According to Certitude Global Investments CEO Craig Mowll, the RBA’s decision to cut the official cash rate is seeing a huge amount of pre- and post-retirees look into yield.
“Without question, post-GFC, yield is a very high priority,” he said. “That’s going to be a really big topic.”
He believes that most investors in this position have tended to look for yield from two different sources: Australian equities and term deposits.
“But with rates falling – and likely to continue falling – there is all of a sudden huge interest in where to get ongoing sustainable income,” he said.
“One of the things that’s gone missing in people’s portfolios has been a global position. Global’s been very underweight. It’s been driven heavily on emotion, and it’s been driven heavily around the fear of what’s going on in the US, Europe and China.
“What’s now coming up are some tremendous opportunities to invest in global equity income. And global equity income is really starting now to hit the radar, because people are starting to see an asset class now that they hadn’t really considered, and had been heavily underweight in, now being a proposition that can address their yield issues.”
Mowll conceded that equities – whether global or Australian – do come with their risks, and he believes that investors are still learning to overcome their fear.
“But the thing is, what is interesting about global equity income is the consistent amount of income that’s coming in from the dividends. So you’re looking at around 5-6% coming in. It’s actually becoming quite a quality proposition,” he said.
“The fact there is the opportunity for potential capital appreciation on that actually means that that income continues to grow for them. It happens to be quite an interesting proposition that they in the past haven’t properly explored.
“Income streams for equities get that opportunity to grow over time. But when it comes to fixed income as a comparison, it’s exactly that – it’s fixed. In the case of equity income it’s got the opportunity to grow with inflation.
“On a rolling three-year return basis, there is on period over the past 20 years when a high-dividend strategy has underperformed the world market. And I think that’s just an amazing statistic that gives this strategy a lot more brevity for people, and a lot more focus when it comes to putting their portfolios together.”
He noted that investors are fearful of volatility, but claimed that dividend-paying stocks have a far lower volatility rate than their non-dividend-paying counterparts (around 17% versus the index, compared to 27% respectively).
But despite these fears, Mowll believes that investors who investigate the global equity scene are now jumping into it with gusto.
“What we’ve been surprised about is how quickly people have understood it, and how quickly they’ve wanted to start to take advantage of it,” he said.
“In fact, I almost hesitate to say this statement, but it’s one of the things I’ve seen people jump on faster than nearly anything I’ve seen in the last 20 years. And I think that’s because it’s got such a strong timing issue to it.”