Best as­set class of 2008

Not too late to get aboard

Finweek English Edition - - Openers -

THE PRICES of listed pref­er­ence shares have in­creased by around 15% over the past six weeks. That dra­matic im­prove­ment and the ex­cel­lent cash div­i­dend yield of be­tween 12% and 14% that in­vestors earn on prefs in any case make this the best as­set class so far for 2008. It’s amaz­ing to think that in the midst of an en­vi­ron­ment of huge re­sources shares and a First World fi­nan­cial sec­tor, a mod­est prod­uct such as listed pref­er­ence shares is the best place to park your money.

The dra­matic in­crease in the prices of prefs was brought about by the change of per­cep­tion re­gard­ing inflation prospects about two months ago. The neg­a­tive mood then – when the inflation rate rose sharply to above 10% and pro­ducer prices were head­ing for a 20% in­crease for the year – has made way for re­newed con­fi­dence that the inflation rate, and there­fore also in­ter­est rates, could again fall.

The trig­ger was pre­sum­ably the drop in the price of crude oil and the lat­est prospects that petrol and diesel re­tail prices would drop by as much as 100c/litre at the start of Septem­ber.

For old in­vestors who had to look on de­spon­dently over the past few years at the con­stant fall in the prices of pref­er­ence shares, while ev­ery ad­viser who knows any­thing about the prod­uct tried to talk the prices up, the in­crease is ex­cel­lent news. Their cap­i­tal losses over the past three years have been nearly wiped out within six weeks.

For other in­vestors, es­pe­cially those de­pen­dent on an in­come, who haven’t yet bought pref­er­ence shares it’s still not too late, says Sas­fin’s Elan Levy. He’s also the com­piler of the graph, show­ing clearly the in­crease in the prices of pref shares. He says it’s not too late to buy.

Levy’s price in­dex starts in June 2006 on 100. A few weeks ago it fell to be­low 75. Now it’s re­cov­ered to 85. How­ever, the cor­rect or deemed value, as he calls it, is prob­a­bly closer to 100, as it was in 2006.

The cur­rent div­i­dend on A class shares, such as those of SA’s Big Four banks, is still above 11%, while in­vestors slightly lower down in Sas­fin and PSG can en­joy a 13,5% div­i­dend yield. That’s equal to an in­ter­est in­come of around 20%/year for in­di­vid­u­als with a mar­ginal tax rate of 40%.

Choose your favourite from the ta­ble and don’t hes­i­tate to buy.

VIC DE KLERK vicd@fin­week.co.za

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