by Ian Cowie

The Telegraph online
Wednesday 24 November 2010

Fears about Korea , the euro and a double dip recession in America prompted stock market shocks around the world which will cause most savers to seek the apparent security of bank and building society deposits. But some experts argue that the best way to preserve capital and the real value or purchasing power of the income it generates is to buy blue chip shares and bonds, issued by large long-established companies with businesses that generate cash and may continue to grow despite difficult times. ……

...... Alan Steel of independent financial advisers (IFAs) Alan Steel Asset Management is another critic of the consensus view that share prices will fall further. He said: "Equity Income funds look very good value right now with the dividend yields around 6 per cent or higher. Indeed the Newton Higher Income fund managed by Tineke Frikkee is currently yielding 7.22 per cent gross. The annual management charge (AMC) is 1.5 per cent, so a net yield of 5.72 per cent is extremely attractive to those looking for income, particularly given the best one year bank deposit interest rates are around 2.75 per cent before tax.

"As usual, any equity investment is not without risk but many of the fund managers we meet believe large cap high yielding equities have never been cheaper. The future is always uncertain but the fund manager tries to construct the portfolio to do well in various economic circumstances. For example, Tineke holds food companies, consumer goods, utilities and pharmaceutical companies which provide the basic necessities for the population regardless of the economic climate.

"Corporate cash levels are strong which provides a good environment for merger and acquisition activity but also dividends. Indeed the yield from Newton Higher Income has grown every year over the past decade." ……

...... Mr Steel said: "Unlike an investment trust, unit trusts are open ended and therefore more units can be created whenever required and also gives investors the opportunity to diversify and benefit from the expertise and research capabilities of a fund manager. An investment trust can however borrow money - that is, use gearing - and, indeed, some can be highly geared and are therefore more risky than unit trusts.

"If investors want to take a bit more caution, then the Invesco Perpetual Distribution fund looks attractive. This has a mix of predominantly UK equities and corporate bonds and combines the expertise of Neil Woodford on the equity side and Paul Causer on the corporate bond side. Neil is probably the most successful income fund manager in the past 20 years . The yield is currently 6.17 per cent gross with an annual management charge of 1.38 per cent, providing a net yield of 4.79 per cent."

Quote courtesy of The Telegraph online
Wednesday 24 November 2010