Investment Notes
By CUSTOS rr HE gilt-edged market has taken the centre of the security stage. The spark which set off the blaze at the end of last week was the discovery by the jobbers that they could no longer replenish their stock-in-trade from the Government broker. 1 am referring to stocks other than the official 'tap' in Treasury 5 per cent., 1986-89, and Exchequer 5 per cent., 1967. This official source of supply, which had enabled the market to be well supplied up to now, sud- denly dried up and the jobbers found themselves short of stock in the face of a steady and in- creasing institutional demand. So prices were marked up sharply. It was the simple law of supply and demand at work. After the rise of three or four points there are still attractive stocks for the investor who believes in cheaper money. For a short term, for example, there is the 4 year 91 months 2+ per cent. Savings, 1964-67, at 881. The low running yield of 2.83 per cent. suits the surtax payer and the 'grossed-up' true yield to redemption at par is not less than 6.75 per cent. Again, Funding 3 per cent., 1966-68, with a life of a little over six years (it becomes a 'short' in August next year). The true `grossed-up' yield at 87+ is 6.75 per cent. Going a little longer term I like Gas 4 per cent., 1969- 72, with a life of ten years. At 85+ x.d. it gives 4.65 per cent. flat and 6.8 per cent. to 'grossed-up' redemption. Perhaps most attractive of all is the Savings 3 per cent., 1965-75, with a life of just over thirteen years. At 741 the running yield is 4.05 per cent., and 'grossing-up' the capital profit of over 25 per cent., the true yield is no less than 7.2 per cent. It is obvious that private investors and trustees should always have a fair percentage of their funds in gilt-edged stocks: it has not always been so obvious that this per- centage should be sharply increased when the `reverse yield' gap is high, that is, when gilt- edged are giving high returns and leading equities very low yields.
Gold Shares and Industrial Equities Outside the gilt-edged market it is only gold shares which have been attracting speculative interest. This is not to suggest that there are not investors looking for bargains in the depressed equities, but there does not seem to be any need for hurry. Until the Government discloses more of its economic hand there will be no great move- ment into British industrial equities. Moreover, there is increasing talk of an early election to restrain enthusiasm. But gold shares are likely to attract more buying as the threat to the dollar increases. As Americans are not allowed to buy gold they can only hedge against their currency risk by buying gold shares. This I am sure they will do in increasing volume. Other investors are now joining in, both British and continental, for more and more people are becoming con- vinced that the price of gold will have to be written up before the international exchange problem is settled. Those who hold this view should buy the best gold producers in South Africa and avoid the Kaffir finance houses which, being unable to raise money abroad, have to rely on internal finance and therefore have less chance of increasing their dividends. A spread over the best OFS producers is provided by OFSiTS, which at 82s. (against a low of 57s. 6c1.) now yields 6.4 per cent. Of the individual pro- ducers, the two leaders are FREE STATE GEDULD and WESTERN UOLDINGS, which at 119s. and 156s. yield 7.6 per cent, and 7.2 per cent. respec- tively. These shares were as low as 81s. 9d. and 117s. 6d. at one time this year, so a buyer today is getting into the market at 48 per cent. and 32 per cent. above the bottom, which seems to suggest that Western Holdings are the cheaper and more attractive.
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