Global equity income: electing for future dividend growth

30/11/2016

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Andrew Jones and Ben Lofthouse, co-managers of the Henderson Global Equity Income Strategy, continue to focus on companies across markets with attractive yields and good dividend growth potential. They believe that income remains scarce and that Europe looks attractive despite 2017 election concerns.

What lessons have you learned from 2016?

2016 has highlighted that it is very important to look beyond headline economic data. Markets have been used to doing this with regards to China for a long time but the rate of Gross Domestic Product (GDP) growth in developed markets has disguised the fact that a large percentage of the population has not benefited from either the economic or market recovery. This in part led to the surprise vote in the UK to leave the European Union and more recently the election of Donald Trump as President of the US. It is also worth noting how poor the polling industry was at predicting either outcome. Investors’ forecasts and predictions regarding the market’s reactions following both events were also inaccurate.

Going forward, it is clearly going to be important to consider the effects of forthcoming European elections on markets.

What are the key themes likely to shape the market in 2017?

With the largely unexpected election result in the US and the Brexit vote in the UK, it is highly likely that fiscal austerity will no longer be a key focus. Other countries have the same issues as the UK and the US and will have noted the two outcomes. There is likely to be a shift from monetary stimulus to fiscal expansion, which is likely to lead to higher interest rates and bond yields, and a pick-up in inflation from current low levels. There is also likely to be increased anxiety around European elections and fears over any increase in protectionist policies, given global trade currently accounts for 60% of global GDP.

What are your highest conviction positions as you move towards the New Year?

We continue to focus on companies that have strong fundamentals, good balance sheets and attractive cash flow characteristics that can support growing dividends. The strategy has a broad spread of industry exposures and we are finding good value at a sector and country level. Europe as a region looks attractive as austerity has ended and banks are now lending again.

What should investors expect from your portfolio in the coming year?

The strategy’s approach will be unchanged in that it will aim to achieve income and capital growth by focusing on cash-generative companies with attractive yields. The global equity income universe continues to be in good health and it is possible to find companies offering real dividend growth in all regions. As ever, it is important, however, to not pay too much for this income. With this in mind, the strategy has broad exposure across geographies and sectors, and we believe it has the potential to provide good returns to investors in a variety of market conditions.

Glossary:

Fiscal austerity – measures implemented by a government that include raising taxes and cutting spending in an attempt to reduce government debt.

Monetary stimulus – includes action by central banks to increase the supply of money and lower borrowing costs.

Fiscal expansion – an attempt to increase economic growth through means such as increases in government spending and a reduction in taxes.

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

The information in this article does not qualify as an investment recommendation.

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Janus Henderson Horizon Global Equity Income Fund

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