Page 13 - DIY Investor Magazine - Issue 28

This has benefited the UK market and income stocks more generally. While we wouldn’t suggest a wholesale shift in investor portfolios, investors can no longer rely on bond yields moving ever lower. We’re now in an environment where stock-specific considerations may matter more. We also believe the UK may finally start to reverse its weakness since the Brexit referendum. Since 2016, there has been a lingering nervousness about how UK comes out of the EU, how the deal is shaped and what it means for the country. This has been seen in the weak performance of the UK currency and in a lack of business investment. The deal is far from conclusive, but it puts the period of significant uncertainty behind us. It is not just the absence of these headwinds that augers well for the UK. There are also some positive tailwinds. For example, the UK market remains at a material discount to its international peers, in spite of some stronger performance more recently. Equally, the success of the vaccine rollout gives the UK a real chance to get back to normal before anyone else and recover quicker than other countries. Unemployment has remained low compared to previous recessions, while household savings levels are high. We believe these savings may find their way into the economy later on this year. ‘DIVIDENDS ARE A VITALLY IMPORTANT COMPONENT OF SHAREHOLDER RETURNS’ OUR PORTFOLIO In spite of dividend cuts last year, the gap between the income on equity and bonds remains at a very high level. At the same time, the stock market should provide greater scope for capital growth and has historically been a better hedge against inflation. Given the uncertainties inherent in today’s environment, we are striving for balance in the Shires portfolio. The companies we hold generally fall into three areas: those that deliver consistent growth over time, independent of the broader economic environment; valuation opportunities; and those companies that are more defensive and offer resilient income. Over the last 12 months, we have been adding a little more to ‘value’ holdings where valuations are more appealing. In the longer term, dividends are a vitally important component of shareholder returns. The type of high quality companies we hold in the portfolio should deliver a sustainable, growing income and can trade on a premium rating because of that quality. Those companies with financial strength should be in a better position to take opportunities, conduct merger and acquisition activity and grow faster in today’s market. 13 DIY Investor Magazine | Apr 2021