The asset manager said that while chasing yield has become the norm in the current share market as a result of the low interest rate environment, investors need to adjust strategies as the environment changes.
“While the focus lately has been primarily on the dividend yield from shares, investors can find better value and more inventive opportunities by looking at the total shareholder return,” Tyndall AM portfolio manager Malcolm Whitten said.
“Understanding a company’s future operating cash flow and capital expenditure plans are good ways to ascertain a company’s capacity to return money to shareholders,” he said.
“The strength of a company’s balance sheet, particularly gearing levels, as well as franking levels and pay-out ratios are important indicators of the sustainability of a company’s earnings and dividend stream.”
Mr Whitten said “it’s hard to see high expected returns” in any asset class over the near term with interest rates remaining low and rate increases delayed.
He added that investors who actively managed their portfolios and advice concentration risk should continue to have a reliable income source.
“However, at Tyndall all of our Australian share portfolios have reduced their weighting in banks, as we feel that after their incredible run, they are now overvalued,” Mr Whitten said.
“Furthermore, such a high concentration from one sector highlights concentration risk in the Australian share market,” he said.
“Investors beholden to hold the same stock weightings as the index are potentially exposing their portfolio to concentration risk,” said Mr Whitten.
