NETWorth

Stay on course with the right MAP

ANDREW WOOD

As many a professional tipster might agree: "Picking winners is easy. The hardest part is how to avoid betting on the losers."

We continue last week's article regarding the use of multi-asset portfolio structures (MAPs), as one of the preferred strategic investment strategies. Selective dividend fund and share opportunities represent another form of asset-managed securities that are often overlooked.

Although lacking the guarantees of fixed-rate deposits, dividends have accounted for nearly 50% of UK stock yields since 1918. Using an offshore MAP to purchase dividend allocations has many advantages when constructing a well-balanced portfolio. Apart from capital-gains and inheritance-tax exemptions, investors may trade in a multitude of globally diverse options not available through onshore institutions.

There are considerable savings on the trading costs of dividend shares and usually no entry or exit penalties when dealing in dividend funds or bonds. Investors going direct are liable to suffer between 1% and 5% initial capital deductions from investment. These penalties can easily add up to 25% capital erosions on, say, five switches annually. Using the right MAP to find profitable dividend-paying options can certainly pay dividends.

Bank deposits or bond dividends for an equitable return? Securing a guaranteed income from capital-deposit or regular-premium savings is not hard. But inevitably, it equates to risk versus return. Many investors deposit money with banks, building societies or in bonds simply because of the inherent safety. Although higher interest rates are returning, after some of the lowest rates in 48 years, onshore investments will always suffer the ravages of inflation and taxation in deference to similar securitised facilities obtained via MAPs.

To increase investment margins while reducing risk exposure, taxation and high expense ratios, selecting the right MAP structure and asset management team are very important. So, if you are a risk-averse saver you could secure fixed bank rate securities at around 5.7%. You could also increase margins to around 12% by diversifying into low-risk options utilising balanced positioning from dividends and fund distributions. For the risk-adventurous, these structures also enable diversification into worldwide funds, bonds, hedge instruments and speculative forex and commodities trading.

Investing basics that cut exposure to risks. Investing in dividend paying instruments is not risk-free but there are a number of measures your asset manager can employ to reduce risks to a minimum:

- Longevity and performance history: While past performance by no means guarantees future returns, it is still a reliable indicator as to the security of an investment asset, and the consistency of dividend distributions over five, 10 or 20 years. Taking Astra Zeneca as just one example, an investment of 100,000 at the start of 2006 would have netted: 33,000 in share returns and a further 3.39% in dividend payments. This represents a comfortable yearly return of around plus 34% over the term.

Another couple of prime dividend-paying opportunities in performance consistency charts would include Rathbone Income Fund at 14.75% annual distributions over five years, and WRF Property funds at 9.46% yearly over three years.

Not every securities option will always yield such healthy returns. The above illustrations merely demonstrate how investors can maximise capital growth with income by use of MAP structures and specialist fund management strategies.

- Independent and impartial research: Unlike many tied brokerages and financial institutions, independent consultancies have access to a large number of data-streaming facilities to screen out longstanding winners from the host of losers. If specific asset options fail the MAP institution's due diligence screening procedures, then they are automatically rejected. Regulated consultancies frequently meet with institutional management teams, ensuring your interests are constantly monitored.

- Credit reference agency reports. CRA reports should not be seen as endorsements of any given instrument, but they do provide an essential part of the process of overall risk-reduction strategies. Thus, a fund or share that has been rated by S&P or Morningstar has a comprehensive research history. You can rest assured that facts have been thoroughly researched for each respective asset accordingly.

Defensive sector markets (DSMs) may be boring, but they do endure. DSMs are basically companies that provide any given country's essential services, in addition to being major employers. They include utility, transport, communications and food retail organisations, as well as defence contractors, banking and financial institutions.

These are the staples when selecting risk-averse investing options. Overall historical data prove they have increased distribution of dividends in 35 out of the 38 years. Other statistics from over 854 dividend-paying companies show that 58% raised annual dividends, 28% introduced or at least maintained distribution yields and only 14% reduced or scrapped payments over the period.

Each investor has different levels of risk and perceptions of realistic yield expectations. In seeking to find the safest route for capital savings, it invariably pays to invest in a comprehensive MAP to ensure diversification and consistent distribution along the way.

Questions to the author can be directed to Barclay Spencer International on 0-2653-1971 or e-mail to info@barclayspencer.com

Bangkok Post
Wednesday January 31, 2007