December’s share price rise is a gift but long-term investors still prefer to find payouts under the tree.


Will there be a ‘Santa rally’ this year? The Footsie has risen in value during 26 of the 32 Decembers since it was founded in 1984PETER NICHOLLS/REUTERS

Will there be a “Santa rally” this month — or will share prices wilt in the run-up to Christmas? This question is a traditional topic of Square Mile chatter during the festive season because, perhaps surprisingly, December has tended to be the best month for the FTSE 100 since it was founded.

To be precise, this benchmark index of Britain’s biggest shares has risen in value during 26 of the 32 Decembers since the Footsie was born in 1984. That’s a probability of just over eight in 10 and the average total return during this month is 2.6%.

While there are, of course, no guarantees that the trend will continue, the average gain in December is more than double what most bank or building society deposits have earned since January. ……..

…… More recently, Alan Steel of the eponymous independent financial adviser reminded me of a piece I wrote for another newspaper several years ago, pointing out how equity income funds offered higher incomes than cash deposits, albeit with the risk of capital loss. The article was attacked by cynics who accused me of trying to “talk up the market”.

It’s only fair to report, then, that Steel selected his five favourite equity income funds five years ago and they have all beaten the FTSE 100 total return index, which has increased by 46% over the same period. Of his tips, Newton Global Income has done best at 90% since December 2011, while Invesco Perpetual holds up the rear with 48%.

Some of the fund managers have moved on since then …….. and so we would suggest Miton UK Multi-Cap Income, yielding nearly 4.4%; Trojan Global Income, yielding about 3%; Rathbone Income, just like five years ago, yielding 3.8%; M&G Global Dividend, another hold since last time, yielding 2.9%; and Woodford Equity Income, yielding 3.5%.

“Do bear in mind that all these figures are net of basic-rate tax, so most people would need 25% more income from a taxable source to match them.”

Cynics may suspect I am merely trying to talk up the market, again, and that sitting on cash deposits might prove wiser. But history shows that has not been the way to bet in the past. Taking a balanced approach to equity investment — seeking income as well as capital growth — has beaten bank deposits over most periods of five years or more. I bet this will remain true, whether or not Santa has anything in his sack for shareholders this month.

Ian Cowie
Personal Accountant
Quote courtesy of The Sunday Times
Sunday 11 December 2016

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