Today, capital gains are becoming more elusive as liquidity is being gradually tightened and heightened trade tensions posed additional risks to the global economy. Income1, whether equity dividends or fixed income coupons, could increasingly contribute to portfolio returns, while generating consistent cash flow for investors.
With heightened market volatility and fluctuating asset prices, investors may consider dividend investing as high-dividend strategy theoretically has lower volatility and thus may see smaller declines than the broad market amid market downturns.
- There are many high-yielding companies among the constituents of the MSCI All Country World Index – over 900 companies, particularly in Asia Pacific ex-Japan (342) and in emerging markets ex-Asia (139), pay dividends greater than 3%2.
- Defensive sectors, such as utilities, telecommunication, health care and consumer staples, are typically less sensitive to the swings in economic cycles and may provide opportunities for higher dividends.
Fixed income coupons
Come 2019, investors could adopt a more flexible and agile approach when allocating in fixed income, spreading across the full spectrum of the asset class.*
- US government bonds – Increasing exposure to government debt gradually* would help provide some buffer against growth concerns and bouts of risk aversion.
- Developed market corporate credit – The current economic momentum remains in favour of corporate credit in developed markets, particularly US and European high-yield credit, as companies continue to enjoy top line growth, cost discipline and solid earnings.
1Applicable only to those funds offering classes with a distribution feature. The declaration and payment of income is subject to the distribution policy of the fund as the case may be. Any distribution payments, irrespective of whether such payment is made up or effectively made up out of income, realised and unrealised capital gains or capital, may result in an immediate reduction of the net asset value of the fund. Yield is not guaranteed. Positive yield does not imply positive return.
2Source: FactSet, MSCI, J.P. Morgan Asset Management. Data are as of 08/11/2018. Historical data are for reference only and are not indicative of future trends.
Investment involves risk. Different asset classes have different risk profiles. *The above recommendation is for illustrative purposes only, exact allocation of portfolio depends on each individual’s circumstances. Investors should consult professional advice before investing.
Download Market Insights Publication: The Year Ahead | 2019