Tired of the same old stocks? It's time to think outside the box
From wind farms to art, Kate Hughes shows different ways to liven up your portfolio
Saturday 08 March 2008
Reeling from the effects of the turbulent markets, many investors have decided it is time to spring clean their portfolios. But if you've reviewed your investments recently and found them uninspiring, perhaps you need to inject some life into your holdings.
Putting cash into a few offbeat stocks could be just what the doctor ordered. With significant tax relief available on a whole host of quirky choices, the well informed may even see returns that give more familiar stocks and funds a run for their money. The path to great returns could be rocky, but you may begin to enjoy investing again.
If you are after a hands-on approach to ethical investing, why not put your money directly into a wind farm? Your initial investment could pay for part of an established wind farm, or the land or turbines to set up new farms. In return, you receive a share of the profits from the energy production, as well as a cleaner environment.
Energy 4 All ( www.energy4all.co.uk) is a not-for-profit co-operative with a number of projects around the country. Plans are underway for new wind farm projects in Scotland this summer, and investment starts at £250. "We have investors from all over the country as well as communities in the farms' local areas," says spokeswoman Helen Jackson. "Investors in these projects could see dividends of up to 9 per cent, particularly for our more established farms. And the projects usually qualify investors for Enterprise Investment Schemes (EIS)."
EIS relief applies to a number of alternative investments. They apply to shares in unquoted companies of under £400,000, (as of 6 April this year), and usually means income, inheritance and capital gains tax relief for investors. HM Revenue & Customs can give you more information on this and other types of tax relief on investments at www.hmrc.gov.uk/eis.
Alternatively, on a larger, commercial scale, organisations such as Triodos Bank (www.triodos.co.uk) have renewable energy investment portfolios which own or part-own wind farms, turbines, and hydro electric projects. They also invest in a number of alternative energy companies.
If the closest you get to the countryside is the grass in the middle of a roundabout, fear not – investing in livestock does not mean that you have to get your feet dirty. One of the latest additions to this market is Capital Breeding ( www.breedingcapital.com), which has recently launched two new public limited companies offering investors shares in bloodstock assets – horses with good racing pedigree to you and me – for a minimum investment of £10,000. The capital raised from such shares is spent on breeding-age mares, whose foals are sold on to produce income for the company.
Investments in Breeding Capital are eligible for EIS relief, and because horses mostly eat grass, the increasing cost of feed that has hit other livestock enterprises doesn't apply.
Buy-to-let hotel rooms have become enormously popular since they were first offered in around 2003, and the theory is certainly attractive. Investors get a share of the profits and someone else does the cleaning, maintenance, paperwork and advertising.
Prices for rooms under the Guestinvest umbrella ( www.guestinvest.com), for example, start at around £317,000, depending on the standard of hotel and location. In return, you will get a 999-year lease, plus 50 per cent of the income earned on the room, and 52 nights' free accommodation in the hotel each year.
If you are after a cheaper option, Owner Hotels ( www.ownerhotel.com), offers more affordable accommodation. You can get involved for a minimum of around £50,000 and room prices here start at around £50 per night. They suggest that if the room is occupied for 90 per cent of the year, investors could see returns of up to 15 per cent.
If you invest in buy-to-let hotel rooms through a Self Invested Personal Pension (Sipp), you can claim tax relief on the investment of either 22 or 40 per cent, depending on your tax band. The only restriction is that you will have to pay the commercial rate for staying in the room rather than claiming your free nights.
This is an investment choice with an unproven track record and investors are often urged to go for rooms that offer extra value – a known brand name, great views or top-of-the range spa and fitness facilities, for example, if they want to see the most reliable returns.
Doing your bit for the environment and for your wallet is what truly green investment is all about. And by putting your money straight into woodland, whether you buy a wood yourself or invest in funds, you may also be able to take advantage of significant tax relief.
With Forestry Investment Management, ( www.fimltd.co.uk), which is recommended by the Forestry Commission, investors can buy a wood from around £100,000. Their Forestry Funds offer opportunities for investors from around £50,000.
There could be money to be made in this area. The key to generating the highest returns, it states is investing in well-managed forests close to established timber markets, and by watching timber prices. Timber prices have risen by almost 37 per cent over the last year, FIM claims, and there is also the value of the land to consider.
Plus, while increases in the value of the land after inflation may be taxable, the value of the timber itself is free from income, capital gains and, after two years, inheritance tax. So the commercial value of the wood could be far greater than the taxable value of the wood. HM Revenue & Customs has more information on woodland relief at www.hmrc.gov.uk/cto/customerguide/page18.htm.
But bear in mind these are long-term investments, from three years up to around 35 years, and liquidating any assets without taking a hit could be a drawn-out process. Because of this, investors often use the proceeds for predictable events such as paying for school fees.
Old paintings suddenly become more interesting when attic clutter turns out to be worth a fortune. But investing in individual items, particularly art, is fraught with challenges, says James Mitchell of John Mitchell Fine Art ( www.johnmitchell.net). "In the past, people bought pictures purely for enjoyment and the satisfaction of building up a collection," he says. "Since art dealers are generally unable to spot the 'next big thing', it is even less likely that the enthusiastic amateur will be able to."
But that doesn't mean art funds are the way to go either. "I admire and pity the foolhardy investors in the so-called 'art funds' now being set up by fund managers and former saleroom 'experts'," Mitchell adds.
"For those prepared to sit tight for 15 years or more, and have some proper art on the wall at the same time, then I still recommend Old Master paintings as the best vehicle to keep money safe."
"Buying up collectables in the hope of a profit can result in a minefield of potential problems," Tim Collyer, of IFA the Falcon Group, warns. "Investors have to be realistic about the costs involved in appropriate storage, cleaning, maintenance and particularly the insurance involved. They could easily wipe any increase in the value of whatever you have bought."
While it is true that these and other housekeeping problems are removed if you put your money into funds, the hands-on element of direct investment could also be lost, Collyer admits. And funds dealing in specific collectables such as comics or more traditional art tend to struggle. They are usually considered very risky, and don't offer direct investment advantages such as being able to hang the "asset" on your wall.
Specific art investment consultancies include The Fine Art Fund ( www.thefineartfund.com), which boasts a host of art and investment specialists, including former Minister for the Arts, Lord Gowrie.
If your particular interest lies in wine, companies like fine wine investment house Premier Cru ( www.premiercru.com) offer investors ownership of the actual bottles of wine rather than a share in the company. Investors can buy plans from £1,500 for a three-year plan and a panel of specialists will recommend wines for that portfolio. But crucially, it is the company's responsibility to transport, store and maintain the bottles in the best conditions. And investors can withdraw bottles at any time to sell privately or at auction, or, of course, to drink.
The reel deal: investing in films
If you've always fancied yourself as the next Steven Spielberg, investing in films may grab you. And thanks in part to a revamp of the tax breaks for film production, the UK now has one of the fastest growing film industries in the world.
But this is a highly complex industry, says Martin Churchill of The Tax Efficient Review. "Making money supporting British independent film-makers through EIS is laudable but dangerous," he says. "At a minimum, investors should support a producer with a track record and insist on getting the producer's tax credit, worth around 20 per cent of the budget."
Churchill recommends Peter Fudakowski's UK Television and Film Production Company EIS, which produced Tsotsi. Bear in mind that investments, which must be made through a financial adviser, tend to be for a minimum of four years and start at around £50,000. Others, such as Visible films ( www.visiblefilms.com), whose three subsidiary production companies produced Becoming Jane and Stormbreaker, offer investment packages from £10,000.
But information about film EIS projects is difficult to come by, and even if the movie itself is successful, investors may not get their money back, as investments are in the company not in individual films, so if the production company makes a blockbuster, if their other projects fail, investors may still lose money.
Potential investors in any film production company should keep up to date with tax-relief regimes surrounding film production as the details change frequently. Visit www.taxefficientreview.com for more information.
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