Page 6 - DIY Investor Magazine | Issue 40

April 2024 6
DIY Investor Magazine ·
Investment managers Iain Pyle of Shires Income, Yoojeong Oh
of abrdn Asian Income Fund, and Fran Radano of The North American Income Trust, discuss why equity income offers a breadth of investment options within the UK, Asia, and North America
AN EQUITY INCOME OPTION TO SUIT ALL TASTES
Iain Pyle Yoojeong Oh Fran Radano
KEY TAKEAWAYS:
• Equity income offers a breadth of investment options, depending on the region
• The UK is an option for recovery, Asia for growth, and the US for diversification
• Equity income strategies may have a tailwind from falling rates
There remains considerable debate over when and by how much interest rates could fall in the year ahead. However, the longer-term trajectory is likely to be lower. This should provide a tailwind for equity income options as investors once again turn to the stock market for reliable income growth.
But different types of equity income offer different flavours
of investment, which investors may want to factor into their decision making. The UK, for example, has the potential for recovery in the year ahead. It has been unloved by investors, who have been deterred by the weak performance of the UK economy and persistent political instability.
However, the corporate sector has continued to deliver on dividends: the FTSE All Share has a higher dividend yield than any other developed market.
‘THE FTSE ALL SHARE HAS A HIGHER DIVIDEND YIELD THAN ANY OTHER DEVELOPED MARKET’
‘MID-CAPS IN PARTICULAR HAVE PROVED A FERTILE HUNTING GROUND’
More recently, UK companies have also started to buy back shares. Iain Pyle, manager of Shires Income PLC, says the buybacks are a recognition that UK equities are lowly valued compared to history and other developed markets: “The
UK now has a higher buyback yield than the US, the long- time leader in this regard, providing an additional source of shareholder returns.”
Pyle says he is finding a number of opportunities where a company’s prospects have been misunderstood by the market. Mid-caps in particular have proved a fertile hunting ground, and those with some consumer exposure have been overlooked on the assumption that retail spending will remain weak.
He says there are pockets of strength, such as Hollywood Bowl, which has a high single digit earnings growth and a strong management team.
Any perceived sensitivity to economic growth has been a red flag for the market. Manufacturing group Hunting had been
a cyclical business, but has broadened its business into new markets.
This has given it greater visibility on earnings and dividends, but the change has been overlooked by the market. This is a common theme across the UK market and positions it well for recovery.