Over April, global equity markets fell around the world. In Europe, the German DAX saw its value fall by 8%, the French CAC fell by 5% and the UK’s FTSE 100 fell by 3%. In Australia the ASX Index fell by 6%, and in Japan the Nikkei fell by 4%.
Despite the poor performance across much of the world, US markets held up well with the S&P 500 rising over April. In fact the S&P 500 just recently recorded its highest value since inception back in the 1920’s. Despite the recent hiccup in stock market performance, European equity markets continue to be the focus for the majority of investors and have seen a continued inflow of buying over the past fortnight.
The difference in performance between American and European equity markets has been truly divergent over 2015. 2014 was the year that American Equity markets markedly outperformed their European counterparts, but so far in 2015, it’s been all about Europe.
Emerging markets also offer an interesting opportunity, with recent stock market performance resembling that of Europe, providing a good buying opportunity for those investors who have been sitting on the side-lines waiting to get in. Castlestone Management’s long only equity fund – Equity High Yield & Premium Income Fund focuses on large cap dividend paying stocks and employs a strategy that focuses on income and predictable returns. But what if there was a way of replicating reliable returns across an emerging market format?
Looking at the MSCI Emerging Market Index and the S&P Emerging Market Dividend Opportunities Index, does provide a potential “insight” into what an allocation might look like when focusing on large dividend paying stocks across emerging markets.
As we know, emerging market countries are generally characterized by a stronger growth potential than mature economies which may lead to the opportunity for higher returns than developed markets.
As countries move up the development curve, stock markets typically grow to better reflect the importance of their economies and this results in a rising market capitalization to GDP ratio. Adding dividend paying stocks to an existing emerging markets portfolio can create a more even distribution across all sectors and help to mitigate portfolio risk.
Castlestone Management believes that a buy write strategy focusing on blue chip, dividend paying stocks should be the main focal point within any investment portfolio whether that is across developed or emerging markets in order to provide stable and predictable income over the uncertainty of market returns.