What fundamentals are important for growth and which industries call for caution? Rapid growth in the ETF industry and a surge in multi-asset funds are among the current news for capital-growth investors.
Identifying Yields Capable of Growth (FT Adviser, April 21)
Dividends are a sign of a company’s financial health and stability and are a key determinant of equity returns. However, investors should use caution with very high-yield dividend payouts as it “can be a sign that the company is under financial stress, and may be forced to cut its dividend.” Investors should look beyond high dividend yields “to find sustainable yields that are capable of growth.”
Fund Review: Multi-Asset Income-Focused Products Stand Out (FT Adviser, May 2)
Emerging markets offer “assets such as renewable energy and infrastructure, which have very little sensitivity to the economic cycle, but which also have strong contractual obligations to provide inflation-linked revenues.” The current low-yield environment offers “plenty of opportunities around the world to generate both income and growth, without having to overreach for yield.”
Exchange-Traded Funds Become Too Specialised (The Economist, April 27)
The current growth in the ETF industry has invited investors to take advantage of the rapid expansion by creating specialized funds based on industries. “They appeal to investors who believe an industry will outperform, but who do not want to pin their hopes on an individual company.” However, if a fund is too specialized it limits the companies available to invest in. This pattern has emerged before with mortgage-backed securities and the investment-trust sector. Although the ETF sector has not reached these extremes, “there are signs that rapid flows into some ETFs can lead to price distortions.”
Fund Review: Multi-Asset Buzz Signals Renewed Risk Appetite (FT Adviser, April 24)
With a surge in recent months, multi-asset funds represent the second largest Investment Association (IA) sector by funds under management. With investors looking to diversify in a volatile market, “multi-asset funds can be expected to persist in the medium and long term.”
The Global Equity Funds the Professionals Are Backing (FE Trustnet, April 25)
Investors discuss what fundamentals are important when constructing portfolios focused on global equity funds. In order to achieve long-term capital growth, “simple companies with good cash flow generation” and that “are understandable, transparent, not complex with predictable return distributions and a proven ability to allocate capital.”
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