DIY Investor Magazine
/
September 2016
6
Angus Campbell,
Head of Corporate and Financial
Stature PR
QUEST FOR INCOME:
YOU NEED TO LOOK HARD TO FIND IT
Yield is so important for investors, especially those
dependent on income from assets such as cash in
retirement. I am a great believer in yield as a very
attractive way to grow one’s money in this low interest
rate and inflation environment, but finding semi-decent,
low risk yields across the myriad of asset classes that
exist is very hard indeed.
Now that the Bank of England has cut interest rates to
as low as 0.25% just last month, the search for yield is
even harder, with government bonds offering virtually
0% on their coupons and other higher yielding bonds
(for example many mini and corporate bonds) seeming
attractive, but bringing to mind the adage “if it looks too
good to be true…”
An area worth considering is peer-to-peer (“P2P”)
lending. One of the largest P2P lenders RateSetter is, at
the time of writing, offering investors 3.0% (annualised)
on a monthly contract, 4.1% on three years and 5.0%
on five years.
There are many other P2P lenders out there all with
different platforms that operate in slightly different ways,
some with the added protection of a provision fund or
some sort of backdrop to protect against a potential
borrower default.
A few of the smaller ones also qualify for ISA status
following the government’s introduction of the
Innovative Finance ISA (IFISA) back in April of this year,
however the larger providers are yet to receive this
stamp of approval yet and concerns amongst advisers
and the regulator over their inclusion in the ISA wrapper
continue to rumble on.
Meanwhile yield hungry investors who understand the
risks of P2P lending remain starved of taking advantage
of these tax free options. If ever there was a legal
method of tax avoidance that is positively encouraged
by the government, ISAs are it and delays in bringing
more P2P lenders into the IFISA fold are frustrating.
Preference shares (“prefs”) are worth looking into
for any income seeking investors. They give equity
investors ‘preference’ over any ordinary shareholders
when it comes to paying a dividend and they tend to
provide attractive yields. Having extracted some prefs
share data from a leading global data provider, of the
prefs that have traded so far this year, their average
yield is just shy of 5%, which is nothing to be sniffed at
given you can slot them into your ISA. Since preference
shares give exposure to equity that can rise or fall in
value, there is the added potential of some capital
appreciation to give more bang for your buck.
Certainly preference shares are easier to understand
than many multi-asset funds out there. Although multi-
asset funds shouldn’t be placed in the same category
as yielding assets, many are designed to behave in
such a way, as they claim to offer very low risk and
stable returns.
Up to the beginning of 2016, overall multi-asset funds
had been performing well for investors, but the major
problem here is understanding just what they are made
up of. Very recently I saw an email update from one of
the bigger and better known multi-asset funds on the
market, which had suffered poor performance of late,
announcing to its investors that it was putting an end
to its “Mexican Duration” strategy. No explanation as to
what this was and I can only imagine that the majority of
investors weren’t even aware that such as strategy was
employed within the fund, let alone know what it meant.
The search for yield continues and is likely to be a
challenging one going forward in the years ahead.
