With markets selling off heavily at the end of February, 2020 has already scarred equity investors, as discussed in this week’s Money section on pp32-33. Panic about the spread of the coronavirus has led to significant drops in major market indices. Worryingly equity income funds, which tend to protect capital more thoroughly than growth funds, have proved less defensive in recent months. For example, the average Investment Association (IA) Global Equity Income fund lost 4.5 per cent over the three months to 3 March – even more than the IA Global sector's average fall of 2.7 per cent. This is notable because the latter sector is made up of growth-orientated funds.
Income and growth
May lag rising markets
If equity income funds' defensive qualities have not held up recently they have a good historic record of mitigating downside at times when growth stocks look stretched due to their focus on quality, dividend-paying companies. For example, during the sell-off of the fourth quarter of 2018, MSCI World index fell 11.5 per cent and the IA Global sector average was about the same. However, over that period the IA Global Equity Income sector average was a lower fall of 8.9 per cent.