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Darius McDermott, Chelsea Financial Services
It was already a challenge for retail investors to find income-generating funds before the coronavirus crisis prompted central banks around the world to slash interest rates from already low levels.
Negative yielding government debt peaked at about $13trn in August 2019, according to Bloomberg, while investment grade corporate bond yields declined amid concerns about the effects of the US-China trade dispute on global economic growth.
Many investors sought safety, but also feared that a further fall in yields would mean future income opportunities would be scarce, unless they moved down the credit curve and bought funds exposed to riskier sub-investment grade debt.
Several asset managers responded by launching fixed maturity products, but high-income earning equity funds were an alternative option for investors. A number of Asia-Pacific equity strategists, for instance, emphasised the attractive dividend payouts by companies in the region.
Of course, in the current environment, the ability of funds to generate either income or capital growth is difficult. It is even harder to predict likely winners.
Nevertheless, FSA asked Darius McDermott to look at the equity income sector, and he compared two with a European (including UK) focus: the Blackrock European Equity Income Fund and the Invesco Pan European Equity Income Fund.