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The Independent Online
IT WOULD not have been right to leave you hanging in the air after writing last week that there were alternatives to gilts for those who needed a high income. It is just difficult to know where to start.

But a week is a long time in the stockmarket. The newest member of the Monitory Policy Committee was quoted as saying an interest rate hike would be unwise. Hedge fund managers (for such Sushil Wadhwani was) are not noted for taking anything other than a robust view on market dynamics, but I feel he has a point.

I believe a return to high inflation and the sort of yields that have been available is unlikely. Meantime there are some attractive products on offer. One investment house has launched an ISA with an 8.5 per cent net yield. But remember: the higher the yield, the greater the risk.

That said, risk premiums are sometimes overdone. During the financial turmoil of last summer I bought a Euro Sterling Bond at a 14 per cent yield. Once the return had fallen to a single digit I took my profit. It was amusing, therefore, to find a well known tip sheet pushing the same stock at a return not much greater than that at which I sold.

There is a very wide choice available in the commercial fixed interest market. Orange has a Euro Sterling Loan available with a yield of more than 8 per cent, while HSBC can provide a similar yield over a longer period, although a fifth of your capital is eliminated through the difference between the price you pay and the ultimate redemption value.

Vodafone can offer more than 7 per cent for the next five years, and there are plenty of well known companies which provide opportunities that make gilts look hugely expensive.

Of course, part of the problem with British Government stocks is that there is more appetite than supply at the long end of the market. Popular wisdom has it that you keep spending tight, so do not need to issue government debt these days. The result is a return on long dated British Government debt that is less than in Germany and the US.

If you do not have enough money to employ a firm of managers to look after your high-yielding bond portfolio, M&G is about to launch just such a product. It aims to look after asset allocation between the various classes available so that you achieve the best total return. That is their aim at any rate. Watch this space!

Brian Tora is chairman of the Greig Middleton investment strategy committee