Interest rates, Go Blighty and Krispy Kremes

This week, the Monetary Policy Committee cut interest rates to 4%. No surprises there.

However, more surprising is the fact that 5 voted for this and 4 voted against. This is the financial equivalent of a penalty shootout. It’s very, very close. This makes me a little nervous because it tells me that the Big Cheeses think that despite all the dodgy economic signals (rising unemployment, slowing wage growth, feeble economic growth and tariff trauma), they’re still worried about inflation, which is a tenacious devil, sitting there at 3.6% and refusing to go away.

The view on what lies ahead has also shifted and the consensus is that the next interest rate cut will be early next year (a fall to 3.75% in February), rather than in the Autumn.

We’ve updated our guide to savings, mortgages and pensions in light of the recent cut, if you’re wondering how this impacts you.

Has the US had its run?

High-yielding UK shares (i.e. cash-rich companies, which choose to pay out a dollop of surplus cash to their shareholders in the form of a dividend, typically every three months) are currently doing better than US shares. For the first time in ages. So the question for many of us is - how are you positioned if this trend gathers pace? This week’s feature piece from the manager of Aberdeen’s Equity Income Trust takes a more detailed look at this question.

And if you hold a load of passive stuff, does this mean that the huge dollop in US equities (which will have served you so well over the last few years) will now be too much? Anyone holding a mixed bag of shares in a Global Fund or ETF (a pick’n’mix of 1000s of the world’s largest companies) will probably have about 65% - 68% in US shares. Diversification remains the name of the game and it’s worth checking you’re not unintentionally holding too much in the US, if that’s not the active plan.

Some UK investors are seeking out income

With a downwards trend in interest rates and many cash accounts now paying out 4% or less, I suspect more people will start to look for income from investments instead.

One way to boost your regular income is to buy shares or funds which pay out regular dividends. According to platform interactive investor, July saw large inflows into income-seeking Investment Trusts. The top 10 most bought Investment Trusts in July included City of London, Greencoat UK Wind, Henderson Far East Income, NextEnergy Solar Fund and JP Morgan Global Growth & Income. They all have income objectives and currently pay ‘yields’ of between 4% - 11%.

If you like spicier stuff, you can’t hold Bitcoin directly in your ISA, but you can buy an Exchange Traded Fund which owns companies which make money from the cryptocurrency sector. VanEck Crypto and Blockchain Innovators ETF is a (high risk) popular play on several platforms.

Or, if you’re into sugar, not spice, naughty piggy Krispy Kremes are the latest meme stock, getting massive support from retail investors ‘egging’ each other on in chat forums. Its price had a massive artificial sugar high of 30% + gains in a few hours at the end of July (wheee!) as retail investors coordinated their buying, artificially shoving up the price. This forced the hand of sugar-free institutional investors who had short sold the stock (betting on a fall in price) to buy it back as the price in fact rose, covering their positions. And the price then goes up more.

The trouble is, once the sugar rush dies down, you realise with their second quarter earnings report that there is a flipping big hole in this donut’s P&L. And the retail investors in all the chat rooms don’t care at all about the fundamentals of the stock, they just know that if they all act together, they can create momentum and ride a wave. Which, like all waves, will crash onto the beach soon.

I would avoid meme stocks like the plague. It’s gambling. Buy a donut, not shares!

A final request. Last week, I asked for your help as we work behind the scenes to launch a new service to help people compare their workplace pensions. If anyone has a workplace pension and is happy to leave a review of their provider, I’d be really grateful. Thanks so much to all our readers who helped last week. We’re launching the first step next week, so more news then!

Have a brilliant weekend, everyone.

Holly