Income

A 4% yield is not a strategy. But could it make you a better global investor?

For years, investors have been told to diversify globally.

Yet the extraordinary success of US growth equities has increasingly pulled portfolios in the opposite direction. A fund can be global by name while its fortunes remain heavily influenced by one country, one investment style and a relatively narrow group of very large companies.

Perhaps there is another, less obvious, route to broader equity diversification. Income.

A 4% yield is not, on its own, an investment strategy. Simply buying the highest-yielding shares can expose investors to struggling businesses whose dividends may prove unsustainable. Even MSCI’s own high-dividend methodology applies quality and sustainability screens specifically to reduce exposure to companies with deteriorating fundamentals and potential dividend cuts.

But at MGTS Qualis Funds, we believe the search for sustainable equity income can have an important secondary benefit.

It can act as a diversification discipline.

Income is not distributed evenly around the world

At the end of June, the MSCI USA Index yielded just 1.12%. MSCI World ex USA yielded 2.56%, Europe 2.80%, the UK 3.12% and Pacific ex Japan 3.42%.

This is not a ranking of which market will perform best next.

It simply demonstrates that the opportunity set for equity income looks very different from the opportunity set created by market capitalisation.

An investor seeking a sustainable level of income is naturally encouraged to look more widely. Towards Europe, the UK and parts of Asia. Towards different dividend cultures, capital-allocation policies and corporate structures.

At a time when so much global equity capital has been drawn towards the United States, we believe there can be an indirect benefit in an investment discipline that encourages a broader geographic search.

But geography is only half the story.

Across more of the world — and more of the economy

Income is not distributed evenly across sectors either.

On 30 June 2026, information technology represented around 43% of the MSCI World Growth Index. Its ten largest holdings accounted for just over 45% of the index.

Compare that with the MSCI World High Dividend Yield Index. Its largest sector exposures were spread across healthcare, consumer staples, financials, industrials and energy. Information technology represented just over 5%.

Again, this does not mean income investing automatically creates a diversified portfolio.

A poorly constructed income strategy can simply exchange a concentration in technology for a concentration in banks, oil companies or other traditional dividend-paying sectors.

But the search for sustainable income globally can encourage investors to look across more of the world and, importantly, across more of the economy.

That matters because the benefit of diversification is not simply owning more companies.

It is owning companies whose fortunes are driven by different things.

A pharmaceutical company does not generate earnings in the same way as a semiconductor manufacturer. A bank has different economic sensitivities from a consumer staples business. An industrial company returning cash to shareholders may respond to a very different set of market conditions from a highly valued software company.

They are all equities. But they are different equity engines.

Why valuation matters now

We think this is particularly relevant against today’s valuation backdrop.

At the end of June 2026, the MSCI USA Index traded at 21.0 times forward earnings, compared with 15.6 times for MSCI World ex USA. The stylistic distinction is even greater: MSCI World Growth traded at 25.9 times forward earnings, while MSCI World High Dividend Yield traded at 14.7 times.

This is not an argument that growth investing is finished. Far from it.

Many of the companies leading global markets are extraordinary businesses with powerful earnings growth and exposure to genuine structural change.

But good businesses do not automatically represent good investments at every price.

The question is not whether growth companies can continue to grow.

It is whether every part of an investor’s equity portfolio should depend on the same companies, sectors and earnings expectations continuing to justify increasingly elevated valuations.

At MGTS Qualis Funds, we believe valuation remains a fundamental part of investment risk.

Diversification becomes increasingly valuable when one source of return has become both dominant and expensive.

A 4% yield is not a 4% return

Perhaps the biggest misconception surrounding equity income is that it is only relevant to investors who need to withdraw income from their portfolio.

A portfolio seeking a 4% yield is not targeting a 4% return.

Equity investors remain owners of businesses. They participate in earnings growth, changes in valuation and movements in share prices. The dividend is one component of total return, not the entirety of it.

If a company can generate cash, return part of that cash to shareholders and continue to grow its earnings, investors may benefit from both the income received and the changing value of the business.

Global dividends themselves are expected to continue growing in 2026, although the picture differs considerably by market and sector. S&P Global Market Intelligence forecasts global dividend growth of 2.9% this year and S&P 500 dividend growth of 6.4%.

A bond pays you to lend. An equity dividend pays you while you remain an owner.

The source of that income also matters. Dividends can sit alongside other equity-based sources of income, including selectively generated option premium, but the role and trade-offs of each must be understood.

The objective should not simply be to maximise today’s headline yield.

A 4% income objective should be an output of thoughtful portfolio construction, not the sole input into every investment decision.

The MGTS Qualis Fund View

At Qualis, we do not see equity income as the conservative alternative to equity growth. We see them as different equity engines.

Growth investing often asks what a business could earn tomorrow and what that future growth may be worth today.

Equity income places greater emphasis on cash generation, capital allocation and what a business can sustainably return to its owners.

Both can create wealth. Both carry equity risk. Both have periods when their investment style is in and out of favour.

But they do not necessarily rely on the same companies, sectors, geographies or sources of return.

A 4% yield is not a strategy.

But the discipline required to generate sustainable equity income globally may encourage investors to look towards different parts of the world, different parts of the economy and different valuation opportunities — while retaining participation in the long-term total return potential of equity ownership.

Perhaps the hidden benefit of equity income is not simply the income.

Perhaps it is where the search for that income takes you.

 

This article is for information only and does not constitute investment advice or a personal recommendation. Capital is at risk, and the value of investments can fall as well as rise.