Market Update 14 May 2020

The coronavirus pandemic continues to dominate global affairs as countries worldwide look to ease some of the restrictions imposed during lockdown as they detail plans to restart their economies. Following Boris Johnson’s update on Sunday evening, the UK government has released a strategy document, Our Plan to Rebuild, which details how the UK will gradually ease lockdown measures across three stages. Stage One began this week with those unable to work from home being encouraged to return to the workplace, if safe to do so, whilst social distancing measures remain in place for the foreseeable future.

After another year of record dividend payments, when more than £100bn was returned to shareholders of UK companies during 2019, expectations were high entering the new year but the impact of the coronavirus on the economy is unprecedented and will pose challenges for those investors seeking income, particularly in the short term. Dividends have come under pressure as a combination of regulatory, political and social pressures on companies to cut or pass dividend payments have increased, especially those companies in receipt of government support through the crisis.

The nature of the lockdown meant that large parts of the economy came to a standstill which has severely impacted short term company cashflows. In reality, some companies will not be able to sustain their previous level of dividends whilst others may choose to hold on to cash in order to strengthen their balance sheet. In the case of the latter, we understand the need for prudent financial management through the crisis and think that dividend payments will be reinstated once we are through these challenging times.

With the threat of higher inflation due to the record amount of money being pumped into the economy, we continue to believe that a suitable allocation to equities offers the best value for medium to long term investors despite the current uncertainty. In addition, despite the reduction in dividend income, equities continue to pay a much higher yield than that of bonds.

Areas of the market such as technology and healthcare have provided positive returns year to date and we continue to favour these sectors. However, we would note the importance of active management as there are pockets of expensive companies which have been bid higher solely due to the sectors they are in.

As always, should you have any questions regarding your portfolio or the levels of income, please do not hesitate to contact us.

 

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