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  • Portfolio Management Service: reduction to income payments

    We’ve taken the decision to cut the dividend on your Portfolio Management Service (PMS) portfolio to reflect the current circumstances and the market outlook.

    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

    The coronavirus pandemic has affected companies’ ability to pay dividends. Some companies have seen their revenues fall, meaning they have less cash to pay out to shareholders. Other sectors are taking a cautious approach, and while they have some cash now, they have chosen to cut dividends to protect the future of the business, and best serve employees and the public.

    We invest the PMS portfolios in a broad range of funds. These funds, in turn, are invested in a wide selection of underlying shares and bonds. These investments include shares in a number of companies which have cut or suspended their dividend.

    We also expect income from bonds will be impacted, though to a lesser extent. When there is an economic slowdown, this can mean some companies struggle to repay their debt. Bond funds hold a diverse spread of underlying investments. But if an issuer isn’t able to pay a bondholder there could be an impact on the fund’s yield.

    Cuts to income payments

    We’ve spoken to the managers of the underlying funds about their expectations for income for the rest of the year. As a result we’ve taken the decision to cut the dividend on your PMS portfolio to reflect the current circumstances and the market outlook.

    We expect these cuts to be temporary, and hope we’re in a position to increase dividends again in due course.

    We’re also aiming to provide some uplift in the year-end dividend payment, due to be paid on 30 October 2020.

    The reduced dividend payments are shown below, but it’s important to note that the income stream will be under constant review. Further changes might be necessary as the coronavirus situation develops, and as the economic outlook becomes clearer. Income is variable and not guaranteed.

    Although no one really knows how long the impact of the virus is going to last, we take encouragement in the conversations we’ve had with fund managers. While there have been significant dividend cuts, a number of firms are expected to reinstate dividends in the near to medium term, although as ever there are no guarantees. We’ll stay in close contact with the underlying managers and continue to monitor their investments.

    How dividends have been adjusted

    The following cuts are based on the assumption that dividends from the UK stock market fall by 50%, global dividends fall by 25% and income from bonds falls by 5%. Income from fixed interest holdings has been falling over the past year as money from maturing bonds was re-invested into lower yielding assets. We have included an additional reduction in our fixed income assumptions to maintain a cautious approach.

    The cuts will take effect from the payment due on 29 May.

    PMS portfolio Percentage change compared to 31 May 2019
    Income and Growth (M5) -34.9%
    Income and Growth (M6) -40.4%

    The PMS portfolios use HL Multi-Manager funds which are managed by our sister company Hargreaves Lansdown Fund Managers Ltd.

    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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