Glenn Freeman: I'm Glenn Freeman for Morningstar and I'm joined today by Jane Shoemake, Investment Director for Global Equity Income with Henderson Global Investors.
Jane, thanks for joining us.
Jane Shoemake: Thank you.
Freeman: Jane, what do you see as the biggest area of opportunity for individual investors?
Shoemake: It's a difficult environment for retail investors at the moment. Cash rates are low, bond yields are very low, it's a very difficult place to put your money and to actually get any income. So I think there is a big opportunity with global equity income. And I think demand will continue for that type of product given that we've got ageing populations.
Within the gobal equity income space, we're finding a number of attractive opportunities. On a sector basis, we are seeing some really good cash flow out of some of the technology companies, which is very supportive of dividend growth and income. In addition, healthcare is looking very attractive as well as telecoms.
Conversely, we think valuations are looking quite stretched and there is not very good cash flow within utilities and also within some of the energy stocks.
So I think really what I would say for retail as investors is there are still plentiful of opportunities in equities, there are some good dividends out there to be got, but you need to have an active approach in trying to seek out the best opportunities.
Freeman: Now, what does an asset manager like Henderson offer individual investors, especially SMSF trustees over and above being self-directed?
Shoemake: The product that I work on, global equity income, is the world ex-Australia product; so it's global equity, ex-Australia. And I think it can offer Australian investors a great opportunity to diversify their portfolios.
In the Australian market, you have a really good dividend yield but there is very much concentration towards the financial sector where 60 per cent of the income of the market comes from your financials.
And I think really it is very important that you diversify that income stream and a product like ours gives you a great opportunity to go global, get access to some different types of companies and to diversify the income that you have in your portfolios.
Freeman: These are often a key reason why people will avoid using a fund manager, especially for active approaches. What are some of the trends you are seeing here?
Shoemake: I mean, there has indeed been an explosion in passive funds and in ETFs and they are much lower costs, but we have seen investors continue to see the value in active management. Our team, in particular, investors have recognised the expertise we have in equity income and the value that we have added to portfolios over the 10 years that we have been running global equity money.
Freeman: Now, there is obviously still a lot of volatility in global markets. What are some of the key risks that you are seeing here at the moment?
Shoemake: There is a lot of macro risks out there. There is also a lot of geopolitical risk. We've got the US elections coming up. French and German elections as well next year. But from a stock picking perspective some of the risks we have seen is...some dividend cuts. So the environment we are facing now is more challenging than it has been for the last couple of years. We've had some dividend cuts, obviously, in the mining sector and in the energy sector, particularly all services companies. But even some of the larger integrated oil companies have cut their dividends.
And then in the financial area we have some banks returning to the dividend list but other banks suspending or still cutting dividends. So I think it's quite a challenging environment, and what you need to do is have an active approach to seek out those companies that can continue to pay you dividends, have decent cash flow and will be able to grow that cash flow.
Now the good news is we are finding plenty of opportunities ,for companies that are giving us some really strong dividend growth. We have Microsoft who have just announced an 8 per cent increase in their dividends. Companies like Taiwan Semiconductor, 33 per cent increase in dividends.
So I think again it is about having a manager who can identify where the opportunities are and ensure that you avoid some of those more challenging areas.
Freeman: And just finally what are major distinctions that you've observed between the UK funds management market and Australia?
Shoemake: Actually, there is a lot of similarities between Australia and the UK. We've both got ageing populations as have other parts of the world and a huge demand for income. The superannuation scheme here is a little bit more evolved than our similar schemes back in the UK, but what we are seeing is that people...really in retirement, income is absolutely critical, it's very hard to find at the moment in this low interest rate environment. And we expect demand for products such as ours to continue well into the future as people stay invested into their retirement and accept that equities are giving them a very, very decent yield of around 4 per cent at the moment.
Freeman: Thanks very much for your time today, Jane.
Shoemake: Thank you.
Freeman: I'm Glenn Freeman for Morningstar. And thanks for watching.