DIY Investor Magazine
|
June 2017
42
SELL IN MAY AND GO AWAY? OR IS THERE AN ALTERNATIVE
FOR INVESTORS LOOKING FOR INCOME?
Philip Gilbert
Head of Fixed Income
Beaufort Securities
Perhaps we should, after all, ‘…. The summer’s really
here and it’s time to come out. Time to discover what fun
is about….’
Really, or maybe just hold your position; last year from 1
May 2016, the value of the FTSE 100 rose by 11.5%.
Okay, in 2015, you would have lost about the same
amount, and including the previous three years you
would have just about broken even (on share prices
alone). But, you would have missed several ex-dividend
dates, potentially unnecessary trading costs, and trigger
capital gains when you don’t want them.
But what of 2017? Well, UK 2-year gilts yield c. 0.12% -
while UK stocks yield an average dividend of c. 3.7%.
This yield differential between stocks and bonds goes
some of the way to explaining why the FTSE has hit
a new all-time high at 7523 this morning (25th May).
Despite this, in terms of market activity daily traded
volume have fallen by as much as 50% in recent days.
Does this tell us prices are too high? Is it because bond
yields are so low?
Bond yields are low because of QE distortion artificially
upping bond prices and keeping yields low.
Markets should be at all-time highs because of
expectations of future growth, rising profits, and a
strong feeling that the global economy is headed
higher, shouldn’t they? A few stats in recent blogs make
interesting reading:
•
In the US, most of the recent gains have been
concentrated in a very small number of the mega-
cap tech stocks, e.g. Apple, Google, Facebook and
Amazon
•
Close to 30% of the S&P500 stocks are 20% down
from 1 year highs.
•
The VIX volatility index is at its lowest level in
10-years, although it has begun to move upwards
If markets are close to the top, there should be buying
opportunity later this year. Remember Warren Buffet, ‘Be
fearful when others are greedy and greedy when others
are fearful’. Any other black swans out there? Well there
is the global geo-political situation such as North Korea,
ISIS et al, the unpredictable Trump, and Brexit, and of
course inflation; UK CPI rose to 2.7% in April, up from
2.3% in March and 0.3% a year ago, reaching levels last
seen in September 2013.
Of course, for investors seeking yield (income) this isn’t
good news, adding to the pain inflicted by falling asset
yields: so where do investors look for yield?
If we discount equites and bonds, of the alternatives
commodities don’t provide yield, which leaves the UK
investors perennial favourite, property.
Property typically splits into two segments, commercial
and residential, however I would like to introduce a third;
housing associations and specifically, social housing:
Social housing is residential property let at relatively
low rents on a secure basis to tenants who are most in
need with their housing costs. The main providers are
local authorities and not-for-profit organisations such as
Housing Associations (‘HAs’).
Social housing accounts for almost 20% of all UK
housing stock, the full open-market value of this is
estimated at between £1 and £1.2 trillion
Prior to 1979, social homes averaged 40% to 50% of
total housing stock, which fell 24% in the 1980’s.
We have managed to build only 58,000 new properties
in the last two financial years whilst there are currently
c. 4.5m people (1.24m households) on local authority
housing waiting lists; this figure is expected to rise by a
further 1 million, by 2021.
The shortage of homes has led to a growing demand
for private rented accommodation throughout the UK;
currently, there are around 4m homes privately rented
in England accounting for 18% of all households – the
sector has doubled since 1989 and now has more
households than in social housing.
