The Yield Gap

posted on November 7th, 2012 by Bellmont Research Team

Many investors have been squeezed on their term deposits with the best 12 month deposit currently being offered by the major banks only yielding 4.45% (see table below). This is creating a significant yield gap between cash and equities and we are starting to see money move out of cash into equities to lock in yield with many investors happy to pick up dividends even if there is no growth in the stock.

The below chart shows this yield gap with the cash rate (white line) vs the dividend yield of the ASX200 not including franking credits (green line).

Source: IRESS

Bank Interest Rate
Macquarie 4.45%
ANZ 4.35%
Commonwealth 4.35%
NAB 4.40%
Westpac 4.35%

As at 2nd November 2012

With the Bellmont Buy-Write Portfolio we have been adding additional income on top of the dividends with the use of index options. The average annual income yield from the Bellmont Buy-Write Portfolio is 9.54% more than double the highest paying term deposit rate. This does not include franking credits.

Period Bellmont Buy-Write ASX 200 Accumulation Index Relative Performance
3 mths 1.68% 8.15% -6.47%
6 mths 3.52% 15.66% -12.14%
1yr (pa) 9.25% 19.97% -10.72%
2yrs (pa) 6.14% 6.35% -0.21%
3yrs (pa) 7.48% 5.52% 1.96%
Since Inception (pa) 11.59% 12.04% -0.45%

Data current as at 31st October 2012

Returns are before fees, not including Franking Credits (except for BHP Buy-Back – Ju11)

Returns up to 30th June are for the Bellmont Direct Accounts. All subsequent returns are from the Bellmont Managed Accounts

Past performance is no guarantee or reliable indication of future returns

With more rate cuts predicted the yield gap is likely to reduce it’s attractiveness, to speak with an adviser about the Bellmont Buy-Write Portfolio please call 1300 368 295

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