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| The Morgan Stanley Bull Source |
Think of the kind of salaries that would have been paid to do this bit of research - I'm glad I'm not paying for it!
Anyway, as I don't take any currency risks in my investments (apart from the Pounds that I spend), I've skimmed off just the FTSE results.
The information appears courtesy of Citywire's Chart of the Day.
Morgan Stanley apparently screened for a high return with a fair degree of safety and at least a prospect of increasing returns in later years:
- a high dividend yield showing dividend per share growth in 2012 and 2013
- where the payout ratio is not too onerous (less than 75%)
- strong balance sheets with an average debt to market cap ratio of less than 30% over 2012 and 2013
- overall market cap above £3 billion; and free cash flow yield greater than 5%.
And the UK FTSE components are:
- BAE Systems
- AstraZeneca
- Shell
- Reed Elsevier
- Tate & Lyle
- Reckitt Benkiser
- Sage
- Unilever
- Pearson
- BSkyB
I hold the companies shown in bold - so what am I missing? Well, Morgan Stanley did not rank according to current/forecast dividend yield (but rather Free Cash Flow Yield), which for some of these shares is fairly pedestrian. Looking at Free Cash Flow is sensible - as it gives a more accurate picture of financial sustainability - but it does not tell you the yield on your investment. So perhaps this selection leans more towards safety than income yield?
Being a touch cynical, I suspect that Morgan Stanley may have done this research to market one of their products, so the result might be a bit tendentious. Still, it's free.
What do you think?
I am not a financial advisor and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.
I own Pearson, RB and Shell. It looks like a reasonable bunch they have picked, you could buy all of them and probably do o.k, probably match the FTSE. Personally I am invested mainly in HYP and index funds, although I am not adding any new money to my HYP, its all going into index funds from Vanguard, HSBC and Fidelity.
ReplyDeleteGood blog, keep it up.
I have a high income portfolio but, surprisingly, I seem to own none of these shares, apart from RB, a long time hold. Am I missing something?
ReplyDeleteI held Shell from 1686p to 2040p and am waiting for it to come down to the 1900's or so and an approx. 6% yield (my benchmark). I was also wary of the US dollar exposure on the dividend.
I held Astrazeneca then got fiightened by my perception that it's going out of business.
SInce I hold RB I won't buy Unilever.
BSkyB worries me because of the Murdoch management.
That leaves BAE which is currently on my watch list and looking like a good entry point at nearly 7%.
Tate is starting to look interesting but only just shy of 4% as do Sage nd Pearson similarly so they miss my screen. That leaves Reed Elsevier which I am ignorant about.
I had a look at your portfolio results dated June this year.
ReplyDeleteYour return averages ~4.3%pa for the past 5 years.
(I'm assuming this is not inflation-adjusted, or tax adjusted. Inflation has averaged 3.5%pa over this period).
This results in a gross 0.8%pa return in your portfolio with up to 20+% draw-down.
No offence, but this is a lot of risk and hard work for not a great return.
Lets assume one had bought inflation-linked govt bonds over this period paying 0.5% tax-free above inflation. One could have achieved a comparable, if not better, return for zero risk and work.
You also face the very real risk of another banking crisis destroying the majority of the net worth of your portfolio.
Hopefully I'll be proved wrong.
Best, Rich.
Hi Anonymous
ReplyDeleteMy portfolio performance is after tax (I don't pay any on investments or savings) but, as you say, not accounting for inflation.
As you say, just keeping my head above the inflation waves, but hopefully positioned well for the eventual market recovery. It is some consolation that when I look at the benchmarks, nobody else seems to be doing very well either - apart from those heavily invested in gold. It is worth remembering that inflation-linked securities are a gamble as well when inflation is falling - as it is now!