Generating Income in a Low Yield Environment

Transcription

1 Generating Income in a Low Yield Environment

2 Agenda Generating Income in a Low Yield Environment Introduction Why are Yields on all Asset Classes so low? Analysis of Interest Rates (EUR v USD v GBP Rates) Analysis of Bond Yields Analysis of Equity Dividend & Real Estate Rental Yields Comparison of Income from Low Risk Investments Merrion Solutions Income Investment Strategies Summary & Conclusions Merrion Solutions Financial Broker Telephone Conference Call 17 November

3 November 2014 Introduction

4 Introduction Traditional Income Generating Investment Solutions are currently unattractive: Deposit Rates have fallen Bond Yields have fallen Dividend Yields on Equities have fallen Property Rental Yields have fallen as prices recovered Investor Risk Tolerance is generally lower Tax Rates have Increased DIRT has increased to 41% to 55% (depending on taxpayer type) Merrion Solutions Financial Broker Telephone Conference Call 17 November

5 Why are Yields on all Asset Classes so low? November 2014

6 Why are Yields on All Asset Classes so low? Monetary Policy Actions resulting from the Credit Crisis Governments and Central Banks have responded to the Credit Crisis by: Cutting Interest Rates Increasing Money Supply Other Monetary Stimulus [Long Term Refinancing Operations (LTRO), Quantitative Easing (QE) etc.] This Monetary Policy Response has resulted in: Historically Low or Negative Interest Rates Historically Low or Negative Bond Yields Historically Low Yields on all asset classes as increased money supply searches for a home Merrion Solutions Financial Broker Telephone Conference Call 17 November

7 Interest Rate Analysis How have Interest Rates changed since the Credit Crisis ECB has cut Rates 14 times since 2008 to just 0.05% Source: Bloomberg (7 July 2008 to 11 November 2014) Merrion Solutions Financial Broker Telephone Conference Call 17 November

8 Interest Rate Analysis How have Interest Rates changed since the Credit Crisis 5 year Rates have also fallen from 5.2% to 0.43% Source: Bloomberg (2 July 2008 to 11 November 2014) Merrion Solutions Financial Broker Telephone Conference Call 17 November

9 Interest Rate Analysis EUR v USD v GBP Rates EUR rates to stay low until 2016 ECB Policy Statement on Rates QE (in whatever guise) yet to commence USD & GBP Rates expected to rise QE slowing and timing of Rate Increases being predicted Region Current Central Bank Rate Current 2 Year Rate Current 5 Year Rate Current 10 Year Rate Europe 0.05% 0.21% 0.43% 1.04% US 0.25% 0.74% 1.78% 2.50% UK 0.50% 1.09% 1.77% 2.29% Source: Bloomberg (11November 2014) Merrion Solutions Financial Broker Telephone Conference Call 17 November

10 Interest Rate Analysis EUR v USD v GBP Rate Forecasts EUR rates to stay low until 2016 USD & GBP Rates expected to rise Merrion Interest Rates Forecast: Region Current Interest Rate Rate at end of 2014 Rate at end of 2015 Rate at end of 2016 Europe 0.05% 0.05% 0.05% 0.25% US 0.25% 0.25% 0.75% 1.50% UK 0.50% 0.50% 1.00% 1.50% Source: Merrion Stockbrokers (12 November 2014) Merrion Solutions Financial Broker Telephone Conference Call 17 November

11 Interest Rate Analysis Deposit Rates fall in line with Base Interest Rates Current Deposit Rates Source: irishdeposits.ie (10 November 2014) Merrion Solutions Financial Broker Telephone Conference Call 17 November

12 Bond Yield Analysis Irish 10 Year Bond Yields Fallen to pre crisis lows following peak in 2011 Source: Bloomberg (1 July 2008 to 11 November 2014) Merrion Solutions Financial Broker Telephone Conference Call 17 November

13 Bond Yield Analysis All Bond Yields fallen to historic lows 10 Year European Government Bond Yields Source: Bloomberg (11 November 2014) Merrion Solutions Financial Broker Telephone Conference Call 17 November

14 Bond Yield Analysis All Bond Yields fallen to historic lows 5 Year European Government Bond Yields Source: Bloomberg (11 November 2014) Merrion Solutions Financial Broker Telephone Conference Call 17 November

15 Bond Yield Analysis All Bond Yields fallen to historic lows 2 Year European Government Bond Yields Source: Bloomberg (11 November 2014) Merrion Solutions Financial Broker Telephone Conference Call 17 November

16 Equity Dividend Yield Analysis Equity Dividend Yields have also fallen Dividend Yield on Eurostoxx 50 Index is 3.73% Source: Bloomberg (12 November 2009 to 11 November 2014) Merrion Solutions Financial Broker Telephone Conference Call 17 November

17 Equity Dividend Yield Analysis Equity Dividend Yields have also fallen Dividend Yield on S&P 500 Index is 1.91% Source: Bloomberg (12 November 2009 to 11 November 2014) Merrion Solutions Financial Broker Telephone Conference Call 17 November

18 Real Estate Yield Analysis Real Estate Yields have also fallen No Irish Data but International Yields down to 3.86% Source: Bloomberg (30 June 2012 to 11 November 2014) Merrion Solutions Financial Broker Telephone Conference Call 17 November

19 Comparison of Income from Low Risk Investments November 2014

20 Income Comparison Merrion Solutions Financial Broker Telephone Conference Call 17 November

21 November 2014 Merrion Income Strategies

22 Merrion Structured Investment Strategies Merrion Solutions Financial Broker Telephone Conference Call 17 November

23 Merrion Structured Investment Strategies Merrion Solutions Financial Broker Telephone Conference Call 17 November

24 Merrion Income Bonds Merrion Solutions Financial Broker Telephone Conference Call 17 November

25 November 2014 Summary & Conclusions

26 Summary & Conclusions Traditional Income Generating Investment Solutions are currently unattractive: Deposit Rates, Bond Yields, Dividends on Equities and Property Rental Yields have all fallen Investor Risk Tolerance is generally lower Tax Rates have Increased Some limited Investment Risk is required to generate Income levels above 1% per annum Merrion Solutions Financial Broker Telephone Conference Call 17 November

27 Risk & Wealth Warnings This presentation is intended for regulated Financial Broker Firms only. This is not a Recommendation. This document is not suitable for investors All of the terms provided are indicative and subject to change. The full terms are provided in the relevant Brochures. If you invest in this(ese) product(s), you may lose some or all of the money you invest. Past Performance is not a reliable guide to Future Performance. The value of your investment may go down as well as up. Merrion Solutions is a division of Merrion Stockbrokers Limited. Merrion Stockbrokers Limited is regulated by the Central Bank of Ireland. Merrion Stockbrokers Limited is a member of the Irish Stock Exchange and the London Stock Exchange Merrion Solutions Financial Broker Telephone Conference Call 17 November