Equity income still fine strategy

If interest rates rise soon it will not make yield-focused equity investment strategies any less appealing or effective for advisers looking to provide retirement income for clients, says Nick Dravitzki, of Devon Fund Management.

Friday, June 14th 2013, 8:42AM

by Susan Edmunds

Devon is presenting a seminar at Heathcote Investment Partners and The Investment Store's Perfecting Investment Portfolio conference next month on achieving sustainable yield through equities, in particular for people looking for retirement income.

Dravitzki said the seminar would focus on yield investing as an attractive style of equity exposure. He said for most equity investors, the vast majority of their return over time came from dividends paid rather than capital gain and many New Zealand investors were keen on high-yielding stocks.

Investors who adopted a strategy of investing in equities that would provide high dividends would gain a conservative equity exposure and satisfactory investment outcomes. Studies had shown yield-driven portfolios did well over the long term, he said.

In the current environment, with bond rates falling or at historically low levels, people are seeking yield to provide new income sources. Dravitzki said investors still remembered being able to get 7% or 8% by investing in bonds and were looking at equity yields as an alternative.

Both Australia and New Zealand have a greater number of high yielding stocks on an international basis because there is a slant towards property. “There’s a weighting towards stable cashflow streams and relatively modest growth stocks. Unless the constituents of the market change markedly [the prevalence of high-yielding stocks is] unlikely to change.”

Reserve Bank Governor Graeme Wheeler yesterday hinted that small interest rate rises were possible before long. But Dravitzki said interest rates were unpredictable and yield-seeking had proven to be an effective strategy right through cycles. “While it is true that the momentum of markets and inflows towards high-yielding parts may see some shifting out of high-yielding stocks if interest rates rise but that doesn’t mean all stocks will be punished.”

He said stocks that were attractive on a valuation basis would hold up.

He cited the Westfield retail trust and insurance firm TOWER as good yield options for investors.

« US manager sees value in New Zealand

IFA working on pro-bono offering »

Special Offers