Sunday 13 January 2013

2012: The Year of High Yield

A Rising Tide...
The DIY Income Investor portfolio is based on equal amounts of high-yield shares and fixed-income securities (like corporate bonds, preference shares, permanent-interest bearing shares, etc.).

The performance in 2012 has been terrific - up one third in terms of total return - but how has it compared with other investment styles?

This Is Money has published an interesting review of the 2012 results of a number of portfolios, based on different equity investment strategies. They looked at five investment strategies popular with private investors:
  • high yield: mature companies with market capitalisation of over £500million and paying a dividend yield of more than 3 per cent (57 stocks)
  • intrinsic value: cheap, financially solid companies with better-than-average growth potential (100 stocks!?)
  • cash rich: more than £1bn on the balance sheet at the beginning of the year (15 stocks)
  • dogs of the Footsie: the 10 top-yielding companies of the FTSE 100 at the beginning of the year
  • directors’ deals: companies where the management actively bought stock (11 stocks)
  • value investing (a la Warren Buffet): shares in high calibre companies that are easy to understand - meaning mainly household names (number of stocks not given)
The strategies were assessed using 'a free stock screener and spreadsheet', so perhaps to be used for mainly entertainment value. You can see the detail in their website but the results in summary are:
  • high yield: +23%
  • cash rich: +17.5%
  • value investing: +15%
  • directors’ deals: +14%
  • dogs of the Footsie: +12%
  • intrinsic value: +10%

What is noteworthy is that all the strategies were successful! The best returns on cash during the year were around 4.5% - so the stock market provided the opportunity to more than double this. As they say, 'a rising tide lifts all ships'.

A second observation is that a star sector not included in the review is fixed-income: this element of the DIY Income Investor portfolio, together with the surprising recovery in the bombed-out banking shares held (till the bitter end) have contributed to the  year's pleasing returns.

I am not a financial adviser 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.

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