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Searching for yield? The IFISA and other opportunities
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.

 

With the Bank of England base rate at just 0.5%, the search for yield remains tough, 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’) or market place lending. One of the largest P2P lenders RateSetter is, at the time of writing, offering investors 2.5% p.a. on an easy access investment, 4.1% on one year and 4.7% on a five year contract.

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.

An increasing number also qualify for ISA status following the government’s introduction of the Innovative Finance ISA (IFISA) in April 2016; the new wrapper was a little slow out of the blocks because of the time it was taking for firms to be regulated. However, there are now around 40 IFISA providers to choose from with a wide range of propositions and underlying investments.

The search for yield continues and is likely to be a challenging one going forward in the years ahead

If ever there was a legal method of tax avoidance that is positively encouraged by the government, ISAs are it and the IFISA allows a whole raft of interesting investments to be sheltered from the tax man, allowing yield hungry investors who understand the risks of P2P lending to take maximum advantage.

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.

There are plenty of good blue chip stocks that offer decent dividend payments, many in ‘defensive’ sectors like utilities, but even these are susceptible to big falls in value if there’s a stock market correction. If you look hard enough you can find the attractive yielding investment that suits you, but always be conscious of the risks.

 

 

 

About Angus Campbell

Angus is Director of  Nominis Advisory and has over sixteen years of experience working in the financial services industry acting as the Head of Communications / Public Relations for both publicly listed and privately owned investment firms. His time as a highly experienced in-house communications and investor relations expert has allowed him to build an excellent reputation and extensive network of financial journalist contacts across national print, newswire & online, trade and broadcast media. His expertise lies in providing advice on how best to engage with the financial media by devising and implementing strategic corporate and financial communications strategies.

 

 

Disclaimer

This article does not contain and should not be construed as containing, investment advice or an investment recommendation or an offer of or solicitation for any transactions in financial instruments. Any opinions made may be personal to the author and may not reflect the opinions of my employer.

 

www.nominis.co
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