I am awaiting something inspiring to write about; nothing has fired my imagination in recent weeks. So in the meantime here are some random thoughts on investment issues.
Markets have been weighed recently by fears over Spain’s economy, after a poor government bond auction and rising bond yields. Spanish stocks also fell on Thursday whilst other markets rallied. Spain has a weak economy, very high unemployment levels and an overhang of a collapsed property boom – unsold homes, falling prices, negative equity, repossessions, failed developers and bad debts sitting on bank balance sheets. Whether Spain needs to be bailed out or could be remains to be seen. It is a much bigger economy than Greece and whether the IMF* can provide a firewall to protect the global economy from contagion is unknown. I conclude recent events will be a pattern for the next year at least, periods of calm and relief rallies, followed by emerging nervousness, crisis and volatility. Sovereign indebtedness is a deep structural problem which will take years to fix.
A new tax year signals a new ISA allowance of £11,280 of which a maximum of £5,640 can be allocated to cash. For those wishing to use stocks and shares ISA allowances but nervous of market volatility, can I remind you of Fidelity’s phased investment facility in which money can be fed into the market over six months, the option of monthly ISA contributions of up to £940 p.m. or the use of Fidelity’s ISA Cash Park, a temporary facility which permits a rapid tactical switch to equities if markets fall sharply.
For those of you receiving income payments from Fidelity I have been advised by one of my clients, that distribution statements are no longer sent out automatically now but have to be individually requested.
Finally a thought on income investing. With yields on UK gilts and other government bonds at record low levels, southern Europe excepted, and interest rates on cash very low, the search for income is a major investment theme. Selected high yield corporate bonds offer high income or equity like total returns but with lower volatility than their own equity. In addition dividend investment is back in vogue with increasing interest in global income. Traditionally UK investors were largely confined to domestic equity income but now a new IMA** sector the Global Income has been launched to accomodate the increasing number of fund offerings and reflect this distinct asset class. The pool of investible companies for dividend income is much bigger outside the UK whilst large cash balances are being returned to shareholders in the form of dividends or share buy backs. This reflects the growing focus on shareholder value not always evident outside the UK.
For lower risk growth investors dividend re-investment is an excellent strategy for long term returns. You will no doubt have seen the data that shows historically a significant amount of return from equities comes from dividend re-investment.
* IMF – International Monetary Fund
** IMA – Investment Management Association.