For equity income investors, the pandemic has been uniquely challenging. In 2013, investors in UK 10-year government bonds could expect to receive an income return of 3% on the bonds they held, a premium to the bank of England’s target inflation rate of 2%. Investors could legitimately invest into ‘risk free’ areas of the market, accept a lower level of return but at least see their investments protected from the expected impact of inflation. At the worst point last summer, however, this return had shrunk to 0.1%. In an environment of elevated uncertainty bond investors were choosing the certainty of no return or most likely a negative return in real terms over a 10-year period rather than embracing the opportunity to invest into companies, where in our opinion the valuation opportunity was as attractive as most of us had seen in our investment careers.
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