2009 trends created headwinds for income

During periods of sharp recovery, investors seek out companies that share a combination of characteristics including poor relative returns in the market decline, attractiveness on stable measures of value such as book-to-price and high financial and operational gearing to recovery.

In 2009, according to Alliance Bernstein, the worst-performing companies in the UK in 2008 (the bottom 20% of the UK universe) outperformed the best performers, the top 20%, by 62.4%. On the same basis, UK companies in the cheapest 20% of the UK universe at the end of 2008, based on their market to book value, outperformed the most expensive 20% on book value by 32.4% in 2009. These trends created headwinds for income shares. In periods of stock market recovery, good companies that offer sustainably high dividend yields tend to lose favour and underperform. Although a number of cyclic...