The third quarter of 2019 was characterised by continued market volatility and further declines in global bond yields. Negative interest rates in Japan and the Eurozone, and mounting expectations that the US Federal Reserve will cut interest rates several more times in the months ahead, have expanded the pool of bonds with sub-zero yields to more than $15 trillion – or around 25% of the global bond market. In Germany, yields are negative all the way from cash deposits to 30 year bonds. In Switzerland negative yields extend all the way out to 50 year bonds.

Against this backdrop it is unsurprising that first-world companies offering decent dividend yields are in high demand and continue to produce solid returns for investors. Not only are the yields of high quality dividend payers like Nestlé and Coca-Cola relatively attractive, “defensive” products and strong balance sheets suggest they will continue to increase dividends despite tough conditions. Consequently, we continue to maximise investors exposure to offshore companies with these characteristics. The Dividend Growth Fund has a 26% exposure to companies of this nature.

To ensure dividend and capital growth from the SA centric companies in our portfolios, we have restricted our investable universe to market leaders in industries such as food, healthcare and value retailing. Based on our experience, investing exclusively in quality, non-cyclical franchises is the best way to ensure income growth in a struggling economy – high class operators tend to take market share when times are tough, and non-cyclical industries command the greatest pricing power.

A solid foundation of quality dividend payers, as well as a relatively high offshore exposure largely explains the resilient performance of the Marriott Dividend Growth Fund in recent years. We are pleased to report that the fund has outperformed the sector average from both an income and total return perspective over 1, 3, 5, 7 and 10 year periods. Looking ahead, we continue to expect the portfolio to serve investors well as our income focused investment style which emphasises quality – companies that are resilient to changing economics, politics and technology – is well suited to the current macro-environment. The fund’s current yield of approximately 3% is also significantly higher than the average general equity fund yield of 2.5%. This high level of income is useful for retired investors drawing an income as it will assist in minimising capital erosion in volatile markets – the key to a more predictable retirement outcome.