Dividends and Sovereign wealth funds experience major setback in 2022, report says

If you ever drive in rush hour, you will be in stop and go traffic. The effect of the traffic pace will be felt by all the cars on the road from the most expensive to the least expensive. One hopes the most expensive is a little more comfortable seating, but the pace of the traffic is the same. Sometimes the investment world is the same. Whether you are do it yourself investor or rely on outside help, it seems everyone achieved similar results.

Since the 1980’s when the stock market turned from primarily individuals to institutional driven, there has been a growth of numerous firms who hire the best and brightest to help manage or consult on the management of funds. The cream of the crop is sovereign funds or government pension funds. They have a duty to manage funds for the citizens of the land and in most funds, there is a provision to ensure some of the money is managed inhouse and some outside or use consultants. This can mean the funds have access to the sharpest talent to ensure the funds earn a good return for the citizens of the country. If a good consistent return is achieved, the politicians can increase benefits or offer one-time benefits that can help their reelection process.

In a report by Global SWF found that the value of assets managed by sovereign wealth funds fell to $10.6 trillion from $11.5 trillion, while those of public pension funds dropped to $20.8 trillion from $22.1 trillion.

Global SWF’s Diego Lopez said the main driver had been the simultaneous and significant 10% corrections suffered by major bond and stock markets, a combination that had not happened in 50 years.

Of the 455 state-owned investors, the fund which went down the most was Denmark’s ATP with a 45% plunge or the funds under administration fell $34 billion. (Perhaps new fund managers will be in place in 2023).

Linking to dividend paying stocks, while assets under administration fell, the report only says if the holdings were liquidated losses the amount would be lower. The reality is the funds are not being liquidated, for pension funds tend to be very long-term holders of their securities. Similarly, if you invested in a dividend paying company and the price went down, it is okay as long as the company is profitable and can pay their dividends. For example, earlier last year oil prices jump, oil stocks jumped and some prices are a little lower, however the cash flow has increased and expect large dividends to be paid in 2023.

There are more questions than answers, till the next time – to raising questions.

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