In a recent article, I mentioned the steady, continuing exodus by savers and investors away from savings accounts paying pitifully low levels of interest into more adventurous, higher-yielding securities, such as shares.
The piece prompted a number of responses, the theme of which could be summed up by one lady who wrote: “I understand my savings are generating nowhere near the return they were a few years ago, but frankly, I have kittens whenever I consider putting them into what you describe as ‘riskier’ areas.
“I appreciate the stock market is performing well at the moment, but I just cannot bring myself to close my savings account and buy shares. Apart from anything else, I wouldn’t know where to start.”
I suspect millions of people are thinking along similar lines at the moment, although I should say there is no need to close accounts and move lock, stock and barrel into equities.
Savers comfortable with the idea of investing in shares could put a small proportion of their money into the market and possibly arrange to start drip-feeding cash in on a regular basis.
For many folk, an even less risky option is to gain stock market exposure by investing through a fund manager.
But even here, there is a multiplicity of alternatives, sectors, geographical areas and ‘investment themes.’ So where to start?
Disgruntled savers taking their first, tentative steps towards the stock market could do worse than consider its largest components, not least because if stuttering economic performance at home turns you cold, these much larger capitalised organisations (large caps) offer a hedge against such instability.
According to HSBC, the average UK-quoted large cap generates up to 50 per cent of its income from the eurozone and as much as 25 per cent from the United States.
For many less experienced investors, acquiring a collection of shares in our biggest companies represents an excellent starting point. They may not be wildly exciting (the stocks, not the shareholders), but their steadiness and ability to generate regular dividends underpins their appeal.
But stock-picking is not everyone’s cup of tea and those who prefer to leave it to the experts may wish to start by opting for an investment fund which already holds larger cap stocks.
For example, Invesco Perpetual’s High Income fund, overseen by fund management superstar Neil Woodford, may prove especially attractive for income-seekers.
His top ten holdings read like a list of the UK’s largest companies. Similarly, the Artemis Income fund has around three-quarters of its clients’ money invested in large caps such as Vodafone, HSBC and Glaxo.
A sizeable number of highly-rated analysts believe shares in Britain’s large caps have been ignored for too long and, as many yield in excess of five per cent, they currently represent excellent value.
So investors who concur may consider the JO Hambro UK Opportunities fund the ideal repository for their money.
It, too, invests in companies such as Tesco and Glaxo. Indeed, about 60 per cent of the fund is invested in large caps.
Though the dark spectre of inflation looms large, as unemployment is equally worrying, it seems unlikely interest rates will rise, at least significantly, in the near future.
Accordingly, savers not wishing to ‘have kittens’ by taking on more risk in the form of direct equity investment may prefer to consider well-managed funds taking advantage of the excellent value currently offered by the UK’s large caps.
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