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Henderson’s Lofthouse: oil woes overshadowing divi hotspots
Encouraging increases are being overlooked as attention is focused on hardship in the resources sector, says income manager.
Investors' focus on the falling oil price and the inevitable curtailing of dividends in the resources sector is leading them to overlook income-paying opportunities in the broader market.
In an investment update, Lofthouse said investors had rightly focused on defensive parts of the market following the oil price plunge, but cautioned against becoming too conservative.
Lofthouse said he was avoiding areas where more dividend cuts were likely, namely mining and oil, but added there was seemingly a belief in markets that all income-paying companies were under pressure.
‘The outlook for dividend growth is actually quite good,’ he said. 'We have seen Taiwan Semiconductor (TSM.N) increase its dividend by 33% which is a pretty big statement.
‘We have seen a number of big European institutions, like AXA (AXAF.PA), which we own, increase their dividend by double digit amounts and even a French house builder increasing its dividend by 10% for next year. I think dividend growth in many sectors is quite good.
‘It will be overshadowed by the resources sector. We are definitely set to see cuts in the mining and commodities sector this year and next and it is likely that we continue to see oil, with many US oil companies cutting their dividend this year, and that will take the edge off top line growth.’
Instead, Lofthouse (pictured) said he was focusing on areas of the market which are showing resilience, as well as undergoing meaningful restructuring. Telecommunications, which makes up 9.6% of the fund, was a prime example, he said.
‘We have got a large position in telecommunications and that is a sector [which] perhaps over-invested in the past and has been restructuring and we are now seeing the fruits of that. We are seeing better data usage and we invest in certain markets around the world and telecoms has been a good one for us.’
Elsewhere, Lofthouse said he was still heavily invested in financials but with a clear emphasis on insurance and ancillary industries rather than banks.
‘We have quite a big exposure to financials but within that we have quite low exposure to banks. In terms of places we are avoiding, we don’t have any exposure to European banks and we don’t have very much in mining and we are underweight oil. We are avoiding the areas where dividend cuts are more likely.’
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