Quilter’s Helen Bradshaw has allocated clients' funds to the US, Asia, infrastructure portfolios and alternative mandates as the UK’s dividend total dried up and she looked elsewhere to maintain investors’ steady income stream.
Ms Bradshaw, manager of the multi-asset monthly income range at Quilter Investors, told FTAdviser the backdrop for dividends in the wake of the pandemic was the “most challenging period ever” for an income investor, adding the process had been “painful” but they had “managed”.
As the coronavirus crisis hit company balance sheets in recent months, hundreds of firms have culled or slashed their dividend payouts to shareholders in an attempt to form a cash buffer against the economic impact of the pandemic.
Other firms were forced to hold back on payouts. The Bank of England strongly suggested banks and insurers suspended their dividends while the government mandated any firm using a support scheme should not be paying out funds to shareholders.
With a substantial source of investors’ income chipped away — £31.8bn of all dividend payments have been cut according to AJ Bell — Ms Bradshaw sought yield elsewhere.
Where to look
Ms Bradshaw said: “We are mindful not to have a knee jerk reaction to the changes and instead focus on areas where we see stronger dividend growth potential.
“One area where we expect this is the US. It has previously been a relatively small allocation as it is a low dividend market but so far, we’ve seen less dividend cuts there compared to the UK and Europe.”
She added that in the US many companies had chosen to cut their share buyback programmes rather than their dividends, meaning there was strong potential for these dividends to grow.
Ms Bradshaw has also eyed Asia as a good spot for dividend hunters, in particular the Schroder Asian Income fund run by Richard Sennitt. She said: “Asia has traditionally been overlooked by those looking for income as it has a higher volatility of income streams.
“But since the Asian financial crisis companies have strong balance sheets and have been able to support their dividends. Mr Sennitt is always focused on [these companies] so will be well placed going forward.”
Outside of equities, Ms Bradshaw said she was keen to find income from places less correlated with the economic cycle and equities.
She has increased her allocation in infrastructure, renewables and alternatives, topping up the funds’ exposure to credit and investment trusts.
Her latest find was a music royalty investment trust, which purchases copyright to music and receives income from the royalties when the music is played.
She said: “It’s relatively uncorrelated to equity markets and has produced stable income so far. This current economic cycle has no effect on streaming plays and it’s still yielding 4.3 per cent.”
‘More relevant than ever’
The Quilter Investors monthly income portfolios were launched last year in response to demand from advisers for income solutions.
They provide monthly distributions, so smooth a clients’ income stream over the financial year and attempt to give more stability and certainty to the amount an adviser and client receives on a monthly basis.
As the portfolios are risk-targeted, the funds must stay within the volatility perimeters meaning the level of risk involved remains steady too.
Ms Bradshaw said: “What with the trade war, Brexit and the coronavirus, it’s been a true test for these portfolios.
“But it has arguably allowed them to prove their adequacy in a challenging market environment. And with rates continuing to be cut, government bond yields declining and companies cutting dividends, they are more relevant now than ever.”
imogen.tew@ft.com
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