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Ways to Maximise Your Income Returns

11 Jun

I have been giving the problem of poor returns on cash considerable consideration. So what do you do if you need a realistic income yield from your capital?

 

Equity Release 

I am anti this approach as this is simply raising a packaged loan secured against your home where you receive income in exchange for part of the value of your house and/or potentially an escalating loan that will need to be repaid one day.

 

Structured Products

Income Deposit Plans are typically 6 years in length and pay, say between 5% & 7% per annum depending on terms and qualification requirements i.e. pays this on a quarterly basis as long as the FTSE 100 remains between 4,500 & 7,000 or +/- 21% of the initial underlying level with the level expanding +/-6% every year

Deposit Plans are typically 3, 5 or 6 years in length and may pay at maturity up to 17%, 28% and 50%, respectively.

The actual terms need to be reviewed carefully and suggest professional advice is required.

 

Fixed interest funds

These include :-

Corporate Bond Funds – M&G Strategic Corporate Bond (yielding 3.6%), Threadneedle Corporate Bond (yielding 4.2%),  Close Bond Income Portfolio (yielding 3.5%) and Fidelity MoneyBuilder Income (yielding 3.9%)

Strategic Bond Funds – M&G Optimal Income (yielding 3.9%), Jupiter Stregic Bond (yielding 5.4%) and Fidelity Strategic Bond (yielding 3.2%)

High Yield Bond Funds – Threadneedle High Yield Bond (yielding 8.0%), Baille Gifford High Yield Bond (yielding 6.3%), AXA Global High Income (yielding 6.5%) and Kames High Yield Bond (yielding 6.4%)

– all are above at least 1% more than the best cash ISA rates. 

It is important to remember that the capital value of bond funds will trend to follow the sentiment and expectations of the wider economy to a greater or lesser extent. It is expected that a good fund manager should be able to hold the payout if further turbulence lies ahead. 

If you are willing to accept a greater capital volatility, you could look to equity income funds. Please remember that you are focussing on payouts rather than the day-to-day capital value movements.

These include :-

UK Equity Income Funds – Invesco Perpetual High Income (yielding 3.9%), Trojan Income (yielding 4.3%) and Fidelity MoneyBuilder Dividend (yielding 4.8%)

UK Equity & Bond Income Funds – Ecclesiastical High Income (yielding 4.7%), Jupiter Monthly Income (yielding 5.1%) and Close Brothers Diversified Income Portfolio (yielding 2.4%)

North American Income Funds – JPM US Equity Income (yielding 2.3%), Jupiter North American Income (yielding 1.7%), Legg mason UK Equity Income (yielding 2.4%) and Neptune US Income (yielding 4.4%)

Global Equity Income Funds – Newton Global High Income (yielding 4.8%), Invesco Perpetual Global Equity Income (yielding 3.3%), Aberdeen World Growth & Income (yielding 4.6%) and Baille Gifford Global Income (yielding 4.5%)

Emerging Markets Income Funds – UBS Emerging Markets Equity Income (yielding 5.7%)

Asian Income Funds – Newton Asian Income (yielding 5.1%), Schroder Asian Income (yielding 4.7%), L&G Asian Income (yielding 5.3%) and Henderson Asian Dividend (yielding 4.9%)

With Equity Funds :-

  • It is important to focus on funds with a good track record of performance and payout growth
  • Payout growth doesn’t have to mean every stock in a fund must grow its yield. (A significant proportion of growth in dividends comes from businesses “normalising” dividend payouts.)
  • There are some outstanding UK equity income funds, but to invest solely in the UK is to miss out on some fantastic potential globally.
  • It is expected that the greatest investment opportunities may lie in Global and Asian markets.
  • There are also companies outside the UK who may have less debt on their balance sheet and some fo the regulatory changes will encourage higher dividend payouts.

Investors may be avoiding Asia and Global markets because of perceived risk but it is clear they could be missing out or at best limiting the diversity of their portfolio.

My contact details are :- tel 029 2020 1241, email welshmoneywiz@virginmedia.com, twitter welshmoneywiz, linkedin Darren Nathan

Mark Lyttleton Is Taking A Leave of Absence From BlackRoch & Fund Management

1 Jun

Mark Lyttleton is taking a leave of absence for the summer (18 June and end on 17 September 2012). So what does this mean for the funds he manages at BlackRock?

Mark Lyttleton to run absolute return fund for St James's Place

In most cases where personal family issues are given as the reason for the break, one can’t speculate on the issues why. Although, it is more common that if they return to work the vast majority of fund managers that take time out do not return to the role they previously held.

For investors the crucial aspect of this latest twist in the Mark Lyttleton tale is – what to do if their money is in one of his funds?

Since the start of this year, Mark Lyttleton has been removed from managing the BlackRock UK Fund. The reason given at the time so that he could focus on the higher alpha strategies he runs – the BlackRock UK Absolute Alpha and BlackRock UK Dynamic funds.

This makes the timing of his three-month break even more extraordinary.

 

My contact details are :- tel 029 2020 1241, email welshmoneywiz@virginmedia.com, twitter welshmoneywiz, linkedin Darren Nathan

What’s The Scenario if Greece Exits The Euro & Eurozone?

26 May

Greek Flag

If Greece left the Eurozone, I expect this would be bad for Greece with a hike in inflation, unemployment, panic and social unrest likely.

There are some powerful factions within the Greek political system who are clearly anti the austerity measures imposed. I, as we all, can sympathise to some extent with the plight but there is a limitation as the problem is partly home-grown – where other countries made cut backs and tough decisions in the last decade these where not in Greece.

If Greece can’t satisfy the demands of the European Union and the IMF, then they will cut off Greece’s last remaining lines of credit. Without this, Greece will not be able to pay its bills and could drop out of the euro altogether.

Who should pay for these mistakes? Is there an answer? We can’t change the past and can only deal with the current and plan for the future.

 

So what is opinion on this :-

 

Carsten Brzeski, senior economist, ING Belgium

  • Chaos.
  • Greek banks vulnerable from collapse (lack of support if problems arise)
  • Greek companies vulnerable from collapse (lack of support if problems arise)
  • Unemployment would spike
  • Expect the new drachma would drop drastically in value
  • Food and energy prices would leap (poor exchange rates worsen the situation)
  • The turmoil would undermine any opportunity for growth
  • The outlook for the Eurozone would worsen.

 

Michael Arghyrou, senior economics lecturer, Cardiff Business School

  • The drachma would be devalued (at least 50%), causing inflation
  • Interest rates will double and all mortgages, business loans and other borrowing will become much more expensive.
  • There will be no credit for Greek banks or the Greek state.
  • Expected shortage of basic commodities, like oil or medicine or even foodstuffs.
  • A lot of Greek firms rely on foreign suppliers, who may cut off Greek customers.
  • Greek companies could be driven out of business.
  • Greece will lose its only reference point of stability, which was its euro status.
  • The country would end up in a volatile period.
  • There would be institutional weakness.
  • The worst case scenario would be a social and economic breakdown, perhaps even leading to a totalitarian regime.

 

Sony Kapoor, managing director of the Re-Define think tank

  • Greeks or European policy makers talking about an exit in a casual blase way are being highly, highly irresponsible.
  • Total cost versus the total benefit remains overwhelmingly negative, both for the Eurozone and Greece.
  • A Greek exit could undo a large part of good work in Ireland and Portugal.
  • If you are a Portuguese saver with money in the bank, even if there is a small likelihood of losing that money, it would make perfect sense to move euro deposits while you can to a safer haven, like the Netherlands and Germany.
  • There would be a significant deposit flight in peripheral countries.
  • It would immediately weigh on investment in the real economy, because corporations would be very reluctant to invest anything at all.

 

Megan Greene, director of European economics at Roubini Global Economics

  • Cascading bank defaults in Greece would be expected
  • Everybody would take money out of Portuguese and Spanish banks.
  • A big part could be plugged by the European Central Bank (ECB) through a liquidity operation that would backstop the banks. The ECB has already done that several times and it would step up to the plate again.
  • Political contagion or unrest.
  • Greece is a small country and the rest of the Eurozone has been making provision for this for a long time now.
  • The Eurozone could survive a Greek exit.
  • The exit could be better for everyone involved if managed in a co-ordinated orderly way. 
  • If a unilateral default, an exit would be a worse option for Greece.

 

Jan Randolph, head of sovereign risk, IHS Global Insight

  • If credit is withdrawn by the EU and IMF, then Greece becomes a cash economy. It means the government can only pay what it collects.
  • The government starts shutting down, 10-15% of state employees don’t get paid and unemployment surges from 20% to 30%.
  • But Greece can still use the euro.
  • It would be difficult for the ECB to keep banks afloat.
  • The Greek banking sector would collapse.
  • More unemployment, as credit for companies would dry up.
  • What happens next is a political question.
  • European nations would probably not accept another Western European country descending into chaos and collapse.
  • The EU and IMF would probably negotiate some kind of aid.
  • Greece could continue with the euro.

 

 My contact details are :- tel 029 2020 1241, email welshmoneywiz@virginmedia.com, twitter welshmoneywiz, linkedin Darren Nathan

 

Greece and a Change to the Eurozone?

24 May
So with the Greek election (take 2) looming only weeks away, the questions is – will Greece remain in the Eurozone? Personally, I believe if they left it would be both political and financial suicide but that is just an opinion. For the Eurozone such an option is unthinkable and hugely damaging – let alone the fear of the domino effect (so who would be next) and I guess that would/could lead to the end of the Eurozone.
 
Drachma may become legal tender in Greece again
 
It seems clear that there is growing support for the opinion that the current strategies for resolving the Eurozone Debt Crisis are doomed to failure. The most likely scenarios are :-
  • a Greek exit, or 
  • a rapid shift to a fiscal union.
If Greece is anything to go by, the current approach of forcing austerity on crisis economies and preserving their membership of the euro leads to dissent by the voting population. If we look at the voters behavioural changes, this seems to have led sentiment towards more extreme parties, both on the left and on the right.
 
In recent opinion polls, the majority of Greek voters (in excess of 75%) want to remain in the Eurozone (but also reject the austerity programme). The issue being, if there is a change/relaxation of the agreed commitments would send a destructive message to all other member states who are part of austerity programmes. This could lead to financial markets losing confidence, outflows of funds from Greece and other associated economies would accelerate, yields on financial instruments would sore. If this was the case it would be realistic to see the Euro could unravel and collapse.
 
A Greek Exit
A Greek default and exit from the Euro could have dire knock-on effects possibly leading to similar financial disasters in Spain and Italy. To prevent this contagion would require the ECB to lend several trillion euros to banks, and the available funds in this scenario are unlikely to be sufficient to cope with the fallout.
 
A Rapid Shift to Fiscal Union
This is expected to avoid the risk of contagion and financial collapse in at least some of the peripheral nations. This would require a substantial move towards a more centralised or federal style control of Eurozone government revenues and expenditures. This includes the concept currently being negotiated of Eurozone government issued bonds on behalf of all member states collectively.
 
If Brussels were to take over the debts of Greece and other struggling peripherals the immediate credit crisis would recede and the Eurozone credit would establish itself alongside US Treasury debt as one of the foremost debt markets in the world.
 
The outcome is stability but the unknown – is at what cost, both short and long-term?
 
This is in direct comparison of the current situation, where the current approach has led to  the Eurozone capitulation to the need to bail out Greece, Ireland and Portugal has undermined the monetary union, and the risk of contagion to Spain and Italy now threatens its very existence.
 
My contact details are :- rel 029 2020 1241, email welshmoneywiz@virginmedia.com, twitter welshmoneywiz, linkedin Darren Nathan

Relief Rally or the Start of Something More?

22 May

Yesterday saw stocks rebound from last weeks losses – the debate is whether it’s just a quick relief rally or the start of a new move higher?

In order to break that gravitational pull, we’ll need evidence suggesting the worries are at least containable and that the market and growth contractions realistically are expected to reverse – yes, I mean sustainable growth. I am looking for signs the rally is sustainable.

Personally, depending on information and data in the next few days, we have the potential to see a rally at least short-term. The question I want answered currently is, “Is all the recent bad news and woes already priced into the market?” Although, on the time horizon, there are other factors that could start worrying stocks – the so-called “fiscal cliff,” combination of budget cuts and tax hikes for next year, issues around China’s growth story, etc.

The worries over the Eurozone hangs over the market and any further negative headlines could easily derail the market’s rally if this recent positive market move is the start of a rally. The European leaders summit Wednesday could well be a good barometer to this risk.

The G8, over the weekend, helped give markets a bounce after leaders embraced Greece, saying they want it to stay in the Eurozone and they would also seek ways to motivate ways to create and stain global growth. China also helped, with Premier Wen Jiabao staing that China will focus on boosting growth.

Some believe that with the efforts taking place, we may have seen the bottom of the recent correction on Friday, but it is not clear-cut. The opposite opinion on the situation provided by some analysts is, “we’re not there yet” and believe “we‘re going to be in more of a ‘sell in May and go away’ trend”. Here, the belief is the summer is going to flatten out, then we come back in the fall. If this is the case we easily could have another month of the current market trends.

My contact details are :- tel  029 2020 1241, email welshmoneywiz@virginmedia.com, twitter welshmoneywiz, linkedin Darren Nathan

Markets Plummet – An Overview

10 May

We have seen markets plummet since the elections over last weekend, down to lows of 2012 as investors took flight from stocks at risk of being dragged down by troubles in the Eurozone. This sell-off  seems to have been triggered, at least in part, by fears that a planned coalition government in Greece will tear-up the austerity deal underpinning the country’s recent €240billion (£190billion) bail-out.

The FTSE 100 Index saw £26 Billion wiped off its value following a further slide of over 100 points. This is a third day running of major sell-offs across most stock markets following concerns over the future of the Eurozone.

Alexis Tsipras, whose Syriza party came a surprise second in Sunday’s poll, is insisting his country’s bailout deal with the EU and IMF is ‘null and void’.

As well as uncertainty over Greece, fears that Spain will need to bail out its banking sector caused that country’s 10-year bond yield to soar again above the ‘unsustainable’ 6% level. This is perilously close to the 7% interest rate on government borrowing that prompted Greece, Portugal and Ireland to seek bailouts.

Financial analysts said the current market turmoil was likely to continue. It appears unlikely that a Greek coalition would be formed considering the rhetoric from the various party leaders, so uncertainty was likely to reign for a while.

‘The worst case scenario for the EU is if Greece leaves the Eurozone and undertakes a disorderly default. It is difficult to see why the country would do this but then again it only takes one angry politician to change history – Greece is staring into the political and financial abyss. Whilst a less likely scenario, if it did happen it could have huge ramifications for the rest of Europe.

A default for Greece looks likely and a departure from the Euro in the next 18 months is expected – this scenario has in excess of 66% outcome expectation – good chance of happening. Greece would not be allowed to walk away from its debts and financial obligations, if it leaves the euro. The likely scenario would be it would be given a greater period of time to repay its debts. The sanctions against Greece, if it attempted to renege on its debts, does not bear thinking about.

These are grave concerns and the ramifications for the Eurozone, global economic prosperity and stock markets are huge.

Investing is about taking best advantage of the market cycle while avoiding the periods of market panic – I am pleased to say, we hold a defensive strategy across all my clients and so we have avoided the worse of the declines and are well placed to benefit from the market opportunities expected to be created by the current market turmoil.

My contact details are :- tel 029 2020 1241, email welshmoneywiz@virginmedia.com, twitter welshmoneywiz, linkedin Darren Nathan

Sell in May & Go Away ?

1 May

It’s far to say that 2012 started well, which lead to a market correction. The outcome so far for the year is at best neutral. So following sell-offs in 2010 & 2011, s 2012 going to be the same?

It seems less likely as we are far more cautious on our overall outlook but you can never say never with the major economic over-hangs around the world – Eurozone Debt, China’s declining GDP, global economic growth, commodity pricing, etc., etc.

So far, we have witnessed weak data reigniting fears and concerns over global growth, events in China and the Middle East and the Eurozone Debt Crisis. In 2010 & 2011 a strong first quarter was followed by heavy selling

So for 2012 ?

  • we will have periods the same but unless there is a catalyst to drive a correction, it seems less likely for now.
  • The behaviour of the equity markets, coupled with the dwindling number of positive economic surprises, the valuations and technical signals share striking similarities with the stock market years of 2010 and 2011.
  • Positive earnings revisions should help support the equity markets in coming months.
  • The first quarter 2012 reporting season indicates that cyclical sectors such as technology and consumer cyclicals have the greatest surprise potential.
  • The Eurozone debt crisis remains a major concern with a risk that it could lead to negative sentiment. (If the Eurozone remains in recession till the end of the year, a fresh escalation of the Euro crisis is likely.)
 

My Position

I have reduced market risk within equities and previously removed commodities from portfolios. Currently, I am retaining a strong equity position but focusing on cash flows, balance sheets and diversification.

I remain underweight in global and convertible bonds but have strong positions in corporate and government debt (during this period of uncertainty) and a light holding in gold.

To contact me :- tel 029 2020 1241, email welshmoneywiz@virginmedia.com, twitter welshmoneywiz, linkedin Darren Nathan

A Day of Panic

24 Apr

Political uncertainty and disappointing data in Europe raised fears the Eurozone could struggle to push through austerity measures and may stay in recession until late in the year.

The Dutch prime minister resigned from office on Monday after Dutch officials failed to agree on budget cuts, while France’s Socialist presidential candidate Francois Hollande, who promised to renegotiate a European budget pact, won in the first-round of elections. The third place win by Marine Le Pen shocked internationals as this showed growing support for xenophobic strategies, which undermines the fabric of a single european market.

Adding to that, the euro zone’s business slump deepened at a far faster pace than expected in April.

Financial markets have been unnerved by the rise of Francois Hollande, previously best known as the partner of Ségolène Royale, French president Nicolas Sarkosy’s defeated opponent in the last French election.

The economy is at the centre of the election campaigns in France. Although far from the plight of peripheral Eurozone countries, it is struggling with weak economic growth, 10% unemployment, straining public finances and a population unwilling to give up on cherished pensions and welfare benefits.

Both Hollande and Sarkozy advocate a financial transaction tax, which would have a far bigger impact on the City of London than on the Paris bourse.

We await for round 2!

My email address :- welshmoneywiz@virginmedia.com, twitter welshmoneywiz, linkedin Darren Nathan

It’s Official, S&P Confirm UK’s Soverign Debt Rating – AAA

16 Apr

The wealth status of the UK have been confirmed as AAA by rating agency Standard & Poors. This confirms their opinion on the UK as being wealthy, diversified, open with suitable debt management and controls in place.

They have confirmed they see the UK’s economic policy will continue to focus on closing the fiscal gap, with the potential of controlling the problems, with the likelihood of resolving the issues while providing a suitable infastructure where prosperity is plausible. The UK is seen to benefit from a large liquid market for  government debt issuance, entirely funded in domestic currency at long  maturities.

The agency believes the UK government will implement the bulk of its consolidation program and economic growth isn’t expected to fall below current projections.

The Good News – Standard & Poor’s have highlighted strong demand for long-dated gilts from both domestic and non-resident institutional investors.

 

The Bad News – the steep correction in the fiscal accounts is expected to cause a drag on economic growth; household spending is likely to be weak; and the UK will post modest real GDP growth (est. 1.6%  between 2012 and 2015).

These are only estimates and will be reviewed regularly as there are many factors, which could significantly affect these figures, assumptions and estimates but for now the general view is GOOD NEWS.

My contact details are detailed in the header – email welshmoneywiz@virginmedia.com, twitter welshmoneywiz, linkedin Darren Nathan

Earnings Season Gets Underway – And The Return of Market Volatility

16 Apr

OK so it was unexpected how stable the markets were in Q1 2012, I expect it is hello again to volatility going forward.

rollercoaster cartoons, rollercoaster cartoon, rollercoaster picture, rollercoaster pictures, rollercoaster image, rollercoaster images, rollercoaster illustration, rollercoaster illustrations  

On the reporting side, almost a fifth of the S&P 500 report next week and these include some big blue chip companies and banks (IBM, Microsoft, Coca-Cola, McDonald’s, Citigroup and Bank of America). On the economic front, March retail sales, industrial production, existing home sales and weekly jobless claims.

The Good News – valuations seem to be supportive of the market

The Bad News – stocks fell for a second week, in the most volatile week of the year, punctuated by big swings in both directions.

I think this is the first time since possibly October last year, where we have seen been effected by the reality that stocks are typically volatile, despite low volatility in the first quarter. It’s possible we could see further losses with trend data indicating a growing potential of this being double what we’ve recently seen. This could become reality off of the weaker U.S. data; a slowdown in China, and the European debt saga becoming more threatening again.

The biggest uncertainty is the Eurozone. Europe has recently returned as a significant market worry with yields in Italy and Spain rising dramatically, amid expectations of weak economic data and growth and growing fiscal concerns. I think there are going to be more reported over the European scenario, as Spain issues bills on Tuesday and longer-dated securities Thursday; ECB (European Central Bank) President Mario Draghi speaks at the ECB statistics conference on Tuesday.

This is a challenging time but could also be very profitable as volatility creates opportunities.

Any questions – my email address is welshmoneywiz@virginmedia.com; or follow me on – twitter welshmoneywiz, linkedin Darren Nathan