Investors looking for income from equities should broaden their horizons to capitalise on global markets, according to market analysts.
Investing in the UK for income gives an option of just 95 companies with a market capitalisation over £500 million and offer a 4% income yield or higher, while globally there are 1,522 such companies.
The search for income is driven by increasing life expectancy and a need for more income to fund lifestyle as pension provision falls away.
But investing for income also increases risk.
“As an investor in the UK, equity income has traditionally been provided by investing the financial services arena, oil, utilities, tobacco and telecom companies,” said Sheridan Admans, investment research manager at The Share Centre.
“The benefit of investing in UK companies is the limited exchange rate risk an individual is likely to suffer on the income distribution and the transparency of the UK’s regulatory and political systems.”
The advantage of investing globally is a worldwide fund can provide investors access to companies, sectors and assets that region specific bias cannot deliver directly.
“The benefits of investing globally for income include geographical risk diversification, industry diversification and exposure to stronger performing economies and markets,” said Adnams.
“Investing outside your own country is associated with higher levels of risk, mainly as a result of currency fluctuations, political and market risk and the impact this can have on both income and capital values. However, a fully-diversified portfolio should include some investments from other markets. How much you invest in which markets depends upon the exact level of risk you find acceptable, but global funds are an easy way to broaden your investment horizon if you don’t have any particular geographical preference.”
“An example of investing in a global fund for diversification may be best explained as follows. Investors in the UK do not have exposure to some developed market sectors, take information technology a sector which is almost monopolised by the US, or market share of the electronic hardware market, which tends to reside in Asian economies.
“Also, alternative energy development solutions in wind power for example is driving Danish innovation.”
