Get the low-down on shares

IT MAY seem perverse to argue the case for equity investment. After all, the leading stock market indices have fallen more than 20 per cent since mid-July, writes Tony Lyons.

But many experts think that just because of this it could now be a good time. "We could be near the bottom of the market," says Iain Lynn, who manages Shires Income Investment Trust, one of the best performing high yielding funds. "There is good value in the market now and we are buying on the way down. If you can buy quality stocks such as P&O, yielding around 7.5 per cent, Tompkins, around 7 per cent, BAT and NatWest, around 6 per cent, you cannot go far wrong in the long term."

Investing in companies such as these will not only give you a good level of income but also the prospect of making significant capital gains. And if you put them in a PEP wrapper then they will be free of income and capital gains tax.

However, the dividends you receive from a managed or self-select PEP will be diluted from next April because of the planned change in advanced corporation tax. This means the current 20 per cent rebate will be cut to 10 per cent for PEP holders for five years, after which it will disappear.

You can invest directly in high yielding stocks that will pay you an income through regular dividends, but this will take time, a lot of research and quite a bit of money. There is, however, a solution. There are more than 100 high-income unit and investment trusts that will provide you with a good level of income, the prospects of capital growth, and do so with less risk than if you tried to create your own portfolio.

The definition of a high-income fund is one that carries a yield in excess of 120 per cent higher than that on the FT-SE all share index, which measures the share price movement of our biggest 847 companies. As this now yields a notional 3.6 per cent, any with a yield over 4.4 per cent is a high- income fund.

The high-income sector, excluding corporate bond PEPs, contains a number of specialists, which invest in gilts, convertible and preference shares, and some, such as Dartmoor Investment Trust, that specialise in esoteric stocks such split-capital investment trusts.

"In today's climate it is probably better to look at funds with a high gilt and fixed interest element if you are risk averse and looking for income," says Roddy Kohn, a Bristol -based IFA. "Funds such as HSBC Income and Henderson Geared Income & Growth offer good defensive strategies."

An example of the type of fund recommended by Mr Kohn is Fidelity High Income, where the portfolio is half invested in gilts, half in ordinary shares. "Our aim is to deliver a better long-term return than a tracker fund with low risk," says Tim McCarron, of Fidelity. "Apart from gilts we focus on large companies that will deliver rising dividends and growth, such as Boots."

The starting point with income funds is beating inflation, according to Ian Millward, of Chase de Vere. "If you can get a good income from a fund that also grows faster than inflation, you'll be doing okay. Historically, income funds have been some of the best performers. Look to leading management groups, where even if there has been a blip in the short term, you should continue to do well."

He particularly likes the high income funds from Credit Suisse, HSBC, Jupiter and Perpetual.

Another recommended fund is City of London Investment Trust - "an equity fund with a rising yield and a sparkling performance", according to Mr Kohn. The fund's success, in common with a number of other good performers such as Shire Income, is because of an investment policy change five years ago. Before that, it had a value strategy, which meant buying shares in companies that were seen as undervalued and neglected. But the advent of a low-inflation era led it to switch to growth companies that would produce rising income as well as capital appreciation.

When looking at income funds, do not be too greedy. You can get very high yields indeed, but at a risk to your capital. A case in point has been the F&C High Income Fund. Launched in 1993 it now yields just under 9.8 per cent. But investors in the unit trust have seen their capital badly eroded. While they have received their dividend cheques, the unit price is now just over 19p compared with its 25p launch price, meaning that a pounds 1,000 investment at launch is now worth less than pounds 770.

Contacts: City of London Investment Trust and Henderson Geared Income & Growth Investment Trust, 0171-410 4100; Shires Income Investment Trust, 0141-572 2700; Fidelity, 0800 414161; HSBC, 0800 289505; Jupiter, 0171- 314 7500; Credit Suisse, 0171-426 2929; Perpetual, 01491 416123.

income from equities

Top-performing high-income funds (bid to bid, income reinvested) excluding fixed interest

Over one year (to 30/9/98)

Fund % growth

Aberdeen High Income Investment Trust 45.5

Dartmoor Investment Trust 36.6

Cairngorm BS Units Investment Trust 26.8

Exeter High Income 22.5

M&G Recovery Geared Investment Trust 19.3

CF GOY High Income 17.9

Shires Income Investment Trust 18.8

Premier Dividend 15.2

Guinness Flight Income Share 14.1

M&G Income Geared Investment Trust 13.4

FT-SE All Share -2.0

Over five years

Dartmoor Investment Trust 125.5

Shires Income Investment Trust 77.7

Dunedin Income Growth Investment Trust 74.5

Temple Bar Investment Trust 74.2

City of London Investment Trust 72.8

Gartmore Scotland 70.1

Premier Dividend 69.7

Glasgow Income Investment Trust 69.5

Fleming Income & Capital Units Investment Trust 69.3

Jupiter Income 68.1

FT-SE All Share 82.1

Sources: Reuters Hindsight, Micropal

Suggested Topics
Tommy Ramone performing at The Old Waldorf Nightclub in 1978 in San Francisco, California.
peopleDrummer was final surviving member of seminal punk band
Life and Style
Swimsuit, £245, by Agent Provocateur

Diving in at the deep end is no excuse for shirking the style stakes

The Mexico chief finally lets rip as his emotions get the better of him
world cup 2014
German supporters (left) and Argentina fans
Final gives England fans a choice between to old enemies
Spectators photograph the Tour de France riders as they make their way through the Yorkshire countryside
voicesHoward Jacobson: Line the streets for a cycling race? You might just as well watch a swarm of wasps
Life and Style
lifeHere's one answer to an inquisitive Reddit user's question
peopleDave Legeno, the actor who played werewolf Fenrir Greyback in the Harry Potter films, has died
Mario Balotelli, Divock Origi, Loic Remy, Wilfried Bony and Karim Benzema
transfersBony, Benzema and the other transfer targets
Yaya Touré has defended his posturing over his future at Manchester City
Detail of the dress made entirely of loom bands
ebookA unique anthology of reporting and analysis of a crucial period of history
Life and Style
There were mass celebrations across Argentina as the country's national team reached their first World Cup final for 24 years
transfersOne of the men to suffer cardiac arrest was 16 years old
Arts and Entertainment
Armando Iannucci, the creator of 'The Thick of It' says he has
tvArmando Iannucci to concentrate on US show Veep
A mugshot of Ian Watkins released by South Wales Police following his guilty pleas
peopleBandmates open up about abuse
Basketball superstar LeBron James gets into his stride for the Cleveland Cavaliers
sportNBA superstar announces decision to return to Cleveland Cavaliers
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Biztalk - outstanding opportunity

£75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...

Trade Desk Specialist (FIX, Linux, Windows, Network Security)

£60000 per annum: Harrington Starr: Trade Desk Specialist (FIX, Linux, Windows...

Service Desk Analyst (Windows, Active Directory, ITIL, Reuter)

£35000 per annum: Harrington Starr: Service Desk Analyst (Windows, Active Dire...

Network Engineer (CCNA, CCNP, Linux, OSPF, BGP, Multicast, WAN)

£40000 per annum: Harrington Starr: Network Engineer (CCNA, CCNP, Linux, OSPF,...

Day In a Page

A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

A History of the First World War in 100 Moments

Peace without magnanimity - the summit in a railway siding that ended the fighting
Scottish independence: How the Commonwealth Games could swing the vote

Scottish independence: How the Commonwealth Games could swing the vote

In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport
Out in the cold: A writer spends a night on the streets and hears the stories of the homeless

A writer spends a night on the streets

Rough sleepers - the homeless, the destitute and the drunk - exist in every city. Will Nicoll meets those whose luck has run out
Striking new stations, high-speed links and (whisper it) better services - the UK's railways are entering a new golden age

UK's railways are entering a new golden age

New stations are opening across the country and our railways appear to be entering an era not seen in Britain since the early 1950s
Conchita Wurst becomes a 'bride' on the Paris catwalk - and proves there is life after Eurovision

Conchita becomes a 'bride' on Paris catwalk

Alexander Fury salutes the Eurovision Song Contest winner's latest triumph
Pétanque World Championship in Marseilles hit by

Pétanque 'world cup' hit by death threats

This year's most acrimonious sporting event took place in France, not Brazil. How did pétanque get so passionate?
Whelks are healthy, versatile and sustainable - so why did we stop eating them in the UK?

Why did we stop eating whelks?

Whelks were the Victorian equivalent of the donor kebab and our stocks are abundant. So why do we now export them all to the Far East?
10 best women's sunglasses

In the shade: 10 best women's sunglasses

From luxury bespoke eyewear to fun festival sunnies, we round up the shades to be seen in this summer
Germany vs Argentina World Cup 2014: Lionel Messi? Javier Mascherano is key for Argentina...

World Cup final: Messi? Mascherano is key for Argentina...

No 10 is always centre of attention but Barça team-mate is just as crucial to finalists’ hopes
Siobhan-Marie O’Connor: Swimmer knows she needs Glasgow joy on road to Rio

Siobhan-Marie O’Connor: Swimmer needs Glasgow joy on road to Rio

18-year-old says this month’s Commonwealth Games are a key staging post in her career before time slips away
The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice