Artemis warns next five years will be tougher for income

Artemis’ global equity income star Jacob de Tusch-Lec has warned investors the next five years will be much more difficult for equity income investing.

The manager’s Artemis Global Income fund was launched in July 2010 and has thrived in what has mainly been a bull market for equities in the past five years.

But Mr de Tusch-Lec last week warned returns would be harder to find in future.

Article continues after advert

He said a major focus at the moment is the question of “how you run a global equity income fund when rates go up”.

Equity income as an asset class has been in hot demand since the financial crisis because interest rates in developed markets have been stuck at historically low levels.

This has lowered the return that cautious investors receive from cash to nearly zero, forcing them to look elsewhere for an income, so equity income has become hugely popular.

But Mr de Tusch-Lec said it was becoming “harder and harder” to deliver a high yield because the stocks providing an income were being bought up, and when share prices went up, the percentage yield declined.

He also said that the recent increase in merger & acquisition (M&A) activity “poses a threat to income” because companies may start to spend their excess cash buying up other businesses rather than paying that cash to shareholders.

Mr de Tusch-Lec said it had been a “Goldilocks” period for equity income for the past five years.

He said he still expected to generate returns in the next five years because while rates would rise, they would not rise enough to stop investors looking to equity income for excess yields.