Kamis, 26 Juli 2012

How investors can reap the rewards of Britain’s bumper 18% rise in dividends

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Market-beating: Fund manager Neil Woodford runs the hugely popualr Invesco Perpetual High Income fund and its Edinburgh investment trust cousin - both have posted solid gains while the stock market has fallen

Income investors are reaping the rewards of Britain’s cash-rich big firms opting to return money to shareholders rather than splash out on chasing growth, with dividend pay-outs hitting record levels.
Dividends paid out by British companies leapt by 18.4 per cent in the three months to June, compared to a year earlier, to hit £22.6bn, according to the latest Capita Registrars Dividend Monitor report.
So why are firms paying out more cash and how can you capitalise on the trend for rising dividends?

Where are the dividends coming from?

The report highlights once again though how UK investors are reliant on a select few big payers for income, with the top five payers accounting for 36 per cent of dividends, whereas the FTSE 250 index which sits below the blue-chip FTSE 100 index delivered just eight per cent.
The report said: ‘The top fifteen stocks paid out almost two thirds of all dividends, demonstrating the perennial massive dependence UK investors have on very, very few shares for all their income.’
The bumper pay-outs were boosted by big one-off payments, as insurer Old Mutual paid out a huge £1bn in special dividends, while drug firm Glaxosmithkline also opted to hand £277m in surplus cash to investors.
But the report said that even with the effect of special payments removed, underlying dividends grew a very healthy 14.5% in the second quarter.

Why are firms paying big dividends?

Rising tide: UK dividends are back at pre-financial crisis levels and are projected to rise even further by the Capita Registrars report

The top payers are a roll call of big British business, with Vodafone, Shell, Glaxosmithkline and Cairn Energy making up the top five and names such as BP, BAT, AstraZeneca and Centrica sat in the next tier below them.
The resurgence in dividends in recent years has come as companies choose to attract investors by paying them a steady income stream rather than investing extra money into their business in troubled economic times.
That has meant six quarters of consecutive dividend growth in the report, and solid pickings for income-hungry investors, with the prospective yield on the FTSE 100 index rising to 4.5 per cent assuming no special dividends.
The report said: ‘The strength of the dividend streams from UK equities, and the relatively moribund state of the index which is roughly at the same level as it was in 1998, mean that the yield on equities is very attractive, all the more because interest rates are still at rock bottom levels.’

Neil Woodford: Quality income shares are cheap

Popular fund manager Neil Woodford has long been a champion of solid dividend-paying shares for his Invesco Perpetual Income and High Income funds and their cousin Edinburgh investment trust - and his strategy has paid off/
The trust is up 12.5 per cent and the High Income fund up 8.25 per cent over the past year, while the FTSE 100 has fallen 7 per cent.
Speaking at the Edinburgh Investment Trust AGM he said that some good quality income shares are cheap, having been dragged down by wider problems.
He said: 'I think the environment at the moment is quite risky. The accumulation of weak economic data and downgrades across the world in terms of GDP is likely to be reflected in downgrades to profits and earnings. I think we are already seeing that.
'There is earnings risk in the market, and I have talked about this in the past. However, I still believe that there is a lot of valuation opportunity as well. I have said consistently that despite these difficult economic times, there is a population of stocks that can grow consistently through this difficult period
'So I believe there is valuation opportunity. Those companies that feature prominently in the portfolio are the businesses that can deliver revenue, cash flow, earnings, and dividend growth consistently going forward.
'It is possible for high quality businesses with consistent growth to break free from a more difficult market backdrop. There have been plenty of examples of that through the course of my career and I think we will see the same going forward. That is why my strategy remains unchanged.'

Shares vs cash vs property

Flush with big global cash-rich firms, the FTSE 100 delivers the biggest forecast yield at 4.5 per cent. The next step down FTSE 250 index has a lower prospective yield of 3.4 per cent, while the overall yield on shares is 4.4 per cent, compared to 4 per cent in the first three months of 2012.
That compares to a best buy instant access savings account rate of 3.24 per cent from ING Direct and a yield of just 1.47 per cent on ten-year gilts (UK Government bonds). The income return on shares is still beaten by property, which using LSL Property Services data, the report put at 5.2 per cent.
However, it added: ‘The yield on property has held steady at 5.2%, higher than equities, but given that owning rental property has costs associated with management time and also maintaining the property itself, there is no doubt that equities offer the best income among these main asset classes at present.’

Income investments: The FTSE 100's 4.5 per cent yield beats cash and gilts - although property before costs comes out on top

How to tap into rising dividends

Investors looking to tap surging dividends have the option of either investing in individual shares directly, or collectively through an active or passive fund, or investment trust.
Investing in funds and trusts

Income fund and trust tips

Adrian Lowcock, of BestInvest, highlights Newton Global Higher Income
Mark Dampier, of Hargreaves Lansdown, highlights, Invesco Perpetual Income
Rob Crawshaw, fund analyst at Brewin Dolphin, highlights Threadneedle UK Equity Income
John Newlands, head of investment trusts research at Brewin Dolphin, highlights Finsbury Growth & Income
Alan Brierley, of CanAccord Genuity's, investment trusts report, highlights Edinburgh Investment Trust

Read the full income investing fund and trust tips round-up

Investing through an active fund or trust means entrusting a fund manager with your money to put into a basket of dividend shares, and paying the ensuing charges.
Funds that fall into the equity income bracket can target either just delivering the highest possible income, or a combination of income and growth.
The best fund managers can deliver market beating returns, although the income yield is unlikely to be considerably higher than the market’s and can be less.
As an example, Neil Woodford’s hugely popular Invesco Perpetual High Income fund delivers a yield of 3.84 per cent but is up 8.23 per cent over the past year compared to the FTSE 100’s 7 per cent fall. Investors in the fund face TER charges of 1.69 per cent (total expense ratio – the best estimation of a fund’s actual annual cost of ownership to investors).
Choosing an investment trust over a fund can boost returns and income, while also cutting charges. A comprehensive report by broker Collins Stewart earlier this year found that dividend-hunting investors would have fared much better with investment trusts over a decade, with the UK Growth and Income trust sector returning an average net asset value (NAV) increase of 77 per cent compared to a 51 per cent average rise for funds.
Investors can draw a comparison between trusts and funds by looking at Edinburgh Investment Trust, which is also run by Mr Woodford and has broadly similar holdings to the Invesco fund mentioned above. Over the past year its share price is up 12.5 per cent. It yields 4.28 per cent and investors face TER charges of 0.71 per cent.

Enlarge

Big payers: The top five dividend payers deliver more than a third of all payouts, according to the report. Click to enlarge and seen the next ten.

Investing in shares
Picking shares directly means picking solid dividend payers out that can deliver year-in, year out and avoiding the pitfalls.
A quick guide to checking up on how safe an income share’s dividend is can be found here, from Jonathan Jackson at stockbrokers Killik & Co. He warns: ‘A high dividend yield may appear attractive, but it may also be a sign that the company will not be able to pay the dividend.’
Investors also need to ensure they do not put all their eggs in one basket and hold as diverse a portfolio of dividend shares as possible to avoid one company’s misfortune seriously damaging their wealth.
Investing through a low-cost tracker or ETF
Investors looking to dividends can also target passive funds, which offer lower costs due to the lack of a fund manager but simply aim to track an index or basket of shares.
A simple FTSE 100 tracker will deliver a yield similar to the blue-chip index. Santander’s Stockmarket 100 Tracker Growth has a yield of 4.13 per cent, and is down 3.3 per cent over a year, but up 36.7 per cent over three years. It featured in our round-up of the tracker funds that have the least error in tracking their index and low fees – it has a TER of just 0.35 per cent and fell short of the FTSE by just 0.22 per cent in a year, according to FE Trustnet.
Alternatively, investors can opt for low-cost exchange traded funds which target dividend shares., both in the UK and around the world.
For example, the iShares FTSE UK Dividend Plus ETF offers exposure to the 50 highest yielding UK stocks within the FTSE 350 realm, excluding investment trusts.
It yields 5.86 per cent, and is down 3.59 per cent over a year, but is up 31.3 per cent over three years. It has a TER of 0.4 per cent and is a physical ETF, which means it holds the shares it tracks rather than replicating their performance with complicated derivatives.

Minggu, 22 Juli 2012

INVESTING TIPS: Top fund and trust ideas for income investors

By Simon Lambert Income investing is not just for those who wish to draw a cash return on their portfolio, reinvested dividends are also a great way to build solid growth over time.

If you had invested £100 in the UK stock market 1945 it would have been worth £4,027 at the end of 2011 with dividends reinvested, or £227 without, according to the oft-cited Barclays Equity Gilt study.

Funds and investment trusts are an ideal method for income investing, as by holding a basket of equities or assets they spread risk.

Nice little earner: Reinvesting dividends gives investments a turbo boost over time - alternatively income from investing can be drawn by those who need it

The huge number of funds and investment trusts on offer can be confusing though. Fortunately, This is Money's experts have some ideas to get you started.

They have picked funds and trusts to use as starting points for what will hopefully be a successful income investing career.

Of course, which fund is best for you depends hugely on your individual circumstances and what investing story you think will unfold. So, always do your own research, choose your investments carefully and hopefully you will make your own good investing luck.

How to use our fund and investment trust ideas

This is Money asks our experts to suggest investments for a variety of investors.
These are people with a long history in the investment field and looking at their choices gives you some vital pointers to the world of investing.

But remember, these are just suggestions and whether a particular fund is right for you is your own decision and requires deeper research.
Their tips are suitable for investors opting to use an Isa wrapper or not. Go to the bottom of the page to find out why we recommend investing through an Isa.

Read the tips, follow the links to the funds' performance and read This is Money's Investing Section to gather ideas. If you have any doubts, talk to an IFA [find an adviser].

Fund ideas

Adrian Lowcock, of BestInvest, highlights Newton Global Higher Income

He says: ‘With interest rates having been close to 0% and likely to stay that way for some time investors have been increasingly in the search for yield. Once equity income was the preserve of the UK, but things have changed with European equities looking cheap and Asian companies having matured there is scope for investors to diversify their equity income to reduce risk and volatility.’

Mark Dampier, of Hargreaves Lansdown, highlights, Invesco Perpetual Income

He says: 'This is a top rated fund, and is managed by one of the best managers in the UK - Neil Woodford, whose long track record is robust to say the least. The equity income market has suffered from problems emanating from the US sub-prime mortgage market and of course its own problems with a highly indebted consumer and slowing housing market. In this environment, Neil Woodford is sticking with his long held strategy favouring companies that should generate decent returns and provide solid dividends regardless of a challenging economy.'

Darius McDermott, of Chelsea Financial Services, highlights, Newton Global Higher Income

He says: Reinvested dividends contribute two-thirds of total returns over the long term. Most UK investors tend to stick to UK equity income funds but global funds offer diversification and access to some even better dividend paying companies around the world. This fund has achieved a consistently high yield and has a good track record since its launch. It is one of my favourites in the new Global Equity Income sector.

Rob Crawshaw, fund analyst at Brewin Dolphin, highlights Threadneedle UK Equity Income

He says: Threadneedle UK Equity Income is a traditional UK equity income fund, whose portfolio is typically dominated by blue-chip names with strong balance sheets, sustainable cash flows and a growing dividend. Manager Leigh Harrison has an impressive track record, outperforming the FTSE All Share over five of the past six calendar years. The fund has a current prospective yield of around 4%.

More...

Investment trust ideas

John Newlands, head of investment trusts research at Brewin Dolphin, highlights Finsbury Growth & Income

He says: ‘Finsbury Growth & Income is run by the talented Nick Train. While past performance is no guide to the future, it is worth noting that in Nick’s hands this trust has produced sector-leading performance over the past decade and presumably he has learned something along the way.

‘The trust’s record has not gone unnoticed by the market, which is why its dividend yield is ‘only’ 3% but I still regard it as an attractive prospect even when it trades at a very small discount or even a premium of 1-2% of net asset value.’

John Newlands also highlights HICL Infrastructure

He says: ‘Infrastructure funds, too, are proving immensely popular with private investors, many of whom love the idea of deriving a strong flow of dividend income from a portfolio primarily founded upon government and local government projects such as hospitals and police training colleges.

‘Here I would highlight HICL Infrastructure Company, run by former structural engineer Tony Roper and which has just over 80% of its portfolio in the UK and the remainder Europe. HICL yields 5.8% and, like Finsbury above, is still worth considering on a small single figure premium to NAV.’

Alan Brierley, of CanAccord Genuity's, investment trusts report, highlights Edinburgh Investment Trust

Analyst Alan Brierley has compiled a comprehensive report on investment trusts for broker CanAccord Genuity. Edinburgh Investment Trust was an income trust that he highlighted as overweight, meaning over the next 12 months it is expected to outperform its peer group. It has been run by Neil Woodford, of Invesco Perpetual, since 2008.

He says: ‘‘The manager believes there are downside risks to UK economic growth while the Eurozone is on the verge of a recession. Despite this gloomy macro prognosis, the manager believes there are a number of companies that can still deliver sustainable dividend and earnings growth. Somewhat surprisingly, those companies with the greatest upside potential [are] trading on compelling valuations – what the manager described last year as a once in a decade opportunity.

‘There is a focus on quality growth companies and the portfolio is significantly overweight in pharmaceuticals (GlaxoSmithKline, AstraZeneca & Roche), telecoms (BT, Vodafone) and tobacco (BAT, Reynolds, Imperial Tobacco & Altria) stocks.’

Brierley also highlights that the Edinburgh trust dividend yield is 4.3%, beating the current FTSE All Share yield of 3.5% and higher than Invesco Income, at 3.8 per cent and High Income, at 3.82 per cent, funds also run by Woodford. The trust’s total expense ratio is considerably lower, however, at 0.68 per cent, compared to 1.68 per cent, but it does currently trade at a 5 per cent premium to its net asset value.

INVESTING TIPS: Top fund and investment trust ideas for emerging markets

By Simon Lambert

If you want emerging market funds to add some worldwide flair to your investments, read This is Money's experts' recommendations.

They have picked funds and investment trusts to use as starting points for what will hopefully be a successful income investing career.

Riding the waves: Rapid growth in emerging markets nations, such as Brazil, has delivered high returns - but investors must prepare for a rocky ride

How to use our fund and investment trust ideas

Why emerging markets?

Emerging markets is a broad term. It can cover everything from big hitting China and Brazil, to up-and-coming Indonesia and onto the new investing frontiers of Africa.

The lure for investors is greater growth and younger economies than typically found in the developed West and emerging markets have delivered strongly on this over the past decade.

The trade-off for this growth is higher volatility and more risk.Emerging markets investments tend to get punished in the short-term when turbulent times hit, in the long-run though they are tipped to outperform.

Many investors consider emerging markets funds an essential part of their portfolio, but experts say they would be very wise not to stick their house on them.

The case for emerging markets is that these strong growth economies are one of the best long-term bets around, especially for those making regular investments using their annual tax-free Isa allowance.

But remember emerging markets success is not guaranteed and never put all your eggs in one basket.

Emerging markets fund tips

Rob Crawshaw, fund analyst at Brewin Dolphin, highlights First State Global Emerging Market Leaders

Managed by Jonathan Asante and Angus Tulloch, the First State Global Emerging Market Leaders fund seeks to identify high quality companies with strong management, long term growth prospects and high visibility of earnings. The long term performance has been excellent although the fund’s defensive bias can result in periods of underperformance in strong markets. Currently the fund is underweight China and Brazil and overweight less popular areas such as Taiwan and South Africa, which Asante and Tulloch believe offer more compelling valuations.

Adrian Lowcock, of Bestinvest, highlights First State Asia Pacific

Asia had a poor 2011 as investors remained concerned over the global economic recovery, however the long term story for Emerging markets (and many Asian countries still count in this sector) is positive. So the recent weakness in the markets provide investors with a better entry point. Add to that the expertise from the First State team and investors can access the region through a manager who is skilled at running money in typically volatile markets of Asia.

Mark Dampier, of Hargreaves Lansdown, highlights Aberdeen Emerging Markets

As a first step in emerging markets I would recommend Aberdeen Global Emerging Markets, especially through a monthly saving plan that helps smooth out the inevitable volatility. The team at Aberdeen have been one of the best for over 20 years. They take a long term approach rather than trading all the time. Indeed many of their top holdings have been in the portfolio for 10 years. You should approach buying this fund in a similar way.

Mark Dampier also highlights Neptune Greater Russia

For those who wish to drill down further and are happy to take on a lot more risk try Neptune Greater Russia, very much an oil based economy, but with the price very high the Russian market is still lowly valued compared to most other emerging markets.

Investment trust emerging markets ideas

John Newlands, of Brewin Dolphin, highlights Templeton Emerging Emerging Markets Investment Trus

Templeton Emerging Markets Investment Trust, run by Mark Mobius, was launched in June 1989. Over the intervening two decades and more shareholders have received handsome long-term investment returns – noting, though, that performance has proved choppier over shorter periods.

He remains of the view that emerging market countries continue to benefit from large fiscal reserves and strong macroeconomic trends. He considers that emerging markets are therefore still in a generally sounder position than many developed economies for whatever the future holds.

In summary, Templeton Emerging Markets might be described as the ‘IBM’ of the global emerging markets trust sector, offering a blend of competence, size and share liquidity that are hard to match. We are happy to recommend it as a medium to long-term Buy on this basis.

Alan Brierley, of CanAccord Genuity's, investment trusts report, highlights Scottish Morgage

Scottish Mortgage gives investors exposure to a genuinely global portfolio of companies that the manager expects to deliver superior and sustainable long-term growth – this bears little resemblance to any benchmark.

Several years before it became the consensus view, the manager rebalanced the portfolio to reflect the rising economic power of the emerging nations. Ten years ago, the UK represented 45% of total assets while today the weighting is just 12%. During this period, exposure to Asia Pacific and Emerging Markets has risen from 6% to 31%.

The manager’s conviction is also reflected in a relatively concentrated portfolio, with around 80 equity investments. The economic transition from developed to developing countries remains the key investment theme.

A second important theme is the acceleration of technological innovation with many sectors now in an exponential growth phase – these include data storage and handling, energy, medicine and genetics.

Given the portfolio composition and relatively high levels of gearing, investors must be aware that during more challenging investment backdrops, the company is likely to underperform. That said, we have confidence in the manager’s ability to continue to deliver superior returns over the longer term.

INVESTING IDEAS: How to invest like Warren Buffett - and the tool that checks you are doing it right

By Simon Lambert

The world's greatest investor: Warren Buffett has built up a huge fortune with his astute investing, Stockopedia analyses his style and lets investors see what shares he would buy

The search for the secret of investing success has delivered more than its fair share of fascinating, complicated and sometimes bizarre ideas.

But if there is one thing that shines through that murky soup, it is that having a plan is a good idea.

Working out some rules and sticking to them is the common factor that joins the dots between the famous investing names, from Warren Buffett to Ben Graham, Jim Slater and Neil Woodford.

The problem for the modern-day personal investor though is that it’s one thing to say you plan on investing like Warren Buffett, but it’s another thing altogether to have the time to sit down, pick your shares accordingly and then continue to manage that portfolio.

Interestingly, for those who prefer to pick their own shares rather than trust their hard-earned cash to a fund manager and his fees, an investing guru tracking website Stockopedia aims to solve that exact conundrum.

It takes the idea of share screening and adds in a cunning twist.

Not only can you drill down into individual stocks, but you can also check what shares would fit into the strategies of a whole host of famous and successful investors and build your own portfolio based on this.

That means that if you do fancy investing like Warren Buffett, you can take a look the portfolio of UK shares that match his investing criteria, check their performance and then drill down to take a better look at those companies.

The Buffettology sustainable growth portfolio on the site is up 11.75 per cent since inception in mid-December, beating the FTSE 100’s 4.6 per cent gain and has an annualised projected return of 21 per cent. Stocks that fit include property listings firm RightMove, Domino’s Pizza and drugs giant AstraZeneca, among others.

If you don’t fancy Buffett you could try shares that match famed UK stock-picker Jim Slater’s Zulu Principle, a portfolio that matches value investing godfather Ben Graham’s ideas, or even baskets that adopt academic research, such as Josef Piotroski’s F-score.

Each portfolio includes the list of UK shares that match its criteria and investors can click through to investigate the fundamentals of individual shares in more detail. Stockopedia comes with a £14.99 a month or £149.99 a year subscription charge.

Why follow a strategy?

Ed Page-Croft, the mastermind behind Stockopedia, explains that the investing guru portfolio idea is not aimed at delivering individual share picks, but instead a basket of shares that all-important strategy.

Delving deeper into shares

Follow the investing guru portfolios through to the individual company pages of Stockopedia and there is a wealth of share information derived from Thomson Reuters data.
Here investors will find charts, a balance sheet running back five years and a host of investor ratios highlighted, from the commonly used such as the price to earnings (P/E) and Earnings Per Share ratios, to more complicated measures such as EV to EBITDA (Enterprise Value to Earnings before Interest, Taxes, Depreciation and Amortisation).
Financial strength measures and share dangers signs are also featured, such as the Piotroski F-Score, along with broker forecasts.

Fortunately, for anyone slightly baffled by that rather jargon-heavy summary of what’s on offer, not only does Stockopedia highlight these things but it also explains in simple terms what they are, why they are important and how they are used.

A former Goldman Sachs broker and a technology buff, Ed is also a private investor and keen student of investing philosophy.

He says that one of the biggest mistakes individual share pickers make is that their holdings are far too tightly focused, with on average many investors only owning a handful of different stocks and ploughing into hit or miss companies, encouraged by whatever the hot topic of the moment is.

This is hardly surprising when investors are bombarded with more information and opportunities to trade than ever before, yet among all those tips and get rich schemes there is a rich seam of solid investing wisdom that is rarely mined.

These are the books and academic papers that go into great detail on the famous investors and their methods. Astonishingly, in the great investing rush a lot of this potential gold dust gets overlooked, despite decades of evidence to show that many of these strategies work and the fact that some have made the gurus behind them very rich.

It is this wealth of information that Stockopedia has drawn on to build screens that enable investors to find the shares that for a portfolio following that strategy.

Ed believes it is essential investors to use the information is as a portfolio builder rather than cherry-picking from them. He says: ‘Everyone is often looking for a hot tip but our job is building these lists to let people make their own decisions. I would want to buy the lists as a whole, so you are picking up the characteristics of those shares rather than individual companies.'

‘We have about 65 portfolios and the last time I looked about 75 per cent were beating the market this year.’

Market-beating: The Buffettology portfolio is up 11.75 per cent on its mid-December inception, compared to the FTSE 100 index's 5.5 per cent return.

Pick the winners you don’t know about and avoid the traps

One of the advantages of using a share screening service like Stockopedia is that it helps throw up companies that you would otherwise not find out about.

It also helps investors avoid getting caught in the traps that even the biggest household name dividend shares can lay.

Smaller companies

One of investing’s truisms is that the big company shares that attract the most broker recommendations, analyst research and column inches are rarely the ones that will deliver the bumper returns investors dream of bagging.

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Smaller companies and mid-sized firms on the other hand have great potential for growth but lie at the riskier end of the investing spectrum, as it takes much less to blow them off course than it does a FTSE 100 blue-chip giant.

Jim Slater, the share picker who came to fame through his share column in the Sunday Telegraph, outlined this in his investing bible The Zulu Principle. He picked that name for the book to highlight how it is easier to become an expert in less well-researched areas of life - not many people know much about the Zulus, so learn a little about them and you are soon better versed than most.

Slater wrote: 'Most leading brokers cannot spare the time and money to research smaller stocks. You are therefore more likely to find a bargain in this relatively under-exploited area of the stock market.'

The problem is that finding those smaller gems that combine good growth prospects with a solid backing can be tough, but set a screen to work and you can check for red flags that highlight any dangers from factors such as too much debt.

The income shares dividend trap

On the other side of the coin to those hunting smaller growth companies or undervalued shares, many investors like to look to higher-yielding dividend shares, yet even these come with pitfalls.

The classic dividend trap share is a big name currently offering high income that investors are lured into believing is hugely undervalued, in fact, often it is actually a warning sign of bad things to come, as in the case of HMV’s bumper 10 per cent yield a few years ago.

Just as running a screen can help you pick out smaller unknown gems it can also sort the wheat from the blue-chip dividend chaff.

Hunting out hidden gems: Jim Slater's Zulu Principle portfolio is short on big names but has a forecast annualised return of 14.5 per cent on current performance

So do investing guru portfolios make you money?

The portfolios on Stockopedia are tracked daily on their performance and adjusted every three months, with shares that no longer meet criteria booted out.

The site explains it thus: ‘Risk and returns are tracked each day. The charts and tables…give an immediate overview of how a strategy has performed over time. We build a portfolio of equal weighted positions across the top 25 candidate stocks for each stock screen and rebalance the portfolio quarterly.’

Scanning through those portfolios is an interesting exercise. Most seem to have beaten the market, but the performance is only tracked through to their inception – typically the start of the year – so it is hard to get a fully tested long-term view.

The portfolios do come with annualised performance figures though (laying out what they would expect to achieve annually), some of which are very impressive. The Dividend Achievers screen has a 16.9 per cent annual return, the Buffettology Sustainable Growth screen records 21 per cent, while the Naked Trader screen delivers a bumper 32 per cent.

What’s the catch to investing like this?

Firstly, as Stockopedia is extremely keen to stress, these are just ideas and investors should not simply blindly follow any of these screens, however rich the big name they are based on.

If you are going to be an individual share-picking investor then you need to be willing to put in the time and commitment to delve properly into company figures with some solid personal research, albeit this is something that Stockopedia’s useful and easy to navigate data can help with.

So this isn’t a get rich quick shortcut that means you can just pick a portfolio because you like the look of its performance figures, then just buy all the shares, sit back, relax and put the Porsche on order.

How to invest in funds and trim your costs

The sheer amount of work involved in individual share picking, combined with the tendency for investors to either stop at too few stocks or end up buying too many similar companies, means that many are better off leaving professional managers to do the job for them in funds or investment trusts.
The other option is to use low-cost passive tracker funds or exchange traded funds to simply track an index – these will never beat the market, but then neither do many actively-managed funds year-in, year-out.

More on investing in funds

The other problem is that deciding to be your own fund manager is expensive, compared to the low dealing charges incurred investing in a similar sized basket of shares through an individual fund or investment trust.

Building a portfolio of 20 shares can prove an expensive endeavour thanks to dealing costs. Even an investor using a relatively low-cost online share dealing account is likely to end up paying £10 per purchase dealing costs, amounting to £200 on a 20-share portfolio.

On a £5,000 portfolio that is the equivalent of a 4 per cent charge, whereas on a £10,000 portfolio it is 2 per cent. Investors also need to pay stamp duty of 0.5 per cent on share purchases.

Ideally, such a portfolio should not involve too much trading and dipping in and out of stocks, so further dealing fees will be kept to a minimum – although some screens are likely to find shares falling out more often than others.

Investors also need to consider the cost of adding to their investments and how this will involve extra dealing costs. One of the best ways to build your funds over time is regular monthly saving, however, even the cheaper platforms for monthly share purchases tend to charge about £1.50 per month per line of shares.

That makes investing monthly over 20 shares very expensive, with a £30 charge eating 6 per cent of even a substantial £500 per month savings plan. One way round this would be to rotate investments, into perhaps five shares per month, taking charges down to £7.50 – this is a 1.5 per cent of a £500 monthly investment.

Of course, those charges will seem like small fry if deciding to invest like a guru helps you strike it rich and you do manage the bumper 20 per cent a year returns that a portfolio like the Buffettology screen highlights.

Remember though, even when dealing with methods that have made some very famous investors very rich indeed, past performance is no guarantee of future gains!

20 more banks were rigging interest rates: British bankers now facing criminal inquiry over scandal that was kept secret for years

Barclays shares drop 15 per cent as pressure on Diamond grows
George Osborne promises new criminal sanctions for market abusers
RBS, HSBC and Lloyds all named as under investigation as scandal widens

By James Chapman, Becky Barrow, Ruth Sunderland and Rob Davies

Hundreds of bankers across three continents are embroiled in the interest-rate fixing scandal that has left Barclays chief executive Bob Diamond fighting to save his job.

As pressure intensified on Britain’s highest paid banking boss to quit, MPs heard a string of other financial institutions across the world were under investigation.

At least 20 banks are believed to be under suspicion, with growing demands for a criminal investigation.

Barclays Bank Tower at Churchill Place, Docklands: The bank has been fined £290million over attempts to rig money market interest rates. HSBC is also under investigation, it emerged today

Barclays Bank Tower at Churchill Place, Docklands: The bank has been fined £290million over attempts to rig money market interest rates. HSBC is one of the twenty other banks also under investigation, it emerged today

Barclays’ shares crashed by 15.5 per cent in a day as the implications sank in, wiping £3.7billion from its value, with other banks also hit.

Barclays has been fined £290million after devastating emails revealed that its traders manipulated the London Interbank Rate (Libor) – the rate at which banks lend money to each other.

Chancellor George Osborne told the Commons the exchanges ‘read like an epitaph to an age of irresponsibility’.

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On the blackest day for Britain’s finance industry since the 2008 economic crisis:

Serious Fraud Office investigators were revealed to be in talks with financial watchdogs over the scandal
David Cameron and Ed Miliband piled pressure on Mr Diamond to resign
Barclays and other banks were braced for a damning verdict today in an official report on mis-selling of complex loans to 28,000 small firms
Mr Osborne promised new criminal sanctions for those guilty of market abuse
Downing Street faced a growing clamour for a judge-led public inquiry into the ethics of Britain’s banks

'Epitaph to an age of irresponsibility': George Osborne today briefed MPs in the Commons about the unfolding bank trading scandal

David Cameron, who is at an EU summit in Brussels, described the situation as an ‘extremely serious scandal’.

Mr Diamond, who was in charge of Barclays Capital at the time traders are now known to have been rigging the market, has offered to forgo his short-term bonus for this year. But he is still entitled to millions of pounds in salary and long-term share incentives.

Asked how much wider the rate-fixing scandal might go, the Chancellor told MPs: ‘HSBC and RBS are two of the banks under investigation, but international banks such as UBS and Citigroup are under investigation too, partly for activities conducted in this country.’

Mr Osborne said the total impact on the economy and on individuals was ‘extremely difficult to work out, because the Libor rate was manipulated up as well as down’.

‘Sometimes the rate was too low for the true market price, and sometimes it was too high,’ he said.

‘The Financial Services Authority has made it clear, however, that that contributed to a risk to the country’s financial stability, and the cost of that is enormous.’

Tracey McDermott, director of enforcement at the FSA, said: ‘The initial indications are that Barclays was not the only firm that was involved in this.’

As well as RBS and HSBC, others under scrutiny include Lloyds, JPMorgan Chase, Germany’s Deutsche Bank and Bank of Tokyo Mitsubishi.

A number of employees have already been fired, suspended or put on gardening leave at various banks including state-backed RBS, which has sacked and suspended ‘several’ staff, though the bank declined to comment.

Lloyds said it had suspended two traders. ICAP, the leading City broking firm headed by Tory donor Michael Spencer, has also been dragged into the scandal. It has suspended one employee and placed two on ‘administrative leave’.

A senior manager at U.S. giant Citigroup’s Japanese operation left the firm late last year after his division was temporarily banned from trading linked to Libor and its Tokyo equivalent, Tibor, by the authorities.

Giant Swiss bank UBS said it had approached regulators with information over abuses of the rate-setting system.

The headquarters of Lloyds Banking Group in the City of London

Royal Bank of Scotland and Lloyds are two other UK-based banks under scrutiny as part of the probe

The Libor rate is crucial, since it is a key benchmark for trillions of pounds’ worth of financial products.

The £290million fine on Barclays from the UK and U.S. authorities, issued on Wednesday, is likely to be only the beginning of a wave of punishments and civil suits for damages against other banks caught up in the global web of deceit.

Experts said banks might have to set aside billions of pounds in damages to cover their liabilities resulting from the conspiracy.

Former Liberal Democrat Treasury spokesman Lord Oakeshott said that once any criminal probe was underway, a public inquiry – like the one being conducted by Lord Leveson into media ethics – would have to be held.

'Clearly, the worms that are now crawling out from under the stones at the banking industry are even worse than any of us thought,’ he added.

THE WORDS THAT WILL COME BACK TO HAUNT BANK CHIEF

George Osborne, U.K. chancellor of the exchequer, left, and Bob Diamond, chief executive officer of Barclays Plc, participate in a session on the fourth day of the World Economic Forum (WEF) Annual Meeting 2011 in Davos, Switzerland

Speech: Bob Diamond alongside George Osborne at the Davos World Economic Forum

On 3 November 2011, Bob Diamond, chief executive of Barclays, delivered the BBC Today programme’s inaugural business lecture. Today, his words have come back to haunt him.
‘Rebuilding trust requires banks to be better citizens. I believe in this passionately.’
Within a few months of making this statement, Barclays was found guilty of a tax avoidance plot to rob taxpayers of around £500million.

Earlier in 2011, it had been found guilty of enticing elderly customers to gamble their life savings on the stock market. Around 12,000 customers lost half their savings. And this week it was found guilty of a ‘serious and widespread’ attempt to manipulate the Libor interest rates and ordered to pay a fine of £290million.

‘I know how angry customers are about issues such as payment protection insurance. That’s why we are working hard to clear claims as quickly as possible. We want to put things right.’
When a person takes out a credit card or personal loan, they buy the insurance to pay out if they lose their job, or have to stop working due to poor health. But banks, including Barclays, were selling the policies to people who did not need them. Barclays said the PPI scandal would cost them £1billion. Four months after making this speech, he admitted the bill had increased to £1.3billion.

‘But for me the evidence of culture is how people behave when no one is watching them. Our culture must be one where the interests of customers and clients are at the very heart of every decision we make, where we all act with trust and integrity.’
The Financial Services Authority this week found Barclays guilty of misconduct ‘extended over number of years’. The US Department of Justice said simply that the bank was guilty of ‘illegal conduct’ on its attempts to manipulate the Libor rate. The culture of Barclays allowed traders to manipulate Libor in a bid to make sure they scooped millions in bonuses, and to pretend the bank was in a healthier state than it was.

Sack them! Hang them! MPs deliver their collective verdict on bankers

By Quentin Letts

And they’re off! Again. Here at that modern Tyburn, the scalp-hungry House of Commons, the politicians sensed a chance to beat up another estate of the realm.

A rival group of so-called leaders of society had been doing what they ought not to have done. MPs piled in with zeal.

Politicians had failed to pass laws which might have prevented that misbehaviour. Politicians had sucked up to the malefactors, courting them over prawn cocktail for donations and approval. But the times are changing. Parliament is rediscovering its clout. Now the politicians competed with one another to ululate their disdain.

Gusto: George Osborne was looking forward to some juicy headlines

Bankers? Sack them, prosecute them, hang them! (And, er, let’s quickly find someone else to sponsor our next party conference.)

George Osborne, Chancellor of the Exchequer, hastened to the House with gusto. The latest economic figures were on the ropey side but this row would bag all the headlines and was, for Mr Osborne, much more juicy.

He made an unscheduled statement about Barclays/Libor (pronounced Lie-bour). What a humdinger. It even has a brooding baddie called Diamond and his sidekick Rich. We haven’t had names like that since The Pilgrim’s Progress.

Standing in: Labour's Rachel Reeves

Even sweeter for the Chancellor, his Labour opponent, Ed Balls, was absent from the premises. Poor Balls. Ghastly luck. He was making a speech to some conference in Birmingham (why?). His place was taken by Rachel Reeves, Labour’s No 2 on money matters. With that voice and those feet is she Bernard Bresslaw’s long-lost brother? Or is it Harry H Corbett’s younger Steptoe?

Mr Osborne said that the banks had ‘elevated greed above all other concerns’. The Blair and Brown Governments had been ‘utterly clueless’ about taming the City beasts. As Chris Bryant (Lab, Rhondda) admitted: ‘We were in thrall to them.’ Mr Bryant, a former curate, wanted Mr Diamond to give evidence on oath when he is placed before the Treasury Select Committee.

Meanwhile, the Lib Dems’ Viscount Thurso spoke of ‘a sewer of systemically amoral dishonesty’ in the City. Sir Tony Baldry, second churches commissioner and Tory MP for Banbury, said the City must regain its ‘integrity’.

Our next hymn is….

‘Daily daylight robbery,’ said the SDLP’s Mark Durkan, who also wanted some knighthood-stripping of bankers. ‘Corrupt banksters,’ said Mike Gapes (Lab, Ilford S). ‘Bring the full force of the law against them,’ said Matt Hancock (Con, W Suffolk).

Jonathan Edwards (Pl Cymru, Carmarthen E) said that in Iceland they put bankers and even a former Prime Minister on trial. ‘Don’t tempt me!’ laughed Mr Osborne. Of Gordon Brown (Lab, Kirkcaldy & Cowdenbeath) there was nae sign.

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Things started to spiral into madness when Andy Love (Lab, Edmonton) said he wanted the Financial Services Authority to send bankers emails headed ‘you’re nicked, big boy’. Has anyone ever called Mr Love ‘big boy’? Andrew Tyrie (Con, Chichester) said bluntly that Barclays had been ‘lying’.

Clive Efford (Lab, Eltham) said, with mounting fever, that ‘these people are thieves and criminals and have made beggars of our constituents’. Mr Osborne noted that the Labour government, which Mr Efford supported, had failed to do much to stop them.

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Mr Efford flew off his trolley and had to be brought to order – quickly and diplomatically – by the excellent Deputy Speaker, Lindsay Hoyle.

Well, I think you get the drift. MPs were vexed. There was a certain amount of blaming of one another – Dennis Skinner (Lab, Bolsover) naturally thought it was all Margaret Thatcher’s fault – but the stronger impression was one of a Commons much less timid than in past Parliaments. Good.

For all the ripeness of some of the things said yesterday, for all the swiftness of heel shown by frontbenchers, a legislature which is more jealous of its powers is surely a better thing than past arrangements when the politicians lived in dread of upsetting a vested interest.

When Mr Diamond comes to Mr Tyrie’s Treasury Select Committee to ‘give us his answers’ (as Mr Osborne put it yesterday), Tyburn will be en fete.

Analysts say penalties could dwarf the record £290m fine for Barclays
HSBC, RBS and Lloyds have all also been named in lawsuits
Regulators in Japan and Canada are also conducting investigations

By Toby Harnden

The manipulation of Libor by Barclays is likely to be the ‘tip of the iceberg’ in terms of fraudulent activities by banks, according to a former head of the U.S. securities regulator.

Hervey Pitt, the former chairman of the Washington-based Securities and Exchange Commission, said: ‘It is in Barclays’ interest to prove the old adage that misery loves company and I expect they’ll be implicating a lot of their colleagues in other banks.

‘This is the proverbial tip of the iceberg.’

Money worries: RBS Group and other banks saw shares slump today as fears grew that they could be hit with huge fines

Money worries: RBS Group and other banks saw shares slump as fears grew they could be hit with huge fines

Dramatic: Shares in RBS Group were hit hard as details of the Barclays penalty rattled the banking sector

Barclays was fined £130million by the U.S. Commodity Futures Trading Commission (CFTC), the largest penalty ever by the agency.

It has also agreed to pay £100million to the US Justice Department, whose criminal investigation continues.

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The U.S. Justice Department decided to levy the fine rather than pursue litigation against Barclays.

Mr Pitt said this was a matter of ‘taking the bird in hand’ rather than risk taking action through the courts.

The £230million in fines in the U.S. makes up most of the £292million levied on Barclays and its subsidiaries on both sides of the Atlantic, following an agreement between regulators in Washington and London.

Under pressure: Lloyds Banking Group, led by chief executive Antonio Horta-Osario (pictured) is under investigation

Under pressure: RBS Group, led by chief executive Stephen Hester (pictured), is under investigation

Under pressure: Lloyds Banking Group and RBS Group, led by chief executives Antonio Horta-Osario (left) and Stephen Hester (right) respectively, are both under investigation

Scrutiny: Lloyds Banking Group's London headquarters. Analysts say huge fines could be imposed across the sector

Scrutiny: Lloyds Banking Group's London headquarters. Analysts say fines could be imposed across the sector

Devalued: Shares in Lloyds Banking Group slumped this morning but rallied slightly during the afternoon

Devalued: Shares in Lloyds Banking Group slumped yesterday morning but rallied slightly during the afternoon

Speaking to Bloomberg Television, Mr Pitt continued: ‘This is a phenomenal example of the ability of both the UK and the U.S. authorities to work together.

‘This really should give marketplace participants a lot of hope, and for those who are thinking of violating the law a lot of fear, that different governments will work together constructively and come up with cases of this nature.’

The massive fines are unlikely to be the end of the pain for Barclays.

Crisis: George Osborne told MPs that Barclays was 'not alone' in its efforts to rig interest rates

The cost of lawsuits related to the Libor scandal are likely to be bigger, according to Sandy Chen, banking analyst at Cenkos Securities.

He added: ‘Since Royal Bank of Scotland, HSBC and Lloyds Banking Group have also been named in lawsuits, we expect they will also face significant fines and damages.

‘We are pencilling in multi-year provisions that could run into the billions.’

The Barclays case follows co-ordinated investigations lasting years and is just the first in a series of potential cases against other financial firms, including HSBC, Citigroup and JPMorgan Chase.

American regulators have issued subpoenas to banks including UBS, Citigroup, and Bank of America regarding how Libor rates are calculated.

Canada’s Competition Bureau is looking into the activities of Deutsche Bank, JP Morgan and others.

At least nine agencies have carried out investigations into Libor, including the Financial Services Authority in Britain and Japan’s Financial Supervisory Agency.

Authorities across the world are also looking into the activity surrounding similar interest benchmarks such as

Tibor, the Tokyo interbank rate, and Euribor, the eurozone rate.

Bart Chilton, commissioner of the CFTC, said: ‘This thing was about smoke, mirrors and sneaky backroom dealings with potentially dangerous effects on the world economy.’

He added that it was essential that there be ‘a sturdy firewall’ between bank workers involved in setting the Libor rate and traders.

Uncertainty: The scandal comes only days after RBS Group, which owns NatWest, suffered an embarrassing computer crisis

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THE WORDS THAT WILL COME BACK TO HAUNT BANK CHIEF

Sack them! Hang them! MPs deliver their collective verdict on bankers

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