Going global for dividend-yielding companies has some attraction still. Asian and Japanese markets are providing higher dividend payouts these days, but beware the additional risk plus currency fluctuations.
There is a proliferation of income alternatives and absolute return bond funds, but they require careful vetting.
So just how do you invest for a cautious client requiring income these days? All these options are a long way from the relative safety of cash and you have to ask, is the level of income being sought realistic today, given the client’s attitude to risk and tolerance for loss?
Probably not, but that makes for a difficult conversation. The only way to mitigate some of these risks is to be as diversified as possible and find a fund manager that can pick the right stocks or bonds.
Thankfully, despite the fact that both equity and bond markets look expensive right now, it is still possible to differentiate between whether a business or bond is cheap or expensive, and whether it is quality or not.
I tend to agree with BlackRock that, for now, the reflationary backdrop and benign market reaction to gradually rising US interest rates make equities preferable to bonds in the main, and corporate bonds are more attractive than government bonds.
For the long-term investor, a value-driven equity approach such as that followed by Schroder Income could reward nicely, or there is always the attraction of the revenue reserve of investment trusts.
City of London has a 50-year dividend growth track record and a current yield of almost 4%, for example. And perhaps bond funds driven specifically by credit risk with duration, rate and currency risk hedged away – like GAM Star Credit Opportunities.
