Alternative capital for efficient portfolio management

Access to flexible, cost-effective funding is a powerful tool in managing equity investments

Equities are an attractive asset class for any investor, conferring a share of ownership and dividend payments – as well as the potential for long-term capital appreciation. In some situations, however, money tied up in equities may generate a better return elsewhere, particularly at a time when investors are turning bearish and dividend yields remain low.

After closing at a record high 70 times in 2021, the S&P 500 tumbled over 5% in January 2022 – its worst start to a year since 2009. The US benchmark currently pays out a dividend of just 1.33%, close to record lows.[1] In the technology-focused sector, 50 of the Nasdaq 100 pay zero dividend, including popular names such as Amazon, Netflix and Tesla.[2]

Further appreciation is far from guaranteed at a time when central banks are beginning to pare back their monetary support and inflation is rising. The ongoing Covid-19 pandemic also continues to give investors plenty to think about: should any new variant send economies back into lockdown, equity valuations are sure to be seriously affected.

Investors who continue to see long-term potential in their equity positions can consider ways to make their capital work harder by using these assets to access cost-effective financing.

Borrowing against shares near the top of the market can be an efficient way to manage risk, as it puts a floor under the price of the stock without sacrificing its long-term potential. Similarly, monetizing investments in unloved sectors allows investors to optimize their portfolio by diversifying into other assets while waiting for the valuations to recover.

In both scenarios, equity-backed lending offers an alternative to outright disposals by unlocking value from shareholdings without giving up the potential for long-term capital gains.

Long-term potential

Structured as a sale and repurchase agreement, financing from EquitiesFirst allows investors to use their shares to raise low-cost funding in a tax-efficient manner. At the end of the agreed term, EquitiesFirst returns the same number of shares to the borrower, who is then able to benefit from any price increase in the underlying stock. Borrowers can also retain dividends during the term of the financing – if the underlying company pays any.

EquitiesFirst offers attractive terms with loan-to-value ratios of 60%-70% and interest rates of around 3%-4%. Borrowers retain complete flexibility over the use of proceeds, allowing them to consider other investments with higher potential returns – whether it is a renovation that will add to the value of a property, or an early-stage cryptocurrency venture.

We work only with long-term shareholders and structure every financing to suit individual circumstances. As a long-term partner to our clients, we only lend against shares after a thorough fundamental and technical analysis, and we run a diversified portfolio across sectors and geographies to mitigate broader market risks. Our own in-house research capabilities help ensure full vetting of every opportunity and careful collateral management.

Volatility will always be a feature of financial markets, but we believe a partnership with EquitiesFirst can help investors look beyond short-term fluctuations and position their portfolios for the long term.

Together with low borrowing costs and complete flexibility over the use of proceeds, equity-backed lending can be a compelling alternative for investors looking to manage their capital more effectively.


[1] https://data.nasdaq.com/data/MULTPL/SP500_DIV_YIELD_MONTH

[2] https://indexarb.com/dividendYieldSortedn1.html