Mark Barnett, fund manager at Invesco Perpetual
“With the yield on offer from equities, on average, being well above that of bonds or cash – a situation last witnessed in the 1950s – and earnings growth under pressure, income is likely to provide a higher percentage of stockmarket total returns than capital over the medium term. My five-year investment strategy is to focus on companies with reliable cashflow and sustainable dividend growth, operating in less cyclical and more defensive industries. Overlaying this is balance sheet strength, with an associated ability to access the credit markets for funding, and a valuation which does not reflect these strengths. I am currently finding companies fitting these criteria particularly within the pharmaceutical, tobacco, telecommunications, non-life insurance and support services sectors.”
Mike Turner, global strategy and asset allocation at Aberdeen Asset Management
“The power of compound income in driving overall returns cannot be overstated. The search for yield will continue to lead investors into less familiar territory as the traditional go-to options fail to deliver. We believe the quality of yield is as important as the quantity of yield. Our portfolios tend to generate a natural yield as a function of our investment process. This is evidenced by our investments in quality companies with healthy balance sheets, as well as complimentary asset classes like infrastructure.”
Stephen Hayde, investment director, Close Brothers Asset Management
“Investors need to look beyond bank accounts for inflation-beating returns. Callable bonds are particularly interesting at the moment. On top of the usual credit analysis one needs to investigate whether or not the bond is likely to be called, looking for clues in the prospectus, presentations and management actions. This has been a rich source of new ideas in the past year with yields to call of between 5.5-8.5 per cent identified on a number of bonds with a 4-5 year time horizon.”
Tony Stenning, head of UK retail at BlackRock
“In recent times, equity income investing has seen renewed interest from all types of investors and may still provide a compelling long-term investment solution. Dividend payments have potential to boost total returns in market downturns and provide capital growth and rising income in periods of market strength – we believe that these strategies are particularly well suited to the low-growth environment we are seeing today. Looking ahead, with interest rates and government bond yields at all-time lows, coupled with the cash generation and subsequent strength of many companies’ balance sheets – which has led to many companies’ common equity yielding more than their corporate bonds – at this stage, equity income strategies would appear to offer the best opportunity to secure a rising income stream coupled with the potential for capital growth.”
Mike Kerley, fund manager of Henderson Far East Income investment trust
