Talking Point  

US equities are a good income diversifier

US equities are a good income diversifier

More than one in two advisers think US equities are a good diversifier of equity income despite recent market turbulence, according to the latest FTAdviser Talking Point poll. 

The poll asked advisers the following question:  “Are US equities a good diversifier for equity income?” 

Over a half of advisers (55.6 per cent) said they think US equities are a good diversifier for equity income. 

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Just over a fifth (22.2 per cent) found US equities to not be a good source of diversification and the same percentage of advisers said this depended on the type of client. 

The poll results are published amid a volatile type for markets, including US equities. 

US equities have been volatile in recent days after the World Health Organisation confirmed the coronavirus to be a pandemic. 

David Holohan, head of equity strategy for Mediolanum International Funds, said he was unsurprised by the results. 

“US Equities can offer a more meaningful contribution in terms of dividend yield after the recent declines with several industries, most notably in the more cyclical parts of the market offering very attractive dividend yields,” Mr Holohan said. 

Scott Gallacher, chartered financial planner at Rowley Turton, echoed this view. 

“I’m surprised more advisers didn’t think US equities were a good diversifier for equity income. They may be highly correlated to UK equities but you’d still reduce non-systemic risk by holding US equities alongside your UK equities.”

On Monday, the S&P 500 closed almost eight per cent lower compared to the previous close. 

Additionally, the Dow Jones Industrial Average Index was also down eight per cent session-on-session. 

This comes after the S&P 500 suffered a 9.5 per cent drop since Black Friday in 1987. 

On Sunday the Fed cut interest rates to almost zero, a second emergency move aimed to stimulate the economy. 

The move means the borrowing rate range is between 0 and 0.25 per cent. 

At the time of writing, the coronavirus has infected more than 179,558 and claimed the lives of 7,067. 

But the long-term prospects for US equities remain positive despite the market turbulence and rising death toll as most commentators believe the pandemic would only hit US equities in the short-term. 

Mr Holohan said:  “Over time US companies have emerged as leaders in their respective  fields on a global basis and management teams operate with a returns focused mindset supported by a strong track record of generating strong shareholder returns.”

He added: “The recent market turbulence will not change these factors, which have helped US equities perform well for decades.”

Mr Gallacher agreed and thought recent weakness in US equity markets may have created buying opportunities. 

 “Obviously the short-term outlook is negative in terms of the impact of coronavirus and the various policy responses to it. However, in any situation there will still be some winners.”

He added: “Though that’s not to say that further falls aren’t to come and there may be even greater opportunities in the future.”