The question of duration is now arguably much more important than yield. Savers’ obligations are long term, but the income sources we have relied upon for decades are increasingly unsustainable.
Investors need an income that rises over time to meet their financial goals and to combat inflation, which is well and truly on the up thanks to the lower pound.
Interest rates are also nudging higher, which is certainly bad news for bonds and generally much better for equities – although in this case the outlook doesn’t necessarily look great for either.
Given economies on both sides of the pond are fragile, the pace of rate rises will be gradual and several years of central bank ‘experimentation’ has stretched valuations.
American payroll numbers last week showed roughly half the number of jobs created in March versus expectations and US equities finally received a bit of a ‘reality check’ after Trump came up against his first immoveable object in the stance taken by both the house and the senate to deny his Obamacare ‘reform’ aspirations.
The Fed was dovish as it raised rates a quarter of a percentage point in March, and hesitation from policy makers could put the world back into the ‘limbo state’ in which it has operated for the past several years.
And that’s before we even start to worry about Brexit negotiations and European elections.
Stuck between a rock and a hard place, where can investors turn? Two funds that are going back into the IA UK Equity Income sector following the target change are Rathbone Income and Schroder Income.
Both are excellent candidates for a core income holding, aiming as they do to capture dividend and some capital growth. Each currently yields around 3.5%, giving investors a comfortable inflation buffer.
