Protect your portfolio from threat of rising prices

Until the numbers get big, inflation usually hovers below the radar. When it soared to 25 per cent in 1975, it dominated conversation in homes and Parliament. 

Recently, there has been more chat about the rising cost of living among economists, and some analysts are describing the short-term risk of higher inflation as ‘scary’. 

The Consumer Price Index stood at 0.7 per cent in March and is expected to rise sharply towards the Bank of England target of 2 per cent in the coming months, due to temporary factors, mainly energy prices. 

It is then expected to hover slightly below that level in two and three years time. So there seems to be no reason for a imminent inflation panic. 

After all, rising prices can be seen as evidence of economic bounce-back, something that Bank governor Andrew Bailey predicted this week. 

But could complacency be damaging to your portfolio? 

Over time, inflation gnaws away at incomes, reducing spending power. This is something it’s been easy to forget, amid the low inflation or even deflationary conditions of recent years, produced by the spread of technology and cheaper goods from China. 

The falls in technology shares this week, provoked by apprehension that inflation will usher in higher interest rates, are a compelling reason to focus on the risks. 

Tech stocks are vulnerable to alarm over interest hikes. If the rates on cash deposits improve, the future earnings of Amazon and others in the ‘growth’ category can appear less valuable. 

The Berkshire Hathaway guru Warren Buffett is warning that America’s ‘red hot recovery’, fuelled by the stimulus package, may stoke inflation in the US and elsewhere. 

The US Treasury Secretary Janet Yellen is now acknowledging that a modest rate increase may be needed to stop overheating, although US central bank the Federal Reserve says rates will remain unchanged until 2023, even if inflation spikes. The Bank of England is taking much the same stance. 

Despite such assurances from central banks, US investors are putting money into inflation-linked government bonds or TIPS (Treasury Inflation Proofed Securities), having observed the bounce in the price of commodities like coffee, corn, lumber and wheat. 

These are not the only essentials becoming more expensive, as Mikhail Zverev, head of global equities at Aviva Investors points out: ‘The near-term outlook for inflation is alarming as a result of the really rapid economic recovery. Over the past 12 months, oil has risen three-fold, steel is up two-fold and copper is also higher. These input costs will be passed onto customers.’ 

Geo-political issues are also exerting upward pressure on prices. TSMC, the Taiwanese semi-conductor maker, which supplies 84pc of global computer chips for cars and phones, is in the cross-hairs of tensions between the US and China, a nation frequently cited in the debate about inflation. 

‘Deflationary pressures are running out of steam. China is no longer an exporter of deflation because wages are rising, but nowhere else is big enough to replace it at the time being.’ 

Zverev has been repositioning Aviva funds like Global Equity Endurance for the changed climate, and is more sanguine about the medium-term, but senses that labour inflation could become an issue further down the line.

Advice: The US Treasury Secretary Janet Yellen

Advice: The US Treasury Secretary Janet Yellen

Competition, at least in theory, should help keep a lid on prices. Companies that do have the capacity to make their goods and services more expensive include luxury goods names, such as Burberry, Estee Lauder and LVMH, and businesses like Unilever whose divisions include upmarket skincare, and the foods we crave like Marmite. Rightmove, tapping into the national passion for property, is also regarded as a business with strong pricing power, thanks to its dominance. 

Burberry is up 17 per cent this year and LVMH is at a record high. But you may already be a holder if you have a stake in the Fidelity UK Select fund, which owns Burberry, Rightmove and Unilever. Fundsmith backs Estee Lauder and LVMH. 

An upward move in rates could benefit insurance companies such as Legal & General, which earns interest on policyholders’ premiums. Darius McDermott of Fund Calibre argues that non-life insurers should be able to drive up premiums this year, good news for the Polar Capital Global Insurance fund. Banks should prosper if rates rise, but inflation would eat up some of the value of their loans, which is one factor behind the lack of enthusiasm for these shares.

If you suspect that the Wall Street’s reluctance to trust the Fed’s pledges could provoke nerve jangling bouts of market turbulence, you could consider the solidly defensive Ruffer Investment trust with its holdings of TIPS. 

However, it’s worth putting inflation worries into context: the oft-discussed hyperinflation of the 1930s Germany is not set to be replayed. Retreating into cash would be ill-advised, as inflation would nibble away at your savings – and the returns would still be negligible. As McDermott puts it: ‘If inflation is a threat, shares are a good place to be.’ 

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BT boss Philip Jansen urging investors to keep faith in his plans

BT boss Philip Jansen urging investors to keep the faith in his plan to ‘build like fury’ as full-year results loom

BT will report its full-year results on Thursday as boss Philip Jansen seeks to navigate a string of thorny issues. 

The 54-year-old is in the middle of an expensive upgrade of the telecoms company’s broadband network, putting pressure on its finances.

It has forced him to cancel the dividend temporarily, slash costs and sell off ‘non-core’ parts of the business. The firm effectively put BT Sport up for sale last week, with ITV, Amazon and Disney among potential buyers for a partial stake. 

At the same time, BT has been gripped by boardroom turmoil after reported differences between Jansen and chairman Jan du Plessis led to the latter announcing his departure. And the firm is set to report on its pension scheme deficit – expected to be as much as £9billion. 

Jansen is urging investors to keep the faith in his plan to ‘build like fury’, arguing that an upgraded fibre broadband network will bring big returns to the company in future. 

He was boosted recently by a new settlement with regulator Ofcom, which has agreed not to cap prices for top-end internet services. 

In another effort to drum up more cash for investment, Jansen is thought to be looking at selling a stake in network arm Openreach as well. 

In the past year, shareholders seem to have warmed to Jansen’s strategy, with shares up by 60 per cent. But they still remain at historic lows, with the stock closing at 169.6p yesterday – well below 2015’s high of 502.6p. BT is expected to post annual revenues of £23.4billion, up from £22.9bn last year, but a drop in profits from £3billion to £2.1billion. 

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MR MONEY MAKER: Can Ricardo learn new tricks?

MR MONEY MAKER: Ricardo is an attractive opportunity, but can an old company learn new tricks?

What’s happening? 

Ricardo is a great engineering name that has been around since the days of the Kaiser, when an engineer called Mr Ricardo advised the military on how to improve these new ‘tank’ things. 

Since then, it has built a glorious record of engineering developments in all sorts of areas but has never been able to catch the imagination of investors. 

As a history of great engineering it appears a treasure trove, but somehow, no matter how clever or classy the areas it was involved in, such as Bugatti, the company never caught the right wave of enthusiasm. 

On the move: Ricardo’s share price performance over five years has been dreadful, falling from just over £10 in 2016 to £3.10 in August last year, but since then it has come up a bit

Why Does It Matter? 

That might be about to change. The share price performance over five years has been dreadful, falling from just over £10 in 2016 to £3.10 in August last year. Since then it has come up a bit along with the market to an unexciting £4.27. 

However something has changed, as the company has at last found a streak of business at which it succeeds. 

This may well now catch the market’s interest. Yes, it is back to the over-used letters of ESG again (Environmental, Social and Governance). Ricardo has developed an expertise which has become vital for all companies and governments to at least claim to know something about – how to measure and minimise your low-carbon and clean-air profiles. 

Reduction in energy use as well as ‘decarbonisation’ – which means cleaning up systems to you and me – are both core areas of expertise. No matter how cynical you may be over the green future, this whole sector is going to be growing.

What Should I Do? 

Sad to say that great engineering stories rarely get the credit they deserve. Make it a technology story or even better an environmental one, and suddenly it’s a different game. 

Ricardo is in exactly that position and is very likely to carry on polishing its environmental credentials and services. This will not only make the company far more appealing to investors but also to potential industrial buyers trying to find a quicker way into the environmental market.

Any Suggestions? 

Obviously I am suggesting Ricardo as an attractive opportunity but as ever, a single company is a greater risk. 

The theme, though, can be reflected in certain funds, some of which have been around long before this fashion fad became popular. Royal London Global Sustainable Equity fund and the Liontrust Sustainable fund both have successful track records. 

Justin Urquhart Stewart co-founded fund manager 7IM and is chairman of investment platform Regionally. 

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SMALL CAP SHARE IDEAS: Horizonte Minerals

Horizonte Minerals is not too far away from entering the ranks of the world’s top nickel producers.

It’s a peer group that boasts some illustrious names, including Vale and Anglo American, and which encompasses market capitalisations measured in the billions rather than the millions or hundreds of millions.

But how likely is it that Horizonte will make over the final hurdles?

Horizonte Minerals production could end up at around 60,000 tonnes of nickel per year

Well, it’s a serious company, with a world-class asset at Araguaia in Brazil, it has serious backing on the share register, and it’s pulling in some fairly serious names when it comes to getting project finance in too.

Negotiations on that score got underway in earnest towards the end of last year, as BNP, ING, Mizuho, Natixis and Societé Générale all swung into action to help put a $325million debt facility in place.

This progress has been rewarded in the market and the company is now worth just over £130million (at 7.8p), based on its sizeable resource base, a turnaround in sentiment towards nickel itself and optimism about recent progress.

But although the share price graph looks attractive enough if you’re glancing back to where Horizonte came from, there’s also the prospect of an even greater iteration of growth ahead.

The direction of travel is now clear enough: with Araguaia coming on first, to be followed by the correspondingly attractive Vermelho nickel-cobalt project, production could end up at around 60,000 tonnes of nickel per year. That’s roughly the same output as Anglo American.

Brazil’s mining champion will always be Vale of course, but its real strength remains in the iron ore space.

Some years back it did try to expand into nickel. But it ended up faced with a choice: to focus either on Goro in New Caledonia, one of the largest nickel deposits in the world, or on its previous flagship asset, Vermelho, highly promising with a rich cobalt credit, but on a relative scale somewhat smaller.

Perhaps not altogether to the current satisfaction of Vale shareholders, the choice was for Goro, and Vermelho was allowed to pass into the hands of Horizonte, where it now nestles comfortably inside the portfolio of development assets, running around 18 months or so behind Araguaia.

Which asset is the better of the two?

Perhaps an academic question, given how much value there is in both, but some analysts think Vermelho just edges it.

Jeremy Martin, the company’s chief executive, takes a more pragmatic approach. ‘We have 100 per cent of two Tier-1 nickel assets,’ he says.

‘They are low cost and high grade. We’ll be producing ferro-nickel from Araguaia, and nickel-cobalt sulphate from Vermelho. 

‘We’ll be producing 28,000 tonnes from line one and line two at Araguaia, and between 28,000 and 30,000 tonnes from Vermelho, from just under 400million tonnes of total nickel resource.’

Given that the nickel price has been on the move of late, partly on the back of rising demand for its use in electric vehicles, this is not a bad position for Horizonte to be in.

Both assets lie in the neighbourhood of a well-known mining region, where the permitting process, though rigorous, is not onerous.

What’s more, since most of the power in the region comes from hydro, Horizonte will be able to tick its carbon emissions boxes like no other major producer of nickel.

With all that in mind, it’s not altogether surprising to learn that a cornerstone equity investor has already been lined up for when the Araguaia financing finally comes together, and that Martin is pretty confident that the deal will close off fairly soon.

What will happen after that? One company that’s been through a process similar to Horizonte is Nickel Mines, which has assets in Indonesia. It’s now worth over A$3billion on the Australian exchange, having nearly quadrupled in value over the past two years or so.

There are a few hurdles to be cleared before Horizonte can repeat the trick, but the numbers are certainly there to support the comparison.

The modelling shows that line one of Araguaia alone should deliver up $2.4billion in free cash flow, with cash costs in the lowest quartile. And for its part, Vermelho looks set to deliver upwards of $7billion of free cash over its projected 30-year life.

‘It’s going to happen,’ says Martin.

‘It’s a rare journey for a junior explorer to take its own discovery and transition into a developer,’ he says.

But a rewarding one. 

Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.

MIDAS SHARE TIPS UPDATE: US Solar Fund a bright prospect

MIDAS SHARE TIPS UPDATE: US Solar Fund should benefit from governments’ increased support for all things environmental

US Solar Fund should also benefit from governments’ increased support for all things environmental. Solar power was the fastest-growing form of electricity generation in the US last year and the country already boasts enough solar plants to power more than 17 million homes. Over time, that number is expected to increase substantially. 

President Biden is determined to cut carbon emissions dramatically in America. He has already extended tax credits for new solar power projects and other incentives are expected to follow. 

This creates a favourable backdrop for US Solar Fund, the London-listed group specialising in American solar power projects. US Solar floated two years ago, raising $200million (£144million), at $1 a share, to acquire a portfolio of solar projects.

Hotting up: US Solar Fund aims to raise $100million by offering new shares

The group now runs 42 plants, generating enough energy for more than 90,000 homes. But chief executive John Martin is keen to expand the business and is seeking to raise more than $100million by offering investors new shares, again priced at $1 each. 

The old shares have risen to $1.03 since US Solar floated so the fundraising is on offer at a discount to the market price. There is also the promise of a juicy dividend – 5.5 cents this year and expected to rise steadily thereafter. 

Reassuringly too, Martin knows exactly what he wants to do with the money. Some $80million will be used to pay down bank debt. The rest will be deployed to increase US Solar’s share of a massive solar plant in California. 

Even as Martin and his team seek to raise new funds, they are eagerly eyeing up fresh opportunities, hoping to take this business from its current market value of $207million to at least $500million in the next few years.

Every new acquisition has to satisfy certain criteria though, including long-term contracts with reliable utility firms so US Solar can carry on paying generous dividends. These can be paid out in dollars or sterling, depending on shareholder preferences. 

The shares are also traded in both currencies and the new stock will be available through intermediaries including Hargreaves Lansdown, AJ Bell and Interactive Investor.

Midas verdict: Midas recommended US Solar when it floated, since when Martin has done everything he promised to do. Now the group is keen to increase the pace of growth, taking advantage of attractive openings in the American solar market. The fundraising presents a good opportunity for investors to participate in that growth – and earn some decent dividends along the way. 

To be traded on: Main market Ticker: USF Contact: ussolarfund.co.uk or 001 646 860 9900 

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MIDDLEFIELD CANADIAN INCOME TRUST: Pays 5% dividend

MIDDLEFIELD CANADIAN INCOME TRUST: The gem that pays a 5% dividend

Investment trust Middlefield Canadian Income represents an unusual but attractive proposition for investors looking for a mix of income and capital return. 

Although the £108million stock market-listed fund invests ten per cent of its assets in US equities, it is unique among North American funds in having a majority of its stakes in Canadian businesses. 

It’s an investment strategy that means the trust has missed out on the big gains to be made from holding some of the US’s big technology shares. But it’s kept many shareholders sweet by continuing to pay a robust dividend throughout the pandemic, equivalent to just below five per cent a year.  

These dividend payments, made quarterly, look set to continue this year with the trust’s board determined to hold the overall annual dividend at 5.1 pence per share – the same level as for the past three years. 

Increases could then follow in 2022, especially if the Canadian economy makes a strong recovery from the pandemic on the back of increased consumer spending and greater capital investment by businesses. The trust’s manager is Dean Orrico, based in Toronto and chief investment officer for Middlefield Group – an asset manager running funds in excess of £2billion, most with an income bent. 

‘What we’re offering is a Canadian-centric trust, providing investors with a stable income,’ says Orrico. ‘Last year, less than a fifth of listed Canadian companies cut or eliminated their dividends – a figure lower than in the UK but in line with what happened in the United States. 

‘The result is a market offering a dividend yield of between 2.5 and 3 per cent a year, higher than in the US where the average yield is between 1.5 and 2.5 per cent.’ 

Orrico side-stepped most of the cuts by concentrating the portfolio around the country’s leading banks and selected property companies. ‘The country’s biggest banks are among the strongest in the world,’ he says. ‘None of the top six cut their dividends in 2020 and they are well placed to increase them this year.’ 

The trust holds five of the top six banks with four – Bank of Nova Scotia, Bank of Montreal, CIBC and TD – in its top ten holdings. 

Property companies, adds Orrico, should do well as the economy reopens, especially those focused on retail and e-commerce. It also has holdings in companies with a renewable energy focus – such as Brookfield Renewables and Northland Power. 

Bank of Novia Scotia is the top holding

Bank of Novia Scotia is the top holding

The trust typically holds no more than 50 stocks with positions ranging in size from one to five per cent. Holdings above five per cent are usually trimmed to ensure the portfolio remains diversified. Over the past three years, the trust has under-performed the average North American fund, generating a return of 28 per cent compared to a sector average of 68 per cent. 

But in the past six months, its relative performance has improved and Orrico believes this could continue as valuations for many Canadian firms remain more attractive (less expensive) than their US counterparts. 

Although the trust is allowed to invest up to 40 per cent of its assets in US equities, its US exposure is currently limited to sectors poorly represented by the Canadian market – for example, technology and healthcare. 

The trust’s annual charges total 1.3 per cent and the stock market identification code is B15PV03.

In a recent research note by Investec, analysts said the trust has potential for ‘strong capital growth and attractive income streams’ if the global economy continues to recover strongly. 

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MR MONEY MAKER: Spread your risk to avoid that sinking feeling

MR MONEY MAKER: Spread your risk with the Personal Assets Investment Trust to avoid that sinking feeling

What’s happening? 

Welcome to spring – and, as with the British weather, the outlook for markets is mixed and changeable. One never knows quite what to expect. 

I have been warning that some turbulence was inevitable, especially after such a strong run up in equity prices since last March. 

So we could just shrug our shoulders and accept it. Or, more constructively, we can prepare for possible falls, in two ways. 

Unsettled: The outlook for markets is mixed and changeable and one never knows quite what to expect

Firstly, put some cash aside to take advantage of sudden drops by picking up bargains. 

Secondly, design your portfolio to give you diversification away from shares, if for no other reason than to stop feeling so queasy when markets become volatile.

Unfortunately, at the moment, cash is very unattractive. In real terms we are already in negative interest rates if you take account of inflation, but at least you can bank on the return of your money, if not much of a return on it. So let’s look at some more imaginative defence plans.

Why Does It Matter? 

Rule one of investing is ‘don’t lose the stuff’, and rule two is ‘refer to rule one’. 

Spreading risk means investing in other asset classes that don’t all behave in the same way. Typically, bonds are seen as a counterbalance to shares, though that does not always work. 

In very dramatic market drops, there can be a shake-out across the board.

What Should I Do?   

We have some choices. Picking an individual stock is by its nature less defensive than choosing a well-diversified fund. 

Normally advisers would push you towards a fund of corporate and government bonds, but in this environment I would rather have good, solid and even dull stocks that are reliable providers even in uncertain times. 

So, a blend of some equities from around the globe, but with some government bonds along with some index-linked and even some gold. Yes, I even include something to cover inflation, as the chance of seeing rising prices is definitely on the cards.

Any Suggestions? 

There are various fund managers that would fill this brief but there is one investment trust which I think is suitable for today’s position and that is the Personal Assets Investment Trust

The past year proved its worth with much lower volatility at times when share-based portfolios and funds plunged with the sickening feeling of a bungee jump. 

Another long-term favourite of mine has been the LF Ruffer Total Return fund. Both of these would make a sound foundation for a longer-term portfolio, providing a combination of reasonable gain but at a managed risk. Spring I will enjoy, but a sickening bungee jump I do not. 

Justin Urquhart Stewart co-founded fund manager 7IM and is chairman of investment platform Regionally. 

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Electric car chargers offer 9% return: Green return or high risk bond?

Investment offer: The 50 new chargers funded by the green bond will be operated under the Be.EV brand

Investors are being offered a five-year ‘green bond’ paying a 9 per cent annual return to fund a string of electric vehicle chargers across Greater Manchester.

Operating firm Iduna plans to install 50 new chargers by raising £4million via the investment platform Abundance, which specialises in environmental and social projects.

Regulators have cracked down on companies selling company debt in exchange for interest payments to regular investors after many suffered heavy losses in mini-bond scandals, such as the collapse of London Capital & Finance. 

But Abundance, which is regulated by the Financial Conduct Authority, stresses that Iduna’s bonds are ‘debentures’ secured on all the firm’s assets, including its 50 new chargers, and it will give mandatory updates to investors.

The bonds are also tradeable on the Abundance marketplace before the maturity date – although sales rely on finding willing buyers – rather than investors being wholly dependent on the issuing firm not going bust.

However, such investment products always come with serious risk warnings. See below for what to investigate before buying company debt, and read more here.  

Investors can invest in the Iduna green bonds with a minimum of £5 on the Abundance platform, and hold them in an an innovative finance Isa or a self-invested personal pension (Sipp).

However, Abundance customers have to declare that they are either a sophisticated investor – meaning, for example, that they are a director of a sizeable company – or will put no more than 10 per cent of their investable wealth in any one project.

Iduna plans to pay interest and repay capital to investors at the end of five years out of the revenues made from electricity sales and advertising at the charger sites.

City watchdog bans promotion of speculative mini-bonds 

The FCA slapped a permanent ban on firms pushing risky mini-bonds to ordinary investors after thousands lost money.

But there are exemptions to its marketing ban for retail bonds that are heavily traded, companies raising funds for their own commercial or industrial activities, and products which fund a single UK income-generating property investment. Read more here. 

The firm has an agreement with Transport for Greater Manchester to build and operate its chargers at chosen ‘hotpots’ where usage by electric vehicle owners is likely to be high.

It has no commercial relationship with TfGM, and the authority does not have a stake in the new chargers or take a share of Iduna’s revenue. Greater Manchester aims to become a carbon neutral region by 2038.

Iduna already manages – but does not own – 131 other chargers on behalf of TfGM under the brand Be.EV. 

As these chargers belong to TfGM, the bond is not secured on them, only on the 50 new units.

However, the new chargers funded by the green bond will also be operated under the Be.EV brand.

Electric vehicle drivers are charged via pay-as-you-go or via an optional membership scheme. 

Iduna chief executive Asif Ghafoor said: ‘We believe that many people want to play an active role in the climate change challenges we all face and will embrace the tools that will make a positive difference.

‘Our aim is to accelerate the delivery of electric vehicle charging infrastructure using the latest charging technology, data analytics and experienced supply chain partners.

‘We are starting with Greater Manchester, one of the first cities to recognise the climate emergency and well placed to become a leading light in the UK’s transition to low carbon transport.’ 

A Transport for Greater Manchester spokesperson said: ‘Iduna is currently contracted to install and operate TfGM’s electric vehicle charging infrastructure.

‘Separately, Iduna is seeking the capital to make their own investments in their own infrastructure. Transport for Greater Manchester has no commercial interest in this venture and is not underwriting the debt raise.’

What should investors weigh up before buying bonds like this?

‘Abundance is building a good track record of ethical investment projects but investors must assess this bond as carefully and dispassionately as they would any other investment,’ says Russ Mould, investment director at AJ Bell.

‘With bonds, the major risks are credit risk (default), market risk (interest rate rises), inflation risk (erodes the value of the fixed coupons in real terms) and liquidity risk (how easy it is to buy or sell the bonds).

Russ Mould: It is best to have a portfolio of bonds across types of issuer, credit rating and duration

Russ Mould: It is best to have a portfolio of bonds across types of issuer, credit rating and duration

‘The investor needs to assess these potential challenges and then decide whether the coupon offers enough compensation for them, using the 10-year gilt – or ‘risk-free rate’ – as your benchmark.

Mould notes that the 10-year yield on UK government bonds, known as gilts, is currently 0.77 per cent so a 9 per cent yield offers plenty of compensation for interest rate, inflation and liquidity risk.

But he says investors then need to take a view on whether the planned sources of revenue – electricity generation and advertising – will generate enough income to pay the interest over the life of the bond.

‘If they think this is the case, they might like to consider the bonds as a part of the fixed-income portion of their portfolio, albeit at the higher end of the risk spectrum.

‘Just as with shares, it is best to have a portfolio of bonds across types of issuer, credit rating and duration (time to maturity).’

‘If they think this is not the case, investors may decide to steer clear in the view that even a 9 per cent yield does not compensate them for the potential risks.’

Handy checklist: What do you need to know before buying bonds

* Any investor buying individual shares or bonds would be wise to learn the basics of reading a balance sheet. Read a guide here.

* When looking at bonds, research all recent available reports and accounts from the issuer thoroughly. You can find official stock market announcements including company results on This is Money here. You can search Companies House here.

* Check the cash flow is healthy and consistent. Also look at the interest cover – the ratio which shows how easily a firm will be able to meet interest repayments on its debt. This is calculated by dividing earnings before interest and taxes (known as EBIT) by what it spends on paying interest. A guide to doing investment sums like this is here.

* It is very important to find out what the bond debt is secured against, and where you would stand in the queue of creditors if the issuer went bust. This should be included in the details of the bond offer but contact the issuer direct if it is unclear.

* Consider whether to spread your risk by buying a bond fund, rather than tying up your money with just one company or organisation.

* Inexperienced investors who are unsure about how bonds work or their potential tax liabilities should seek independent financial advice. Find an adviser here.

* If the interest rate is what attracts you to the bond, weigh up whether it is truly worth the risk involved. Generally speaking, the higher the rate on offer, the higher the risk.

* If the issuer is a listed company, before you decide whether to buy it is worth checking the dividend yield on the shares to see how it compares with the return on the bond. Share prices, charts and dividend yields can be found on This Is Money here.

* Investors should bear in mind that it can be harder to judge the risk involved in investing in some bonds than in others – it is easier to assess the likelihood of Tesco going bust than smaller and more specialist businesses.

Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.