What are the prospects for equity income funds in 2012?

What are the prospects for equity income funds in 2012?
  • Sonja Laud, Fund Manager, Global Equity Income
  • 29 Mar 2012

It is fair to say that 2011 was not the most auspicious year for global equity markets. The exuberant rallies, characteristic of markets in 2009 and 2010, made several flash appearances last year, but it was a much choppier picture overall and the overarching mood was one of caution and risk aversion.

First published in Financial Adviser, March 2012

Encouragingly, equity markets have entered 2012 on a strong footing. The optimism that accompanied a more positive economic outlook has seen an easing in the demand for perceived safe havens; while equity markets have enjoyed the increased attention. In March, the S&P500 Index surpassed the 1400 mark, a feat not achieved since 2008, and the DAX Index burst through the 7000 mark.

The macro picture has been helped more recently by a moderate improvement, or at least stabilisation, in economic data, and central banks worldwide are providing support through accommodative monetary policies. In Europe, the central bank has taken the immediate funding pressures off the table by issuing unlimited discounted three-year loans through its long-term refinancing operation. Although these recent moves fall short of addressing issues of sovereign insolvency and cannot serve to disentangle the region’s political complexities; quantitative easing ‘European style’ is at least providing a more stable platform and should allow for more constructive negotiations towards greater political and fiscal stability in the region. Across the pond, the US Federal Reserve commented that rates would likely remain low through to late 2014, while there are signs of tempering inflation in China.

These factors support a more constructive macroeconomic view in the near-to-medium term, and should continue to support risk assets globally in 2012; but what does this all mean for investors on the hunt for yield?

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