‘ NOTABLY , THE REAPING OF DIVIDENDS WILL BE AN IMPORTANT THEME AS THE COMPETITIVE LANDSCAPE CONSOLIDATES AROUND FEWER PLAYERS THAT ARE MORE FOCUSED ON PROFIT ’
FUND SOLUTIONS
Sponsor ’ s views
STABILITY IN THE EYE OF THE STORM
The current global macroeconomic backdrop isn ’ t a pretty sight . China ’ s ongoing economic woes have resulted in bloodletting in stock markets . Meanwhile , the collapse in commodity and energy prices , reflecting the weakness in global demand , has created more jitters for investors . Amid the volatile market environment and a backdrop of weak economic growth , low bond yields and bank deposit interest rates , investors should look to alternative sources to achieve sustainable returns .
One such approach is investing for income , which has been gaining traction among investors . Offering periodic coupon payments and regular dividend payouts , income funds are seen as relatively defensive . Notably , the reaping of dividends will be an important theme as the competitive landscape consolidates around fewer players that are more focused on profits , while companies ’ ability to pay dividends has been improving over the last few years . Moreover , dividend payouts are likely to exceed the yield from fixed deposits in a low interest rate environment .
Income strategies have a proven record of outperforming other approaches over the long term . Moreover , analysis covering the past 20 years , ( see chart right ), shows that not only have dividend stocks outperformed , but also that the higher the yield ( or income ) generated by the stocks , the stronger the performance in terms of the total return received by investors . In other words , the highest yielding stocks have performed best in terms of generating the highest total returns . Thus , the evidence suggests that the investment quality and disciplined capital allocation that characterises these stocks has translated into attractive total returns .
The stability from income investing is appealing in light of ongoing market gyrations . Columbia Threadneedle Investments ’ suite of income funds offers defensive investment opportunities amid the current
market volatility .
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Developed Asia Growth and Income Fund
“ The Developed Asia Growth and Income Fund is focused on companies that can deliver resilient earnings , especially those operating in more stable competitive environments . The consistency of its returns is anchored on a portfolio-average dividend yield of more than 3 %, while we hunt for capital gains in companies with relatively more secure growth trajectories . The related opportunities are more abundant in Developed Asia , although we may sporadically foray into Emerging Asia as and when the right opportunities surface ”, says Christine Seng , co-lead manager of the Fund with 19 years experience .
Subject to the above dividend yield target , the mix of potential returns from dividends and capital growth will be actively managed to capture the opportunities presented by the market from time to time . This ensures that the strategy is relevant across different market scenarios . The Fund ’ s overall investment process seeks to capture Asia ’ s secular growth trends while remaining firmly anchored in companies with greater earnings predictability and corporate governance quality . Stock picks are based on a combination of top-down and bottom-up investment merits in order to anchor long-term success .
‘ NOTABLY , THE REAPING OF DIVIDENDS WILL BE AN IMPORTANT THEME AS THE COMPETITIVE LANDSCAPE CONSOLIDATES AROUND FEWER PLAYERS THAT ARE MORE FOCUSED ON PROFIT ’
Global Equity Income Fund
“ We believe that dividends are an underappreciated signal of investment quality , and attribute our success to focusing on companies with a high dividend yield , growth and a robust balance sheet ”, says Stephen Thornber , who has been managing the Threadneedle Global Equity Income Fund since its inception in 2007 and has more than 27 years of investment experience .
The disciplined investment approach with its rigorous stock criteria has paid off - the Fund ’ s historical yield is close to 4 % [ 1 ] per annum . Drawing on the best ideas of the global equity team and investment specialists , the Fund has an estimated portfolio of 75 - 95 holdings , which provides investors access to large well-known brands such as Unilever , Pfizer and Coca-Cola . The Fund is also focused on companies that are able to achieve sustainable earnings and dividend growth over the long term , which provides some protection against inflation . The key focus is on delivering attractive dividends with capital growth embedded , which has helped the fund to achieve a 3-star Morningstar [ 2 ] rating as well as several awards over the years .
[ 1 ] Source : Columbia Threadneedle Investments , 31 January 2016 . Past performance is not a guide to future performance [ 2 ]. Source : Morningstar , 31 January 2016 . Based on Retail USD Acc share class ISIN
code : GB00B1Z2MZ68
12 Fund Selector Asia Guide to the Art of Income Investing March 2016 www . fundselectorasia . com