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Monevator demo HYP: Income update

Five-year old badge: How has our demo HYP grown income over the past five years?

I promised a quick update on how 2011’s demo high yield portfolio (HYP) was doing from an income perspective – having already cunningly posted the exciting capital value update on the slow news day of June 23rd.


Okay, so June 23rd – aka EU Referendum Day – turned out to not be so dull, after all. And we all got distracted for a few weeks.

But now I’m back to share the income picture, and to muse a bit about what it all means.


An ultra-quick recap: You’ll remember I invested £5,000 of my own real money into this demo HYP back in 2011, and that I’m benchmarking it against two alternatives – a FTSE 100 tracker and a trio of investment trusts.

Please refer back to my most recent capital update for more on the whys and wherefores, including links to a mini-FAQ all about HYPs, this demo, and the benchmarks.

Today, as I’m already ludicrously tardy with it, I just want to cut to the chase and get those income details up!

So here’s a snapshot of how the demo HYP and its benchmarks are doing, both in capital terms (updated since 23rd June, because why not?) and in terms of how they’re kicking out income.

I’ve also calculated yields for the portfolios.

Current value Income Yield Yield on
Demo HYP £5,896 £231 3.9% 4.6%
FTSE 100 ETF £5,549 £235 4.2% 4.7%
Trio of trusts £6,318 £265 4.2% 5.3%

Note: ETF/Trust prices from Yahoo, dividends from iShares and the A.I.C..

A few things to note:

  • The 12-month period being studied is from 11 May 2015 to 12 May 2016.1
  • All income rounded to nearest pound.
  • For the demo HYP, I’ve simply totted up all the real-money dividends received.
  • For the FTSE 100 ETF and the trio of investment trusts, I’ve sourced and totaled dividend data from relevant information providers, and then multiplied it by the number of shares in the notional benchmark portfolios.
  • Capital values are up-to-date as of 28 July 2016. (Remember, these are NOT reinvesting portfolios – all income is presumed to be withdrawn each year).
  • Yield is the income over the 12-month period expressed as a percentage of the current capital value.
  • Yield on purchase tells us what we’re getting as a percentage of the initial £5,000 investments.

Here’s how the income has grown for each vehicle in the four years since my one-year update.

Demo HYP £182 £231 27%
FTSE 100 ETF £155 £235 52%
Trio of trusts £184 £265 44%

Thoughts (or bonfire of the vanities)

The first thing to say is that all three portfolios have been doing the business, growing the income they pay out compared to the first full year of coverage.

That’s not surprising – we’ve seen several years of generally rising dividends – but it’s still heartening.

If you had invested in any of these options for investment income – whether for financial freedom or to help fund your retirement – I think you’d be pretty happy so far.

Of course, if you’d invested in the demo HYP and your next door neighbor had invested in the trio of investment trusts, then you might be somewhat less happy as you chat over the garden fence about shares, as we all do on those balmy summer evenings…

I’m a long time fan of UK equity income trusts. But I must admit that even I’m knocked back on my heels by just how well they’re doing here.

Both in capital terms and in the income they’re chucking out, our notional trio of trusts are soundly beating the two alternatives.

Now, like everything to do with this little side project we shouldn’t start claiming to be learning anything incredibly definitive here.

For one thing, five years is a short time.

For another, the trio of trusts is influenced by luck and any sliver of skill I brought to their selection.

There are dozens of trusts out there, and picking three different ones would have given you a different result.

For instance, the worst performing component of my basket of three trusts, Merchants Trust, is pretty much flat both in capital and income terms over the past five years, whereas the best, Edinburgh, is up over 50% in capital terms.

But it’s in the selection of 20 shares for the demo HYP that idiosyncratic risk looms largest.

And here I’m desperate to cry about bad luck – rather than blame my blundering incompetence – for the fact that no fewer than a fifth of the portfolio cut or even cancelled their dividends entirely at some point over the period.

BHP Billiton, Balfour Beatty, Centrica, and Tesco: Your names are mud to me now!

A fifth of the portfolio cutting their dividends is a terrible hit rate. You’d expect it to hurt the total income and it has, as the demo HYP doesn’t have any cash reserves to smooth payments like the income trusts do. (Cash buffers I’d suggest you implement for yourself if planning to live off investment income).

In fact, the dividend cuts mean the demo HYP last year paid out only £2 more than at the second anniversary point.

So what do I plan to do about it?

Nothing. This is a no-trading portfolio, remember, as explained in the links below.

Hopefully the income from the dividend dunces will be rebuilt. (Although I don’t doubt something else in the portfolio will be hacking and slashing at their payouts over time, too.)

Finally – and curiously – despite lagging in capital growth terms, the iShares FTSE 100 ETF has delivered the strongest income growth. Its annual payout now matches the demo HYP.

This is a surprising result, and perhaps indicative of the times we live in.

But with earnings no longer covering dividends at the 350 largest UK companies2, it will be interesting to see how it and the other vehicles fare over the next few years.

Whatever the academic theory says, it’s hard for me not to imagine the trusts will continue to have the edge in an environment of further dividend cuts.

Demo HYP: Frequently Asked Questions

Here’s that pseudo-FAQ (it’s really a bunch of links to previous demo HYP articles) for those too engrossed to click away earlier, or who I’ve now confused into having more questions:

Right – that’s enough HYP updates for this year!

  1. The demo HYP was set up in May 2011. []
  2. That is, so-called ‘dividend cover’ has fallen below one. []
{ 24 comments… add one }
  • 1 diy investor (uk) July 29, 2016, 11:05 am

    Interesting results so far TI.

    I also started my hyp in 2011 influenced by posters on the Motley Fool. I also ran a parallel basket of ITs. After just a couple of years, it was becoming clear on a total return basis that the portfolio of ITs had the edge even after fund charges.

    I seem to recall that the original Fool hyp of 15 shares ran into difficulties and after a few years 2/3rds of the income came from just 1/3rd of the portfolio.

    I persevered for a couple more years with my shares but have now dropped the strategy for a more reliable global index approach using the Vanguard LifeStrategy funds.

  • 2 magneto July 29, 2016, 11:11 am

    Bear in mind the ITs will have a continually changing/evolving underlying collection of shares in various individual companies.
    Not an ever fixed selection.

    This may, or may, not go some way to explain the difference in performance?

  • 3 The Investor July 29, 2016, 11:11 am

    @diy — Hi, yes, as I discussed in my capital values update, I don’t really see a big case for investing via a DIY HYP these days, unless you really fancy being your own fund manager (in which case I think a low/no-trading HYP will beat the majority of other stock picking methods for most people, although as I’ve stressed before but always have to remind people it’s nothing like the way I invest the bulk of my own money! 🙂 )

  • 4 The Investor July 29, 2016, 11:13 am

    @magneto — Yes, of course. They are actively managed funds with all that entails, and for now at least that’s delivering outperformance versus these specific alternatives.

  • 5 The Rhino July 29, 2016, 11:27 am

    I quite fancy getting a bag of ITs on the go

    something else to diversify into

    Is there an MV article anywhere on this sort of thing?

  • 6 The Investor July 29, 2016, 11:43 am

    @TheRhino — Tons. Just search for “investment trust” using the search bar top right. 🙂

  • 7 The Rhino July 29, 2016, 11:45 am

    Will do.

  • 8 rhinestone July 29, 2016, 4:54 pm

    Have you factored in costs / charges on the investment trusts? One benefit of HYP – once the shares are bought there are no ongoing charges.

  • 9 Factor July 29, 2016, 9:31 pm


    Which “costs / charges” are you alluding to? One buys shares in ITs just as one would buy any other shares, and I hold them. I wonder whether you are confusing ITs with OEICs?

  • 10 rhinestone July 29, 2016, 10:49 pm


    I’m assuming there is sort of annual management charge on ITs – is that not the case?

  • 11 Factor July 29, 2016, 11:14 pm


    Investment trusts are many and varied. They are not the same as unit trusts, see: https://en.wikipedia.org/wiki/Investment_trust, and see @TI(6).

  • 12 Factor July 29, 2016, 11:18 pm
  • 13 The Investor July 30, 2016, 12:05 am

    @rhinestone — Initial costs were all accounted for. As others have said Investment Trusts are effectively companies in the business of owning shares. There are costs but they are wrapped up in the business’ earnings. There are no extra charges to pay. They’re the same cost as any other share to hold.

  • 14 Lee July 30, 2016, 7:18 am

    Extremely interested in what your % growth is on an annual basis. Do yo have those figures at hand?

    I’m pursuing a similar strategy using ITs and high yield ETFs. The annual growth I’m seeing in income is around 20-25% but I have been moving things around and putting new money in so its kind of difficult to get a clear picture of things.

  • 15 Hariseldon July 30, 2016, 9:30 am

    Portfolio monitoring can be difficult on a rapidly changing portfolio.
    One approach is “unitisation” search Motley Fool HYP boards for details.
    The AIC (association of investment companies) provide detailed statistics and a monthly download that provides all the data you need to compare trusts and a useful set of benchmarks for index comparison.

    Brokers like Hargreaves Lansdowne provide very good fund, IT and ETF data sources , very important to assess your portfolio choices carefully and dispassionately, it’s easy to make errors of judgement with inaccurate data.

  • 16 ermine July 30, 2016, 12:15 pm

    Strange, that, with the trusts. Are ITs one of the examples where active management is worthwhile 😉

    They seem a bigger win on the lower volatility of income over the years even compared to the HYP.

    @Lee unitisation is your friend. Otherwise you risk falling into the trap of the Beardstown Ladies’ Investment Club error of being unable to split off contributions from return.

  • 17 Richard1.2 July 30, 2016, 1:03 pm

    Thank you very much Hariseldon and Ermine – there is always something new to learn.

    I had seen figures like this before, such as those by RIT, and was always wondering how they were done.

  • 18 Lee July 30, 2016, 1:04 pm

    Sorry that is me – using a different computer.

  • 19 dearieme July 30, 2016, 1:58 pm

    We’ve found our NYP to have done pretty well: gold and silver ETCs.

    I dare say it won’t do well when interest rates rise, but by then I may well be defunct.

    It does, however, prompt one thought. Does anyone do comparisons of the returns of different portfolios with the Harry Browne Permanent Portfolio?

  • 20 L July 30, 2016, 2:06 pm

    So, all things considered, this experiment has been a bit of a waste of time? I’m thinking of the posts for the HYP vs. the posts for the passive portfolio, there’s a world of difference in terms of feel good factor!

  • 21 diy investor (uk) July 31, 2016, 11:32 am
  • 22 dearieme July 31, 2016, 4:03 pm

    “Does anyone do comparisons of the returns of different portfolios with the Harry Browne Permanent Portfolio?” Answered on your next post. Excellent, thank you.

  • 23 The Investor August 1, 2016, 1:58 am

    @L — I know where you’re coming from but, firstly, this portfolio is easily beating a tracker in capital terms and is only a handful of quid behind it in income terms. It’s true the ITs have raced away and they seem out of reach but time will tell.

    More important though, I don’t think it’s a waste of time just because it hasn’t all gone swimmingly. In some ways we learn as much from what goes wrong as what goes right. The Motley Fool HYP board discussion of the post is really interesting in that regard. I think it highlights the level that luck (or bad judgement) plays a role in the selection of such portfolios.

    If none of the shares had cut dividends and the HYP was smashing trackers on capital and income and maybe rivaling the ITs, would we have learned that this was a great and preferable strategy — or that I’d been in contrast lucky (or less clumsy/unskilled…) with my initial selection? 🙂

    You’d have to run several of these things to get a feel for anything useful on that score (obviously an academic would want to run 10,000s in simulation).

    It’s a bit of a waste of time in that I’m not sure I’d advocate anyone going down this route unless they really wanted to own a portfolio of shares in real companies (rather than a portfolio of collectives).

    But personally I’ve enjoyed and learned something from the journey so far… 🙂

    @Lee — This portfolio is designed to have all income withdrawn each year (as explained in the links) so the capital return is the capital return. Here’s more on unitization:

    @diy investor (uk) — I’m honoured to have Gengulphus discussing my humble HYP! Thanks for the link.

    @dearieme — You’re welcome.

  • 24 Matt August 1, 2021, 8:27 pm

    How is it going now with HYP?

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