‘ NOTABLY, THE REAPING OF DIVIDENDS WILL BE AN IMPORTANT THEME AS THE COMPETITIVE LANDSCAPE CONSOLIDATES AROUND FEWER PLAYERS THAT ARE MORE FOCUSED ON PROFIT’
FUND SOLUTIONS
Sponsor’ s views
STABILITY IN THE EYE OF THE STORM
The current global macroeconomic backdrop isn’ t a pretty sight. China’ s ongoing economic woes have resulted in bloodletting in stock markets. Meanwhile, the collapse in commodity and energy prices, reflecting the weakness in global demand, has created more jitters for investors. Amid the volatile market environment and a backdrop of weak economic growth, low bond yields and bank deposit interest rates, investors should look to alternative sources to achieve sustainable returns.
One such approach is investing for income, which has been gaining traction among investors. Offering periodic coupon payments and regular dividend payouts, income funds are seen as relatively defensive. Notably, the reaping of dividends will be an important theme as the competitive landscape consolidates around fewer players that are more focused on profits, while companies’ ability to pay dividends has been improving over the last few years. Moreover, dividend payouts are likely to exceed the yield from fixed deposits in a low interest rate environment.
Income strategies have a proven record of outperforming other approaches over the long term. Moreover, analysis covering the past 20 years,( see chart right), shows that not only have dividend stocks outperformed, but also that the higher the yield( or income) generated by the stocks, the stronger the performance in terms of the total return received by investors. In other words, the highest yielding stocks have performed best in terms of generating the highest total returns. Thus, the evidence suggests that the investment quality and disciplined capital allocation that characterises these stocks has translated into attractive total returns.
The stability from income investing is appealing in light of ongoing market gyrations. Columbia Threadneedle Investments’ suite of income funds offers defensive investment opportunities amid the current
market volatility.
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Developed Asia Growth and Income Fund
“ The Developed Asia Growth and Income Fund is focused on companies that can deliver resilient earnings, especially those operating in more stable competitive environments. The consistency of its returns is anchored on a portfolio-average dividend yield of more than 3 %, while we hunt for capital gains in companies with relatively more secure growth trajectories. The related opportunities are more abundant in Developed Asia, although we may sporadically foray into Emerging Asia as and when the right opportunities surface”, says Christine Seng, co-lead manager of the Fund with 19 years experience.
Subject to the above dividend yield target, the mix of potential returns from dividends and capital growth will be actively managed to capture the opportunities presented by the market from time to time. This ensures that the strategy is relevant across different market scenarios. The Fund’ s overall investment process seeks to capture Asia’ s secular growth trends while remaining firmly anchored in companies with greater earnings predictability and corporate governance quality. Stock picks are based on a combination of top-down and bottom-up investment merits in order to anchor long-term success.
‘ NOTABLY, THE REAPING OF DIVIDENDS WILL BE AN IMPORTANT THEME AS THE COMPETITIVE LANDSCAPE CONSOLIDATES AROUND FEWER PLAYERS THAT ARE MORE FOCUSED ON PROFIT’
Global Equity Income Fund
“ We believe that dividends are an underappreciated signal of investment quality, and attribute our success to focusing on companies with a high dividend yield, growth and a robust balance sheet”, says Stephen Thornber, who has been managing the Threadneedle Global Equity Income Fund since its inception in 2007 and has more than 27 years of investment experience.
The disciplined investment approach with its rigorous stock criteria has paid off- the Fund’ s historical yield is close to 4 % [ 1 ] per annum. Drawing on the best ideas of the global equity team and investment specialists, the Fund has an estimated portfolio of 75- 95 holdings, which provides investors access to large well-known brands such as Unilever, Pfizer and Coca-Cola. The Fund is also focused on companies that are able to achieve sustainable earnings and dividend growth over the long term, which provides some protection against inflation. The key focus is on delivering attractive dividends with capital growth embedded, which has helped the fund to achieve a 3-star Morningstar [ 2 ] rating as well as several awards over the years.
[ 1 ] Source: Columbia Threadneedle Investments, 31 January 2016. Past performance is not a guide to future performance [ 2 ]. Source: Morningstar, 31 January 2016. Based on Retail USD Acc share class ISIN
code: GB00B1Z2MZ68
12 Fund Selector Asia Guide to the Art of Income Investing March 2016 www. fundselectorasia. com