October 10, 2014//
Anyone who has been invested in the UK stock market in small and mid-cap
stocks over the past six months will have had their faith in equities sorely
tested. The sustained volatility and downward pressure on shares has meant
difficult times for private investors, after a stellar performance in 2013.
Nor have cash deposits been a good place for your money. Historically low
interest rates have meant returns have not even kept pace with inflation. So
for investors looking for healthy yields, what are the alternatives?
Cash in notice accounts: You might be tempted to put your cash in an
Individual Savings Account, or tie it up for a couple of years, in order to achieve
a better rate of return. However, the rates are still very low: among the current
best deals is the Post Office Cash ISA paying 1.55 per cent, or the Skipton One
year fixed rate bond at 1.6 per cent, rising to 2.05 per cent if you are prepared
to lock your money up in a two year fixed rate bond.
With inflation running at 1.5 per cent currently, the value of your money is
barely keeping pace with inflation, and if you are a basic or higher rate tax
payer it is effectively a negative return.
Dividends from shares: The best dividend yielding stocks tend to come from
the FTSE 100. According to Morningstar Select’s recent data, there are 44 UK
shares that pay a dividend of greater than the inflation rate (ie 1.6 per cent).
These include WM Morrison (yield 7.65 per cent); Vodafone Group (6.79 per
cent and Tesco (5.1 per cent). Bear in mind, though, that the yield on a share
will rise when its price falls, so although Tesco and Morrison shares are paying
a high dividend, investors may have had to take the pain of a 40 to 50 per cent
fall in the value of their initial investment over the past year. When companies
hit difficult times, there is no guarantee that the dividend will be maintained.
Gilts: Although government gilts are regarded as a very safe investment, the
yields on them are currently not looking particularly attractive. The highest
yielding gilts are paying just under 4 per cent, while the lowest just 0.375 per
cent, according to Fixed Income Investor (www.fixedincomeinvestor.co.uk).
The UK 10 year gilt yield is currently 2.26 per cent (as of the beginning of
Bonds: Some of the companies hardest hit by the recent economic
turmoil – including banks and financial services companies – are paying
yields of around 5 to 6 per cent. These include Abbey National and
Standard Chartered, according to data from the Investors Chronicle (www.
Junk bonds which are sold by companies regarded as higher risk, are starting to
fall out of favour. The Wall Street Journal reported this week (October 8) that
Europe’s high-yield corporate bond funds, having been in keen demand for the
past couple of years, saw $1 billion outflow in September, according to data
from EPFR Global.
UK Property: this is an asset class which has always been popular with UK
According to data from HSBC, the best rental returns are to be found in
Southampton, while the worst yields are in the Kensington and Chelsea area of
London, where yields are as low as 2.88 per cent.
Nor are investors likely to enjoy the continued capital growth which they may
have enjoyed over the past decade. Predictions are for house prices to fall by
0.8 per cent this year, according to the Centre for Economics and Business
US Property: Investing in US Property can generate reliable income and yields
of 10 per cent or more if you choose the right type of property in the right
area, says US property specialist CityR.
Pooled investment schemes, such as the ones run by CityR, are becoming
increasingly popular with UK investors looking for better returns on their
“The recent economic crisis in the US means that property prices still offer
good value, with the potential for capital gain over an investment horizon of 3-
5 years,” says CityR founder Ron Szekely.
For example, the yield on CityR’s property in Chestnut Ridge, Louisville,
Kentucky, has been 12.9 percent.
“The average annual return of our investment in Eagle Landing, Montgomery,
Alabama has been 11.2 per cent, “ says Ron Szekely. “The average annual
return of our investment in Chancellor Avenue, New Jersey has been 11.3 per
CityR, specialises in helping investors buy into multi-family residences with the
prospect of 8-12 per cent plus income, and the opportunity for capital gain when
the property is eventually sold.
This is a medium-term investment. Ron Szekely says: “We would not
recommend our investment for those who may have a requirement for the
capital in a time shorter than 3-5 years as they will lose the opportunity for
capital gain on the sale of the investment.”
However, for those with a lump sum of £36,000 or more, there is now an
opportunity to secure both income and capital growth.
“The economic recovery in the US continues to gather in strength, but it takes
time to develop additional multi-family housing in the right location, so there is
a medium-term opportunity to exploit the gap between the demand for rental
properties and the supply to the market.”