Dividend investing strategies are starting to regain their investor appeal in the current economic environment. Particularly amongst Private Banking clients. Here are the key reasons why:
- Global equity market performance is down around 25% year-to-date (as of 30 Sep 2022).
- 2023 Global economic growth is expected to drop to ~4%, which is one third less than 2021.
- Interest rates are rising across the globe in response to double digit and continuously rising inflation.
This data does not look supportive for traditional Growth Investing strategies. The popular fast growing growth stocks of the bull market relied on cheap easy money and strong macroeconomics. Both of which are currently out of stock globally.
Whilst value investing strategies have staged a strong comeback, the are fundamental differences with dividend investing strategies. These core differences suggest that the outlook for dividend stocks in the current volatile environment is where new money into the equity market may flow.
Growth strategies have long overshadowed dividend strategies. However, changing macroeconomic conditions have turned the tables and dividend investments are enjoying their time in the sun. While this coincides with value’s long-awaited comeback, value and dividend stocks have distinctive characteristics. We believe that dividends deserve to stay in a portfolio even when economic conditions improve. By adopting a fundamental approach to identify companies that can consistently pay and grow their dividends, investors could achieve long-term real return generation throughout the investment cycle.
Recessions put the Corporate C-Suite to the test. When the world is growing, rates are low and inflation under control, steering the Cruise Ship into sunny harbours is easy. But when a macroeconomic tempest takes hold, and your port of call becomes innaccessable, calmer waters and a new destination has to be found. So what is the smart C-Suite doing?
Capital Expenditure is the fuel that powers future earnings. Directing that investment into the themes that will determine the company's success over the next decade is where the thought capital is now being deployed. Two mega themes that touch almost every company globally are Deglobalisation and the Energy Transition. But which leadership teams are embracing change and and investing for tomorrow today? And who are being recognised as the best CEO's of Listed Companies?
One way to outperform an index is not to underperform the index? This is a sine qua non, but in no way useful. Or is it?
Manager Selectors are notorious for looking at performance. But are they looking at the right performance? And what it the right performance? An Information Ratio? A Sharpe Ratio? 3 years? 5 years? 10 years?
This question is of fundamental interest today. With the VIX breaking 30, the S&P 500 hitting it's lowest close since Nov 2021, and year to date global equity indices glowing red, the characteristics of investment manager's performance track records is getting more attention.
And in particular, the usefulness of adding products to their multi-manager portfolios that exhibit up and down market capture in proportions that are different to their existing manager line up.
The trend towards globalisation follows classic microeconomic theory. Firms wish to maximise revenues and minimise costs and create an inelastic demand curve for a product for which they are the sole supplier. And whilst many firms have not reached this optimal existence, the journey there has embraced globalisation.
But 3 things have changed...
The stagflationary backdrop for equities is challenging. And investors are starting to feel the pain of negative YTD performance in their portfolios. Whilst the long term credo of 'stick to the plan' has historically been proven as the right thing to do, on this occasion fixed income markets do not have their back. In our investment research feeds last week, the #1 search query was "Defensive Equity Strategies".
While there are reasons to be both positive and negative about global equity markets, a more cautious case is gathering momentum. Inflation is now 8.5% year-on-year in the US, while GDP expectations are being revised downwards. Most cycles of tightening by the US Federal Reserve end in recession and this may be no different.
This article by Aegon AM's global equity income team explains why a dividend-focused global equity strategy is worth considering in such an uncertain environment.
With volatility running high, sentiment swaying and markets dropping, professional investors are debating whether specific countries are now in a bear market.
But what is the official definition of a bear market? Does it signal a recession lies head? And what was the typical length and depth of previous bear markets?
In this market environment, you may need defensive equities. Here's what you need to know.
ESG Ratings are big business. Given the flow of capital into ESG related funds and strategies, asset managers have responded with differing degrees of sophistication.
High Alpha Strategies
As performance dispersion across stocks, sectors, and countries widens in tandem with volatility, professional investors are revisiting the alpha generating capabilities of portfolio managers that prefer to run concentrated portfolios.
The rationale being that concentrated portfolios allow more flexibility to outperform 'hard to beat' benchmarks. And given the global macro backdrop and resultant alpha opportunities, this could be the right time to relax investment guidelines and put some passive money to work.
But can idiosyncratic risk be diversified away using a limited number of stocks?
Buying the dip relies on markets reverting to their mean after a selloff. In theory it is not a bad strategy. However it also relies on two unknowns, which may make the strategy unprofitable.
With Growth stocks struggling in the current volatile, rising rate & inflationary market environment, Dividend stocks have quietly started to outperform their racier peers, by a substantial margin.
Looking back to 1Q 2021 a similar rotation occurred, only to be short lived as Growth stocks regained their popularity.
With reporting season well underway, popular Growth Stocks have so far disappointed the market. Factor in challenging prospects for global economic growth in 2022, this latest rotation may continue, and remains a trending topic for investors looking to diversify their income streams.