Equities

Why Global Equity Income Could Offer an Opportunity for the Cash-Flow Constrained

Why Global Equity Income Could Offer an Opportunity for the Cash-Flow Constrained

Many investors are turning to alternatives to meet their income requirements, but Newton Investment Management’s Nick Clay says a more conventional opportunity could be close at hand.

Volatile equity markets, asset prices stretched by loose monetary policy, and persistently low bond yields have made income yield harder to come by, while investors are living longer in retirement.

The hunt for the yield to provide this income has led some investors to start looking beyond the conventional equity and bond asset classes towards alternatives such as private equity and infrastructure, in an attempt to meet their income and growth requirements.

It is our contention, however, that by potentially replacing a portion of their global equity portfolio with long-term alternatives, investors may be missing a far more conventional opportunity right in front of their eyes.

TRADITIONS UNDER PRESSURE

In the traditional 60% equity/40% fixed income portfolio, the bond component is designed to provide income while the equity component serves to provide the potential for capital growth. We believe it is time for investors to take a less restrictive view on the role of equities within their portfolios.

Our view is it may be an oversight to have 60% of assets in non- or low-income-generating domestic equity strategies, when some of that could be better put to work in what we believe would be better growth- and income-producing global equity strategies.

If equity income is considered as a strategy in its own right, equities need not be in the portfolio purely to seek capital growth, but could also help investors meet their income requirements. To a certain degree, due to daily pricing, we believe short-term performance has become an obsession for many investors who might find temporary volatility hard to stomach.

While some might consider longer-time-horizon alternative assets to address this perceived short-term volatility, we believe they are overlooking the fact that equity income may represent an attractive opportunity especially considering that, even if the capital value of the equity is falling, you are still being paid the income in most cases.

TAKING A LONG-TERM PERSPECTIVE

We would argue that not only should investors consider adopting global equity income as part of their equity component, but also that they should stop thinking of it purely as a short-term growth opportunity.

We believe that global equity income should be considered as an effective strategy over a longer-term time frame in the same way private equity or infrastructure investments are, but with the added advantage of having greater liquidity and the greater transparency that comes with investing in listed companies.

In our view, dividend payments should appeal to investors who may require a regular income for financing retirement, and if viewed as an integral part of the portfolio for the long term, global equity income may also offer reliable and steady capital growth to help investors achieve their dual objective of generating income without depleting capital over time.

Not FDIC-Insured. Not Bank-Guaranteed. May Lose Value.

BNY Mellon Investment Management is one of the world's leading investment management organizations and one of the top U.S. wealth managers, with $1.6 trillion in assets under management.  It encompasses BNY Mellon’s affiliated investment management firms, wealth management services and global distribution companies.  More information can be found at www.bnymellon.com. 

RISKS

Equities are subject to market, market sector, market liquidity, issuer, and investment style risks to varying degrees. There is no guarantee that dividend-paying companies will continue to pay, or increase, their dividend. Investing in foreign denominated and/or domiciled securities involves special risks, including changes in currency exchange rates, political, economic, and social instability, limited company information, differing auditing and legal standards, and less market liquidity.  These risks generally are greater with emerging market countries.  Diversification cannot assure a profit or protect against loss.

“Newton” and/or the “Newton Investment Management” brand refers to the following group of affiliated companies: Newton Investment Management Limited, Newton Investment Management (North America) Limited (NIMNA Ltd) and Newton Investment Management (North America) LLC (NIMNA LLC). NIMNA LLC personnel are supervised persons of NIMNA Ltd and NIMNA LLC does not provide investment advice, all of which is conducted by NIMNA Ltd. NIMNA LLC and NIMNA Ltd are the only Newton companies to offer services in the U.S. Newton is a wholly owned subsidiary of the Bank of New York Mellon Corporation.

Canada: Securities are offered through BNY Mellon Asset Management Canada Ltd., registered as a Portfolio Manager and Exempt Market Dealer in all provinces and territories of Canada, and as an Investment Fund Manager and Commodity Trading Manager in Ontario. BNY Mellon Asset Management Canada Ltd is an indirect wholly-owned subsidiary of The Bank of New York Mellon Corporation (BNY Mellon). BNY Mellon Asset Management Canada Ltd., 320 Bay St., Toronto, ON M5H 4A6.

This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular investment, strategy, investment manager or account arrangement. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Please consult a legal, tax or investment advisor in order to determine whether an investment product or service is appropriate for a particular situation. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. The Dreyfus Corporation, Newton and MBSC Securities Corporation are companies of BNY Mellon. ©2017 MBSC Securities Corporation, Distributor 225 Liberty Street, 19th Fl., New York, NY 10281.

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