Income investors have had a terrible time. So far this year the FTSE 350 higher yield index has lost more than 30 per cent even adding in dividend income. That’s far worse than the 9 per cent loss on the lower yield index.
This continues a long bad run. Even including dividends the higher yield index has done no better than its lower yield counterpart in the last 20 years. And it has actually underperformed it by 4.6 percentage points a year since its peak relative to lower yield stocks in June 2005.
Such underperformance overturns the conventional wisdom. Back in 1997 the Nobel laureate Eugene Fama showed that value stocks had outperformed growth around the world. In hindsight, this now looks like another example of Murphy’s law – the tendency for patterns in equity returns to disappear after strong evidence for them emerges.