Talking Point  

Building a diversified equity income portfolio

  • Explain how an equity income portfolio works
  • Identify key reasons why equity income portfolios are facing challenges
  • Explain how to build a diversified equity income portfolio
CPD
Approx.30min
Diversifying your equity income  portfolio
How advisers can build a diversified equity income portfolio amid the coronavirus threat
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The need for a diversified source of equity income was an urgent issue long before the coronavirus struck.

A combination of share price gains and hefty dividends, particularly in the UK, proved useful for clients with income needs and investors seeking a more defensive source of equity exposure. 

But UK equity income funds have long remained reliant on a handful of big payers, creating dividend concentration risk, while other regions vary in terms of yield on offer and total returns. 

The average income-focused fund in the Investment Association (IA) North America sector yielded just 2.3 per cent in early January, according to FE data, compared with some 4.5 per cent from the average IA UK Equity Income fund and 4.6 per cent from the average IA Asia Pacific ex Japan fund with an explicit focus on income.

But if equity income investing seemed a daunting task even at the end of 2019, the impact of Covid-19 has entirely transformed the equation. 

So how can advisers build a diversified equity income portfolio for the long-term and amid the coronavirus crisis?

The report, which can be read by clicking the link in the image above, qualifies for an indicative 30 minutes' worth of CPD.

CPD
Approx.30min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. According to Ryan Hughes, if many companies suspend or reduce their dividends what will this have a direct impact on?

  2. According to Adrian Lowcock, which type of firms would be best income sources?

  3. True or false, for open-ended funds, the rules state that they have to pay out all of the income they accrue each year?

  4. The practice of some equity funds selling put options on their holdings and using the fees for this activity to boost their yield can:

  5. According to analysts at broker Stifel which types of investors are at risk of dividend cuts?

  6. What advantage do some trusts have?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • Explain how an equity income portfolio works
  • Identify key reasons why equity income portfolios are facing challenges
  • Explain how to build a diversified equity income portfolio

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