Yield adds value for managers
High dividend yields a plus for value manager.
Friday, May 30th 2003, 6:33AM
by Philip Macalister
It’s a buyer’s market for value based fund managers in many of the world sharemarkets, Templeton Investment Management Melbourne based vice president Peter Wilmshurst says.
He says when you look at markets on a price-to-book ratio it is clear they are at the bottom of their historical ranges and in most major markets well below their mean.
However, one of the other key attractions at the moment is that there is nearly some certainty of reasonable positive returns due to the relatively low share prices and the improving dividend yields.
For instance the average dividend yield of the European stocks in the portfolio Templeton runs for the Bank of New Zealand is 5.4%.
“One quarter of the portfolio has a dividend yield higher than you get from a bank,” he says.
He also points out that for the first time since 1959 the dividend yield on the United Kingdom equity market is nearly higher than the yield from the bond market.
Looking at the markets Wilmshurst is far more positive about Europe than the United States.
His optimism is based on the fact that valuations look more attractive on the Continent.
Consequently, the BNZ international shares portfolio is underweight in the US to the tune of 27% and overweight Europe (ex UK) 14.7%.
It also has a similar overweight position is Asia (ex Japan).
Wilmshurst has a number of concerns about the US including the massive current account deficit and the fact that consumers are “over-stretched”.
However, the market will rebound but not quickly.
The other piece of good news is that in the first quarter reporting season reported and operating earnings are “being reunited”. That is companies are produced the forecast returns rather than having surprises on the downside.
Wilmshurst says there are still some concerns in Europe, however, the downward pressure from pension funds having to sell stocks seems to have diminished and valuations are “compelling”.
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