NEW SECTION HEADER HERE
WELCOME
TO THE
INVESTOR
CENTRE
M
arkets were more volatile
than usual over the
summer as China reacted to
indications of a slowdown in
growth by devaluing its
currency against the US dollar.
China’s stock markets also
suffered a sharp fall, eroding
some of the exceptional gains
made in recent years. In
Europe, growth expectations
were lowered and the
European Central Bank’s
quantitative easing programme
was extended.The US Federal
Reserve left interest rates
unchanged after its September
meeting and commentators
are now speculating that rates
will rise towards the end of
the year. High yield and
investment grade bonds also
suffered from the global
uncertainty. Falling commodity
prices, notably cheaper oil,
should benefit businesses
and consumers. Recent
volatility has made share price
valuations more attractive
while the more resilient,
well-managed businesses
continue to trade well.
IN THIS SECTION
22 Viewpoint
Stephen Thornber, Columbia Threadneedle
24 Unit Trust Portfolios
26 Fund manager commentaries
22
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THE INVESTOR
Canyou explain the importance
of dividends to your investment
approach?
We think dividend-paying companies
are fundamentally attractive.
Companies that allocate capital
partly to generate growth and partly
to reward shareholders are likely to
be much more disciplined in
their approach to acquisitions and
investment, as dividends are a
long-term commitment.
What dividend characteristics
are you looking for inyour
investments? For example, do
youhave aminimumand
maximumyield level for
companies you invest in?
We are focused purely on the high-yield
universe.The world market yields an
average of 2.5% but we have a firm
hurdle rate of 3%.We will not buy a
stock with a dividend yield below that
and we will sell if it drops below that
level.We have no
maximum and will
invest in very
high-yielding stocks
on a case-by-case basis.
We want to make
sure the dividend is
sustainable and can
grow, which is why
we look for growth in
dividends and earnings
of at least 5%. Lastly, the company
should not have high levels of debt.
Interest rates are expected
to rise in theUSwithin the
comingmonths. What impact
will this have ondividend-
paying stocks?
Historically, if interest rates increase
because of inflationary risk, it is bad
for equities. If it is because of robust
growth in the economy, that is
generally positive for equities.
We feel there is currently very
little risk of inflation; if anything,
there is deflation.Therefore, when
the US and the UK raise interest rates
it will be because their economies
are healthy and growth is robust.
At the start of the year, we expected
US interest rates to be increased
twice by the end of the year and
once in the UK. Now, we think the
UK will remain at 0.5% and the US
may see one rate rise, but there will
not be increases
elsewhere. Rates are
not going to go very
far very fast, so equity
yields of 3%, 4%
or 5% will still
look attractive.
Balance sheets are
also healthy, so
dividend growth
can be maintained.
Viewpoint
StephenThornber,
ColumbiaThreadneedle
The fund manager on what makes companies
attractive, the interest rate impact on stocks and
regional differences in dividend behaviour
FUND MANAGER VIEWPOINT: STEPHEN THORNBER, COLUMBIA THREADNEEDLE
Robust growth in
the economy is
generally positive
for equities
