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the global pandemic impacted every facet of our lives. 

In 2020, the global pandemic impacted every facet of our lives.To combat a recessionary environment, governments and central banks looked to prop up their damaged economies.  Never has there been this much fiscal and monetary stimulus all at once to keep markets afloat and support our medical research sector in the search for a vaccine.

While all equity markets were affected in 2020, the Australian equity market (ASX200) lagged behind most other markets despite our relatively low number of COVID cases and more resilient economy. In large part this underperformance was due to our equity market index composition. 

Market Impacts on FY21 Granting  Graph 1

During 2020, there was a large disparity between sector performance with more economically sensitive industries affected more than others. Sectors such as technology outperformed in 2020 as they benefited from a pull forward in demand for their services as consumer ordered goods online, worked from home and streamed entertainment to their electronic devices. Conversely, sectors such as banks, property (AREITs) and energy stocks suffered in a COVID-19 environment as demand for oil and fuel reduced, offices and retail malls had less visitors and investors fretted that banks would experience soaring bad debts and low credit growth. As the Australian market has a relatively low exposure to technology and relatively high exposure to banks, AREITs and energy, it underperformed other global markets over the year.

Market Impacts on FY21 Granting  Graph 2

The banks and property sectors, in particular, are large dividend payers. In 2020, dividends were cut as corporate profits fell dramatically and boards moved to shore up their balance sheets and preserve cashflow given the uncertain external environment. 

In November however, the ASX 200 Accumulation index jumped 10%, the best monthly return since 1993. This helped the December quarter register a gain of 13.7% - as shown in the chart above. Global equity markets rose strongly in the final quarter of 2020 following promising COVID-19 vaccine news, the US Election outcome and continued fiscal and central bank stimulus. 2020 was a rollercoaster year but despite the impact of COVID-19, the ASX200 Accumulation index ended 2020 +1.4%.


Investors often look 12 months into the future. During the December quarter, investors started to price into markets the impact of a successful vaccine deployment globally along with continued government and central bank stimulus. Markets rallied on the expectation that over the next 12 months we should see an improvement in global economic activity which will flow through to corporate profits.
While company earnings revisions have started to improve from the depths of 2020, they are not expected to reach FY19 levels until FY22. Dividends will follow earnings and encouragingly there are some pockets of strength for income seeking investors including the cash rich iron ore companies and an improving banking outlook due to lower regulatory constraints on capital and rebounding economy. An improving economy should also improve the dividend prospects for many other industrial companies, however there is often a lag in dividends relative to the bounce in earnings as board confidence on the outlook more slowly improves.

The current dividend yield on the ASX200 (~3.5%) is still low relative to history (~4.4%). This means that despite the strong rebound in equity markets, dividend income will remain depressed relative to previous years. The charts below from investment Bank UBS (showing Earnings-per-share (EPS) and dividends-per-share (DPS)) show the bounce in dividends still leaves it below FY19 levels for a few years. 

Market Impacts on FY21 Granting  Graph 3

Distributions in general from Australian Equities Managed Funds for June 2020, September 2020 and December 2020 were down by at least 30% when compared to the 2019 periods. However, we should remember that FY2019 had a particularly elevated level of special dividends as companies looked to distribute franking credits ahead of the 2019 Federal Election where ALP policy intended to remove franking credit cash refunds.
While this commentary paints a subdued short-term picture on equity market dividends, it needs to be remembered that income is scarce in most asset classes. Low interest rates have weighed on many other asset classes such as cash and Fixed Interest. Therefore, the Australian equities market income yield relative to other asset classes still compares well. In addition, Equity Trustees looks to buy companies that have quality characteristics and sustainable earnings and cashflows to provide for a growing dividend base.


Lower investment income will mean that FY21 granting from Ancillary Funds (private ancillary funds or sub-funds) will be impacted. Some of our philanthropy clients have a cash income buffer which will serve them well in this granting year.  

Where there might be a shortfall in cash income to meet the minimum distribution requirements of the ATO, your Relationship Manager will be in contact to discuss your options.

If you have any concerns or queries, contact your Relationship Manager.