Shares Magazine – May 23, 2019

What are the risks?
*>ÃÌ«iÀvœÀ“>˜ViˆÃ˜œÌ>}Ոi̜vÕÌÕÀi«iÀvœÀ“>˜Vi>˜“>Þ˜œÌLiÀi«i>Ìi°/…iÛ>Õiœvˆ˜ÛiÃ̓i˜ÌÃ>˜̅iˆ˜Vœ“ivÀœ“̅i““>Þ}œœÜ˜>à Üi>ÃÕ«>˜ˆ˜ÛiÃ̜ÀÓ>Þ˜œÌ}iÌL>VŽ̅i>“œÕ˜ÌÃœÀˆ}ˆ˜>Þˆ˜ÛiÃÌi°˜ÛiÃ̓i˜ÌÃVœ˜Vi˜ÌÀ>Ìiˆ˜>ˆ“ˆÌi˜Õ“LiÀœv}iœ}À>«…ˆV>Ài}ˆœ˜ÃV>˜Li ÃÕLiVÌi̜>À}iV…>˜}iȘÛ>Õi܅ˆV…“>Þ>ÛiÀÃiÞˆ“«>VÌ̅i«iÀvœÀ“>˜Viœv̅iv՘°

μՈÌÞQVœ“«>˜ÞR«ÀˆViÃyÕVÌÕ>Ìi>ˆÞ]L>Ãiœ˜“>˜Þv>V̜ÀȘVÕˆ˜}}i˜iÀ>]iVœ˜œ“ˆV]ˆ˜ÕÃÌÀÞœÀVœ“«>˜Þ˜iÜð
*i>ÃiLi>Ü>Ài̅iÛ>Õiœvˆ˜ÛiÃ̓i˜ÌÃ>˜̅iˆ˜Vœ“ivÀœ“̅i““>Þ}œœÜ˜>ÃÜi>ÃÕ«>˜`ˆ˜ÛiÃ̜ÀÓ>Þ˜œÌ}iÌL>VŽ̅i>“œÕ˜ÌÃœÀˆ}ˆ˜>Þ
invested.

ÀˆVi‡Ìœ‡LœœŽÛ>Õi­ 6®À>̈œƂVœ“«>˜Þ½ÃºLœœŽÛ>Õi»ˆÃ̅iÛ>ÕiœvˆÌÃ>ÃÃiÌÓˆ˜ÕÈÌψ>LˆˆÌˆií˜iÌ>ÃÃiÌÛ>Õi®]>Ì>ÃiÌ«œˆ˜Ìˆ˜̈“i°v>Vœ“«>˜Þ½Ã
Å>Ài«ÀˆViˆÃœÜiÀ̅>˜ˆÌØiÌ>ÃÃiÌÛ>Õi­ 6À>̈œœviÃÃ̅>˜œ˜i®̅i˜ˆÌ“ˆ}…ÌLiVœ˜ÃˆiÀi>ëœÌi˜Ìˆ>Þ}œœÛ>Õi>˜ܜÀ̅ÞœvvÕÀ̅iÀ>˜>ÞÈð
œÜiÛiÀ]vœÀVœ“«>˜ˆiÃ܈̅ˆÌ̏iˆ˜̅iÜ>Þœv«…ÞÈV>>ÃÃiÌÃ]ÃÕV…>ÃÌiV…˜œœ}ÞVœ“«>˜ˆiÃ] 6À>̈œÃ…>Ûi̅iˆÀˆ“ˆÌ>̈œ˜Ã°
ÀˆVi‡Ìœ‡i>À˜ˆ˜}í
®>˜«ÀˆVi‡Ìœ‡ˆÛˆi˜í*®À>̈œÃ°

/…i
À>̈œVœ“«>ÀiÃ>Vœ“«>˜Þ½ÃÅ>Ài«ÀˆVi̜ˆÌÃi>À˜ˆ˜}ëiÀÅ>Ài°/…iÀ>̈œˆÃ>Vœ“«>˜Þ½ÃˆÛˆi˜«iÀÅ>ÀiˆÛˆiˆ˜ÌœˆÌÃÅ>Ài«ÀˆVi° iV>ÕÃi>
*À>̈œ>VVœÕ˜ÌÃvœÀV>Å>VÌÕ>ÞLiˆ˜}«>ˆœÕÌ̜ˆ˜ÛiÃ̜ÀíˆÛˆi˜î>Ãœ««œÃi`̜i>À˜ˆ˜}Ã]܅ˆV…>Ài>˜>VVœÕ˜Ìˆ˜}Vœ˜Vi«Ì]ˆÌV>˜Li>“œÀiÀiˆ>Li
valuation metric.

is currently yielding c. 4.5% (MSCI UK index),
܅ˆV…Vœ“«>ÀiÃÛiÀÞv>ۜÕÀ>LÞ̜̅i
average dividend yield over the past 30 years
œvΰx ̄°œÀވiÃ̜ÀiÛiÀÌL>VŽ̜̅iˆÀ long-term average, either the market has to ÀˆÃiœÀL>˜iÜØiiÃ̜>ÀÀˆÛiܜ˜>˜
companies cut payments. They would need
̜VÕÌLÞ>}œœ“>À}ˆ˜“œÀi̅>˜̅iÞ ˆvœœÜˆ˜}̅i >˜i˜ÃՈ˜}}œL>
recession – is this likely?
Following the GFC, UK dividends fell
LÞ£x ̄œÛiÀÌܜÞi>ÀÃœ˜>VՓՏ>̈Ûi
L>ÈÃ]>˜̅>̈˜VÕiÃ̅iivviVÌœv *
suspending its dividend following the
ii«Ü>ÌiÀœÀˆâœ˜ˆÃ>ÃÌiÀˆ˜̅iՏvœv i݈Vœ°7iœ˜½ÌLiˆiÛiÜi>Àiœ˜̅i
cusp of a recession like the one which
vœœÜi̅i °iëˆÌiܓiÀiVi˜Ì …ˆ}…«Àœwi>˜“>ÌiÀˆ>ˆÛˆi˜VÕÌÃvÀœ“ 6œ>vœ˜i>˜>ÀŽÃE-«i˜ViÀ]œÛiÀ> ÜiÃ̈LiˆiÛi̅>Ì̅i“>ÀŽi̽ÃˆÛˆi˜
payment will continue to rise.
If we do experience a recession in the near
ÌiÀ“]ÜiܜՏiÝ«iV̈Ì̜LiœV>̜̅i 1­«œÃÈLÞ̅iÀiÃՏÌœv>ˆÃœÀ`iÞ Ài݈̮
À>̅iÀ̅>˜>}œL>œ˜i]>Ì…œÕ}…Üi>Ài
in the latter stages of the economic cycle.
This gives us a degree of comfort that the

1iμՈÌÞ“>ÀŽi̽Ãވi`ˆÃÃÕÃÌ>ˆ˜>Li>Ã̅i

>À}i“>œÀˆÌÞœv1Ã̜VŽ“>ÀŽiÌ`ˆÛˆ`i˜`Ã

derive from overseas.

The charts and data highlighted help

put the opportunities within UK equities

ˆ˜Ìœ>LÀœ>`iÀVœ˜ÌiÝÌ°˜ˆ}…Ìœv̅iÃi

conditions it is perhaps unsurprising that

our allocation to overseas equities is

currently at the lower end of its

historical range.

As stock pickers we see plenty of

opportunities within the UK – across all parts

of the market, large as well as small and mid-

Èâi`Vœ“«>˜ˆiÃq܅ˆV…VœÕ`…i«LՈ`

«œÀÌvœˆœÃV>«>Liœv}i˜iÀ>̈˜}ÃÕ«iÀˆœÀ

long-term returns.