Q: In a portfolio where capital preservation and income are the goals there are 13 equities including 2 banks and one insurer. H is in a small loss position; it currently has yield of around 2.84%. POW has a yield around 5.2%. What would your thought be about switching from H to POW? Many thanks for your excellent service.
5i Research Answer:
A utility 'should' be much more conservative than a financial company. Ideally, we would make such a decision on sector allocation first, to ensure proper diversification. POW is cheaper than H in addition to its yield, but we would consider it a bit riskier due to its capital markets exposure. They are about the same size. We would be Ok with either one, but considering three financials are already noted in the question we would not see a switch as ideal.