Talking Point  

Advisers head to overseas equity income for client portfolios

Advisers head to overseas equity income for client portfolios

Post-Brexit vote, advisers have been heading overseas for good equity income yields for their clients.

According to research from The Share Centre, second quarter underlying dividends in the UK were the weakest performers among the Group of Seven leading industrialised nations.

Spates of cuts to dividends came as UK companies stopped spending more on dividends than they made in profits, as they reinvested into their business. 

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Moreover, the US and Japan are both looking more promising. For example, 49 per cent of the S&P 500’s constituents yield in excess of 2 per cent, while commentators have been speculating that the good health of Japanese corporates may manifest itself in higher dividend payouts over the coming months.

These may be reasons why advisers have been seeking overseas equity income yields for their clients. 

A poll carried out by FTAdviser Talking Point revealed 50 per cent of advisers believed the best income streams were coming from overseas equity income.

Only 25 per cent believed UK equity income was still offering the best value and prospects for dividend growth.

However, despite The Share Centre's findings, Laith Khalaf, investment specialist for Hargreaves Lansdown, said UK investors had "grown accustomed to companies slashing payouts" and that axing dividends was “part and parcel of income investing”.

He believes there are still good equity income prospects to be had in the UK. Likewise, SVS Church House Equity Income Fund claimed August was fairly quiet but there were good bargains to be had among UK dividend payers. 

According to the fund managers' latest factsheet: "Equities generally held on to their post-Brexit gains.

"The fund had a quiet, yet positive, month. We added to our position to Clinigen, the pharmaceutical company."

Yet it is not just equity income that is attracting yield-hungry investors; overseas fixed income has also been driving investor behaviour.

According to data from fund analysts Morningstar, fixed income funds saw a strong intake of money during August, as investors withdrew from equity funds and placed money into corporate bond funds.

Matias Möttölä, senior manager and research analyst for Morningstar, commented: "The breadth of investor interest in fixed-income funds in August was such that 71 of Morningstar’s 93 European fixed-income categories saw inflows during the month.

"Recent flows into fixed-income have been motivated by a global flight to safety after the UK’s Brexit vote and also by rising expectations of continued low rates and further extraordinary measures by central banks to accommodate growth in the global economy.

"At the same time, investors continued to withdraw from active equity funds, despite generally positive returns for stocks during the month.”