Each week, a professional investor tells us where he’d put his money. This week: Olly Russ, Liontrust European Income Fund.
Now that interest rates on cash have gone from derisory to infinitesimal, cash has effectively ceased to be an investment. Government bonds and corporate bonds fare little better in yield terms, pushing more savers into the healthy yields promised by equities.
This comes at a price, as equities are more risky than bonds or cash. So investors are probably best served by introducing as much diversification into their portfolios as possible. If there is one thing we have learned over the last five years, it is that there is no such thing as a safe blue chip: witness BP, RBS and Tesco, all of which have more than halved in recent times.
One way to enhance diversification is by investing in an overseas currency. The current weakness of sterling has been of tremendous benefit to UK holders of foreign assets, as the fall of around 15% in the pound against the euro translates directly into gains. So UK investors might like to consider investing for income in continental Europe, where there are dividends as good as any in the UK, generated by some excellent companies.
For example, UK banks have been a sorry tale over the last few years. But Sweden’s Swedbank (Stockholm: SWEDA) looks very much how Lloyds might have been had it never merged with HBOS. It suffered during the financial crisis along with everybody else, but took the right action early. Its dividend is forecast to rise to SEK12 next year, which would put it on a yield of almost 6%. Swedbank also enjoys a capital cushion that is among the highest in Europe.
At the more sedate end of the market there are names such as Terna (Milan: TRN), which is the Italian National Grid. As a monopoly industry, its returns are mostly regulated, but of course are very steady. The Italian regulator has been fairly favourable, while Terna’s management focuses on returning as much as possible to shareholders via dividends. Yielding just over 4%, the shares have performed very well in recent years. They should perhaps be thought of as akin to Italian government bonds – at a time when they are now yielding only just over 1%.
Lastly, for those considering an active summer holiday, you might well be shortly loading cycles onto bike racks and suitcases onto roof racks. There’s a good chance these racks will have been made by Swedish engineering company Thule (Stockholm: THULE). A relatively new listing, Thule has scope to ramp up its current rather modest dividend towards the 3% level over the next couple of years or so. Thule has an incredible 50% global market share in sports and cargo carriers for cars, based around its reputation for quality and innovation.
While it is perhaps not the cheapest provider out there, bike racks and the like are one area where people are wisely prepared to pay up for premium Scandinavian engineering. Nothing ruins a holiday more than discovering your luggage has been widely distributed over a 100 mile stretch of the M4.