Global economic growth is not going to return any time soon, but the scenario does not have to impede portfolio growth, Fidelity Worldwide head of Australian equities has said.
“As equity investors, we get long-term returns from the dividends we receive plus the growth in those dividends,” Paul Taylor told a Fidelity investment forum for financial planners and advisers yesterday.
Taylor, who leads the nine-person team that runs Fidelity’s $2 billion Australian Equities Fund, said the highest-yielding markets had delivered the best returns and the lowest volatility over the past 110 years, casting a ray of potential hope amid the gloom.
He has run the fund since 2003. It has returned a net 12 per cent in that time, outpacing the S&P/ASX 200 Accumulation Index’s 8 per cent.
The deep structural nature of sovereign debt woes virtually guaranteed a low-growth environment for several years to come, but dividends were the key to locking in returns despite the listless growth outlook.
“If you can deliver yield and growth in a low-growth world, you’re going to be in a fantastic position,” Taylor said.
He said the fund’s top 10 overweight picks were Rio Tinto, Sydney Airport majority owner MAp Group, Iluka Resources, Wesfarmers, Oil Search, Seek, Telstra, Commonwealth Bank of Australia, Suncorp and Goodman Group.
“With MAp, you pay about $3.30 but you get a $1 dividend plus 6 or 7 per cent structural growth,” Taylor said.
He said mineral sands producer Iluka’s stock market fundamentals resembled other Australian resources companies in 2003, when demand for their goods was nascent and their share prices were cheap.
Greater clarity around Telstra’s business separation and the government’s national broadband network added to the blue-chip telecommunication provider’s appeal, he said.
Meanwhile, Fidelity aims to bring at least one of its fixed-income funds to Australia in 2012.
Fidelity head of intermediary business Andrew Keay was meeting with dealer groups to gauge whether the strongest interest lay in corporate, government, high-yield or inflation-linked bonds, sources at Fidelity’s planner luncheon said.
