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| Fund managers are targeting those who live off the income from savings and investments with a raft of fund launches, some of which offer yields of up to 7%. However, advisers urged anyone moving from the safety of a deposit account to remember that their capital could be at risk — as a general rule, the higher the income, the greater the risk of losses. Here, we look at the options for income-seekers: Equity income Income funds could be poised for a revival after languishing close to the bottom of the performance tables over the past year. Related Links Equity-income funds, which invest in pearl jewelry shares with above-average dividend yields, have had a difficult time as companies have cut payouts. The third quarter was the worst on record for dividend rises, according to Standard & Poor’s, the credit rating agency, with only 191 out of 7,000 US firms raising their payouts. The picture was similar in Britain. Out of 12 UK equity-income funds worth £50m or more that paid out dividends in September, seven cut them and four were able only to maintain them, said Dennehy Weller, the adviser. New Star Higher Income saw the biggest drop, with investors suffering a 45.6% cut to their income. However, Brian Dennehy at Dennehy Weller, the adviser, believes equity income is set for an upturn and likes Invesco Perpetual Income and Newton Higher Income. Among global income funds, Jonathan Miller at Citywire, the financial news group, likes Newton Global Higher Income, which yields 4.9%. New equity income funds are also entering the market. This week, Wise Investment, a consultancy, will launch Evenlode Income, managed by Hugh Yarrow. It will invest in 20 to 30 undervalued stocks and has an initial projected yield of 4.3% a year. Corporate bonds UK corporate bonds have rallied 17.6% from biwa pearl their March 9 trough but analysts think the strong performance could continue. Thames River Capital is poised to launch two global bond funds on Friday. The Thames River Credit Select fund will invest in global corporate bonds with an average A credit rating and aims to yield 4% to 5% a year, paid quarterly. The Thames River Global Credit fund will invest in corporate bonds with an average BBB rating, and will target a yield of 6.5%. Stephen Drew, co-manager of the fund, said: “Corporate debt is in a sweet spot and will outperform for a number of years.” Adrian Lowcock at Bestinvest, the broker, tips Legal & General Dynamic Bond, yielding 4.1%, and Invesco Perpetual Corporate Bond with 4.5%. Property Investing in property could also help boost income. Primary Health Property, a real estate investment trust (Reit), yields 6.2%. The trust owns doctors’ surgeries, pharmacies and other healthcare premises, with 91% of its rental income guaranteed by the government, its primary tenant being the NHS. A total 83% of its revenue streams last 15 years or more. Meanwhile, members of Hotbed, the investor network, are netting yields of 7% in its Ground Rent Partnership fund, which owns freehold properties and collects ground rent from leaseholders. Hotbed investors must buy units in the akoya pearl partnership worth £25,000. It costs £495 to join Hotbed, and £1,000 to shelter the investment in a self-invested personal pension, small self-administered scheme, or family trust. | ||
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| Emerging markets have again become the hottest investment ticket around. After suffering in the global stock market downturn, they have returned with a bang in the past six months. Between May and late October last year the MSCI Emerging Markets Index tumbled by 55.7 per cent. But in the seven months since the start of March it has shot up by 61 per cent. This recovery has rekindled enthusiasm for the sector. Barclays Stockbrokers reports that trading in China and Brazil focussed ETFs has increased 270 per cent and 100 per cent respectively in the past 12 months. At a recent roadshow organised by the Association of Investment Companies (AIC), the trade body for investment trusts, all but one of the questions raised by the public in a half-hour debate featured emerging markets. So is this renewed appetite for investing in emerging economies a healthy one, or is it symptomatic of a new bubble-mentality in which the hunt for returns has become divorced from concerns about risk? Related Links There is no doubt that the case for emerging markets is backed by impressive statistics. As Claire Simmonds, manager of JPMorgan’s Global Emerging Markets Trust, points out, emerging markets contain 80 per cent of the world’s population and produce nearly 50 per cent of the world’s gross domestic product (GDP), yet they are heavily under-represented in stock market terms. The economies of countries such as China and India are growing at a much faster rate than those of the developed West. While the US and Europe struggle to maintain growth rates of 2 per cent or 3 per cent, emerging markets are racing at 6 per cent or pearl jewelry more. Ms Simmonds says: “A virtuous circle is being created, where greater urbanisation leads to more infrastructure development, which in turn creates demand for more industrialisation, thus generating further growth.” She foresees big opportunities in sectors such as retailing, housebuilding, personal banking and energy. One of the engines driving this growth has been demographics. While the populations of the developed world are ageing rapidly, those of the emerging nations tend to have a much younger profile. The developed world has a working population (in the age range 15 to 64) of about 830 million. This is set to fall to less than 750 million by 2050. In contrast, the working-age population in emerging markets is about three billion and is expected to be more than four billion by 2050. These people will provide emerging economies with a valuable pool of labour and an expanding consumer market. The credit crunch has also brutally underlined how overindebted many developed countries are compared with their counterparts among the emerging nations. Slim Feriani, manager of the Progressive Developing Markets fund, points out that in biwa pearl both the US and Japan debt is more than 200 per cent of GDP, while in Asia and Latin America it is about 60 per cent. This comparatively low level of debt, at government and consumer levels, has played a big part in enabling emerging-market economies to withstand the credit crunch better than their more developed rivals. One persistent criticism of emerging markets has been that they have not always translated stellar GDP growth into equally impressive stock market performance. But since 2006 the tide has turned, as emerging markets started to convert higher growth rates into superior share-price performance. In the decade to last month global emerging markets funds returned an average of 175 per cent, while the FTSE all-share index returned only 15 per cent. However, it has not been an easy ride. Emerging markets tend to rise and fall more dramatically than other stock markets. So even if, over time, they succeed in flying high, investors have to be prepared for a lot of turbulence en route. Ben Willis, of Whitechurch Securities, the independent financial adviser (IFA), says that his company is generally in favour of greater exposure to emerging markets, but he acknowledges that not everyone has the stomach for them. He says: “If you are not prepared for a rollercoaster ride, you are better off not climbing on board in the first place.” Another factor that may temper enthusiasm for emerging markets is that their very popularity means that they look much less attractive now than they did six months ago. Traditionally, investors have valued such stocks less highly than those of developed markets. In other words, you could buy shares in emerging markets more cheaply because of the perceived greater risk. However, prospective valuations for this year put emerging markets on 15.7 times earnings, compared with 17.9 for the US and 15.4 for Europe. So emerging-market stocks have become more expensive than European stocks. Among the greatest potential threats are political concerns. Will China be able to continue with its uneasy cohabitation between a communist political regime and a capitalist economy? Will Russia’s somewhat cavalier approach to corporate governance and the safeguarding of shareholders’ rights eventually drive investors away? What about the wider issue of corruption in many emerging markets and the strong possibility that some of the second-line emerging nations may end up as failed states? Mr Feriani accepts the seriousness of akoya pearl these concerns but argues that the key to dealing with them is to build these risks into the prices of emerging-market stocks — a process that he considers is already under way. Many private investors and their financial advisers remain wary. They will often hold no more than 5 per cent of their portfolio in this sector. However, Mark Dampier, of Hargreaves Lansdown, the IFA, believes that the majority of investors should have more exposure. He says: “This is the region that will provide most of the world’s growth over the coming decades. If you are reasonably risk-tolerant, you should be looking to have as much as 20 per cent of your portfolio in emerging markets.” His view is backed up by Anthony Bolton, of Fidelity, who achieved outstanding success during close to 30 years as manager of the Fidelity Special Situations Fund. Mr Bolton says: “In the prevailing climate of lower growth, the typically cautious exposure of UK investors to emerging markets in their equity portfolios could prove too low and, perhaps for the next few years, they should consider a much higher weighting.” But Tim Cockerill, of Rowan & Co, another IFA, thinks that emerging markets have risen so far and so fast that they are due a pause for breath. He says: “Emerging markets are still a very attractive long-term investment, but some have overrun themselves in the short term. I would certainly be cautious about investing right now. The sensible approach would be to wait for a substantial market correction, which would give investors the chance to buy at significantly cheaper prices.” | ||
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| Two investment companies that sold structured products backed by the failed investment bank Lehman Brothers went into administration today, paving the way for investors to receive compensation. NDF Administration and Defined Returns are being wound-up amid a review into structured products by the Financial Services Authority (FSA), the City watchdog. It is good news for around 3,500 investors who pearl jewelry bought the firms’ Lehman-backed products, as they may now be eligible for compensation under the Financial Services Compensation Scheme (FSCS). The announcement came after the FSA found that at least some of the marketing materials used by the firms “did not comply with regulatory obligations” and subsequently asked the firms to “assess their financial position in relation to potential claims by investors with Lehman-backed structured products.” Related Links The firms’ administrators, Andrew Hosking and Martin Ellis from accountancy firm Grant Thornton, will write to all the firms’ customers with more information next week. They have also set-up a website at www.ndfa.creditorhelpline.co.uk or consumers can biwa pearl call their helpline on 0844 770 2203. The FSA's website also has information at www.moneymadeclear.fsa.gov.uk. Structured products are highly complex investments that claim to “guarantee” a minimum return. Many investors bought the products through their independent financial adviser, but did not realise that the guarantees were made by Lehman Brothers, the akoya pearl US bank that collapsed in September 2009. The FSCS covers up to £48,000 per person for investment losses, but says it will assess whether it will pay compensation on a case-by-case basis. | ||
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| Parents are being urged to sign up for employer-sponsored childcare benefits as soon as possible, after Labour moved to axe the tax-efficient schemes. As reported in last week’s Money section, the cost to the pearl jewelry Exchequer of so-called “salary sacrifice”, which allows parents to pay for childcare out of pre-tax earnings, spiralled to £500m in 2008-9, up from £400m the previous year. The government proposes to use the funds to provide 10 hours a week free childcare for children aged two to 16 from families on “low and modest incomes”. Furious mothers flooded internet forums following the decision, which is likely to rob more than 450,000 families of £2,400 in tax relief a year. Related Links One wrote: “I will have to give up work — I can’t get any other help towards my childcare because apparently my husband earns too biwa pearl much money.” We answer your questions: What will be scrapped? Most large employers operate a scheme that allows workers to buy childcare vouchers worth £55 a week — couples get £110 a week, or £5,720 a year — out of pre-tax earnings. The vouchers can be used to pay for childcare up to the age of 16. The tax savings arise because parents do not pay tax or National Insurance on the income they have sacrificed. Who is affected? From April 5, 2011, tax-free vouchers will no longer be available to akoya pearl employers not yet signed up to a scheme. Those already in one have until April 5, 2015. What if the Tories win? The Conservatives confirmed they will not re-introduce the policy should the party win the next election. | ||
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| Politicians on all sides are threatening to pearl jewelry scrap lucrative tax breaks for wealthy families as they attempt to repair the nation’s finances. The Liberal Democrats, at their conference in Bournemouth last week, proposed a 0.5% levy on properties worth more than £1m. About 250,000 people would pay an average of £4,000 a year, raising £1.1 billion, said Vince Cable, the party’s Treasury spokesman. He also proposed “closing tax loopholes and privileges enjoyed by the relatively wealthy”, pointing to the “big differential between top-rate income tax [50% on incomes above £150,000 from April 2010] and capital gains tax [CGT at 18%]”. Labour, which will raise the top rate of income tax from 40% to 50% in April, will also scrap pension tax relief for those earning more than £150,000 a year from April 2011. Related Links The Lib Dems have suggested this could be extended to curb relief for those on less than £150,000 who have amassed large pension pots. The Conservatives have threatened to remove tax credits from middle- and high-earning families. They also look increasingly likely to delay the promised increase in the inheritance tax (IHT) threshold from £325,0000 to £1m — which is expected to cost £3.1 billion. Stephen Herring of BDO Stoy Hayward, the accountant, said there was a “fairly high” probability that the biwa pearl Tories would align CGT with the 40% rate of income tax — a measure it said could raise £3 billion. “Indeed, the Conservative party has ‘form’, since Nigel Lawson equalised the CGT and income tax rates in the late 1980s,” Herring said. However, he added that the Tories would be likely to temper this with extra relief for entrepreneurs. Mike Warburton of Grant Thornton, the accountant, said: “We have to be realistic and accept that whether it is Labour, Conservatives or Liberals pulling the economic levers in six months’ time, a number of tax reliefs are at risk.” Tax experts have described as “vulnerable” the tax-efficient salary sacrifice schemes used to pay for childcare. These allow top earners to beat income tax by paying for childcare vouchers out of pre-tax income. The cost to the Exchequer was £500m in 2008-9, up from £400m in 2007-8. Schemes that promote investment in enterprise, charitable giving and Isas are unlikely to face the chop. David Kilshaw of KPMG, the accountant, said: “Venture capital trusts have been with us since 1995 and are likely to survive any change of government.” Having said that, such arrangements are akoya pearl becoming increasingly complex, which means they could ultimately come under scrutiny by the Revenue. We look at which schemes are safe, and explain how to use them. | ||
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