The use of global equities for income will grow decisively as valuations remain cheap however Australian investors are overlooking the investment opportunities, a fund manager said.
"In Australian terms, it's traditionally been a very high dividend yield market but elsewhere like in the United States there hasn't been a focus on dividends but we're going to see that growing," Threadneedle Investments global equity fund manager Neil Robson told InvestorDaily.
"We're seeing free cash flow yields for the average company in excess of 7 per cent and rising returns to shareholders either in the form of increased dividends or share buybacks."
The valuation of the global equities market will be the catalyst to drive Australian investors to invest in the asset class when reassessing or rebalancing portfolios, Robson said.
"If you look at the way the equity markets are priced relative to fixed income markets, in any circumstances barring an outright recession, equity markets looked meaningfully cheap."
In a three year horizon, investors will hold more overseas stocks in portfolios than they currently hold, Robson said, adding that the key issue for Australian investors has been currency.
"Equity markets may have done okay outside of Australia but in Australian dollar terms, they've been a poor investment," he said.
"But what they have already had outstanding is hopefully going to be more profitable because pressure from the Australian dollar should ease."
Internationally competitive companies, particularly in the export segment, were performing well.
While there are three macro-economic headwinds for global equities that may slow economies in the process, they not stop growing, Robson said.
"The United States tackled its bank problems early and has progressed rapidly than expected thus a hit no bigger than 3 per cent to its gross domestic product (GDP) is expected," he said.
"The slowdown of China to 8.1 per cent GDP from the previous 10 to 12 per cent GDP will still provide it with the ability to create growth, as we're comfortable with its resource base and its business growth is starting up again."
"Lastly, there are major imbalances in Europe and there is a massive adjustment process that needs to go through and that's going to be a long process where we'll see mini crises."
