LONDON — Crazy days! Interest rates have been stuck at all-time lows for more than four years, and the first rate hike could be another four years away. This has led to some crazy anomalies.

You can now get a five-year fixed-rate mortgage charging just 2.74%, up to 60% loan-to-value (LTV), or a 10-year deal at 3.99%, up to 75% LTV (subject to status, as they say).

At the same time, you can earn a yield of 5% and 6% by investing in solid FTSE 100 favorites, plus the prospect of capital growth if QE-fuelled markets keep rising.

I wouldn’t normally urge you to borrow to invest in shares, because gearing adds an extra layer of risk. But does it make sense today?

Borrow and buy
Do you expect your portfolio to deliver a total return of more than 4% a year over the next decade? I certainly do. If so, and if you’ve got enough spare equity in your home to access a best-buy home loan, then, maybe, just maybe, you should be in less of a hurry to pay down that mortgage.

If you’re tempted, I would suggest taking out a long-term fixed-rate loan, preferably for 10 years, so your plans aren’t scuppered by a sudden upward lurch in interest rates.

To add an extra layer of security, you could then invest into a fat FTSE high-yielder or three. Dividend income is taxable, so, if you’re bold enough to follow this controversial course, use your ISA allowance.

I’ll leave you to find out the cheapest way to borrow money, but here are three stocks you might consider investing in.

AstraZeneca
AstraZeneca  currently yields a base-rate-busting 6.1%. Pharmaceutical stocks are supposed to be defensive, but it is some years since this one has appeared solid at the back. AstraZeneca scored an embarrassing own goal with its $15.6 billion acquisition of Medimmune in 2007, while sales and revenues have plunged lately, as lucrative drug patents expire, and the pipeline of new products remains blocked. New chief executive Pascal Soriot has just announced a major reorganization, axing 1,600 jobs, and investing in new research and development (R&D) centres in the U.S., U.K. and Sweden, in a bid to “put science at the heart of everything we do” and improve R&D productivity. The overhaul will last for three uncertain years.

These disappointments have knocked AstraZeneca’s valuation, which trades on a mere seven times earnings, roughly half the FTSE 100 average. Given its forecast earnings per share (EPS) growth of -19% in 2013, and -3% in 2014, that lowly valuation looks richly deserved. But it does give the share price plenty of scope to recover, if Soriot gets his strategy right. Despite its recent troubles, AstraZeneca is up 7% over the past 12 months, giving a total return of 13%. AstraZeneca is also the biggest single holding in dividend dangerman Neil Woodford‘s Invesco-Perpetual High Income fund, at 8.53%, and he tends to get these things right in the longer …read more
Source: FULL ARTICLE at DailyFinance