It has been a tricky environment for UK equity income investors in 2017 so far, with a number of stock and sector-specific issues. For example, companies such as AstraZeneca and Provident Financial suffered significant share price falls, whilst the shock announcement from the US Food & Drug Administration on future tobacco regulation had a big impact on the sector.
Following nearly a decade of central banks delivering a global programme of quantitative easing, asset prices have seen huge growth as investors have chased yield in an ever-lower yield world. However, the situation is now more nuanced. The US Federal Reserve (Fed) has embarked on a rate-rising cycle and more hawkish tones are emanating from the Bank of England and the European Central Bank.
The UK industrial sector has bucked the trend seen in the other major commercial property sectors since the Brexit vote in June last year. Intense investor demand and high levels of investment activity have driven down yields on prime assets to record lows. So can investors still find value in the sector, or is it already too late in the cycle? How can they capitalise on future growth opportunities without taking on too much additional risk?
In July, seemingly more hawkish comments from the Bank of England (BoE) and European Central Bank (ECB) saw global bond yields spike upwards, having spent much of 2017 relentlessly falling despite a more positive economic environment. Given this background, what is the outlook for cash and cash-plus investors?
Globally, government bond yields have remained incredibly low, despite the cyclical pick-up we have seen in economic growth in recent times. Nowhere is this more evident than the Eurozone, which continues to post strong economic data. We believe bond markets need to catch up with the fundamental reality.