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Partner Content by Fidelity

It’s not all negative news for income seekers

There is big divergence across markets

There are also major differences across sectors and companies. Some of the oil majors are well known dividend stalwarts, and they are under significant pressure from low oil prices. Meanwhile, some sectors will be able to maintain pricing power and could even increase revenues, such as gaming and tech companies. Key determinants of a company’s ability to maintain dividends include the percentage of fixed versus variable costs, the flexibility in operational costs and balance sheet leverage. Knowing corporate management is very important as some dividend policies are more conservative than others.

In this environment, we would also highlight that caution is required in taking a passive approach to equity income investing, as this can inadvertently lead to relying too heavily on the traditional income-generating sectors like oil producers. These sectors often feature in the top exposures among income-orientated ETFs, for example. A passive approach can also come with other issues. A rules-based approach to passive management often only alters positions once a dividend payment has been missed and foregoes the benefit of reacting to announcements on dividend cuts. An active approach to income investing will potentially never be more valuable.

Another strategy that features in the Income range is an enhanced income approach, which makes use of call overwriting. This approach gives up some upside potential to returns to deliver higher distributions. But the potential upside from today’s valuations may still offer a decent return for these strategies, while their often more diversified sector mix avoids the pitfalls of a passive approach.

In this challenging environment, a multi asset approach to income investing can incorporate all of these many considerations into portfolio positioning. We believe our income-focused strategies are positioned well to deliver on our objectives through our ability to allocate dynamically across the full spectrum of income paying assets.


Important information

This information is for investment professionals only and should not be relied upon by private investors. Past performance is not a reliable indicator of future returns. Investors should note that the views expressed may no longer be current and may have already been acted upon. The Fidelity Multi Asset funds use financial derivative instruments for investment purposes, which may expose the fund to a higher degree of risk and can cause investments to experience larger than average price fluctuations. Investments in overseas markets, changes in currency exchange rates may affect the value of an investment. The value of bonds is influenced by movements in interest rates and bond yields. If interest rates and so bond yields rise, bond prices tend to fall, and vice versa. The price of bonds with a longer lifetime until maturity is generally more sensitive to interest rate movements than those with a shorter lifetime to maturity. The risk of default is based on the issuer's ability to make interest payments and to repay the loan at maturity. Default risk may therefore vary between different government issuers as well as between different corporate issuers. Sub-investment grade bonds are considered riskier bonds. They have an increased risk of default which could affect both income and the capital value of the fund investing in them. Changes in currency exchange rates may affect the value of investments in overseas markets. Investments in small and emerging markets can be more volatile than other more developed markets. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Investments should be made on the basis of the current prospectus, which is available along with the Key Investor Information Document and annual and semi-annual reports, free of charge on request by calling 0800 368 1732. Issued by FIL Pensions Management, authorised and regulated by the Financial Conduct Authority and by Financial Administration Services Limited, authorised and regulated by the Financial Conduct Authority. Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. UKM0620/31502/SSO/NA