In these tumultuous times, as the US Federal Reserve continues its battle against inflation by raising interest rates, the traditional equity markets have become a rollercoaster ride for investors. In search of stability and consistent returns, many investors are turning their attention to instruments that offer a decent level of yields while being relatively insulated from economic cycles.
In a market where both the bulls and bears seem to be taking a nap, astute investors are keeping a vigilant eye out for opportunities that can withstand the challenges posed by inflation. In this blog post, we will delve into three different ultra-high-yield investment options that can serve as pillars of financial security in these times of uncertainty.
- Ares Capital Corporation (NASDAQ: ARCC) – Dividend Yield of Nearly 10.16%:
Ares Capital Corporation is a prominent business development company with a primary focus on a range of financial transactions, which I had the opportunity to speak to them in early 2021 to understand their business focuses. These encompass acquisition, recapitalization, mezzanine debt, restructurings, rescue financing, and leveraged buyout transactions, primarily targeting middle-market companies. In addition to these specialized financial services, Ares Capital is actively involved in providing growth capital and general refinancing solutions.
Ares Capital seeks to invest its capital in companies operating across various industry sectors, including basic and growth manufacturing, business services, consumer products, health care products and services, and information technology services. Furthermore, the company is open to exploring investment opportunities in industries such as restaurants, retail, oil and gas, and technology.
The geographical focus of Ares Capital is diverse, with regional offices strategically positioned to cover key markets. The company concentrates its investments in the Northeast, Mid-Atlantic, Southeast, and Southwest regions from its New York office. The Midwest region is served from its Chicago office, while the Western region is managed from the Los Angeles office.
When it comes to investment size, Ares Capital typically commits capital ranging from $20 million to $200 million, with a maximum limit of $400 million in companies exhibiting an EBITDA between $10 million and $250 million. The company participates in the debt market by making investments in the range of $10 million to $100 million. These investments take various forms, including revolvers, first lien loans, warrants, unitranche structures, second lien loans, mezzanine debt, private high yield, junior capital, subordinated debt, and non-control preferred and common equity.
Ares Capital is proactive in its approach to investment transactions, often preferring to act as an agent and lead the transactions in which it participates. Additionally, the company places importance on its involvement in portfolio companies and actively seeks board representation, reflecting its commitment to ensuring the success and growth of its investments.
In certain instances, Ares Capital also selectively considers third-party-led senior and subordinated debt financings. Moreover, the company keeps an eye out for opportunities to purchase stressed and discounted debt positions, demonstrating its adaptability and agility in navigating various financial scenarios.
One of the advantages of investing in a NASDAQ-listed stock like Ares Capital is that there is typically no minimum investment amount. This means that investors can start with any amount they are comfortable with, making it accessible to a wide range of individuals.
Ares Capital is known for its impressive dividend yield of nearly 10.16%. If that’s not enough to pique your interest, consider that Ares Capital has had more than 13 years of stable or increasing dividends. Over the last 10 years, its base dividend per share has grown by over 26%. This consistent income stream can be particularly attractive for investors seeking regular cash flow and a potential hedge against inflation.
Despite economic fluctuations, companies like Ares Capital often remain resilient because they invest in a diversified portfolio of companies and generate income from their debt and equity investments. This diversification can help shield your investment from the full impact of market volatility.
- HSBC 7.390% 03Nov2028 Corp (ISIN: US404280DR76)
HSBC Holdings plc, commonly known as HSBC, stands as one of the world’s largest and most influential financial institutions. With a rich history dating back to 1865, HSBC has established itself as a global banking giant, serving millions of customers in numerous countries and territories.
Headquartered in London, HSBC operates on a truly international scale, boasting a vast network of branches and offices in major financial centers across the globe. This extensive reach has earned HSBC a reputation as a premier player in the global banking and financial services industry.
HSBC offers a wide range of financial products and services, catering to the needs of individuals, businesses, and institutions. Its services span retail and commercial banking, wealth management, global markets, and investment banking, making it a one-stop destination for diverse financial needs.
As a multinational bank, HSBC places great emphasis on diversity and inclusion, reflecting its commitment to serving a global customer base with different backgrounds and requirements. The bank’s dedication to sustainability and responsible banking practices has also positioned it as a leader in the realm of corporate social responsibility.
Throughout its long history, HSBC has weathered economic storms and adapted to the evolving financial landscape. Its resilience and adaptability have allowed it to maintain a strong presence in both mature and emerging markets.
In summary, HSBC Holdings plc is not just a bank; it’s a global financial powerhouse with a rich legacy, a commitment to diversity and sustainability, and a continued focus on providing top-notch financial services to individuals and businesses worldwide. Its enduring presence and global influence underscore its status as a cornerstone of the modern banking industry.
Corporate bonds, such as the HSBC 7.39% 110328 Corporate Bond, are a reliable choice for investors looking for stability and predictable income. However, they typically come with minimum investment requirements. In the case of this HSBC bond, it may require a minimum investment of USD 200,000. This threshold is common for certain corporate bonds, and it’s important to ensure that your investment aligns with these requirements.
- 6M – 12M USD Fixed Deposit Rate available in Singapore
For those who prefer the security of traditional banking products, a 6 to 12-month USD fixed deposit can be a straightforward option. Fixed deposits generally come with varying minimum deposit requirements depending on the bank and the specific product. In some cases, you may find fixed deposits with a minimum investment as low as USD 5,000.
The top 6/12-month US Dollar fixed deposit rates in October 2023 are as follows (not in running order):
| Bank | Interest Rate per Annum | Tenure (Mths) | Minimum Amount (USD) |
| UOB | 5.16 – 5.36% | 6 | 5,000 |
| UOB | 5.1 – 5.35% | 12 | 5,000 |
| DBS | 4.74% | 6 | SGD5,000 |
| DBS | 4.72% | 12 | SGD5,000 |
| HL | 4.9524% | 6 | 50,000 |
| HL | 5.0015% | 12 | 50,000 |
| SBI | 5% | 6/12 | 5,000 |
| ICBC | 4.85% | 6 | 500 electronic/20,000 OTC |
| ICBC | 4.8% | 12 | 500 electronic/20,000 OTC |
The key advantage of a fixed deposit is that it offers capital protection and a guaranteed return. However, the interest rates on fixed deposits are often lower compared to other investment options like stocks or corporate bonds. Nevertheless, they serve as a valuable component of a diversified portfolio, especially for risk-averse investors.
In addition, as part of its mission to safeguard the interests of consumers, MAS has established guidelines for bank deposit guarantees via SDIC to ensure the safety of funds held in financial institutions, particularly fixed deposit accounts. Currently, the SDIC bank guarantee amount stands at SGD 75,000. This means that, in the unfortunate event of a bank failure, each depositor is eligible for compensation of up to SGD 75,000 for their fixed deposit holdings. This guarantee provides a significant level of assurance to depositors, contributing to the overall trust and confidence in the Singaporean banking system.
In conclusion, as the US Federal Reserve continues to combat inflation by maintaining higher interest rates, it’s crucial for investors to adapt their strategies to this evolving economic landscape. Seeking out investments that offer both high yields and insulation from economic cycles can be a smart move in these uncertain times.
The three instruments mentioned here, each provide unique advantages to investors. However, it’s essential to remember that all investments carry some level of risk, and it’s vital to do your due diligence and consider your financial goals and risk tolerance before making any investment decisions.
In this challenging environment, diversification and a well-thought-out investment plan can help you navigate the storm of inflation and secure your financial future. Whether you choose to explore high-yield stocks, corporate bonds, or traditional fixed deposits, remember that a well-balanced portfolio is your best ally in these unpredictable times.
Other references:
- Deposit Insurance Scheme – https://www.sdic.org.sg/public/di_overview
- MAS latest proposal on SDIC – https://www.channelnewsasia.com/singapore/deposit-insurance-coverage-raise-100000-mas-proposals-3589751
- ARCC – https://www.arescapitalcorp.com