Creep show
Risk means different things to different people. A person’s perception of risk changes depending on how they see the world and how their needs change. So, if you want to invest in global equity income, is it right for you? As somebody who should have equities in their investments the answer may well be yes, but we are worried about ‘risk-creep’.
Risk-creep is not something out of a Stephen King horror story, rather it describes what we have observed as yields have fallen and investors become increasingly desperate for it. Our concern is that investors who should have kept their money on deposit have moved into riskier assets to try and capture the increased yield.
We fear this trend has moved many investors from cash deposits to bonds, high-yield bonds and property funds. The crunch in bricks and mortar in 2016 came as no surprise to us but we suspect it was less pleasant for the many investors who had been encouraged to see it as a fixed-income proxy.
Our worry is that the same can be said of global equity income funds.
If risk-creep has pushed investors too far along the risk spectrum then alarm bells will be ringing. And if it has moved investors into equity-based products where the risk profile is not appropriate then that is very worrying.
For some time we have been encouraging all investors to review what risk they are taking and see how it is playing out in the investments they hold.
Global equity income funds do not have to be held as standalone investments but whether or not they have a role in a diversified portfolio depends on what function you want them to perform. A more globally focused, thematic approach to such funds can lead to them playing an active role.
Global equity income funds can be excellent investments, provided you know what you are looking for, why you are looking for it and what you plan to do with it.
