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Income for your Isa, drought & shares, inflation protection, The Trader
Spring is here! The next few days are likely to see unseasonably mild weather, and follow on from an unusually mild winter. And it's not just been warmer than usual - it's been drier than usual too, especially in the densely populated south east of England. The Department of Environment, Food and Rural Affairs is already making alarming noises about drought. Utilities point to very low reservoir levels. The spectre of 1976 is being raised - parched lawns, hosepipe bans, stand pipes in the street. Maybe the Sex Pistols will reform to crank out 'God Save the Queen' for the diamond jubilee! You might think that drought would be bad news for the country's quoted water utilities - but our analysis suggests that's not the case. And there are some companies in other sectors that might benefit. Talking of the sun, this weekend will see the launch of the Sun on Sunday, a replacement for the News of the World. A turnaround in the media sector? Not likely - although again, there will be some tangential beneficiaries. Elsewhere, The Trader wonders how long it's going to take the S&P500 to retake its 2011 high, and he revisits the 'killer wave' thesis. Inflation is finally starting to ease, so if you put money into index-linked bonds last year, you might now be wondering whether you made the right move. Mark Glowrey examines this question by looking at a plain-vanilla and index-linked bond from the same issuer. But while inflation is coming down, low interest rates are here to stay for longer - so if you're looking for income for your Isa, you may need to consider equity income funds. We profile some of the better ones.
More Greece, more value shares, and why structured products are rubbish
Yesterday, we looked at what might happen if - as many still expect - Greece is eventually booted out of the euro. Several readers commented that we didn't offer enough practical advice, so let me remedy that right now. If Greece exits, there'll be turmoil in the markets - and whenever that happens, you get a rush to safe havens: Treasuries, gilts, gold and the Swiss franc. So although stock markets are doing well, I wouldn't rush to move money out of fixed-income and into shares. Also, I'd avoid bank shares - that sector's halcyon days are well and truly over. Finally, I'd be minded to keep lots in cash. It's not sexy and it's losing value in real terms. But a small and known loss is sometimes better than the possibility of a large unexpected one - plus, you'll have plenty on hand to go bargain-hunting if share prices do take a tumble. And well they might; today we take a look at warnings that the ECB's long-term refinancing operations are merely papering over the cracks on bank balance sheets, and that the stock market rally might come juddering to a halt once it becomes apparent that the collateral banks have pledged to the ECB is compromised. Elsewhere, Algy Hall runs another stock screen and finds a stack of companies whose shares yield more than 5 per cent on well-covered dividends. We take a look at Dragon Oil's possible bid for BowLeven and cracking results from pawn broker Albemarle & Bond and construction group Galliford Try (shares at a year high, but still well worth buying). Finally, Santander was fined this week for failing to disclose compensation arrangements on structured products. The episode illustrates just how rubbish most of these are; they're shockingly poor value, and in most cases just substitute market risk for counterparty risk.
Greek deal, Sipp diary, key results and Moss update
First, an update on yesterday's piece on clothing retailer Moss Bros. A chart of the company's share price looks like a patient being administered CPR - it leaps into life just after the article was published. Shortly before noon, Moss shares were 39.5p with 17,500 or so traded. They closed at 46.5p with over 800,000 traded. This is how we make you money! I bet Europe's finance ministers are jealous - the deal they struck in Brussels last night to provide Greece with a second bail-out has certainly not had the same electrifying effect on markets. That's because - in familiar fashion - all the gains came in the run-up to the meeting. Stock markets are softer today and bond yields have risen. Greek 10-year debt still yields 30 per cent, suggesting no-one outside the EU believes this is the end of it all. Chris Dillow explains why: there is no way that Greece can endure this much pain for another eight years. But what will happen if (when?) it is eventually booted out the single currency? There'll be another financial crisis. That'd be bad news for David Stevenson, who despite his general caution on equities, is looking at ways to reduce the huge allocation to cash in his Sipp. US value shares, bonds, infrastructure and energy are among the key ideas. Talking of Sipps, we also take a look at the issue of investor protection - with such large amounts of cash at stake, make sure you're covered! Looking at today's company results, we downgrade Dechra after a 36 per cent gain on our tip, but we still like the look of Drax's dividend.
Free access: Simon Thompson's latest buy
Anyone who's an active private investor probably gets lots of "let me show you how to make pots of money" emails. Usually, they're hawking some kind of trading system or stock-picking methodology, and usually, they're rubbish. This, I confess, is also a "let me show you how to make pots of money email", but with a much better chance of success. That's because it draws on the stock-picking expertise of our companies editor, Simon Thompson, who has produced a series of market-beating calls down the years. But don't just take my word for it - look at the market. Simon recommended shares in Communisis last Monday. Over the balance of the week, the shares rose 40 per cent on sharply higher trading volumes. Or the Bargain Portfolio, released the week before - shares in that are now up by an average of 9 per cent, offer to bid, again on greatly increased trading volume. Normally, Simon's articles are only available to online subscribers. But as a one-off, today's column - featuring another small company whose shares are drastically undervalued and poised for a significant rerating - is open to all. Naturally, we hope that once you've seen what it offers, you'll think about upgrading to a subscription - with tips like these, it could pay for itself in a day. But that's your call. Elsewhere, we've our usual round-up of the weekend press tips, the Trader's views on the markets at the start of the week, plus Chris Dillow on why the old view that shares are for the young might be wrong. On the companies front, we'll be blogging later today on the fate of CPPGroup, whose shares were suspended today, and looking at CSR's results - its shares were up 20 per cent in early trade on improved revenues and more share buybacks.
Tax free dividends, the Trader, copper supply deficit, interest rates, and hedge funds
How would you like a tax free stream of income from an investment yielding between 7 and 8 per cent? Usually when something looks too good to be true, it either isn't (true) or there's a catch. With this particular investment, the catch is the risk you take on. That's because the investment is in venture capital trusts. We'll come to the risk in a moment. What makes VCTs stand out are their generous tax breaks and the fact that they have delivered very strong dividend returns - at the end of December 2011, generalist VCTs were yielding an average of 7.6 per cent and Aim-invested trusts 8.1 per cent. For that reason alone, it's worth considering the role VCTs could play in your portfolio. Now the risk: this is their exposure to smaller, mostly unquoted companies whose shares may be volatile and vulnerable to difficult economic conditions. Our special report on VCTs, and their cousins Enterprise Investment Schemes, by Leonora Walters analyses the advantages and risks of both, offers pointers on how to invest in them and which ones to choose. Elsewhere the Trader continues to foresee gains in the indices but has words of advice for fellow traders stuck in a relationship that's going nowhere; Mark Robinson reports on the copper supply deficit which will benefit the likes of Rio Tinto; Chris Dillow explains why interest rates might not rise until 2014 and Alistair Blair despairs at the "success" of hedge funds.