Lloyds rate dropping

Thrugelmir wrote: »

Defensive assets? Such as oil majors that are borrowing to fund dividends. I'm surprised that someone of your stature is playing the game. I still laugh at those who believed LastMinute.com to be a sound investment and couldn't see the wood for the trees.

No, I wouldn't lump oil majors in with defensive, even though they have historically had good dividend payouts. Groups in the energy sector such as oilers can behave quite differently to what I think of as "defensive"and they have had a tough time with the oil price, one of the sector s that's suffered along with other types of miners (materials groups) suffering from the cyclicality of demand and changing far eastern growth prospects. I also wouldn't have dived into lastminute dotcom as a defensive either...

However my point was, if you look at consumer defensives, particularly in the US, you can see investors have really supported the share price of those companies as part of their desperate search for yield.

Example, Procter & Gamble, share price up 19% in last year on top of a 3% yield: PE is now over 25. In tobacco, Altria and Phillip Morris Intl are up 10-15% in same timescale paying 4% div on top, with PEs around 22. These are earnings multiples you don't see in defensive stocks when interest rates and bond yields are more "normal". And those returns are in USD, I'm not including the huge FX boost to GBP because you wouldn't have got that as a Frenchman or a German or an American.

I have First State Global Listed Infrastructure - and have been periodically selling it down for last couple of years after "a good run" but it keeps going up! 32% YTD (some of that's a good FX boost as its holdings are only 7% UK). But 57% in 3 years, 94% in 5 years. Not bad for boring holdings of water, electric, toll roads and railways, airports, ports etc. And it's not a massively clever fund, not a huge outperformance of the global infrastructure indices really.

But people like putting their money in companies that have the means to pay an income. And some of these people would not be in equities at all of they could get income from bonds or cash. So a lot of people are over-risked due to not perceiving there to be an alternative option.

My comment was only a lighthearted tongue-in-cheek one really. Basically I'm happy to *already* have some of these investments that people are now prizing, rather than be in cash thinking "damn, lloyds aren't paying 4% any more, what are those S&S things all about, I hear you can get good returns according to this 5-year chart, don't know much about it bit where do I sign..."

There will be some tears in the end.