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[ DIVIDEND CUTS ]
higher-grade corporate bonds not
paying what they used to, pickings
are slim. To manage this, Rathbones’
multi-asset manager Will Mcintosh-
Whyte is combining lower income,
higher growth equities with a slug of
racier high yield bonds.
“Junk bonds are high yield bonds
in the good times,” he says. “Now
you are being paid to take that risk,
so we have dipped our toe into some
fallen angels that have fallen into noninvestment
grade status and are now
being supported by the Fed.”
Another multi-asset manager,
Stephen Crewe at Fulcrum Asset
Management, is topping up his
income by selling options, which
account for around 2 percentage
points of the Fulcrum Income fund’s
4.5 per cent yield. He says: “We
employ a variant of call writing that
controls for changes in the level of the
equity market and thereby helps to
maintain some portfolio exposure to
sharp rallies.”
Beyond main markets
As other equity markets mature,
now may be the time to look towards
the developing world for income.
In its latest dividend whitepaper,
Fidelity points to China as a strong
contender, highlighting pressure
from the state to increase payments
to shareholders.
“Many investors, such as
my 88-year-old mother,
rely on income payments,
so it is important that fund
managers continue to
deliver dividends”
“Asian dividend stocks have
outperformed the broader region after
previous sell-offs, and in greater China,
many big companies were steady
dividend payers through previous
rounds of market turbulence,” it says.
It is likely things will get worse for
income-seekers in the developed world
before they get better; not least, says
Sanlam’s head of fixed income Peter
Doherty, as “support from governments
comes with a hefty price tag”.
Meanwhile, despite the frequent
outcry about the amount of dividends
paid to shareholders, Geffen notes
these payments support one of the
most vulnerable sections of society.
“Many investors, such as my 88-yearold
mother, rely on income payments,
so it is important that fund managers
continue to deliver dividends,” he says.
In the post-coronavirus world,
diversification will be more important
than ever. And with the main
developed markets becoming less and
less attractive, investors will need to
rethink the old rules.
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