Portfolio managers from four firms — Aberdeen Asset Management, Columbia Threadneedle, Franklin Templeton and RWC Partners — presented their strategies to generate income during a time of continuing volatility in global markets.
Here are some highlights:
Aberdeen Asset Management
Investors find yield in equities and high yield bonds, but these asset classes have increased volatility, said Mike Turner, head of multi-asset, manager of Aberdeen Global Multi Asset Income Fund.
Turner said multi-asset diversification can provide income streams while easing volatility.
As an example, he pointed out that risk assets sold off in August when global volatility spiked due to China’s tanking stock market and concerns over the mainland’s economic growth, which has consequences for global growth.
His fund was also down (-2.9%) over the period to 31 May to 31 December 2015, but during that time it distributed monthly income “consistent with its 4.5% pa annual target”, he said.
Soo Nam Ng, head of Asian equities (Asia), said for dividends he focuses on developed Asia, which has the highest payouts in the region as a whole. Australia he underscored as the country with the highest quality dividend-paying companies in Asia Pac.
By comparison, a very small proportion of emerging Asia has companies paying dividends greater than 3%.
Vivek Ahuja, portfolio manager for the firm’s global macro investment group, spoke about income opportunities in bonds, but cautioned on the divergence of emerging markets. Mexico, India and Indonesia, for example, are doing relatively well while Russia is high risk.
“If anyone buys into EM as a basket, he will probably end up with a negative return because almost 60% of EMs are having significant challenges.”
In addition, EM inflation is also generally hitting targets, unlike the developed world. “The market is ignoring inflation in emerging markets.”
“The recovery we’ve had for last few years globally has been a bit of phony recovery,” said Ian Lance, co-manager of of the RWC Partners Global Enhanced Dividend Fund. “Asset classes went up a lot but earnings didn’t really go up much at all.”
The recovery was driven by central banks and not by improvement in fundamentals.
“In the last few years we have believed in the superpowers of our central banks — that they have this ability to control markets,” he said., adding that that belief continues to diminish among investors.
Co-manager John Teahan spoke about having an insurance policy during market uncertainty. The firm uses a global dividend strategy with a covered call strategy for downside protection.
“We can participate in the upside and if things don’t turn out so well, we have downside protection. This is important because valuations in many parts of the market are stretched.”