News & analysis
THIRD QUARTER DIVIDENDS SHRINK BY HALF AS ECONOMIC UNCERTAINTY BITES
The Covid pandemic has put less money in investors’ pockets after the level of dividend payments dipped to levels last seen 10 years ago.
Headline shareholder returns by London-listed companies in the third quarter slumped to £18bn, the lowest total since the UK was dealing with the aftermath of the financial crisis in 2010, according to Link.
This was 49% lower than the amount paid during the same period a year earlier, in a further sign that income-focused equity investors have been hit hard by the pandemic. There are signs of improvement. While in the second quarter, headline dividends dived 57.2%, the third quarter also fared better than the three months to the end of June when special dividends are excluded. Underlying payouts fell 45.1% to £17.7bn in the third quarter compared to a 50.2% contraction in the second three months of the year.
Although moving in the right direction, it is still a sizeable drop and is the result of almost half of all companies cancelling their shareholder returns and around a fifth reducing the size of their dividends.
Only two-thirds cut or cancelled their payments in the three months to the end of September, compared to three quarters of companies in Q2.
Those holding the obvious candidates of airlines, travel, leisure and general retail, consumer goods, media and housebuilders suffered most. Travel and retail payouts fell 96% year-on-year in the third quarter, while payments to those holding media, builders and consumer goods received payments that were two-thirds lower.
Only two sectors increased their payments and they highlight the benefit of investing in defensive stocks. Food retailers and basic consumer goods, which returned more cash to share- holders than they did during the third quarter of 2019. It is worth noting that BAE Systems and engineer IMI caught up and have paid the dividends they missed in the first half of the year, the only two companies to have done so by the end of September. Housebuilder Berkeley made an interim payment that was five times greater than the one it made a year earlier. The idea was to make up lost ground from the first half of 2020, while Admiral restarted its payments in the third quarter. This move by the insurer could perhaps be a sign of its confidence in its operations going into the final months of what proved to be a difficult year for the economy.
GLOBAL HEDGE FUNDS GENERATE RECORD MONTHLY RETURNS LED BY CHINA STRATEGIES
The global hedge fund industry enjoyed a strong finish to 2020 by posting some of its highest average monthly returns for 20 years.
In November, the average return from all hedge funds was +5.9%, bringing the year to date’s average return to +6.9%, despite the economic impact of the Covid pandemic, according to market watcher eVestment.
Around 68% of the global industry produced a positive result in the year to date to the end of November, with the average gain among those posting positive returns at near +15%. The average decline for those in the black was around -9%. “Reported returns for November are among the highest aver- age monthly returns in over 20 years, currently surpassed only by average returns near the peak of the dot-com bubble in December 1999,” said Peter Laurelli, eVestment’s global head of research.
The big performers in the year to date until the end of were China-focused funds. They returned an average of +25.7% with
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only one month remaining in 2020, although their +4.5% per- formance trailed many other hedge funds during November. China-focused funds’ performance in the first 11 months of 2020 surpassed the +22.5% average return these funds posted for all of 2019.
Other trends that emerged in November included equity funds producing the strongest average returns at +8.24% in Novem- ber, bringing equity fund returns to +9.80% for the year to date. Among equity sub-sectors, energy, financials and technology- focused funds produced returns above +8%, with technology- focused equity funds big performers with average returns over 11 months of +22.4%. Size was not a factor in a fund’s success. The 10 largest hedge funds assessed by eVestment for this study reported an average return of around +2.75% and a disappointing +0.95% in November.
All primary hedge fund strategies eVestment tracks were in the green for November, with event driven-activist funds and long/ short equity funds putting up strongest average returns of +10% and +8.99% respectively. Bringing up the rear among primary strategies eVestment tracks were market neutral equity funds, with November average returns of +0.55% and average returns of +0.61% for the year to date.
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