Insights

Using global shares to break your dividend dependency

16 July 2020

Using global shares to break your dividend dependency

As published on Livewire Markets, 14 July 2020

Global equities are usually added to a portfolio for one reason – to increase diversification. With the Australian equity market representing only 2-3% of global equity exposure, plus very high sector concentrations in the local market, the benefits of global diversification are particularly meaningful for Australian investors.

However, leaving geographical considerations aside, how much diversification is actually being delivered at a sector and factor level? When income is the main consideration, the global equity sectors that generate the highest dividend yields are typically concentrated in the same sectors that dominate the Australian market. As a direct result, 'going global' may unwittingly 'double down' on these identical high yield sector exposures, albeit in a different geography, and thus fail to maximise the diversification benefit.

One solution to this problem is to introduce an alternate source of income that does not rely upon dividend yields. Buy-Write strategies are an established and well-proven solution to yield generation that breaks the connection with dividend dependency. Global Buy-Write strategies can offer genuine diversification at both the sector and country level as well as providing a regular income stream and an element of capital stability.

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