The Only Way Is ....Yorkshire (Portfolio Buy)

I admit it - I'm running out of ideas.

Keeping my DIY Income Investor portfolio diversified means not putting too much in any single investment. I don't like to put more than about 5% of the portfolio in anything - in fact I have around 40 different holdings.

The search for sustainable high yield continues, most recently finding a new international Exchange Traded Fund. But finding something new that I don't already hold is proving difficult.

Here's a recap on what I am trying to do with the DIY Income Investor portfolio:

• looking for sustainable high-yield income
• a balance of dividend shares and fixed-income securities (like corporate bonds, PIBS and preference shares)
• an increasing proportion of international ETFs based on these types of holdings

The portfolio has become rather top-heavy in dividend shares (as a result of taking a lot of profit on bond sales) so the latest purchase seeks to remedy that. However, I'm not entirely happy with it, as it looks too much like buying future yield.

The new purchase is the Yorkshire Building Society 13.5% 2025 Convertible Tier 2 Capital Notes. Fixed Income Investor recommended this (at a much better price) in April 2012 - highlighting the risks and underlining that it should only be bought as part of a diversified portfolio.

The key problem for me is that the purchase price is 40% higher than the face value, meaning that it will take a few years of income to make up this premium. If the Yorkshire Building Society decides to buy these back in the market (as allowed by the conditions of issue), I might not get this full price back.

But having said that, if I hold this until maturity in 2025 the overall annual yield is over 8% - one of the best in my portfolio. (The running yield is higher, of course - but I have bought some of that by paying a premium on the 'par' price.) 

So, in a way - job done: I've beefed up the fixed-income part of the portfolio and increased the overall yield.

[Purchase price: £1.39.] 

Update 12/12/13: Tender offer £1.50.


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.