HYP share "understudy"?

[Gilgongo]

For a while now, I've been thinking about selling my BP and Shell holdings at 4.5% and 5% of my HYP respectively (the pros/cons of which sale we can debate in another thread).

But I can't work out what to replace them with. I've been an avowed LTBH/Doris and haven't bought any new shares for over five years. So this doesn't come very naturally to me either.

So while wallowing in my indecision, I thought what if I bought an index or an IT instead to "stand in" for the divested shares until such time as I could make a decision? I'm thinking maybe the Merchants Trust high yield IT as the AMC is reasonably low and the yield isn't that much lower than the shares I'm getting rid of.

Or should I re-jig my existing holdings (eg I could use the proceeds to buy WPP to double up with Pearson in the media sector, and BT to offset Vodafone or something)?

Here's my current HYP:

[JoyofBrex8889]

My thinking; On the basis that we continue to burn >90m barrels of oil per day, as per predicted demand growth in BP Energy Outlook.

As oil becomes progressively harder to extract due to depletion, the share of the overall economy devoted to oil extraction will rise. This means a portfolio overweight in exposure to the oil extraction business will have a greater proportional share of the real wealth available in our hypothetical future. The downside is the amount of real wealth might be expected to reduce in a resource constrained future.

Anyway, that’s how I justify my oil exposure.

[Dod101]

We are not discussing the merits of Shell or BP although personally I can identify one or two shares in the portfolio that would go before either of the Oils in my book. However as to a replacement, on the basis that you seem to have most of the usual suspects covered, I think you might be better with an IT or two. Henderson Far East would be high my list. It gives a good yield and it gives some diversification. Another trust might be Murray International on much the same grounds.

Chesnara and/or Phoenix Holdings would also be in my sights despite the exposure to life assurance through Legal and General SLA has a 20% holding in Phoenix so maybe Chesnara would be the one to go for.

Dod

[monabri]

Sorry, but you say you've been thinking about selling but you dont give any "cons" as you put it, so it's difficult to put forward any case to hold onto BP/RDSB. I could think of several reasons why you might want to sell and several reasons to keep them on board.

[PinkDalek]

Sorry, but you say you've been thinking about selling but you dont give any "cons" as you put it, so it's difficult to put forward any case to hold onto BP/RDSB. I could think of several reasons why you might want to sell and several reasons to keep them on board.

The OP isn't asking about whether or not to sell BP/RDSB, having included (the pros/cons of which sale we can debate in another thread).

The question concerns potential replacements.

Agreed that not knowing the reasoning behind the potential disposals makes it hard to know with what to replace!

[monabri]

Coincidentally, James Lovelock was being interviewed on the BBC today. He was advocating the cessation of burning fossil fuels and using more nuclear power.

https://en.m.wikipedia.org/wiki/James_Lovelock

(A post I prepared earlier)

Professor Brian Cox (7 mins of how we (can't) solve the energy crisis - pick up at 21:00mins into the video)

And this assumes we carry on using fossil fuels and population growth is not yet factored in.

https://www.dailymotion.com/video/x3rg7x0

[tjh290633]

One thing that you need to consider is the holdings of the ITs that you choose. Could be that BP. and RDSB/RDSA feature well up their portfolios.

TJH

[monabri]

The current holding of BP & RDSB is ~10% of Gilgongo's current HYP. If they were to be "traded in" for a holding of Merchants, the oil "content" would be approx 1.3% of the current HYP...so pretty insignificant.

[77ss]

....
Chesnara and/or Phoenix Holdings would also be in my sights despite the exposure to life assurance through Legal and General SLA has a 20% holding in Phoenix so maybe Chesnara would be the one to go for.

Dod

Minor correction. I'm not sure that L&G has any holding in Phoenix, but SLA certainly does - nearly 26%. This does not detract from your underlying point of course.

[Dod101]

....
Chesnara and/or Phoenix Holdings would also be in my sights despite the exposure to life assurance through Legal and General SLA has a 20% holding in Phoenix so maybe Chesnara would be the one to go for.

Dod

Minor correction. I'm not sure that L&G has any holding in Phoenix, but SLA certainly does - nearly 26%. This does not detract from your underlying point of course.

That was the point I was making. My apologies if my post could be read any other way. Maybe a full stop was omitted after Legal and General and before SLA? I do not think that L & G has any declared holding in Phoenix but as you say (and as I tried to say) SLA does as a result of the sale of its life assurance business to Phoenix.

Dod

[Gilgongo]

Thanks all for the good suggestions. I suppose my question, while focusing on the oil/gas sector, was really about the general principle of going with an IT or a tracker in the case (as Dod101 points out) you want to replace a sector but have the usual HYP suspects covered and nothing particularly obvious presents itself. But I understand now that decision can't really be disentangled from the reasons to replace it! I'll look into the ITs mentioned though I think.

[Itsallaguess]

I suppose my question, while focusing on the oil/gas sector, was really about the general principle of going with an IT or a tracker in the case (as Dod101 points out) you want to replace a sector but have the usual HYP suspects covered and nothing particularly obvious presents itself. But I understand now that decision can't really be disentangled from the reasons to replace it! I'll look into the ITs mentioned though I think.

As a point of principle, I think it's very useful indeed to have a number of collective 'dumping grounds' available in an income-portfolio, where capital can be deployed that is 'struggling' to be deployed in what we might see as 'the usual deposits'.

If those collectives yield a decent enough income, then the vast majority of the wide diversification that's usually gained, as well as the fact that they often incorporate other useful 'off-site management' techniques such as income-reserve and discount-control, mean that you can get spare capital working as quickly as possible for you in a way that's better diversified than it might have been otherwise.

As well as taking care of the type of situation that you've encountered here, which has been more sector-based, this area of income-portfolio management has also become part of my process where I sometimes top-slice single-share income-holdings, usually due to a run on the share price for whatever reason. More often than not, in those particular situations, we might be in a position where a delivered yield might drop fairly considerably due to dividends not keeping up with a share-price rise, and as income-seekers we might be left with the double-trouble issue of holding a relatively low-yielding share that's actually overweight in capital terms in our portfolio, and in those cases it's great to be able to top-slice such a position and rotate some of the released capital into a decent-yielding collective, which is likely to produce two benefits -

1. Better diversification (capital and income) of that top-sliced capital, by moving it from a single-share investment to a wider collective investment.

2. Sometimes higher income from that top-sliced capital due to rotating from an often lower-yielding single-share position and into a higher-yielding collective.

To carry out the above with a lump of capital that moves from a single-share position and into a collective is, for me personally, fairly close to nirvana....

I'd highly recommend that every income-investor seeks out at least a couple of collectives to introduce into their income-portfolio, just so they are then available to act as a soakaway in these types of situations....

Cheers,

Itsallaguess

[Alaric]

I'd highly recommend that every income-investor seeks out at least a couple of collectives to introduce into their income-portfolio, just so they are then available to act as a soakaway in these types of situations....

Even a cheap FTSE 100 ETF would give a dividend yield in excess of 4%.