More analysis needed on company fundamentals
Many Australian investors are not doing analysis of company fundamentals in relation to high yields, according to Fidelity global equities fund manager Amit Lodha.
Speaking at a Fidelity roadshow, Lodha said many people failed to analyse the reasons behind high yield shares.
"Is that yield coming from cash flows, or is it coming from capital expenditure? Is it coming from future growth, or is it coming from capital? Is the company re-investing enough to sustain itself over a period of time?" Lodha asked.
A company can be high yield but leveraged 20 times, he said.
Not enough investors are asking the right questions, he added.
Companies with high yields must have good fundamentals that make them capable of increasing yield over a period of time, Lodha warned.
That yield must come out of cash flow, not capital expenditure, he said.
Investors have to be careful of the quality of growth in domestic listed companies, according to portfolio manager Kate Howitt.
The best reinvestment that a company can make is small incremental investment in its area of expertise, she said.
Two thirds of listed companies are only generating returns close to their cost of capital, Howitt said.
Recommended for you
The possibility of a private credit ETF is looking unlikely for now with US vehicles seeing limited uptake, according to commentators, but fixed income alternatives exist that can provide investors with a similar return.
Ahead of the approaching end of the financial year, State Street has shared five tips for advisers who are using ETFs in their client portfolios.
The use of active ETFs in model portfolios by financial advisers is a key factor in the growth of the products for iShares, according to BlackRock.
Global asset manager BlackRock has identified bringing private markets to the wealth channel as a key business area for the firm that could generate US$500 million in revenue in the future.
