Five income ideas for your ISA23 February 2015
Jason Hollands, Managing Director at Tilney Bestinvest comments:
At a time of record low interest rates and squeezed bond yields, the search for a decent yield can seem like the quest for the Holy Grail. Indeed the hunt for income has prompted investors to look further up the risk spectrum, helping propel UK equity income funds to the top of the best-selling funds tables month after month as well as spurring interest in higher yielding niches such as property, infrastructure and VCTs.
Those seeking income need to tread with some care this ISA season as value is hard to find in the bond markets, while equity dividend growth is slowing in the UK and some major sectors, notably oil and gas but also supermarkets, face negative headwinds. With that in mind, here are a few thoughts on income-generating investments worth exploring this ISA season.
1. UK Equity Income – Standard Life UK Equity Income Unconstrained
Whereas most funds in the popular UK Equity Income sector cluster around the “big names” of the FTSE 100 Index, this fund pursues a ‘multi-cap’ approach, making use of the full bandwidth of companies in the UK markets whether they are large, medium sized or small. Currently the fund is 40% invested in the FTSE 100, 45% in mid-cap stocks and 15% in smaller companies. The manager, Thomas Moore, has virtually no exposure to oil and gas companies – one of the largest sectors of the UK market – and Moore is wary of some of the valuations of a number of major “defensive” stocks that often appear amongst the top holdings of rival funds. Instead, he favours consumer facing companies that he believes will be beneficiaries of lower oil prices putting more cash into the pockets of consumers.
2. European Income – Standard Life European Equity Income
We’re upbeat on European equities this year, despite a combination of low growth, deflation and concerns over a potential Greek exit from the Euro. March sees the European Central Bank launch a €1.1 trillion stimulus programme, which should be supportive to equities, and with western Europe being a major net importer of oil, the slide in energy prices should provide an additional boost to the Eurozone. The Standard Life European Equity Income fund is focused on global businesses listed in core European countries such as Switzerland, Germany, France and the Nordic region, with nothing in Greece. Large holdings include Novartis, Ryanair, Roche and Bayer.
3. Commercial Property – Henderson UK Property
The UK commercial property market is arguably a better reflection of the strength of the domestic economy than the stock market, given that the latter is dominated by large, international companies. As the economy grows, fewer offices and shops remain empty and the ability to increase rents also improves. With most property investment companies currently trading at very large premiums, we favour this open ended fund. It is invested three-quarters in bricks and mortar, with a skew towards properties in South East England, with the balance in liquid assets, including cash. Property holdings include 44o The Strand – headquarters of Coutts – and Travelodge, Kings Cross.
4. Strategic Bonds – PFS TwentyFour Dynamic Bond fund
Investors delving into the bond markets would be wise to choose funds with considerable flexibility to adapt as the markets shift on the back of central bank policy moves. This “strategic bond fund” has the benefit of being relatively modest in size compared to some of the other funds in its sector that have been popular with advisers and that means it is able to take more meaningful positions in individual credits. The focus of the fund is pan-European credits and the team have considerable experience investing in asset backed securities. The fund has been positioned with the forthcoming European QE programme in mind, for example by holding longer dated Spanish and Portuguese bonds that the ECB is set to buy from March. All currency exposure is hedged back to sterling.
5. Renewable energy infrastructure – Bluefield Solar Income
For investors seeking a stable source of income and returns that are lowly correlated to equities and bond markets, this renewable energy investment company which is invested in UK solar power assets could merit a place in their ISA. Most of the revenues are underpinned by long-term contracts (up to 25 years) under the UK Government’s renewable energy incentive schemes, which have built in increases to adjust for inflation. Bluefield has 25 solar plants and has recently announced the acquisition of three more, in Wiltshire, Somerset and Oxfordshire. Bluefield Solar Income is is trading at 2.5% discount to NAV.
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The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. This press release does not constitute personal advice. If you are in doubt as to the suitability of an investment please contact one of our advisers. Past performance is not a guide to future performance.
Different funds carry varying levels of risk depending on the geographical region and industry sector in which they invest. You should make yourself aware of these specific risks prior to investing.
The property market can be illiquid; consequently, there can be times when investors will be unable to sell their holdings. Property valuations are subjective and a matter of judgement.
Bonds issued by major governments and companies will be more stable than those issued by emerging markets or smaller corporate issuers; in the event of an issuer experiencing financial difficulty, there may be a risk to some or all of the capital invested. Please note that historical or current yields should not be considered reliable indicators of future performance.
Due to their nature, specialist funds can be subject to specific sector risks. Investors should ensure they read all relevant information in order to understand the nature of such investments and the specific risks involved
About Tilney Bestinvest
Tilney Bestinvest is a leading investment and financial planning firm that builds on a heritage of more than 150 years. We look after more than £9 billion of assets on our clients’ behalf and pride ourselves on offering the very highest levels of professional client service with transparent, competitive pricing across our entire range of solutions.
We offer a range of services for clients whether they would like to have their investments managed by us, require the support of a highly qualified adviser, prefer to make their own investment decisions or want to take more than one approach. We also have a nationwide team of expert financial planners to help clients with all aspects of financial planning, including retirement planning.
We have won numerous awards including UK Wealth Manager of the Year, Low-cost SIPP Provider of the Year and Self-select ISA Provider of the Year 2013, as voted by readers of the Financial Times and Investors Chronicle. We are pleased that our greatest source of new business is personal referrals from existing clients.
Headquartered in Mayfair, London, Tilney Bestinvest employs almost 400 staff across our network of offices, giving us full UK coverage, and we combine our award-winning research and expertise to provide a personalised service to clients whatever their investment needs.
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For further information, please visit: www.tilneybestinvest.co.uk
Tilney is a leading investment and financial planning group that builds on a heritage of more than 180 years. Our clients are private investors, charities and professional intermediaries who trust us with over £23 billion of their assets. We offer a range of services including financial planning, investment management and advice and, through our Bestinvest service, a leading online platform for those who prefer to manage their own investments.
We have won numerous awards. Tilney has been awarded Best Conventional Advisory Service at the 2018 City of London Wealth Management Awards, Best Advisory Service in the 2015 City of London Wealth Management Awards; Investment Award – Cautious category in the Private Asset Management Awards; and Stockbroker of the Year, Execution-only Stockbroker of the Year and Self-select ISA Provider of the Year 2015, as voted by readers of the Financial Times and Investors Chronicle. Bestinvest was voted Best SIPP Provider and Best Fund Platform at the 2017 City of London Wealth Management Awards, Best Direct SIPP Provider at the YourMoney.com Awards 2017, Best Stocks & Shares ISA Provider at the 2017 Shares Awards, as well as Best Self Select ISA Provider, Best Online/Execution-only Stockbroker and Best Investment Platform 2017 at the FT and Investors Chronicle Investment and Wealth Management Awards, as voted by readers of the FT and Investors Chronicle.
Headquartered in Mayfair, London, the Tilney Group employs over 1,000 staff across our network of 30 offices, enabling us to support clients with a local service throughout the UK.