UK equity ‘bond refugees’ demand income over capex


Companies are spending less on capex as so-called bond refugees demand income from their equity investments in a “desperate search for yield”, says BlackRock fund manager David Goldman.

His comments suggest that rather than encouraging businesses to invest and grow, quantitative easing is having the opposite effect by shifting investor and corporate behaviour.

Goldman says: “Bond refugees are in a desperate search for yield as quantitative easing impacts on the market.”

Goldman adds that executive pay packages rewarded short-term thinking.

Global listed companies cut capex by 7 per cent in 2015, while share buybacks plus dividends dropped by just 3 per cent, a note issued by Citi Research revealed in August.

The note – which said the US, UK and Australia led the trend – notes that chief executives are today spending $2 for every $1 they payout to shareholders compared to $4 in 1995.

Goldman says the UK equity team likes companies that are capital light “provided it’s sustainable” or those deploying capital while making attractive returns.

Goldman lists Intercontinental Hotels and Cineworld as examples.

“What we do not favour are capital intensive businesses where returns are poor or where companies are holding back on investment today which will lead to a capex splurge in the future.”

Earlier this month, a survey by Deloitte revealed 40 per cent of chief financial officers expected Brexit to prompt a fall in capital expenditure.