S&P: Equity Income Funds May Offer Stability

April 17, 2001 (PLANSPONSOR.com) - Equity income funds may provide a safe harbor in the current market turbulence, according to Standard & Poor's Fund Services Research.

In an article published today in the Select Fund Bulletin, the researchers say that equity income funds try to provide a high level of current income typically by investing at least 65% of its assets in dividend-paying stocks.

The total return for an equity income fund should be viewed as the combination of receiving high dividend payments and the capital appreciation earned on the stocks held in the portfolio.

Mature Perspective

The S&P researchers said that stocks paying high dividends tend to represent companies in the mature stage of their lifecycle with a stable growth rate.

While they may not provide large upside potential, there is a large degree of downside protection. In a downward market, the downside protection is invaluable, the researchers said.

According to S&P, equity income funds should be considered within the large cap value style category. Using three- and five-year rolling periods over 10 years through January 31, 2 001, it was found that equity income funds have a 99% correlation to large cap value funds.