Capital Growth AND Income - the holy grail for investors?

Friday, Jun 01 2012 by
8
The mythical cup itself
The mythical cup itself

Grail quests have never tended to end pretty. Chasing after the mythical biblical artefact with abandon brought the death of many a knight crusader and the history of markets is no different. The terrain is littered with the bodies of those who have dared to suggest they can consistently beat the market at a lower risk - from Long Term Capital Management to Bernie Madoff - but a research paper published this month from SocGen’s famed Global Equity team offers a more modest approach that may just have the answer for investor’s share portfolios.

While flash harry 20-something traders may get a lot of press the average stock market investor is aged 45 and over and grows increasingly concerned about income at the expense of capital growth. Almost all advisors will position the returns from capital growth and income as a trade-off, that you can’t have one unless you drop some return from the other. So if you were to tell these investors that they could indeed get both from the same investments, while lowering their risk and comfortably beating the market return they’d probably bite off your hand and sack a broker or two along the way. That appears to be what Soc Gen have done.

Meet Soc Gen Global Equity

Over the years the equity strategy team at Soc Gen, stewarded by the (generally) ultra-bearish Albert Edwards, have built up a formidable reputation in the City. While James Montier has now moved on to GMO his writing set a tone there that has been continued by those that succeeded him - most notably Dylan Gric and Andrew Lapthorne - who continue to publish challenging research notes that span our own key themes of behavioural finance and value investing.

Just this month the team introduced their so called ‘SG Quality Income Index’ - an index that aims to track stocks with strong fundamentals and good yields. Many in the market now appreciate that both higher ‘quality’ stocks and higher yielding stocks tend to outperform, but according to the research note, stocks that share both qualities put together standout total returns that have averaged 11.6% per year since 1990, more than doubling the return of the global equity markets at a significantly reduced volatility. But what is more striking is the return of the portfolio since the market topped in 2000 - a genuinely miserable time for all. While the total return of…

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Disclaimer:  

As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.


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4 Comments on this Article show/hide all

Edward Croft 1st Jun '12 1 of 4
1

Forgot to add that the median yield of the resulting list is 5.3%. If anyone wants to fork the screen to lower the mktcap threshold or play around with the criteria you can just type /fork/ at the end of the screening url.

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Edward Croft 2nd Jun '12 2 of 4
2

David Stevenson writes up the same SGQI index in the FT http://www.ft.com/cms/s/0/4f40354e-a8e3-11e1-be59-00144feabdc0.html

Investors can buy the global index as an ETN - ticker SGQI

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terryshead11 7th Jun '12 3 of 4
1

I think your site is the best I have come across in fact some times my head gets dizzy with all the information.

When my cheap rate is up come back to me on the annual rate.

I know no one knows what the future is going to do myself I get into a bit of a tis what is going to happen these idiots that run us are stealing are money annuties are a joke the eu is up the swannie what do you do myself I am buying silver etfs the bloody lot is a complete Ponzi sheme.

Terry Shead

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Corsica 21st Jun '12 4 of 4

the SGQI select good businesses ( solid balance sheet) with high dividends. This reminds me Joel Greenblatt's approach good businesses with high earning yield.

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About Edward Croft

Edward Croft

CEO at Stockopedia where I weave code, prose and investing strategies to help investors beat the stock markets. I've a background in the City and asset management but now am more interested in building great stock selection tools for the use of investors online.   Traditionally investors online have had very poor access to the best statistics, analytics and strategies for the stock market and our aim is to set that straight.  High Quality fundamental information has been prohibitively expensive in the past and often annoyingly dull. People these days don't just want to know the PE Ratio and look at a balance sheet. They expect a layer of interpretation over data, signal from noise and the ability to know at a glance whether a stock is worth investigating or not. All this is possible using great design and the insights gleaned from quantitative research.  Stockopedia is where we try to make it happen ! more »

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