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Can you hear the bells ringing?
No, not the ones from your local carol concert; I’m talking about the noise from the market that implies the public still can’t quench its thirst for income.
In the past week I’ve seen three signs that suggest income remains a priority for investors.
One event shows investors’ ravenous hunger for yield. The other two are responses by industry participants as they try to capitalise on this hunt for income.
1. There is excessive supply for peer to peer (P2P) lending platforms.
British P2P lending platform Zopa has told savers they can’t invest any new money as there aren’t enough borrowers to take this cash.
P2P platforms have been inundated by investors seeking to lend money to other people as potential interest rates, often as high as 7%, are better than you could get from bank cash deposit accounts – or indeed much of the stock market.
2. Retail bonds are back.
Property financier Places for People has launched a retail bond offering 4.25% annual interest until 2023. We estimate this is the first retail bond launch in the UK for eight months, and only the fourth of its kind this year. The launch offer is expected to close on 12 December.
3. Yet another high-yield fund is floating on the stock market.
RM Secured Direct Lending is hoping to pay 6.5% dividend yield once it has fully invested the money raised at its stock market flotation. Its shares to start trading on 15 December.
Turning point
Zopa’s temporary halt on new deposits could be a major turning point in the P2P sector.
Theoretically this action could force down rates across the industry as borrowers effectively have the upper hand. They can just shop around for loans which could push down rates. For investors, that could mean P2P becomes less attractive.
In contrast, we are more enthused by RM’s fund launch, although you should note the 6.5% yield level isn’t expected until 2018 and isn’t a guaranteed rate of return.
Next week’s issue of Shares will take a broader look at the world of income. We’ve set ourselves the challenge of finding ways to exceed 4% yield from the market. We will reveal the good, the bad and the ugly.
This article is provided by Shares Magazine. Shares publishes information and ideas which are of interest to investors. It does not provide advice in relation to investments or any other financial matters and does not guarantee the accuracy or completeness of the information in this article.
Investors acting on the information in this article do so at their own risk and AJ Bell Media Limited and its staff do not accept liability for losses suffered by investors as a result of their investment decisions. Shares is published by AJ Bell Media Limited part of AJ Bell.