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Over the fourth quarter of 2020, global risk markets continued to rebound off their spring lows despite a resurgence in Covid-19 cases in the U.S. and U.K. and renewed lockdowns in many countries. Ongoing massive fiscal and monetary stimulus, improving profits and an apparent end to the American election drama stoked investor confidence and led to strong markets going into year end. Over Q4 the LOM Stable Income Fund achieved a total return of 8.44% inclusive of its 3.24% annualized dividend yield.
Widespread innovation, a rebounding economy and ultra-low interest rates were supportive of earnings and dividend growth in Q4 and we expect this trend to continue as we move into 2021. The average Wall Street estimate calls for S&P 500 profit growth of 22%, from $138 in 2020 to $168 in 2021. Notably, this estimate exceeds the 2019 level of $161. The International Monetary Fund (IMF) expects global GDP growth to rebound by 5.2% in 2021 after declining 4.4% in 2020 from the prior year. But still, important sectors such as restaurants, travel, physical retailing and hospitality continue to be challenged.
In 2020, China was the only major economy to avoid recession, advancing by approximately 1.9% due to their more efficient lockdown and faster reopening. China’s single party, authoritarian government gave them a global economic advantage despite the ongoing trade war with the U.S. However, more countries are expected to get back on track this year as approved vaccines get rolled out. To some extent the speed of global inoculation and herd immunity has become critical for future economic growth and risk market performance in general.
After an extended period of underperformance, dividend-paying stocks rose sharply during the fourth quarter as investors sold growth stocks in favor of value positions. Value stocks, which include many of our high-dividend paying equities and ETF’s, saw an impressive surge off the bottom. For example, the Dow Jones Dividend Select Index achieved a return of 19.1% in Q4 compared to a return of 12.1% on the S&P 500 stock index.
As of year-end, the fund is positioned with approximately 57% dividend-paying equities and 42% in fixed income. The income component of the fund includes an approximate 34% position in $25 par bonds and preferred stock issues earning relatively high rates of income paid out quarterly. Approximately 7% of the portfolio is invested in individual higher-yielding bond issues.
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The information contained in this article is for information purposes only, and represent the views of the author. It is not intended as specific investment or financial advice, or a recommendation or solicitation to buy or sell any security. Any investments or strategies listed in this article may not be suitable for all investors. Past performance is not indicative of future performance, and as with any investment, prices may fluctuate. It is recommended that advice is sought from a qualified investment professional prior to implementing any financial plan. LOM has made every effort to ensure that the contents herein have been compiled from sources believed reliable, however LOM does not warrant the accuracy, adequacy, timeliness, or completeness of this information expressly disclaims liability for errors or omissions in this information.
