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Strategy: In the market for income generators
The UK equity market has enjoyed its best performance since the final quarter of 2003, as the rally that started in mid-March continued through the current economic recession towards the prospect of recovery. As a result, the rally was led by a return to favour of cyclical sectors, which sold off aggressively during the downturn. Meanwhile, more reassuring US and Chinese economic data and stronger commodity prices benefited oil and mining stocks.
Looking ahead, the global economy appears to be on the road to recovery, but there is reason to believe this road will be long and difficult, with consumer deleveraging limiting growth potential for some time.
Investors will begin assessing when central banks are likely to start exiting their programmes of quantitative easing. As such, the recovery will need to be well established to lessen the chances of a fall back into recession as this occurs. However, many companies have cut costs aggressively, leaving them operationally geared into any economic recovery.
In summary, there are many opportunities present in the market for income investors. As the economy improves and as cash flows boost balance sheets, there will be companies that will return to the dividend list, helping the overall yield of the market.
George Luckraft is a portfolio manager at Axa Framlington
