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Stocks vs ITs & ETFs ?

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
JessicaKing
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Re: Stocks vs ITs & ETFs ?

#210091

Postby JessicaKing » March 25th, 2019, 12:26 pm

Thank you for the info! I would personally choose stocks, I think, they are more secure. I myself invest in property crowdfunding platforms where I can diversify my investment.

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Re: Stocks vs ITs & ETFs ?

#210138

Postby PrefInvestor » March 25th, 2019, 2:46 pm

HI JessicaKing, There was a time that I was of the opinion that most of my favorite prefs were fairly bulletproof, many having survived (and paid out) all through the 2008 financial crisis. But the events of last March made it very clear that this was not the case, sadly. And prefs are pretty concentrated in financials (banks and insurance companies) not totally exclusively, but most of the ones that I am aware of are in that space, so not that diversified I guess.

Mind you crowdfunding doesnt exactly sound like a risk free mode of investing to me either !.

Good luck with it anyway.

ATB

Pref

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Re: Stocks vs ITs & ETFs ?

#210493

Postby LooseCannon101 » March 26th, 2019, 8:30 pm

Here are some of my thoughts -

Stockmarket valuations around the world can be pretty volatile, but on average over many years will generally follow the global economy. Trying to buy and sell individual company shares like your pants are on fire, is great for your stockbroker but not for your overall wealth. Regarding the latter, income should never be the primary consideration. The total return is the most important figure. This will fluctuate from year to year.

What is wrong with a long-term buy and hold approach? Financial history says that equities usually out-perform bonds and preference shares. 8% annual returns can be achieved on average over 10+ years with equities e.g. world equity tracker or highly diversified investment trust(s), but not with bonds. Moving into and out of fashionable sectors e.g. renewable energy is almost as bad as trading in individual company shares.

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Re: Stocks vs ITs & ETFs ?

#210960

Postby youfoolishboy » March 28th, 2019, 8:54 am

I started buying, and selling, prefs and bonds after the 2008 crash thanks ot the wise heads on TMF, currently after taking profits of the table last year due to interest rate rises on the horizon and the Aviva debacle, I traded that successfully mind you having not had any to start with, I was left with BOI which I have held since 2008. I now am rebuying RAVP though as I can only see interest rates falling, all indicators point that way but for some reason Prefs and Bonds are not showing any movement anyone have a theory on that? I am very keen to buy more RAVP and perhaps a few others but I feel I am missing something, anyone with a view?

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Re: Stocks vs ITs & ETFs ?

#211006

Postby Alaric » March 28th, 2019, 10:36 am

youfoolishboy wrote:I I now am rebuying RAVP though as I can only see interest rates falling, all indicators point that way but for some reason Prefs and Bonds are not showing any movement anyone have a theory on that?


Risk free interest rates (Gilts in other words) are so close to zero there doesn't seem much scope to fall. The yields on Prefs and Bonds could fall, but only if their perceived risk is reduced. In the case of Prefs, there may remain some legal uncertainty about whether an issue can be called at par without the holders being able to prevent it.

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Re: Stocks vs ITs & ETFs ?

#211068

Postby BusyBumbleBee » March 28th, 2019, 12:58 pm

LooseCannon101 said
Moving into and out of fashionable sectors e.g. renewable energy is almost as bad as trading in individual company shares.

a view to which he is certainly entitled but with which some of us simply cannot agree.

First, it is not a bad thing to trade (or hold) "individual company shares" - but it is obviously not his cup of tea. Now that is sad as a lot of "individual company shares" happen to be Investment Trusts. The FT-250 is full of them. Also there are many trading companies which have given solid returns to investors over many years - indeed generations.

Secondly, Some of us are quite heavily invested in Fashionable Sectors - but we moved into them before they became fashionable and we can take the opportunity to take large profits when they do become fashionable. But I am still heavily invested in the renewable energy sector because :

a) it produces satisfactory returns including a running yield higher than most other sectors.
b) it has 20 years or so to go before the government ceases paying the subsidies it has committed to pay at RPI indexed rates too.
c) it produces something that everyone still uses - and for the foreseeable future too (only cheap nuclear fission will alter the dynamics here)
d) the sector pricing is not affected much by general market sentiment.

All of my investment is in individual company shares but admittedly a goodly proportion is held in specialist Investment trusts and VCTs.

So - for me anyway - the more important decision to make is to decide which one (or more) will become the next fashionable sector or sectors. I think I have found one and am building a position therein - as well as a position in the sectors which 'service' the renewable energy sector.

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Re: Stocks vs ITs & ETFs ?

#211097

Postby PrefInvestor » March 28th, 2019, 2:55 pm

Hi youfoolishboy, Well I have about 15% of my portfolio in prefs right now which I bought at the tail end of last year in the mid 110s (also topped up a previous RAVP holding around then). I agree that RAVP hasn’t done much, but all of the others are up nicely between 3 and 9% including dividends. With its high yield and quarterly dividend payments RAVP is my largest pref holding.

Re the general outlook for prefs, I would say that the Fed putting further rate hikes on hold and some central banks even considering cutting rates, may have had an impact by removing the imminent threat of rising rates.

On RAVP specifically I think that it may well have suffered through the company revenues now being mostly in roubles and the exchange rate has not been friendly. If you want detailed info on RAVP specifically then I suggest you look at ADVFN chat here:-

https://uk.advfn.com/stock-market/londo ... share-chat

Specifically look out for posts from a user called “Kenny” who it would appear follows all movements in RAVP very closely and posts his assessment of what occurring. I cannot vouch for the veracity of his material but it certainly sounds knowledgeable !.

ATB

Pref

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Re: Stocks vs ITs & ETFs ?

#211099

Postby PrefInvestor » March 28th, 2019, 3:01 pm

Hi BusyBumbleBee, Yes you are right I have decided that holding too many individual company stocks isnt for me, too big a risk of lightening strikes (= big unexpected one day falls) and volatility generally. I am far more comfortable holding mainly ITs and ETFs and in generally more sedate areas like prefs and renewable energy.

I have no intention of trading in and out of any of them though. I just plan to hold, collect the divis and re-invest them and let Einsteins 8th wonder of the world (= compound interest) do its thing.

ATB

Pref

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Re: Stocks vs ITs & ETFs ?

#211198

Postby youfoolishboy » March 29th, 2019, 8:41 am

PrefInvestor wrote:Hi youfoolishboy, Well I have about 15% of my portfolio in prefs right now which I bought at the tail end of last year in the mid 110s (also topped up a previous RAVP holding around then). I agree that RAVP hasn’t done much, but all of the others are up nicely between 3 and 9% including dividends. With its high yield and quarterly dividend payments RAVP is my largest pref holding.

Re the general outlook for prefs, I would say that the Fed putting further rate hikes on hold and some central banks even considering cutting rates, may have had an impact by removing the imminent threat of rising rates.

On RAVP specifically I think that it may well have suffered through the company revenues now being mostly in roubles and the exchange rate has not been friendly. If you want detailed info on RAVP specifically then I suggest you look at ADVFN chat here:-

https://uk.advfn.com/stock-market/londo ... share-chat

Specifically look out for posts from a user called “Kenny” who it would appear follows all movements in RAVP very closely and posts his assessment of what occurring. I cannot vouch for the veracity of his material but it certainly sounds knowledgeable !.

ATB

Pref


Hi Prefinvestor
I don't do total returns to me if the pref price is falling I want to know why the fact I got a divi is not a concern and masks the fall different ways I guess of running a portfolio. Do you do the same with shares? I dont include divis if the share price is falling I don't hold on thinking I am still up I make a decision based on the share price as I am losing profits. Hey ho different strokes...
The FEB has heavily signaled no rate rises if the market does not know that then its deaf hence my question why are prefs not rising. BOI is bullet proof and its barely twitched after a large fall on small rises in rising rates. There is something holding back the market IMHO.
Regards Kenny on ADFN I read that board on occasion and I find him far to obsessed by being very heavily invested in RAVP to have an totally objective opinion. When counter views are put forward he is very defensive and sometimes wrong. The rouble to $ loss did not push the RAVP price down therefore it cannot be material and it shouldn't be to be fair they have plenty of cash to pay the Prefs. Again there is another reason I feel.
YFB

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Re: Stocks vs ITs & ETFs ?

#211263

Postby PrefInvestor » March 29th, 2019, 12:25 pm

Hi Again youfoolishboy, I look at performance both with and without dividends TBH. But I pay most attention to the with dividends performance. For me dividends are part of the package of buying the share. But I DO pay attention if the capital loss (ie ignoring the dividend) starts to get excessive.

ATB

Pref

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Re: Stocks vs ITs & ETFs ?

#211468

Postby youfoolishboy » March 30th, 2019, 10:36 am

PrefInvestor wrote:Hi Again youfoolishboy, I look at performance both with and without dividends TBH. But I pay most attention to the with dividends performance. For me dividends are part of the package of buying the share. But I DO pay attention if the capital loss (ie ignoring the dividend) starts to get excessive.

ATB

Pref


I used to invest only for dividends then I realized shares getting practically wiped out removes a lot of accumulated dividends, I learnt that during the banking crash 10 years or so ago since then I still have many shares invested for dividends but now pay more heed to the share price than the divi unless they cut it. Beware following the wrong metric too closely.

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Re: Preference Share Information

#216292

Postby GoSeigen » April 20th, 2019, 1:42 am

I have amended prefinvestor's nice preference share summary, incorporating the points made by ursaminortaur and ScrumpyJack and making a few other amendments. Thanks to prefinvestor for posting the original.

1. Preference shares are a class of shares regulated by the Companies Acts in exactly the same way as ordinary shares. Crucially, they differ from ordinary shares in that a. they have the right to receive both dividends and capital repayments before (in preference to) ordinary shares, hence their name; and b. they generally only have the right to a fixed return of capital (aka the liquidation preference). Often their dividend rate is fixed at issue.
2. They pay a divided in exactly the same way as ordinary shares. However with preference shares the amount of the dividend is generally defined in their terms at issue. Eg NWBD is a 9% NatWest preference share. The 9% defines the amount of the dividend that an investor receives as a proportion of the nominal or “par” value, as defined in their terms. For most prefs this is 100p. So NWBD pays out 9p in dividends over the year. Most UK listed prefs pay their dividend in two equal half yearly payments, though a few pay in four equal quarterly payments. So NWBD (a 9% pref) pays out 2 x 4.5p dividends at half yearly intervals and RAVP (a 12% pref) pays out 4 x 3p dividends quarterly.
3. Unlike most ordinary shares the amount of the dividend and its payment date is usually determined at issue. The dividend can be fixed, variable or floating or even determined by some formula but if declared must be paid as specified.
4.Typical features of Prefs include:-
a. Cumulative or Non-cumulative. Terms of prefs may allow the directors not to declare a dividend if the issuing company is not in a financial position to be able to pay them. Cumulative prefs require the issuer to make up the missed payment at a later date if a dividend payment is skipped. Dividends of non-cumulative prefs are not liable to be made up later if unpaid.
b. Irredeemable/Redeemable. Like any redeemable share, redeemable prefs have an end date specified at issue (like a dated bond) which gives the issuer the right (but not the obligation) to redeem the prefs. Holders are typically repaid at par and dividend payments cease. Irredeemable prefs have no such end date and the issuer has only limited ability to repay then, usually only with shareholder approval.
5. Some prefs have other special features like “must pay” clauses in their terms. Eg NWBD has such a clause which says if the company ever decides not to pay a dividend for any reason then they have to issue the holders additional preference shares to a value of 4/3 of the amount of the missed dividend.
6. It also follows from the right to prior payment that a company cannot pay a dividend on their ordinary shares if they withhold the dividend on their preference shares. The result is that the companies tend in most circumstances to pay the dividend on their prefs.
7. The terms of all prefs must be written in the issuer's Articles of Association. Additionally, listed prefs have a prospectus which is a document expressed in legal language which defines all of the characteristics of the preference share.
8. Like ordinary shares, prefs are negotiable instruments: though initially issued at par they are traded on the stock market (like bonds) and their price can rise above par and fall below it. Reliable prefs paying high dividends are (were ?) much sought after and prices in recent years soared way above par. For example LLPC a 9.25% Lloyds preference share that I held was priced at about 175p in March 2018.
9. Prefs are generally not sensitive to the prevailing level of interest rates. Their price and yield follows that of other long-dated and perpetual securities.
10. Like any security traded on an exchange prefs have a bid and offer price. The prices typically quoted on most financial sites is referred to as the “official spread” and it is typically quite large, normally about the amount of a half yearly dividend payment. In actuality though if you do dummy buy and sell, trades on a pref you will often find that the actual buy and sell figures are considerably inside the official spread. But prefs tend to be illiquid investments and some are traded relatively infrequently, hence the large spreads.
11. Be aware that liquidity can be a significant issue particularly when selling any of the smaller pref issues. I have never had a problem buying however many I wanted, but have frequently had problems selling. You may find that you cannot sell your entire holding and may be limited to selling no more than X shares on any given day. But this can change day to day. It can be annoying though.
12. Personally I always thought that the best time to buy prefs was on the XD date. On that date the offer price drops by close to the dividend amount, allowing you to buy more shares for the same amount and increasing your yield. You just have to then wait 6 months to receive your first dividend payment. Theoretically though, it should make no economic difference when you buy or sell.
13. Investing in prefs of smaller companies can be a risky business. If the company goes out of business then you will likely be looking at a total loss. Personally I wouldn’t invest in such issues.

I guess this should go on the Bonds and Gilts board too, given the fixed income aspect.

GS

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Re: Stocks vs ITs & ETFs ?

#216412

Postby PrefInvestor » April 20th, 2019, 8:22 pm

Not at all sure how I feel about having my post amended by a third party TBH, especially when I am not personally convinced by the the veracity of some of the changes. In particular I do not agree with the changes made in respect of sensitivity to interest rates. GS may be right, but personally I don’t think so.

I confess I also do not like the fact that a reply made by me to an individual user would seem to being propagated more widely, when that was never my intent. It’s one thing having other people read a post that you’ve made to someone else but quite something else to have a modified version (that you dont necessarily even agree with) put forward as some sort of exemplar statement for wider publication. I confess I feel more than a little uncomfortable with all this TBH. I would ask that all responsibility for the revised post be attributed to GoSeigen.

Feeling more than a little sorry that I took the time to make the original post right now.

Pref

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Re: Stocks vs ITs & ETFs ?

#216431

Postby GoSeigen » April 20th, 2019, 10:47 pm

PrefInvestor wrote:Not at all sure how I feel about having my post amended by a third party TBH, especially when I am not personally convinced by the the veracity of some of the changes. In particular I do not agree with the changes made in respect of sensitivity to interest rates. GS may be right, but personally I don’t think so.

I confess I also do not like the fact that a reply made by me to an individual user would seem to being propagated more widely, when that was never my intent. It’s one thing having other people read a post that you’ve made to someone else but quite something else to have a modified version (that you dont necessarily even agree with) put forward as some sort of exemplar statement for wider publication. I confess I feel more than a little uncomfortable with all this TBH. I would ask that all responsibility for the revised post be attributed to GoSeigen.

Feeling more than a little sorry that I took the time to make the original post right now.

Pref


This is a public discussion board Pref.

I take complete responsibility for the post.

If anyone disagrees with anything they can say why. I think even Pref would not argue that his original text was infallible!

The original post by Pref was well composed and useful. It had some errors in fact; I hope the update I posted is more accurate. I don't claim it is 100% correct.

The point about sensitivity to interest rates can be demonstrated with elementary maths, and will be found in any basic text book on bonds. If Pref disagrees I invite him to say why and/or post a quote from an authority.


GS

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Re: Stocks vs ITs & ETFs ?

#216443

Postby GoSeigen » April 20th, 2019, 11:52 pm

GoSeigen wrote:
The point about sensitivity to interest rates can be demonstrated with elementary maths, and will be found in any basic text book on bonds. If Pref disagrees I invite him to say why and/or post a quote from an authority.


To illustrate this point here is a chart: it shows 3-month treasury yield as a proxy for the Fed Rate, versus the yield of preferred stock on the NYSE. Unfortunately the data is old and I don't have time to dig out a more recent series, but it will serve the purpose. We see first that interest rates show a long rising trend while preferred stock yields (and therefore prices) are practically unchanged. In particular, at times when interest rates were changing rapidly long yields didn't move much at all, e.g. 1957-1961:

https://fred.stlouisfed.org/graph/fredgraph.png?g=nFXq


Recent examples of where long-bond yields have failed to respond to interest rate changes include the so-called Greenspan Conundrum and the inverted yield curve preceding the GFC. Additionally, most visitors to the Motley Fool Banking Board will remember that, despite interest rates being reduced from 5% to practically zero in and after 2008, preference share yields soared as default risk was increasingly priced in.

This report of a study by Gaurav Saroliya of Oxford Economics discusses some of the issues:

https://www.bloomberg.com/news/articles ... new-normal


IMO it is more productive to consider the yield curve as a whole than to try to attribute movements in long-term yields to gyrations in short-term interest rates. There are clearly long periods where the trends in these rates match each other, but in the short term they can diverge considerably.


GS

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Re: Stocks vs ITs & ETFs ?

#216465

Postby GoSeigen » April 21st, 2019, 8:49 am

PrefInvestor wrote:
I confess I also do not like the fact that a reply made by me to an individual user would seem to being propagated more widely, when that was never my intent. It’s one thing having other people read a post that you’ve made to someone else but quite something else to have a modified version (that you dont necessarily even agree with) put forward as some sort of exemplar statement for wider publication. I confess I feel more than a little uncomfortable with all this TBH. I would ask that all responsibility for the revised post be attributed to GoSeigen.

Feeling more than a little sorry that I took the time to make the original post right now.

Pref


Hi Pref, my last two posts were written late and hastily as I wanted to get some sleep! Rereading them they might give the impression I am dismissing your feelings as expressed above. TBH I don't completely understand why you reacted so strongly. I liked the idea of your original post and thought it would be useful to pref newbies to have it updated to reflect comments already made and corrections I thought were also necessary, e.g. the original referred repeatedly to coupons as if prefs are bonds, when in fact they are shares and pay dividends just like any other share; similarly I think it is quite misleading to discuss interest rates rather than their yield as if they might be a safe money-like investment rather than the extremely risky share capital that they are. Hopefully your annoyance is not at points of fact like this. OTOH, if it is because you feel your work was appropriated I apologise, that was not my intention. If it is because I failed to remove all the personal references then I am happy to do that to make it more neutral. If you really are still upset just go ahead and report the post and have it deleted. I won't mind and will just repost listing my misgivings about the original.

So, I'm sorry too, happy to fix whatever is bugging you.

GS
[EDIT: You said what you didn't like: "I confess I also do not like the fact that a reply made by me to an individual user would seem to being propagated more widely, when that was never my intent." but TBH I did not understand what you mean there, because everything you and any poster writes has already been published and propagated as widely as my reply was i.e. on these public discussion boards on the internet.]

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Re: Stocks vs ITs & ETFs ?

#216473

Postby EssDeeAitch » April 21st, 2019, 11:36 am

GS, thanks for the summary, I found it a very useful post and was surprised that Pref pushed back. And also thanks to Pref for his comments which give insight into an area I know little about.

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Re: Stocks vs ITs & ETFs ?

#216478

Postby MaraMan » April 21st, 2019, 12:14 pm

I just wanted to thank Pref as he was originally responding to my question, which was very helpful to me and others. Things then seem to have got out of hand. It is a shame that a genuine effort to help someone has met with so much argument.

Thanks again Pref and I understand your discomfort with what has happened.

MM

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Re: Stocks vs ITs & ETFs ?

#216715

Postby PrefInvestor » April 22nd, 2019, 11:06 pm

Hi goseigen,. After some consideration I have decided not to respond further on the subject of the changes that you made to my post, as I feel that anything I said would likely just exacerbate the situation to no positive end. I think that I have already made my feelings known in what I have already said. Let that be an end to it.

Pref

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Re: Stocks vs ITs & ETFs ?

#216719

Postby GoSeigen » April 22nd, 2019, 11:27 pm

PrefInvestor wrote: I think that I have already made my feelings known in what I have already said. Let that be an end to it.

Pref


Okay, but you haven't made them known to me; as I said earlier I don't understand what you mean by "propagating" your post or even "editing" your post for that matter. I can't edit your posts. I can only write my own posts. So you have had a go at me and then not explained your feelings or what I have done wrong. You're welcome to end it there, but please don't conclude that I am any the wiser.

GS


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