Equity investment requires positive business prospects


“Even if you look at forecasts, the forecasts may just purely be wrong. We have more of a sentiment indicator where we look at what the market is actually pricing in for the prospects of the company. Our fund would have missed pitfalls where you have good historics but poor forward dividend yields,” Fraser, the CIO at Prescient Investment Management, told CNBC Africa on Thursday.

“We’re a mathematical and risk-focused company. When we talk about our equity income fund, they key is to look for shares that pay high dividend yields. So we will look at the current dividend yield but what you don’t see when you look at that is there could be poor prospects for a company going forward.”

In the quest for higher yields, many fixed income instruments have simply been unable to deliver returns above inflation but some investors argue that equities should be a natural starting point for yield-seeking investors.


“Dividend yielding shares should definitely not be confused with interest-bearing assets because the risk associated with the two is very different. Dividend-yielding shares have a much more risky nature and they are a longer term investment but using dividends yields to sweeten portfolios can be very attractive,” said Fraser.

She insists that it’s likely that investors can receive good returns if they reinvest and compound their returns.

“From our stance, we have a unit trust that we do. We find that a lot of people do tick the box to reinvest their distributions which is mostly in an equity fund, mostly dividends. In income portfolios it’s often different because people need that distribution to actually live off,” she said.