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Can equities keep generating income in uncertain times?

War in Europe, a spike in living costs, and bond market movements are among the themes worrying income investors right now. Against this background, Head of Equity Income, Rudi Minbatiwala, discusses how equities can play a role in generating income in uncertain times. 

“Despite the concerns and uncertainties that the markets faced in 2021, the actual volatility outcome for 2021 was very low,” Rudi said, with realised volatility for the Australian market at only 5.3%[1].

“We would normally expect the Australian equity market to experience long term volatility in the vicinity of 15%. With that backdrop, it should not be surprising that a bout of volatility has hit markets in the first months of this year. This is something that we would expect as investors digest the impact of inflationary concerns and the flow-on implications for increased interest rates.

“We believe that our equity income approach, which seeks to invest in the best investment opportunities across the market, will be important to navigate this next phase of the market cycle,” he said.

This broader, all-weather approach to lower-volatility, equity income investing provides many advantages compared to a traditional equity income offering, which only focuses on a narrow subset of high dividend yield stocks.

“There are risks that conventional ‘high yield’ stocks will be considered less attractive to income focused investors if traditional income assets start to offer more attractive returns as interest rates rise,” Rudi explained.

He believes the Equity Income Fund’s ability to deliver sustainable income across a range of market conditions is one of the key reasons behind the award from Money Magazine.

“We remain focused on providing our clients with exposure to the best investment ideas we can identify, regardless of their dividend yield, while still delivering the near-term needs for higher income and lower volatility”.

References

1. Based on the S&P/ASX 100 Accumulation Index for the 1 year to 31 December 2021

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