sector is always the then average sector value in your portfolio to avoid preference. Similarly if using the money to top up an existing sector, the amount to invest is only that much as required to bring it up to the then average sector value.

So if you have a situation as described, your average sector values will have altered. Here’s an example as you mention with SLA.

Whatever number of sectors you had prior to SLA leaving the insurance business you will now have one more, assuming you had no fund manager (FM) share already. Thus immediately your average sector value will have fallen a bit and very likely, both your insurance and FM sectors will now be some way below that new average.

Now you add new money. If it’s enough for a new sector that you have identified, and that’s what you want to do, the amount to invest in it is simply the new average sector value after taking into account that you now have one more sector in your HYP.

If it’s for a top up, then it’s the same process as any top up. Find the new average sector value and then look at those sectors which display the optimum combination of being underweight and their shares offering a good yield. Don’t assume that it may now be your insurance or FM sectors because of the changes, instead, make them compete with any other underweight sectors for the new money top up. It is likely that because of the changes, your insurance and FM sectors will be very underweight so these may well be the ideal candidate sectors for your top up, but don’t assume that in advance before carrying out the process I mention.

The top up could consist of adding to the existing share in a sector, or adding a new share to make it a Multiple Choice sector. But bear in mind that for MC, the rule is that you should invest equal sums in the MC shares in a sector so as not to prefer any, at cost or at current value where there is already one or more shares there.

Hope this helps and as always if chooosing from TDL selections, invest only in those shares shown as Buys at the time.

[Stephen Bland]

Interesting comments Martin. I would much prefer to be on the share register but it just is not available for ISAs. For my direct holdings I use CREST, as mentioned in today’s article, which is ideal in offering electronic trading combined with being on the register, but due to the cost as I said there CREST is really only suitable for large portfolios. Smaller investors who almost all use cheap online brokers are stuck with the anonymity of nominees unfortunately.

As for the small guy exercising influence if there was a system here similar to the US you mention, institutions control the overwhelming majority of the shares in big caps so that the small investor is all but irrelevant these days.

[Stephen Bland]

There are other insurers with life business in the FTSE100 from where I prefer to select shares, on similar yields. For example Legal & General or Aviva. PHNX is in the 250.

[Stephen Bland]

The forecast dividend for their year to 30 September 2018 is 72 eurocents, currently worth 63.0p. So on a share price of 1,513p the gross forward yield, before German tax, is 4.2%. It then depends how you hold the shares.

If in an ISA the tax is not recoverable so you are left with a net yield after tax of around 3.1% which is a little below the current FTSE100 median.

If held direct, then it is not treated as a UK dividend and different rules apply as a foreign dividend. What happens is that it does not form part of your tax free dividend allowance but becomes taxable income. However credit is given for the withholding tax up to your marginal UK tax rate.

In either holding case, my view at present is that TUI is a Buy because although the yields are lowish, they are just this side of acceptable because the share adds valuable diversification not available in any other company that I’d choose, and also there is some strong dividend growth occurring here. That does not mean I’d call TUI a Buy at any yield, but my opinion for the moment is that it hasn’t dropped low enough at present to make it a Hold. All past selections are reviewed regularly and their status may well change several times over the years as their yields and other circumstances alter.

I’ve always said that I may be willing to accept the very occasional below average yield in a portfolio if I found it sufficiently attractive for other reasons. The dilution effect on total portfolio yield is minimal.

[Stephen Bland]

Thanks for the supportive comments John.

Your question regarding HYPs vs. FTSE100 tracker requires an answer that would be personal financial advice but I am not permitted by financial services legislation to provide that to individual readers.

What I can say generally is that I designed HYPs to be a long term income strategy and not a total return strategy. That remains the case even where the income is reinvested by those HYPers not needing the dividends immediately, with the aim of boosting the eventual income when required. In contrast, I’d say that an index tracker fund is specifically about long term total return and not an income approach.

I have nothing against trackers, they suit many people and there is no doubt that they are a lot easier to manage than individual share portfolios, requiring almost no input from the investor whereas HYPs do demand more involvement, especially where dividends are being reinvested and perhaps new money is being added.

So it’s down to the personal attitudes and situation of the investor which will vary greatly between people.

As for motivating children about particular investment methods, I have no tips. From my own experience with mine, all well into adulthood now, I think this has to come from them. I don’t think it’s a good idea though to try and push them into an investment approach which you know will not suit them for whatever reason.

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