Emma Wall: Hello and welcome to the Morningstar TV series, 'Why Should I Invest With You?' I'm Emma Wall and here with me today is Rebecca Edelman of the Neptune US Income Fund. Hello Rebecca.
Rebecca Edelman: Hi Emma.
Wall: So, what exactly is going on in the U.S. at the moment?
Edelman: Well, it's been a very tumultuous few weeks. First of all, we had the situation where U.S. politicians failed to reach a budget agreement and as a result of that we had the government shutting down. So, essentially, government salaries weren't being paid, national parks were shut. It's been a complete nightmare to be honest.
At the same time, the U.S. was coming up towards its debt ceiling, so basically, the point at which you can't allow debt to raise any further. So you've had this two big Washington events happening and this has obviously spooked investors.
Just as we are reaching the debt ceiling, which was coming due today the very last minute politicians, surprise, surprise, managed to get an agreement through and actually they've managed to extend the debt ceiling now until mid-February and also find a way to continue to fund government till January.
So, at least, we've got a solution, but it has been certainly a tumultuous few weeks in the U.S.
Wall: To borrow your word that, nightmare, you said, and yet the stock market, jogging along as usual. Why is that?
Edelman: It's interesting that the stock market has largely been able to see through these problems in Washington. I think there's a number of factors there. I think investors, first of all, did expect a deal to get done. It was very much the consensus that something was happening. There has been a lot of news flow, a lot of to and froing, but I think from an investor standpoint, and this was our view as well, we did expect the deal to happen and at least, we've got that deal.
But at the same time, the market fundamentals remain very strong in the U.S. and I think that's really why you're seeing U.S. stock market, which is at all-time high levels at the moment. The economy is recovering. In fact, we expect the economy to accelerate into the fourth quarter into next year. Company fundamentals look very strong. You've got good job growth, low inflation and housing recovery, market which isn't on particularly demanding valuation and all these things come together to paint a really pretty bullish picture for the U.S. market, and I think that's why you've had such strength in underlying equities over the last few weeks.
Wall: Looking specifically then at income stocks is what you focus on. How is the income market? Have you seen a sort of return to pre-credit crisis levels of dividend payments?
Edelman: We have. In fact, dividend payments in the S&P 500 today are at all-time high, as companies in the U.S. remain in very strong position. They are swimming with cash. They have a got a lot of cash sitting on their balance sheet and we are seeing these companies increasingly return these dividends back to shareholders.
So, in the last quarter, dividends grew by around 15%. Dividend payout ratio, so the proportion of earnings that paying out dividends, that's still pretty low by historical standards, just around 30%, so there is still plenty of scope for companies to increase their payments going forward. So, we still think the U.S. income market is one of the most exciting income markets globally.
Wall: Rebecca, thank you very much.
Edelman: Thank you.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
