The stock markets rose strongly over the first few months of 2019, but they’ve been struggling in recent weeks due to a resurgence of the trade war between the US and China. Meanwhile, bond yields are still painfully low. How might multi-asset investors react in these circumstances? One option for investors to navigate this tricky environment could be to allocate to a quality income equity strategy.
With bond yields low, investors have the choice to switch out of bonds into suitable equities or sit tight. One idea for investors wary of making seismic changes to their asset allocation could be to switch from low-quality bonds into high-quality equities – a change that puts balance sheet strength ahead of anything else.
Why might this be an attractive choice? Taken at face value, the potential income available from high yield bonds looks like it should exceed dividends. But high yield bond indices are made up of the lowest-quality companies in the market, and there’s no guarantee they’ll be able to meet their obligations. One option for investors looking to allocate to high-income equities could be the SG Global Quality Income index. It’s an equity index that seeks to provide a dependable, high-quality dividend stream. Unlike the MSCI World High Dividend index, which tends to outperform the broad global markets on a total return basis but has struggled in return-only terms, the SG Global Quality Income index focuses on corporates that can pay and grow their dividend, and aims to maintain its dividend payments regardless of the market backdrop.
By sticking to the same careful, repeatable process, the SG Global Quality Income index has been able to avoid more than 80% of the major dividend cuts that have taken place since the global financial crisis in 2007. Learn more about Lyxor’s range of Global and European SG Quality Income strategies.
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