Equity Income - rare opportunities abound
Long time readers know well our enthusiasm for equity income funds. The story has evolved very significantly, in particular we have been through a period of unprecedented cuts in dividends which are now being restored.
The high yielders have been overlooked for some time, and when we launched our Dividend Watch bulletin in 2009 (the only detailed published research on this sector) we stated that these investments will have increasing rarity value.
There are early signs that the value, and potential, is being recognised. From last August there was a noticeable pick-up in buying of ETFs (funds favoured by hedge funds) that specialise in high yielding equities. No significant new trend begins with buying by retail investors - that’s you and us. But it does begin with buying by people like hedge funds, into areas that are over-looked.
In the years, decades, ahead two key drivers of demand for these income-orientated investments are demographics and inflation
Demographics
By 2030, more than half of all adults will be older than the official retirement age in Italy, Spain, and Japan. This will be commonplace around the globe. The inability of Governments to support these baby boomers will require much greater self sufficiency in generating retirement income.
Inflation
In the section Commodities: stick or twist or bust we highlight that demand for commodities, and their prices, will be strong for many years. And in the graph here we highlight how inflation over the long term moves in broad trends, and the long term trend appears to be at the early stage of a new upward trend. There are many ways to generate income, but few that are both relatively reliable and have the potential to grow to limit the impact of inflation - high yielding shares you buy through equity income funds are a clear solution.
For a more geographically focused look at the opportunities for equity income funds click on the links below:
(Taken from TopFunds Guide January 2011)