Al Clark

Australian and New Zealand investors’ sizable allocations to global assets is leading Nikko Asset Management to make a major global product push into these markets, the company announced yesterday.

The Tokyo-based asset manager is also aligning the current Tyndall brand names in both Australia and New Zealand with the firm’s global name, Nikko Asset Management.

The asset manager will use its expanded investment expertise and capabilities to provide new products to institutional and retail clients in both countries. In August, Nikko Asset Management formed a new global multi-asset team led by Al Clark. In the same month, it added a global active equity capability headed by William Low, and in October 2013, an Asia ex-Japan equity team led by Peter Sartori.

“We are one company and therefore should share one name globally as Asia’s premier global asset manager,” said Takumi Shibata, president and chief executive officer of Nikko Asset Management. “The investment teams, the sales and marketing teams and the back office teams are all working collaboratively for the benefit of our clients. One brand simply reflects what is already working for us.”

Nikko Asset Management plans to introduce several global strategies through its local subsidiaries in Australia and New Zealand in the coming months, while continuing to offer products investing in local securities. The move will allow the firm to leverage its significant global resources in meeting the varied needs of investors.

“We are very pleased to be expanding our global offering to Australian investors,” said Mike Davis, Managing Director of Nikko Asset Management, Australia. “The evolution of our business over the past three years as part of Asia’s premier global asset manager has added to our depth of investment capabilities to meet the sophisticated needs of our clients in this competitive environment. Approaching the market as Nikko Asset Management in Australia will allow us to differentiate the value we bring to our clients, borne out of our Asian insights.”

The firm’s Australian operation has A$24 billion (US$23 billion) in assets under management, representing approximately 14 percent of Nikko Asset Management’s total assets of US$168 billion as of June 2014.

“Nikko Asset Management is well known globally, and we are excited to bring more of the firm’s global expertise to our clients,” said Peter Lynn, Managing Director of Nikko Asset Management, New Zealand. “With this brand transition, there is no change to our investment teams, their investment philosophy, processes or portfolios. As one company, with one name, we will further distinguish our offering to clients in New Zealand.”

The company’s New Zealand operation, which is based in Auckland, is the only foreign asset management firm operating in the country. Its assets under management reached NZ$3.8 billion (US$3.3 billion) as of June 2014.

According to a June 2013 survey conducted by the Australian Prudential Regulation Authority[1], some 31 percent of superannuation fund assets were allocated to global investments, with 25 percent in equity and 6 percent in fixed income. Meanwhile, in New Zealand, a survey of leading balanced funds by Aon Hewitt[2] reveals that 48 percent of assets were allocated globally, with 32 percent in equity and 16 percent in fixed income.

Nikko Asset Management is conducting its inaugural Foreword client event this week in Melbourne, Sydney and Auckland. Speakers include the firm’s global head of investment Yu-Ming Wang, in addition to the portfolio managers in charge of its leading global and local investment strategies.

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[1]Annual Superannuation Bulletin June 2013 (revised February 5, 2014)

[2] The Aon Investment Update, Aon Hewitt Investment Consulting July 2014

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Sophievskaya Square, Kiev, Ukraine

A long-running overweight stance on global equities is being trimmed by Nikko Asset Management’s Global Investment Committee (GIC), the company announced today. Nikko AM is a related entity of Tyndall Investment Management Limited (Tyndall AM).

The GIC has been able to shoulder all the various global risks since September 2011 and still maintain an overweight stance on global equities, but earlier this week in an ad-hoc meeting, it voted to recommend slightly decreasing risk to a neutral stance.

A major reason was the Ukraine tensions, but other factors also played a role in the GIC’s concern. It has long maintained a cautious stance on China, and there are increasing signs of shadow banking defaults and declining residential property prices. Many other reforms are accelerating there, and while positive in the long-run, such will likely cause overall uncertainty and difficulties in the short term. On the other hand, certain segments of the economy will benefit strongly from the reforms even in the short term, and the GIC is by no means calling for a hard landing; rather, that economic growth will moderately disappoint consensus expectations.

As for other factors, fairly elevated US equity valuations and the strong rise in US equity prices over the last year also contributed to the GIC’s concern, especially as earnings growth will likely be hampered by the recent weather calamities.

As for the Ukraine, the GIC agreed that Putin is not likely to invade other parts of Ukraine, but that, quietly, the West likely assumed that Russia would not give up Crimea. Thus, most of the complaints from the West are mostly rhetoric and perhaps intended to make Putin look “tough”. Going forward, a stalemate and long negotiations are the most likely outcome, with the West essentially controlling 95% of Ukraine, but also needing to keep decent relations with Russia (for energy, primarily). Thus, a “Finlandization” of the Ukraine (without becoming a full EU or NATO member), with an autonomous Crimea, is the most likely outcome in the years ahead. There is always the chance, however, that the local populations begin to fight with each other, which would escalate geo-political tensions greatly. Hopefully, they will realize that the Yugoslavian break-up is not a good model and that ethnic cooperation is essential.

In sum, it is extremely rare that we make ad-hoc decisions like this, and it is meant to be temporary until we meet on March 27th in full session to make a final decision.

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Japanese market survives volatility.

Japan’s equity market weathered an onslaught of selling in February by global macro hedge funds who were disappointed that the Bank of Japan (BOJ) didn’t accelerate its easing plan, according to a new research report from Nikko Asset Management (Nikko AM), a related entity of Tyndall Investment Management Limited (Tyndall AM). As Japanese equities weakened and the yen appreciated, global risk markets dipped, though most rebounded quite quickly following the February trough. Risk markets will likely continue to be volatile through to the end of the second quarter, however, as underlying fundamentals remain intact, Nikko AM’s view is to maintain its longstanding overweight on global equities, and Japanese equities in particular.

“In our view, Japan does not need a much weaker yen, nor does the BOJ have to add to its monetary easing plan to achieve decent economic growth or a positive equity market,” said John F. Vail, Chief Global Strategist at Nikko AM’s Tokyo head office. “In fact, as the yen stabilises and forex hedge losses dissipate, this should accelerate corporate profitability and push up Japanese stock prices. This would be a boon for U.S. dollar-denominated investors, who would benefit from the rising stock market without losing half the gains from yen weakness. Japan’s Price-Earnings Ratio is very attractive, especially given the positive surprises in the current earnings season.”

Japan’s 2013 fourth quarter GDP growth was 1.0%, far below the consensus of 2.8%. However, Nikko AM’s research suggests that Japan’s GDP is greatly understated due to continuously falling inventories, and we expect that the figure will be revised upward. Assuming inventories had not declined, GDP growth in the fourth quarter would have been 3.4%. Despite such numbers, Japan had the highest year-on-year growth rate out of the G3 in both the third and fourth quarters of 2013, culminating in a 1.6% year-on-year growth for calendar year 2013.

Personal consumption in Japan also grew strongly in the fourth quarter of 2013 and should continue in the first quarter 2014, as buyers front-run the 3% VAT hike due in April 2014. We expect personal consumption in the second quarter to plunge following the VAT hike by as much as 13% quarter-on-quarter (seasonally adjusted annual rate) and minus 1% year-on-year, but will likely be reversed in the third and fourth quarters of 2014. This would lead to year-on-year growth in personal consumption being flat by the end of 2014.

Thus, we continue to believe that Japan’s recovery is intact, and our forecast is for 5.3% GDP growth quarter-on-quarter (seasonally adjusted annual rate) in the first quarter of 2014 and 2.0% GDP growth for calendar year 2014.

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Craig Young

Australian banks have been among the strongest performing stocks in the Australian share market this year. Attractive dividend yields have been a primary driver of the banking sector’s outperformance in this low interest rate environment.

With valuations now very stretched, what lies ahead for the banks, particularly when quantitative easing in the US comes to an end?

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Tyndall Australian Share Concentrated Fund added to Asgard eWrap.

Following its inclusion on Colonial First State’s FirstWrap platform, the Tyndall Australian Share Concentrated Fund has also been added to Asgard eWrap.

The fund was launched to the retail market in May this year, and has already been rated ‘recommended’ by Zenith. The fund’s aim is to provide long-term capital growth and income by investing in a concentrated selection of shares included in the S&P/ASX 200 Accumulation Index.

Matt Russell, head of sales and marketing at Tyndall AM, said that there has been a very high level of interest in the fund by advisers.

“A number of advisers have told us that their clients are increasingly seeking specific outcomes and opportunities from the Australian equities fund component of their portfolio, not simply a generalist or index-hugging approach.

“The Tyndall Australian Share Concentrated Fund fits this criteria through its concentrated nature and more mid-cap bias, as well as its total return approach,” he said.

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Matt Russell

Colonial First State has added Tyndall AM’s Tyndall Australian Share Concentrated Fund to its FirstWrap platform, demonstrating the strong ongoing adviser and investor demand for high quality, total return equities strategies.

Matt Russell, head of sales and marketing at Tyndall AM, said this is a very quick addition to a platform for a new fund, illustrating the ongoing demand for a concentrated, benchmark-unaware equity investment.

“Our discussions with advisers indicated that their clients are focused on total returns and prefer funds that are managed in a risk-aware manner, rather than looking at performance relative to a benchmark. This was a key driver in our decision to launch this fund to the retail market earlier this year.

“We are also aware that advisers are seeking funds that can be blended together, and offer diversification benefits such as having lower correlation to the market or to each other.

“Because of its concentrated nature and more mid-cap bias, the Tyndall Australian Share Concentrated Fund is proving a very attractive strategy for advisers, and we continue to see a high level of interest from dealer groups in adding the fund to their product lists,” he said.

While the fund was launched to the retail market in May this year, it has been available to institutional and professional investors since 2010. The strategy underpinning it has a 15-year track record and was originally developed by Tyndall for institutional investor mandates.

The fund’s aim is to provide long-term capital growth and income by investing in a concentrated selection of shares included in the S&P/ASX 200 Accumulation Index. Since its launch to the retail market, the fund has been rated ‘recommended’ by Zenith.

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The future of fixed income.

Roger Bridges, Head of Fixed Income and Anita Daum, Head of Portfolio Management and the portfolio manager for the Tyndall Australian Bond Fund have provided their answers to AdviserVoice on fixed income and the future for bonds.

Roger has 30 years’ experience in the fixed income market, and has overall responsibility for managing and implementing the strategy for Tyndall’s fixed income portfolios. Anita has 11 years’ experience in the fixed income market and has been managing the Tyndall Australian Bond Fund for four years.

Why did bonds take such a hammering in June?

Roger:  The June reaction of bonds was due to the market’s expectation for the reversal of quantitative easing or QE in the US. Bonds prices surged to record highs in recent years, in part due to central banks such as the US Federal Reserve and Bank of England buying them under QE programmes. The intention – and the effect – was to push down bond yields, which move in the opposite direction to prices.

Low bond yields tend to cause interest rates to fall. This helps to reduce the cost of borrowing for consumers and governments and boost the prices of other assets such as shares. These effects can help pull a country out of recession and assist economic recovery.

But as the recovery gathers momentum, central banks try to curtail and then reverse QE, sending the previous trends into reverse. Announcements by the Fed in June that it planned to scale back its QE programme sparked fear among investors, sending bond prices in the US sharply lower and yields higher. Our bond market is strongly affected by the movement of US bonds, particularly longer-dated bonds such as the 10-years. As a result, we also saw a sell-off here with yields rising and bond prices falling below fair value.

Following this upset, the Fed was forced into a partial retreat and tried to calm market fears over QE tapering, which caused bond yields to fall back to more normal levels. In fact, July saw Australian bond market indices post modest positive returns as bond yields fell.

Can we expect more volatility in the short term?

Roger:  In our view, September seems to be a likely start date for the US Fed’s tapering of its bond-buying programme. The Fed indicated back in June that it may start tapering next month and recent strong economic data makes this all the more likely. In the past week or two, we’ve seen strong US employment and consumer price data.

Given the strong correlation between the movement of US government bonds and Australian government bonds, bond market volatility remains a strong possibility as the market tries to work out what the effects of tapering QE will be.

As growth improves in the US and this tapering of QE comes into effect, how likely is it that we will see another 1994 with bonds experiencing negative returns?

Roger:  It is possible, though unusual, for bonds to deliver negative returns. In general, this only occurs when either the cash rate unexpectedly increases by a large amount or the bond market tries to price in unexpectedly large rate increases and adjusts these expectations quickly. If these market expectations are slowly priced in, then the market value of bonds may fall but they don’t experience negative returns, only lower returns.

This is what happened in 1994: The Fed and its chairman Alan Greenspan were worried about inflation following the 70s and 80s and so decided to take swift action to avoid a spike in inflation. The market was surprised by the sharp rate hikes that the Fed introduced and US bonds didn’t respond until the rate hikes occurred since they were not well telegraphed in advance. The market then panicked and bond yields jumped, while prices fell. 2004-2006 also saw rate hikes in the US but because the Fed was more transparent and took action more slowly, the market had time to react to avoid bond losses.

The current situation is likely to be a repeat of 2004-2006. The Fed is telegraphing its moves in advance so the market shouldn’t be taken by surprise, although there might be brief periods of panic, like in June. But in the longer term, QE unwinding and rate hikes will be slow, measured and telegraphed in advance which shouldn’t lead to bond losses even though the trend will be for yields to rise.

Focusing back on the domestic economy, what’s the likely impact on our bond market of the upcoming Federal election?

Roger:  There is unlikely to be much of a reaction. In general, investor confidence should improve if there is a clear-cut outcome, with one party obtaining a decent majority. A hung parliament will be a negative for confidence and add to uncertainty.

Whichever party wins, if they intend to achieve a fiscal surplus, then obviously that will have an effect on bonds due to the reduction in bond issuance. If there are fewer bonds on issue, it should help to support pricing and keep yields lower.

With prices surging to record highs in recent years, is it fair to say that Australian bonds have had their day?

Roger:  Given historically high prices and low yields, investors have been questioning whether bonds have had their day. I don’t think this is the case.

Australian 10-year bonds have fallen from around 15% in 1982 to record lows below 3%.  The decline in bond yields has been largely the result of a structural decline in global inflation expectations, partly due to QE from central banks around the world and partly to slowing population growth and an aging population.

But in the shorter term, there are three main reasons why Australian bonds should remain attractive.

1)     Foreign investment. Even though this has started to drop off, it is still historically very high. Before the GFC approximately 20-30% of our bonds were held offshore, but by this year, it had jumped to just under 80%. This is largely due to other central banks wanting to diversify away from currencies such as the US dollar.

2)     QE globally. For Australia, this artificial suppression by other central banks means that there is increased demand for our higher yielding assets. Although interest rates are at record lows, our cash rate of 2.5% is still much higher than the zero or close to zero rates seen in Europe, the UK and the US.

3)     Our AAA rating. Australia is one of only 8 countries that has a AAA rating with a stable outlook from all 3 major rating agencies (Standard & Poor’s, Fitch, Moody’s).

So, in a world with a still highly volatile macroeconomic backdrop, the combination of very loose monetary policy in other countries and foreign demand for our debt due to its yield advantage should help to support the bond market in the medium term. We don’t envisage many catalysts that would suddenly push bond yields upwards for a sustained period.

Anita, why should an investor maintain a bond allocation in their portfolio?

Anita: Australians have traditionally invested in shares rather than bonds. But bonds are a valuable component in a diversified portfolio. Bonds tend to perform relatively better in market downturns and when deflation is a major risk. Diversifying a portfolio so that it includes fixed income alongside other assets can help balance returns and reduce overall risk.

Although equities can offer the potential for greater returns more quickly, they involve considerable volatility and the potential for capital losses. Fixed income, on the other hand, offers regular, predictable income with a greater likelihood of capital protection and much more stable returns over the long term. It’s the non-correlation to equities that’s important – bonds should outperform when equities are underperforming and vice versa. So it’s important to have some of a portfolio invested in bonds.

What do you think an investor should look for when choosing a bond fund to invest in?

Anita:  If an investor wants a core bond holding to diversify their portfolio, then they should look for a traditional “true-to-label” bond fund to offset the volatility of other market sectors and provide that non-correlation to equities risk.

A fixed income fund should perform well in market downturns, providing the consistency of performance and regular income that investors expect. However, it’s important to note that not all bond funds are the same. For example, some funds are able to allocate large portions of their portfolio to credit. This gave investors in some of those funds a nasty shock during the GFC. Instead of the fixed income portion of their portfolio doing its job and being the outperformer during that time, funds that were very overweight credit actually performed badly and in some cases actually delivered negative returns during that period.

Our flagship bond fund did very well during the GFC because it is a true-to-label fund that is highly risk-aware and designed to deliver consistent performance even through serious market dislocations, when equities are doing badly.

So, it’s important to consider what an investor wants from fixed income and choose a fund accordingly. If it’s a non-core holding and the investor is looking for a higher return and is prepared to take on extra risk, then a fund that is able to invest in riskier securities could be appropriate. But if the investor is looking for a core holding, then they want a conservative true-to-label fund that won’t give them any nasty surprises at a time they can least afford them.

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Disclaimer

This document was prepared and issued by Tyndall Investment Management Limited ABN 99 003 376 252 AFSL No: 237563 (“TIML”). The information contained in this document is of a general nature only and does not constitute personal advice. It is for the use of researchers, licensed financial advisers and their authorised representatives. It does not take into account the objectives, financial situation or needs of any individual. The Tyndall Australian Bond Fund ARSN 098 736 255 is issued by Tyndall Asset Management Limited ABN 34 002 542 038 AFSL No: 229664 (“TAML”).  Investors should consult a financial adviser and the information contained in the current Product Disclosure Statement available at www.tyndall.com.au before deciding to invest.  TIML and TAML are wholly-owned subsidiaries of Nikko Asset Management Co., Ltd.

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Tyndall AM launched the fund in May this year to the retail market, although the strategy underpinning it has a 15-year track record and was originally developed by Tyndall for institutional investor mandates.   It is managed by Tyndall AM portfolio managers Jason Kim and Tim Johnston.

In its report, Zenith said “[It] believes the Tyndall Australian Equities team is well resourced and highly experienced.

“Tyndall’s team structure and work process is both well organised and clearly defined, with stock and sector responsibilities allocated across analysts (approximately 15 to 20 stocks per analyst) to ensure solid peer review of companies and a ready basis for comparison with other stocks in other sectors.

“The Tyndall team is well incentivised through equity participation and for the most part have worked together for many years. The peer review process ensures that a collegiate environment is fostered and is one of the core strengths of the Tyndall process.”

Zenith added that: “Overall, we consider Nikko AM’s global network to be an advantage for Tyndall in which to gain additional regional and global insights to complement their existing capabilities.”

Matt Russell, head of marketing and sales at Tyndall AM, said the strong rating from Zenith is a positive endorsement of the skills and track record of the Tyndall equities team, in particular Mr Kim and Mr Johnston.

“We are already seeing a high level of interest in the fund after just a couple of months in the retail market, and this is testament to the quality of the team behind the fund and the long-standing success of their investment approach and strategy,” Mr Russell said.

_____

The fund’s aim is to provide long-term capital growth and income by investing in a concentrated selection of shares listed on the S&P/ASX 200 Accumulation Index.

As at 30 June 2013, the fund returned 29.5% over the previous 12 months (before fees), outperforming the index by 6.2%. Since inception in May 2010 it has returned 11.2% p.a. (before fees) versus 8.3% p.a for the index**.

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Nikko AM: reforms will be even stronger than promised before the election.

The outcome of Japan’s election yesterday (Sunday 21 July 2013), which has seen prime minister Shinzo Abe win control of the powerful upper house, will allow a “Super-Abenomics” strategy to be implemented, with the potential to take investors by surprise, says John Vail, chief global strategist at Nikko AM (one of the largest asset management companies based in Asia and the parent of Tyndall AM).

“Many global investors have been sceptical of late about the structural reforms in Japan and the ability of Abenomics to achieve its aims, but at Nikko AM we are not,” Mr Vail said.

“In fact, our belief is that these reforms will be even stronger than promised before the election, and undertaken with alacrity, in what we call ‘Super-Abenomics’.

“In our view, Abe’s victory in the upper house is bullish for Japanese equities and the Japanese economy as a whole, as the removal of political headwinds bolsters the government’s ability to press forward with all ‘three arrows’ of its growth strategy.

“The election result should help drive consumer consumption and thus build wealth in Japan, while the confidence created in government stability may also help corporate capex and housing investment.

“Other major reforms following the election, which I expect will surprise the consensus, include allowing a gambling industry in Japan, approving large scale resorts, and accelerating the restart of nuclear power plants.

“These are controversial issues but will have a positive effect on the economy and, significantly, they mark a huge change in Japan’s willingness to change for growth,” Mr Vail said.

He added that what is being done now in Japan hasn’t been attempted for decades; however, within Japan there is growing belief that this time it will work.

“It’s understandable for there to be some scepticism from investors, but this time is different and investors need to open their eyes to this.

“For instance, the five-year term of an activist Bank of Japan (BOJ) governor, after fifteen years of conservative “BOJ men”, is not a short term change, and the significance of the stability of the prime minister, after a decade of revolving chairs and instability, cannot be underestimated.

“The mere fact that Japan is without crisis of some kind is a major change, but in reality this is just a return to prosperous conditions.

“While the consensus forecast for GDP in Japan for this calendar year is 1.8 per cent, we expect 2 per cent or higher, with more consistent continuing after that.

“Our view is that global investors should be seriously considering Japanese equities, or they may well miss out on major opportunities,” Mr Vail said.

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• Relatively high returns could be expected for such stocks compared with ordinary ones in the medium and long term; and
• Fluctuations in the prices of high dividend yield stocks would be relatively small and the risks involved fairly low.

One year on, the equity market environment has undergone changes. There are signs of slow improvement in parts of the global economy and it is hoped that this trend will continue. The monetary authorities and central banks in various countries have attempted a wide range of actions to boost their economies and, as a result, markets have seen historically low interest rates and high capital liquidity. This has prompted capital inflows into stock markets, boosting stock prices substantially over a short period of time.

However, governments’ fiscal problems are becoming increasingly serious and central banks’ balance sheets are continuing to swell. If their countries’ economies recover, interest rates will be revised sooner or later and capital will start to flee from the markets. The attention of the markets has recently been focused on when the US Federal Reserve will begin to scale back its third round of quantitative easing (QE3). It seems that market participants have started to factor in a rise in interest rates in the near future. High capital liquidity has channelled new investment funds into stock markets, creating an environment in which capital is seeking higher returns than can be provided by the historically low interest rates. Under these circumstances, we examine how stocks with high dividend yields, one of the main appeals of which is high income, are expected to fluctuate and whether our previous evaluations should be revised based on these expectations.

We (Nikko AM) use the MSCI Standard Indices (STD Indices) and the MSCI High Dividend Yield Index (HDY Index) (net, Yen-converted). The STD Indices are commonly used and include the MSCI Japan Equity Index and MSCI Kokusai Index. The HDY Index comprises those stocks used for the STD Indices that meet two major requirements:

• Passing dividend continuity screening tests, and
• Producing a dividend yield exceeding the average for STD Index stocks.

For this reason, we think that the HDY Index is effective for examining how stocks with high dividend yields differ from ordinary ones in the same market.

The following charts indicate monthly returns for the two types of equity in major stock markets for the first five months of 2013 (as of May 31; net and Yen-converted).

Both the STD Indices and the HDY Index had been achieving extremely high returns since the start of the year. However, interest rates responded sensitively following the US Federal Reserve’s recent announcement about possible tapering of quantitative easing (QE). Following this, the HDY Index performed poorly compared with the STD Indices. It can be understood from the performance of these two types of indices that fluctuations in interest rates have certain effects on equity performance and that stocks with high dividend yields tend to be more affected. But can such a tendency be actually observed in the stock markets?

The chart below compares the performance of the US HDY and STD Indices with yields for 10-year US Treasury bonds. The yield for 10-year U.S. Treasury bonds trended at about 5% around 2001, but since then has fallen to nearly 2%, showing a long-term downturn trend.

After the tech bubble burst around 2000, the recessionary phase continued until around 2003. Subsequently, the economy bottomed out and then started to pick up in the five years up to the collapse of Lehman Brothers. At the same time, interest rates continued to rise, if slowly. From the start of 2003 when they bottomed out, to the middle of 2007 when they peaked, both the HDY and STD Indices moved continuously in parallel, eventually registering an increase of over 90% as interest rates trended upwards. During this period, despite the fears of some market watchers, the rises in interest rates had absolutely no effect on the performance of stocks with high dividend yields.

If these facts are taken into consideration, it is reasonable to expect that future interest rate rises will have a smaller effect on stock prices than during the previous period when interest rates were on an upward trajectory. A similar tendency was observed in Europe, Japan and Australia (see charts below), and there was no evidence that the performance of stocks with high dividend yields was conspicuously inferior.

Stable changes in stock prices expected for high-dividend-return equity

Stock prices tend to rise when interest rates go up and to fall when interest rates go down. In addition, it seems that the STD Indices experience greater stock-price fluctuations than the HDY Index. Since the time period examined in this report included a period of economic deterioration during which investors became adverse to risky assets as the future of the economy became increasingly uncertain (the so-called risk-off effect), this does not necessarily suggest future trends in these indices. However, it does appear that over a long period of time, as interest rates fluctuate, stocks with high dividend yields are more stable than ordinary stocks. The analyses of the European, Japanese and Australian markets all produced similar results.

Appeal of high-dividend-return stocks unlikely to wane

Market watchers hold various expectations for the future based on the prospects for economic recovery and rises in interest rates. However, it cannot necessarily be said that stocks with high dividend yields are more affected by fluctuations in interest rates. From a longer-term perspective, it is unlikely that the appeal of stocks with high dividend yields will diminish because they can avoid risks at the same time as earning a higher return than ordinary stocks.  In addition, we expect an increasing number of investors will seek high income (dividends) and companies will attempt to respond to such expectations by paying more dividends and raising their payout ratios. It’s likely that this will, in turn, lead to improved evaluations of the prices of stocks with high dividend yields. 

Disclaimer

Parts of this document have been prepared by Nikko AM. Nikko AM carries on business in Australia through its wholly owned subsidiary Tyndall Investment Management Limited ABN 99 003 376 252 AFS Licence 237563 (Tyndall AM). To the extent that any statement in this document constitutes general advice under Australian law, the advice is provided by Tyndall. Nikko AM does not hold an AFS Licence. This material has been prepared for general information purposes only for sophisticated investors.

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