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Investing focus should transcend dividends

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A portfolio manager has advised Australian retirees to expand their investment portfolio beyond a dividend focus despite recent market results.

Despite earnings from dividends bouncing back following the peak of the coronavirus-led market instability, a wealth manager has advised Australian retirees to look beyond this element to benefit from the best investment opportunities.

Speaking during a recent webinar, GSFM Funds Management chief executive and senior portfolio manager Max Cappetta acknowledged investment strategies prioritising dividends had been attractive for retirees, but suggested other factors must be taken into account in the current economic environment.

“There is going to be half a trillion dollars of super assets moving into retirement over the next decade,” Cappetta said.

“Interest rates are rising today and we know the rates are still going to be quite low for the long term. Also, with inflation rising [investors can] earn income via the earnings paid as dividends by good-quality companies, [which] remains a very attractive place to invest.”

He noted dividends have made a significant return after a record year on the ASX 200 in 2021, but recommended investors keep portfolio diversification in mind when considering long-term returns.

“If you look to the dividend expectations for companies on the ASX (Australian Securities Exchange) and say ‘I want to earn a higher dividend yield, so let me focus on those companies that maybe are expected to pay a 5 per cent or more gross yield’, then you actually end up concentrating down your investable universe to actually only gain 25 per cent of the market cap and only 40 out of the 200 companies,” he said.

“You do get a massive additional exposure to the financial sector and materials. But even worse than that, you actually end up avoiding a range of potentially very attractive sectors, including healthcare and IT.”

Further, the assessment concluded that while the short-term dividend results have grown in the financial and materials sectors, their long-term returns are not forecast to produce the same results, particularly seeing factors such as decarbonisation have increased in popularity.

“With increasing economic uncertainty at the moment, actually having more degrees of freedom and being able to invest more broadly to gain a [greater] range of opportunities is actually even more important today than it has actually ever been,” Cappetta said.

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