The shocking new way investors are being taken for a ride
Something weird is going on in the world of finance.
I'm not talking about the Libor scandal, new money laundering allegations, or any one company or executive in particular.
I'm talking about one of the worst lending schemes I've read about in ages.
"Hopes of silver lining in negative bond yields"
That was the headline from the Financial Times earlier this week that caught my eye. It seems investors are actually paying some countries for the privilege of lending them money!
The six countries that will charge you for lending them money are Austria, Denmark, Germany, Finland, Switzerland and the Netherlands.
What a bizarre situation. But then we live in bizarre times when certain players in the financial industry reckon that great ways to make money include laundering cocaine-stained bank notes and manipulating interest rates.
It is little wonder that we are disillusioned and shocked by what is going on.
Is this the worst "investment" ever?
Austria will charge you 0.01% for loaning it money. Germany, meanwhile, charges 0.05%, and Switzerland will charge as much as 0.5% if you want to lend it money for two years.
The reason they can get away with this clever ruse is because the perception is that these six European countries are safe places to stash cash.
Consequently, investors are happy to pile in knowing that they'll get back less than they started with!
What is really ironic is that investors could easily get better returns by investing in businesses headquartered in those countries. Consider Switzerland, home of food company Nestle (OTC: NESN.PK), drugs developer Roche Holdings (OTC: RHHBY.PK) and crop protection firm Syngenta (OTC: SYNN.PK). These three companies sport respectable dividend yields of 2.2%, 4.0% and 2.5%, respectively – a far cry from the negative return offered by Switzerland's bonds right now.
So ask yourself this: would you rather lose 0.5% by lending money to Switzerland or invest in one of those Swiss firms that will pay you (via dividends) for owning their shares?
We could go through all six countries in turn and identify solid well-known businesses that would not look out of place in any portfolio (I have a few of them myself). Think German companies BASF (OTC: BAS.DE), Bayer (OTC: BAYN.PK) and E.ON (OTC: EOAN.PK). Think Danish brewer Carlsberg (OTC: CABGY.PK). Think Dutch beer maker Heineken (OTC: HEIA.PK) and Anglo-Dutch titans Royal Dutch Shell (LSE: RDSB) and Unilever (LSE: ULVR).
You're not doing much better
Before we get too carried away with finger-pointing and hand-wringing, we should ask ourselves this: are we not as guilty by leaving our money in our savings accounts when we should be making it work much harder?
Let's take a look at how some well-known UK companies have performed since the start of the year. Whitbread (LSE: WTB), the owner of Premier Inns and Costa Coffee, is up a whopping 34% since January; SAB Miller (LSE: SAB), the global brewer, is up 18%, and BT Group (LSE: BT-A) is also up 18%.
I haven't cherry-picked these examples.
If you look at the 100 companies that comprise the FTSE 100, a full 67 of them are higher today than at the start of the year. And we are only halfway through the year!
I am looking forward to the second half of 2012 with as much enthusiasm as I did at the start of the year, despite all the pessimism over the eurozone crisis. I hope you are, too.
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> David owns shares in Unilever, Royal Dutch Shell and BT Group.
