Okay, let’s nail this. Let’s nail down the need to find a North America-listed addition to the Bearbull Income Portfolio about which I have vacillated for too many weeks. Why Stateside or possibly Canadian? Because the world’s biggest economy – and arguably its most successful one – is under-represented in most UK investors’ portfolios. Then there is the simultaneous need to reduce the income portfolio’s exposure both to Europe’s sclerotic growth and to the UK’s in particular, and to the multiple problems that occur in nations when growth runs out but a collective sense of entitlement remains high. It’s not that Europe is close to being a basket case, but diversified equity portfolios must be just that – diversified away from the risks presented by geography and demography as well as by economics.
Meanwhile, the Bearbull portfolio is encumbered by its obligation to provide income; it is, after all, an income portfolio. Sure, one can ask, what’s the point of that? Any portfolio can be turned into an income generator without needing to hold high-yield stocks.
That’s a discussion for another occasion. Bearbull is committed both to distributing all the income the portfolio receives and to generating a yield of about 1.2 times the average of the UK’s FTSE All-Share index, which currently works out at about 4.4 per cent. In that context, there’s a problem putting capital into an equity market where the current dividend yield is 1.5 per cent, as is the case with the S&P 500 index of US shares. The risk is that the portfolio ends up investing in those American stocks that offer a high yield as phoney compensation for their inferior quality.