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Opus News & Insights

Negative Reality Bites
Monday, June 27, 2016

Reality Bites was arguably the touchstone when it comes to angst-ridden Gen X films. In one of the films classic exchanges, the endless quest to define irony is settled as thus:

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As our Small Cap Value Plus strategy approaches its third anniversary, we cannot help but be struck by a sense of irony. As we think back to the inception of the strategy, we often heard something to the effect of “I’m a total return investor. Why do I need dividends?”

How times have changed! Now, what do we see in terms of headlines? Let’s see what Forbes has to say: “Where to Find Growth In A No-Growth World: Dividends!

In addition to anemic growth, the reality that really bites for investors is that in many parts of the globe interest rates are negative. In fascinating testimony before the Senate, Fed Chair Yellen on June 21st stated that the Fed has the legal authority to impose negative rates, but has no intention of doing so.

However, given the Fed’s continually unwillingness to move rates higher, the very fact that the issue has been studied makes one think.

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Of course, conditions could improve and the Fed could move ahead with rate increases. While this would hurt some areas that emphasize dividends, i.e., Utilities, which are trading at all-time highs, Opus’ investment process balances yield with growth potential, with the latter serving to help offset interest rate risk. Moreover, as a recent piece from Lord Abbett demonstrates, dividend growers may boost returns as well, especially when markets are volatile.

The persistent reality of low, and in many cases negative, interest rates has made investors’ search for income more difficult. While the income generated by dividend-paying stocks has always appealed to certain investors, more and more are recognizing that in this slacker-ish global economy, dividends are to investors what cigarettes and unbuttoned shirts were to Ethan Hawke.





 
 

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