INVESCO PERPETUAL

DILEMMAS FOR SECURING INCOME AS DIVIDENDS COME UNDER PRESSURE Georgina Taylor, Multi Asset Fund Manager at Invesco explains the importance of diversifying income sources.

Income has been thrown firmly into the

spotlight recently with the news that banks are being advised to cancel all dividend payments and buybacks.

Hopefully this is a temporary suspension of an important component of equity income, representing around 15% of FTSE 100 dividends last year. Markets have priced in a pretty dramatic cut in dividends, with the FTSE 100 December 2020 dividend future falling nearly 45% during March. only expected to contribute 0.08% to our income target, which currently equates to roughly 4.1% over one year. Given the flexibility of the strategy we can replace that with other sources if dividends are affected further.

Figure 1. Percentage contribution to income across asset types in 2019

Having access to a broader range of options to generate income can help diversify the income component of a portfolio. For the Invesco Global Targeted Income Strategy to meet its gross income target of 3-month LIBOR plus 3.5% p.a. we look at a wide range of opportunities.

For 2019, the income breakdown was as per Figure 1. Note that equity dividends were already the smallest component of our overall income generation in 2019, and we have reduced that further in 2020. As at 24 March 2020, equity dividends were

How are we generating income?

For income generation we prefer credit to equity given the policy measures which in Europe, for example, are supporting investment grade credit markets.

In addition, ideas such as buying the Japanese Yen, buying US government bonds versus selling European bonds and buying volatility have all been very helpful during the equity and credit market falls.

Currency continues to be the most important income generator alongside selective bond positions, such as Mexican bonds which have held up well year-to-date and continue to offer an attractive income for investors.

More information

For more information on this strategy, please visit invesco.co.uk/gti n

Investment risks

The value of investments and any income will fluctuate (this may partly be the result of exchange-rate fluctuations) and investors may not get back the full amount invested.

The strategy uses derivatives (complex instruments) for investment purposes, which may result in a portfolio being significantly leveraged and may result in large fluctuations in value. The strategy may hold debt instruments which are of lower credit quality which may result in large fluctuations in value.

As a portion of the strategy may be exposed to less developed countries, you should be prepared to accept large fluctuations in value.

Important information

This article is for Professional Clients only and is not for consumer use.

All data as at 31/03/2020, sourced from Invesco unless otherwise stated.

Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice.

This article is marketing material and is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell securities.

Further information on our products is available on the Invesco website.

Invesco Asset Management Limited, Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire RG9 1HH, UK. Authorised and regulated by the Financial Conduct Authority.