The pandemic has caused a great deal of uncertainty for investors, writes Kiran Chavda, Investment Manager with Charles Stanley Cambridge. In the UK, over half of FTSE 100 dividends are accounted for by 10 companies and finding an income amongst all the dividend cuts and cancellations has been challenging.
With companies suspending or cancelling their dividend payments, any investors who’d normally rely on them could run into problems. This is particularly the case for clients who only draw their dividend income from the portfolio, without touching the growth element.
In these difficult times investors can be tempted to overstretch their risk budgets to target higher income yields. This could mean investing in lower quality credits in the bond market or investing in higher risk regions.
Rather than allocating money to those areas which offer an attractive income, but which have stressed balance sheets and high levels of debt, a total return approach may be more appropriate.
By taking a total return approach we can target some of the high growth investment areas which are performing well and are expected to continue to perform well throughout the pandemic.
Rather than relying on dividends alone to provide an income, with a total return approach we can pay out some of the growth in the investment as an income.
There are certain sectors which have performed well during the pandemic. This includes the healthcare, consumer staple and technology sectors.
Companies directly involved in the COVID-19 response have naturally done well financially. These range from companies providing the NHS with personal protection equipment to healthcare companies who are involved in finding a vaccine.
With people no longer able to dine out at restaurants and instead cooking at home, coupled with the panic buying which we have seen, supermarkets and online retailers have also done extremely well.
When we initially build portfolios for clients, we agree a long-term strategic asset allocation, however it is crucial in uncertain times like this that we are flexible in our approach.
The bespoke nature of our portfolios means that we can make tactical investment changes to take advantage of market opportunities. More importantly we can adapt to threats in the markets and we can also adapt to our clients changing needs. This is key in these volatile markets so that portfolios are not exposed to unnecessary risks.
To discuss your investments and the options available to you, arrange your free consultation with a member of our Cambridge team.
01223 853 598
cambridgebranch [at] charles-stanley.co.uk
• Past performance is not a reliable guide to future returns. The value of investments, and any income derived from them, can fall as well as rise. Investors may get back less than originally invested. Charles Stanley & Co. Limited is authorised and regulated by the Financial Conduct Authority.