News & analysis
Corporate earnings growth concerns hit first quarter global shareholder cash returns
Directors at listed companies across the world returned 7.8% more cash to investors in the opening three months of the year than they did 12 months ear- lier, but the rate of growth has eased over concerns that the global economy is slowing down, research from asset manager Janus Henderson shows. Investors pocketed £263.3bn in dividends during the first quarter, a 7.5% rise on an underlying basis with special dividends offset by negative exchange rate movements. Yet the rate of growth has eased slightly. In the opening three months of 2018, companies increased their shareholder returns by 9.3% in headline terms. Despite this Janus Henderson has maintained its forecast for the year that companies will return a record $1.4trn (£1.1trn) to investors, a 5.2% improve- ment on 2018’s figure, on an underlying basis, or 4.2% in headline terms. However, despite most of the world’s growth predicted to be generated in emerging markets over the next 10 years, growth there was weaker than for their counterparts in the developed world. Underlying growth was 2.2% dur- ing the period, largely thanks to India.
Pharmaceuticals led the way in terms of sectorial returns with $1 in every $8 paid to shareholders coming from such companies. This took the sector to a $30.1bn (£23.7bn) quarterly record.
The leisure sector also paid record dividends, although this was largely driven by a special payment from Intercontinental Hotels. Janus Henderson’s head of global equity income, Ben Lofthouse, said: “Market expectations for corporate earnings have moderated in recent months as global economic momentum has slowed and forecasts may yet come down a bit further.
“Dividends are a lagging indicator of company health, so a reduction in their rate of increase is a normal consequence of slower earnings growth. “Nevertheless, we do not yet feel the need to make changes to our dividend forecast for 2019. We have already allowed for a slowdown in growth this year, and would highlight that dividends are far less volatile than earnings. “Investors can therefore look forward to dividend growth of around 4% to 5% in 2019 and another record year for dividend payments,” he added.
Private rental housing to boom as institutional asset class by 2025
Investment into purpose-built residential property is set to reach £146bn by 2025, up by almost a third on the £87.3bn that the market is worth today, consultancy Knight Frank predicts.
This investment will be spread between student accom- modation, private rental housing and retirement units. One trend that Knight Frank predicts we will see in the next five years is that investment into privately rented housing will surpass that sitting in student digs at £75bn compared to £65bn, respectively.
Of the 43 investors with a combined £32bn at work in the residential market that the consultant spoke to, 35% expect to be active across all three of these sub-sectors by 2024, up from 13% of the sample today. Over the next five years, 67% of those surveyed expect to have increased their residential property investments. London and Bristol are favoured locations across all three sub-sectors thanks to high student numbers, regeneration and development projects, strong employ- ment conditions and a lack of senior living units. Bir- mingham is the preferred location for private rental accommodation due to the city’s regeneration. The respondents expect student housing in London to return 3.2% and 2.4% in the regions by 2024. In pur- pose-built private rental accommodation, 2.9% is pre- dicted to the average return in the capital over the same period and 2.6% in the regions. Yet the strongest market, reflecting the UK’s aging pop- ulation, will be senior living units with investors expect- ing to collect a 3.5% return in London and 3.2% in other towns and cities.
Diversification and demographics are big drivers here. Gloomy outlook by asset owners for private equity returns
Institutional investors are increasingly cau- tious about the return prospects in private equity amid growing concerns of another financial crisis, a recent survey reveals. A mere 12% of the institutional investors surveyed anticipate an upward trajectory for the asset class, as a recent poll conducted by US researcher eVestment revealed. More than half expect returns to decline, while 30% of fund managers surveyed anticipate negative returns.
The report also highlighted that more than
one third of investors were very or extremely concerned about private company valuations. Fund managers again appeared less pessi- mistic, with only 23% expressing concerns about valuations.
This cautious investor outlook chimes with asset manager AQR, which recently pub- lished a report on the growth outlook for the private equity. In its Demystifying Illiq- uid Assets whitepaper the firm warns that expected returns in private equity are set to
8 | portfolio institutional | May–June 2019 | issue 84
decline. According to AQR, institutional investor demand for the asset class remains unabated, largely because of its perceived return-smoothing properties. The asset manager also warns that inves- tors may have a tendency to overestimate the illiquidity premium that comes with the asset class.
It highlighted that institutional investors’ willingness to overpay for investments had largely offset the effects of the illiquidity premium.
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