Equity markets could make investors nothing in the next 10 years, warn managers

19 September 2025

Downing’s Simon Evan-Cook and Orbis’ Alec Cutler explain why investors should be wary of a downturn.

By Patrick Sanders

Reporter, Trustnet

Equity markets have posted stellar returns over the past decade but extreme valuations and historical precedent indicate that this could be about to reverse, according to managers.

Alec Cutler, FE fundinfo Alpha Manager of the Orbis Global Balanced and Orbis Global Cautious Standard funds, said this is a concern that many investors have ignored.

“People seem to think that equities are guaranteed a positive return. They aren’t. They could absolutely make zero in the next 10 years,” he said.

It seems “realistic” that equity markets deliver nothing or even lose money, thanks to the dominance of US stocks, which make up roughly 70% of the MSCI World index.

Since 2011, the S&P 500 has delivered a “spectacular” average yearly return of 14%, but this is based on unsustainable expectations, according to Cutler.

“To produce 14% again, you need valuations to go from already extreme 24x [price-to-] earnings to almost 40x earnings. You need corporate earnings, profit margins and valuations, which are near record highs, to increase further,” Cutler concluded.

The far more likely outcome is that the US equity market corrects and drags the rest of the global market down with it, he said. The average annual return of the S&P 500 is around 7%, so to return to that level, equity markets would post an average return of zero for “at least the next 10 years”.

This may sound absurd, he noted, but it has happened before. The chart below shows the average expected return on equities over 10 years, from different market valuations.

Source: Orbis Investments

“If you look back in history as far as you can get, whenever we’ve been at this level of valuation, markets returned zero over the next 10 years,” the Orbis manager explained.

On top of this, the US government’s “financial mismanagement” in relation to escalating debt levels and investors pulling out of American markets (both bonds and equities) could lead to a weaker dollar. This in turn could fuel further capital exodus from the country, sparking a US downturn.

“I would not be shocked if you get a 0% return from the global equity market from here,” he concluded.

Simon Evan-Cook, fund of funds manager at VT Downing Fox, agreed that this is a realistic concern. “There’s no God-given right that equity markets will go up every year, let alone to go up for another 15 years in a row,” he said.

While the past decade has been “mostly sunshine and rainbows” for global equities, strong performance is causing investors to develop “worrying” assumptions.

For example, many investors have concluded that active funds are no longer needed due to their underperformance compared to a surging global equity tracker.

“I completely understand why some people are asking themselves if they need an active fund, given that any attempt to do anything different has underperformed,” the Downing Fox manager said.

However, he warned that these assumptions were also around in the 1990s and backfired on investors as, in the following decade, the average global equity tracker “made you nothing”, Evan-Cook explained.

Performance of funds post 2000

Source: Downing Fox. Total return in sterling

The tech bubble collapse in 2000 was due to the high concentration of US equities, which had outperformed and become overvalued. When they corrected, they represented 50% of the global market and so dragged most portfolios down.

As Evan-Cook noted, while current valuations are not at the 1999 peak, they are approaching it. And global markets have become even more dominated by the US than they were 25 years ago.

If North America stocks re-rate, the resulting crash might look closer to the Nifty 50 downturn in the 70s, he suggested.

Long-term valuations of US Equities

Source: Downing Fox. CAPE Ratio, January 1881 to August 2025.

“Hence why it’s not outrageous to suggest that something as apparently reliable as a global tracker could go a long time without making money,” he said.

Not even the most popular stocks on the market would be immune. For example, in 2000, some investors thought Amazon would thrive due to the emergence of the internet, while others thought it was overvalued and heading for a fall. “Both investors would have been absolutely correct,” Evan-Cook noted.

Amazon shed almost 92% of its value between 2000 and 2005, but those that sold missed the rebound, he explained. This could happen again to some of the biggest stocks in the index, “despite how transformative things like artificial intelligence are”.

“Broadly, equity markets do go up over time”, Evan-Cook said “, but they can spend long periods of time that matter to investors going sideways or down. That’s a real risk right now.”

However, he said this is mostly a risk for global equity trackers and US mega-caps, with the outlook outside of US blue-chips being much more positive, as seen in the chart below.

Expected 10-year returns of equity markets

Source: Downing Fox. Research Affiliates.

Maybe prudent to have part of your portfolio in dividend paying shares ?

Here’s a 7-share passive income portfolio investors should consider over cash savings

Discover how holding a diversified range of UK dividend shares could generate a strong and stable passive income over time.

Posted by Royston Wild

Published 20 September

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

By some distance, Brits still prefer to hold cash on account for a passive income than to put their money in shares. To prove my point, latest data showed that 7.9m adults currently hold a Cash ISA, more than double the number that have a Stocks and Shares ISA (3.8m).

Given the spike in interest rates after 2021, it’s not a shock to see cash accounts have gained popularity. But with the Bank of England slashing their lending rates, continuing to prioritise savings over investing in the stock market could be an expensive mistake.

Should you buy Chelverton UK Dividend Trust PLC shares today?

Better returns

Investors have to balance risk and reward when deciding where to put their cash. And there’s no right or wrong answer, as it depends on each individual’s investment goals and risk tolerance.

But I prefer to put the lion’s share of my capital in dividend-paying stocks. By investing in a wide range of companies, too, I can mitigate the riskier nature of share investing versus saving, and chase a strong return without putting my money in too much danger.

Even if rates remain unchanged at 4%, the superior passive income that’s on offer from UK shares make stock market investing a ‘no brainer’ for me.

Seven dividend stars

Here’s a mini-portfolio of seven UK stocks investors could consider putting their spare cash in:

Dividend share	Sector	Dividend yield
M&G	Financial services	7.9%
Greencoat UK Wind	Renewable energy	9.8%
HSBC	Banking	4.8%
Persimmon	Housebuilding	5.5%
Target Healthcare REIT	Real estate investment trusts (REITs)	6.2%
Pennon Group	Utilities	6.6%
Chelverton UK Dividend Trust	Investment trusts	8.6%

The average dividend yield across these shares is 7.1%, which is triple the average interest rate of 2.3% that savers currently enjoy. Dividends aren’t guaranteed, but assuming these companies meet brokers’ forecasts — and can print a 3% average share price rise, too — I could enjoy a total annual shareholder return north of 10%.

Spread across 73 different companies, this mini portfolio could help protect investors against regional-, industry-, or company-specific shocks. The Chelverton UK Dividend Trust is especially effective in delivering this diversification.

The trust’s objective is “to deliver a high and growing income through investments in mid to small-cap companies exclusively outside the largest 100 UK stocks“. Concentrating on non-FTSE 100 stocks comes with greater risk, but it also provides the potential for superior rewards.

Besides, with investment in 66 different businesses across 20 different sectors, risk is still pretty well spread, in my opinion. Chelverton’s record of 14 straight years of dividend increases illustrates this robustness.

My plan

I’m not saying that investors should consider avoiding cash accounts altogether. I myself hold money in savings to diversify my broader portfolio and provide access to emergency cash.

But, for me, the best way to target a life-changing passive income is by putting most of my spare capital in dividend shares.

A stock market crash could help investors retire early. Here’s how

Story by Zaven Boyrazian, CFA

Long-term vs short-term investing concept on a staircase© Provided by The Motley Fool

Whenever the stock market hits a rough patch, investors often start nervously eyeing their portfolios. After all, there’s nothing more unpleasant than seeing investments crash in value.

So capitalising on these can propel portfolios to new heights, potentially opening the door to an earlier retirement.

The power of a crash

Let’s take a trip down memory lane and explore the stock market at the height of the pandemic. When lockdowns were put in place, shares around the world tumbled. And here in the UK, even the FTSE 100, which has historically been quite resilient, dropped sharply by around 30% in March.

Yet those with their eye on the long term could have used this sudden drop to start snapping up shares at a massive discount. And even when relying on passive index funds, the results would have been tremendous.

The extra gains generated from investing during a volatile market environment have made a massive difference, even for investors following a strategy as simple as drip-feeding £500 into an index fund each month.

If you buy an index tracker and as long as you can choose when to sell, you will not lose any of your hard earned, it could be multi years though.

To buy when markets are week, you either need a safe part of your Snowball that you can sell, new funds to add to your Snowball, or dividends to re-invest at sale prices.

The Market is the only place where customers run out of the Store when there is a sale on.

WB

Snowball from Animal Farm

The current estimate for income from dividends for 2025 is £11,368.00.

When re-invested at 7% it should earn £795.00 in extra income.

The figure includes a special dividend from VPC and some December dividends could be received in the next financial year.

Fcast dividends for 2026 > £9,817, over halfway towards the end destination of a ‘pension’ of 13%.

Introduction

Gilts are bonds issued by the UK government. In recent years, they have become increasingly attractive to individual investors due to increasing interest rates and tax efficiency.

What are gilts?

Gilts are a type of government bond. When you buy a gilt, you effectively lend money to the UK government in exchange for periodic interest payments (coupons) and the return of your initial investment (the principal) when the bond matures.

UK government bonds are known as ‘gilts’ because their past paper certificates had gilded (golden) edges. The name also reflects their security and reliability, as the UK Government has never failed to make repayments.

Key features of gilts:

• Issued by the UK government – Issued by the UK government, gilts are generally considered safe investments. The UK government has solid investment grade credit ratings of Aa3, AA-, and AA from Moody’s, Fitch, and S&P respectively.
• Fixed interest payments – gilts pay a fixed rate of interest that is set at the inception of the bonds. These payments are known as ‘coupons’. The interest payments are typically made every 6 months.
• Different maturities – Maturity is the time when the bond has come to the end of its life and the investor receives their money back. This ranges from a few years to several decades.
• Traded in the market – meaning their prices can go up or down.
• Return of principal at maturity – the issuer (HM Treasury) issues gilts with a promise to return your capital at maturity.

Related: Investing for Beginners: How to Start Investing in the UK

UK Gilts Explained

The pros and cons of investing in gilts

Pros:

• Low risk: Since they are issued by the UK government, gilts are considered very safe.
• Tax benefits: Capital gains from gilts are not taxed, making them attractive for investors.
• Predictable returns: You know how much you will receive at maturity, and can see a schedule of period interest (coupon) payments.
• Liquidity: Gilts can be easily bought and sold in the market.

Cons:

• Low returns: Compared to stocks or corporate bonds, gilts usually offer lower potential profits.
• Interest rate risk: Buying a gilt at a 3.75% yield may seem attractive now, however, if interest rates were to rise you would be locked into a lower rate. This causes investors to sell legacy gilts with lower rates and can lead to their prices falling.
• Inflation risk: Like all investments, inflation will eat away at the real value of returns. For example, if a gilt is yielding 4%, and inflation is 2%, the real return is 2%.

Why is now a good time to buy gilts?

This presents an opportunity for individual investors to buy them at a discount, and benefit from their tax-free capital gains when they mature.

For example, take a gilt maturing in 2026 with a low coupon of 0.125%:

• It is currently trading at a discount (<100).
• The taxable income component of its return (0.125%) is negligible.
• When it matures, the price will return to its full value (100), giving you a capital gain.
• Since this gain is considered capital rather than income, the bulk of the yield is tax-free, making it very tax-efficient.

This tax advantage makes low coupon gilts an efficient way to earn returns, especially for higher-rate taxpayers.

Comparing gilts to other investments

• Gilts vs. Corporate Bonds: Corporate bonds often offer higher yields, but they come with more risk as companies can default. Generally speaking, corporate bonds will have higher coupons, as such they are more commonly held within ISA wrappers.
• Gilts vs. Stocks: Stocks are more volatile than gilts, and provide less capital protection. However, they have higher expected returns, which minimises the risk of not receiving a required return target. Stock market index trackers can be a solid choice for investors looking to maximise long-run returns, especially if held within an ISA wrapper.
• Gilts vs. Cash Savings: Cash savings provide the greatest protection of capital (providing for the FSCS limit). Further, flex savings accounts can be accessed on demand without needing to sell a bond at the prevailing market price. However, cash savings are income products (taxed at your income tax rate), making the rates available less competitive if held outside a tax wrapper.

Who should invest in gilts?

Gilts may be suitable for you if:

• You want a safe and predictable investment.
• You are looking for tax-efficient ways to invest, especially outside of a tax wrapper such as an ISA
• You need to preserve capital.
• You prefer stability over risk.
• You are looking for a hedge against stock market volatility.

How to invest in gilts

You can buy gilts through a broker, most investment platforms will offer gilts. You can also gain exposure to gilts through pooled products such as ETFs, however, pooled products will not be subject to the same tax treatment (free of capital gains tax).

Steps to buying gilts:

1. Determine your investment objectives – Why are you investing? Will you need your money back in a year, or a few years? How much will you need to earn to meet your objective? Your investment objectives will help you narrow down a suitable range of gilts.
2. Choose a platform – Open an account with an investment platform or broker.
3. Review tenors and yields – Check the current market yields for gilts with different tenors (the length of time until they are repaid). Choose a gilt that matches your investment goals.
4. Place an order – Buy directly through your chosen platform.

Conclusion

Gilts have become an attractive investment for individuals due to recent economic changes and their tax efficiency. While they may not offer the highest returns, they provide a safe and predictable way to grow your money, especially in uncertain times.

Key takeaways:

• Gilts are low-risk government bonds suitable for conservative investors.
• They offer tax benefits, making them efficient, especially for higher-rate taxpayers.
• The current market environment makes discounted gilts a unique opportunity.
• While they are safer than stocks or corporate bonds, they have lower return potential.
• Gilts are easy to buy through brokers, such as WiseAlpha.

If you are a higher or additional rate tax-payer looking for a low-risk investment that can help preserve and grow your wealth with high levels of tax efficiency, gilts might be worth considering.

Before investing, always review your financial goals and consult a professional if needed.

There are two conflicting views of markets.

How Does the Stock Market React to Interest Rate Cuts?

Below, we show how the S&P 500 has performed after the first rate cut over the last five decades:

Year of first rate cut	Three months	Six months	One year after
1973	-10.2%	-6.2%	-36.0%
1974	-14.7%	-15.3%	+7.5%
1980	+15.0%	+28.9%	+30.3%
1981	-11.0%	-7.9%	-17.8%
1982	-4.8%	+17.4%	+36.5%
1984	-1.2%	+7.2%	+10.5%
1987	+0.1%	+1.7%	+7.5%
1989	+7.4%	+7.5%	+11.9%
1995	+5.1%	+8.0%	+13.4%
1998	+17.2%	+26.5%	+27.3%
2001	-16.3%	-12.4%	-14.9%
2007	-4.4%	-11.8%	-27.2%
2019	+3.8%	+13.3%	+14.5%
Average	-1.1%	+4.4%	+4.9%

Historically, the S&P 500 returns 4.9% on average one year after the first interest rate cut, seeing positive returns nearly 70% of the time.

In the three months following a rate cut, the market often dips, but typically rebounds by the six-month mark. This aligns with conventional wisdom that lower interest rates stimulate economic activity by reducing borrowing costs for businesses and consumers, which tends to benefit the stock market.

However, S&P 500 performance following rate cut cycles can vary significantly. For instance, U.S. equities saw double-digit declines after the first rate cuts in 1973, 1981, 2001, and 2007. On the other hand, the S&P 500 surged 36.5% one year after the 1982 rate cut cycle. In the most recent rate cut cycle, the S&P 500 jumped by 14.5% in the following year.

In this way, interest rate cuts don’t show the whole picture. Instead, positive earnings growth may offer a more reliable indicator of S&P 500 performance in the following year. When earnings growth is positive, the market averages 14% returns one year after. In contrast, when earnings decline during periods of falling interest rates, the S&P 500 increased by 7%, on average.

Veroni App

📈 Yes, the S&P 500 is showing signs of being overbought as of mid-September 2025.
Here’s what’s happening:

• 14-day RSI peaked at 76 in July, which is well above the typical overbought threshold of 70.
• Market breadth is narrowing—only a small group of large-cap stocks (especially the “Magnificent Seven”) are driving the rally, while broader participation has faded.
• Volatility risks are rising, with technical analysts warning of a potential correction due to systemic overvaluation and divergence from equal-weighted indices.
  Even though the index is hovering near all-time highs, the underlying structure looks fragile. It’s a classic setup where enthusiasm can quickly flip to caution. If you’re tracking this for historical parallels or symbolic storytelling, it’s a textbook case of exuberance masking imbalance.

Narrowing Market Breadth and Rising Overbought Conditions in the S&P 500: A Warning Signal for Investors?

Henry RiversTuesday, Sep 9, 2025

– S&P 500’s recent gains show growing divergence from broader market breadth, with 80% of stocks above 50-day averages in May 2025 but narrowing participation by September.

– Overbought conditions intensified as 20% of S&P 500 stocks entered overbought territory, with RSI peaking at 76 and WealthUmbrella Margin Risk hitting extreme 13-level readings.

– Persistent divergence between index performance and equal-weighted indices/small-cap laggards signals structural fragility, historically preceding market corrections.

– Magnificent Seven dominance and systemic overvaluation create volatility risks, urging investors to adopt defensive strategies amid mixed economic signals and Fed policy uncertainty.

The S&P 500 has long been a barometer of U.S. equity health, but recent data suggests a growing disconnect between the index’s performance and the broader market. Investors are increasingly scrutinizing narrowing market breadth and systemic overbought conditions, which together may signal a heightened risk of a near-term correction.

Market Breadth: A Tale of Two Rallies

Market breadth, as measured by the Advance/Decline Line (AD Line), has been a mixed bag in 2025. In late 2024, the AD Line plummeted despite the S&P 500’s resilience, a classic bearish divergence that signalled weak participation and reliance on a narrow group of large-cap stocks, particularly the “Magnificent Seven” S&P 500 Forecast: Correction Signs & 2025 Buy Levels^[2]. This trend persisted into early 2025, with high uncertainty over policy shifts like tariffs exacerbating the imbalance S&P 500 Forecast: Correction Signs & 2025 Buy Levels^[2].

However, a more recent rebound in mid-2025 offered a glimmer of hope. By April–June 2025, the AD Line surged to a 2-year high, outpacing the S&P 500’s recovery and suggesting broader participation as stocks rebounded from oversold conditions S&P 500 Nears Record Highs: Key Market Drivers Explained^[3]. By late May, 80% of S&P 500 stocks were trading above their 50-day moving averages, a robust sign of sector-wide strength US Stocks Watchlist – 5 September 2025^[4]. Yet, this optimism has since dimmed. As of September 2025, the AD Line has flattened while the S&P 500 continues to climb, raising concerns about sustainability S&P 500 Forecast: Correction Signs & 2025 Buy Levels^[2].

Overbought Conditions: A Volatility Time Bomb

The S&P 500’s recent rally has pushed it into overbought territory, with its 14-day RSI peaking at 76 in July 2025 US Stocks Watchlist – 5 September 2025^[4]. While the index has since retreated slightly, technical analysts warn that the market remains vulnerable. The WealthUmbrella Margin Risk Indicator, a rare tool for gauging systemic overbought/oversold levels, hit an extreme reading of 13 in late 2025—a level historically associated with trend reversals Is the S&P 500 Overdue for a Correction? 2025 Forecast & …^[1].

Compounding the risk is the fact that one in five S&P 500 stocks has entered overbought territory, with financials and industrials joining the tech sector in this precarious position S&P 500 Nears Record Highs: Key Market Drivers Explained^[3]. This widespread overbought condition, combined with valuations at “nosebleed” levels, creates a volatile backdrop S&P 500 Nears Record Highs: Key Market Drivers Explained^[3].

Divergence and the Path to a Correction

The most alarming signal is the persistent divergence between the S&P 500 and breadth indicators. While the index hit record highs in September 2025, the Equal-Weighted S&P 500, small-cap indices, and semiconductors lagged behind Is the S&P 500 Overdue for a Correction? 2025 Forecast & …^[6]. This lack of confirmation from key sectors is statistically rare and historically precedes corrections S&P 500 Forecast: Correction Signs & 2025 Buy Levels^[2].

Moreover, the AD Line’s recent bearish tendencies—despite a brief rally in Q2—suggest fragility. If the AD Line continues to decline while the S&P 500 rises, it could signal a loss of momentum Market Breadth: What it is, why it matters, common …^[5]. Conversely, if the index experiences new lows while breadth metrics improve, it might hint at a reversal Is the S&P 500 Overdue for a Correction? 2025 Forecast & …^[1].

Conclusion: Caution in a Narrowing Market

The S&P 500’s current trajectory is a double-edged sword. On one hand, the mid-2025 rally demonstrated broad-based strength, with 67.87% of stocks trading above their 50-day averages in September US Stocks Watchlist – 5 September 2025^[4]. On the other, the reliance on a handful of mega-cap stocks and systemic overbought conditions paints a cautionary picture.

Investors should remain vigilant. While the market’s technical setup does not guarantee a correction, the combination of narrowing breadth, overbought momentum, and divergent sector performance warrants a defensive stance. As the Federal Reserve pauses monetary policy and economic signals remain mixed, the coming months will test whether this rally is a durable recovery or a prelude to a pullback.

Pollen Street leaves the Watch List. After increasing in price by 37% the Trust now only yields 5.7%.

I’ve reduced the holding in SDIP back to 10k to reduce the risk. As the raison d’être of the Snowball is not TR but to re-invest dividends, to earn more dividends.

Current profit for SDIP is £1,405 but remember a profit is not a profit until the underlying position is sold

I’ve bought 168 shares of ETF QYLP for 2k. This completes the buying in QYLP, until the position is monitored.

Cash to re-invest for the pair trade of QYLP £523.00 destination X.

This 12% Dividend Is Now On Sale (Thanks to a “Hidden” $30-Billion Move)

by Michael Foster, Investment Strategist

At CEF Insider, we live for those times when a bad news story turns up a great dividend opportunity. And the headlines just served one up, putting a 12%+ dividend (in a hated sector, no less) on the table.

This special situation is intriguing because no one in America is talking about it. That’s because it comes from across the pond, in the UK. Specifically, I’m talking about one of the UK’s biggest insurers, Phoenix Group, pulling £22 billion (US$30 billion) from asset manager Aberdeen Group plc (SLFPY), reportedly to manage these funds in-house.

Aberdeen’s name might ring a bell if you’re a CEF Insider member, as we’ve held the firm’s funds in the past. It’s one of the world’s largest closed-end fund (CEF) managers.

The move comes as Aberdeen has been suffering from poor performance, negative headlines and slipping analyst sentiment.

You can see that in the performance of two of Aberdeen’s international CEFs, the abrdn Global Premier Properties Fund (AWP), in purple below, and abrdn Global Infrastructure Income Fund (ASGI) (in orange).

Both have flopped in relation to a benchmark international ETF, in blue, in the last five years:

Two Key Aberdeen CEFs Lag Their Benchmarks …

(The company rebranded from “Aberdeen” to “abrdn” a few years ago, and recently – and wisely – went back to “Aberdeen” in March. The firm’s CEFs don’t appear to have been relabeled yet.)

Which brings me to those two 12%+-paying Aberdeen “diamonds in the rough”: abrdn Healthcare Investors (HQH), with a 12.4% yield, and 12.7%-paying abrdn Healthcare Opportunities Fund (THQ). These are a bit unique in that Aberdeen acquired them fairly recently: at the end of October 2023, to be precise.

Before that, both were owned by Tekla Healthcare Management and run by a team that included both medical researchers and financial pros. The proof of that approach is, as they say, in the pudding.

As you can see below, over the last three years, both HQH (in orange below) and THQ (in purple) have beaten the benchmark pharma ETF (in blue), even though the return on all three has been mediocre at best:

THQ, HQH, Beat the Index in a Tough Environment

Healthcare has been weighed down – especially this year – with the appointment of RFK Jr. as head of the HHS, the threat of tariffs on imported pharmaceuticals and pressure from the Trump administration to cut drug prices. But there are signs this pessimism may be overdone, setting up the first part of our opportunity:

HQH, THQ Have “Discount Momentum”

Above we see the discounts to net asset value (NAV, or the value of their underlying holdings) on THQ (again in purple) and HQH (in orange).

As you can see, these markdowns have been narrowing in the last few years, even with THQ vaulting into premium territory, only to see that premium collapse. Those “discounts-with-momentum” are the second part of our buy case here.

Now let’s look at each fund’s NAV performance, because we can clearly see that HQH’s total NAV return (in orange below) – or the performance of its underlying portfolio, including dividends collected and reinvested – outstrips that of THQ (in purple).

HQH’s Portfolio Gains, Despite Its Deep Discount

And HQH is cheaper, too, with that 6.4% discount compared to 3.7% for THQ.

A better-performing portfolio and a deeper discount? That gets our attention!

This is why it makes sense to dip a toe in HQH right now. Not only are you getting a 12.7% dividend, but you’re getting a bigger discount, too. And I do see that discount continuing to narrow, putting a further lift under the stock. That markdown could also slam shut pretty quickly if the dour mood around pharma brightens – even a bit.

Moreover, HQH’s portfolio is less risky than those of other biotech funds. Its top position is in the large-cap Amgen (AMGN), while its top-10 holdings include well-known firms like Vertex Pharmaceuticals (VRTX) and Eli Lilly (LLY).

The fact that this is a well-established fund holding well-established stocks adds another element of safety – and another reason why its discount should keep narrowing. Investors who buy now will enjoy some nice dividends while they wait.

But all that said, there’s one negative about the fund that’s keeping me from giving it a full-throated recommendation today.

I really like to see a monthly payout to go with that high yield, and HQH pays quarterly.

That matters for reasons that go beyond convenience: Fact is, any management team with the guts to offer a monthly payout is confident they can keep that cash stream rolling out.