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CAZENOVE CAPITAL’S PETER HILLIER JOINS US TO ANSWER A QUESTION ABOUT INVESTMENT
ANSWER: The coronavirus pandemic has put UK investors dependent on investment income in a tight spot. Government bonds in the UK now yield less than 0.5%. And financial market participants expect dividends from companies in the FTSE 100 to fall by around half this year. News of dividend suspensions and cancellations have been coming through thick and fast since the UK went into lockdown in late March. Companies in the most challenged sectors – such as leisure and travel – have little choice. The lockdown is imposing a significant strain on their cash flows and balance sheets. Retaining dividends is helping them weather the storm. For other companies, halting dividend payments is a matter of prudence. Given the current economic uncertainty, holding onto cash is the sensible thing to do. These dividends should come back once it is clear that the economy is returning to normal. In some cases, this could be relatively soon after the lockdown ends. In others, such as the banking industry, this could take longer as regulators seek comfort that banks have sufficient capital to cope with a worst-case scenario. It’s not all bad news. In some sectors, such as healthcare, dividend pay-outs remain largely intact. And international markets look set to suffer much more modest falls. For instance, at the time of writing, investors are expecting a fall of just 20% in dividends paid by companies in the S&P 500 this year. Our approach can be helpful to clients during this challenging period. The majority of our equity investments are in markets outside the UK and should therefore experience less dramatic falls in income. In addition, we have meaningful exposure to sectors that are better positioned to navigate the current turmoil, such as technology and healthcare. Finally, our research capability puts us in a good position to take advantage of more specialized opportunities which can provide clients with attractive income, such as emerging market debt and alternative investments. This article is for information purposes only and should not be interpreted as investment advice.