Fixed income Investment ViewPoints |
07/09/2010 We all want it, but do you know how to get it? 30/11/2009 Standing still makes markets move 12/08/2009 Are returns still Income-ing? 27/02/2009 Quantitative easing - gilts & bonds |
7 September - We all want it, but do you know how to get it?
We could all probably do with some extra pocket money and for many investors investment income is a far more fundamental requirement.
Interest rates have been low since the credit crisis and it is now far harder to make any money from cash alone than it might have been two or three years ago. But there are still many investment options that can help you to generate income from your portfolio.
After interest earned from cash, perhaps the most traditional way for investors to create an income from their portfolio is by investing in stocks that pay a dividend. The key difference is that investing in stocks puts your capital at risk and you might get back less than you invested, but you can still certainly earn a crust from the bread and butter of equities and dividends. Read what John Cotter had to say on the matter in his latest Corner:
- The art of dividend investing - how to identify stocks that pay high dividends and how to balance choices in your portfolio
- Alternative investment options – a focus on Exchange Traded Funds (ETFs) that can pick the stocks for you.
To find out more, read John’s corner “Investing for income”.
Fixed income
After cash and dividends from equities, the next most popular port of call for investors looking for income is often fixed income - specifically gilts and bonds - which have regular income payments built into their structure. These became very popular in the aftermath of the credit crisis, as under the circumstances, investors were attracted to their combination of income and relative stability of value. You may still be putting your capital at risk.
The recent Eurozone sovereign debt crisis has rattled investor confidence in fixed income, as the risk remains that both companies and governments can default. However, fixed income is still a key way to earn income from your investments and should be considered as part of an earnings strategy.
The gilts and bonds section of our website provides an introduction to these assets and also includes a link to our Fixed Income Microsite. This is a great resource for the novice fixed income investor (see the ‘Learn about Bonds’ section).
For some investors, selecting one, or even a combination, of gilts and corporate bonds can be daunting. In this case, a single product, designed to do the selection for you, may be appealing, although the income and capital value of these investments can fall as well as rise and you may lose capital.
In John’s ‘Corner’ on income he mentions one such option, the iShares Markit iBoxx £ Corporate Bond (SLXX). This ETF tracks the performance of the Markit iBoxx £ Liquid Corporates Long-Dated Bond Index, and offers exposure to 40 of the largest and most liquid Sterling-denominated corporate bonds with investment grade rating.
Another alternative would be a managed fund, where the fund includes fixed income investments. The added bonus of this approach is that in addition to generating income, most funds will also aim to achieve capital growth, which can never be a bad thing! Choosing such a fund from a very broad range can be a daunting task; however, using the Barclays Stockbrokers Fund factsheet search will help.
For example, you could run a search for funds from the Sterling Corporate Bond sector that have a Financial Express three crown rating. This returns 13 funds that meet these criteria, which you can then investigate further.
If income is on your investment agenda, there are many ways to earn a crust from your portfolio.
Barclays Stockbrokers does not give advice. If you are in any doubt as to the suitability of direct investment into gilts and corporate bonds, or into ETFs and managed funds linked to gilts and corporate bonds, please seek independent financial advice.
30 November 2009 -Standing still makes markets move
There appears to be a new sense of what constitutes normal market conditions, with the relative calm and steady gains in the FTSE 100 over early to mid November seeming somewhat unusual after the experiences of the past 12 months. “New normality” resumed on Thursday 26 November, as equity markets were significantly weakened following unsettling news from Dubai on the request for a debt standstill. Dubai World, the government flagship holding company behind much of the Emirates’ ambitious programme of real estate projects, requested the standstill, asking to cease payments on all financing related to itself and its property unit, Nakheel, until 30 May 2010.
The request has come as an unwelcome surprise to the markets, which had taken comfort from several government assurances over recent months that all the debt obligations would be met. The standstill request raised the spectre of potential defaults on debts, which in turn triggered fear in the markets and led to the losses seen on 26 November - the FTSE 100 fell 170 points on the day.
The event certainly erodes investor confidence, which in the context of the current financial climate is fragile as global markets gradually move into recovery but cast nervous glances behind them for signs of credit crisis aftershocks catching back up. The timing of the announcement itself is curious. The local stock market in Dubai was closed for the Eid holidays and the US market was unable to react fully until Monday 30 November due to the Thanksgiving holidays.
The short-term impacts on global markets are already apparent, and the region itself would appear to have a tough time on the horizon, following a 6-7% drop in equity markets when they re-opened. However there is speculation that the wider impacts over the mid to long-term may not be as serious a problem. The debt in question is in the region of $80bn, and while far from insignificant, it is not on the scale of the exposures involved in the credit crisis, which surpassed the trillion dollar mark. Similarly, the bonds in question are not as complex as the derivative credit structures at the root of the main problem last time. And let us not forget that there is now a year’s experience in the market when it comes to dealing with such a crisis. There are also some suggestions that the standstill request from Dubai is a test, designed to measure investor tolerance to potential voluntary restructuring of debts.
The next chapter in this particular story will unfold in due course, with investors looking to Dubai for full clarity on its plans and watching for broader market reaction from the US and elsewhere over the coming days. To keep close to all the related market events as they happen, access the latest news and market movements by visiting our Research Centre.
12 August 2009 - Investment ViewPoint: Analysis - Are returns still Income-ing?
The extraordinary market conditions that followed last year’s credit crisis were a catalyst for many investors shifting their portfolio strategy to seek safety from the storm. As an after effect, income investment objectives gained prominence and there was a ‘stretch for yield’ in the opening months of 2009.
Consequently fixed income investments, particularly corporate bonds, were certainly en vogue at the turn of the year, offering some of the most attractive income returns available, especially compared to cash. However since then, as a degree of confidence returned to the markets across March and April, so did an element of risk appetite from investors and this re-emergence of growth investment objectives has recently eclipsed the ongoing stretch for yield.
But it may be unwise to blindly heed the bulls that champion market recovery and restrain or abandon an income investment strategy you follow. Fixed income always has an important role to play in a balanced investment portfolio. Click here to view the full Investment ViewPoint: Analysis.
27 February 2009 - ‘Quantitative Easing’ focuses interest on Gilts and Corporate Bonds
The announcement that the UK is about to embark on a round of quantitative easing has caused investors to once again look at Corporate Bonds and Gilts. The Bank of England’s Monetary Policy Committee has agreed that BoE Governor Mervyn King should seek the Treasury’s permission to “conduct purchases of government and other securities, financed by the creation of central bank money.” In other words consider investing government’s funds into Gilts and Corporate Bonds.
What are bonds? A bond is a form of debt issued by companies or the government to raise money as an alternative to taxation (for governments) and share options (for companies). If you buy one you are, in effect, lending money to the issuer. In return, the issuer promises to pay you a fixed rate of interest each year and repays the nominal value at a set date in the future, If you buy the bond on the open market you may pay more or less than the nominal value and The market value of bonds and gilts will fall as well as rise and you can lose money.
Interested? Call 0845 601 7788* now to open an account and invest.
If you are looking for steady income, then fixed income investments (Gilts & Bonds) may be of interest to you. Bonds or gilts can be held in a trading account, Investment ISA or SIPP.
For more information on Fixed income investments (Gilts & Bonds) visit our Fixed Income microsite.
14 January 2009 - Replacing Interest in your portfolio?
The Bank of England base rate has fallen by 3.5% over the last 4 months to the lowest ever level at 1.5%, so those living off savings and investments are having to work harder and be more inventive. Gilts and bonds offer diversification within a portfolio as they are not directly correlated with equities and they also pay regular interest. They offer a broad range of risk too; you might get back less than you invested or nothing at all. If interest rates rise, the value of bonds will tend to fall. If interest rates fall their value tends to rise. But provided that you are prepared to take some measure of risk to your capital you may be able to find a fixed income investment to suit you.
Choose from individual gilts and corporate bonds or diversify your exposure over a range of issuers by investing in a bond fund or the iShare Corporate Bond (SLXX).
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