But while advisers acknowledge this – as illustrated by a recent Aviva Investors survey – convincing clients of this reality poses a tougher challenge.
“Whether you are using a multi-asset fund or multi-asset portfolio, it is getting harder and harder to generate income,” said Lee Robertson, CEO of Investment Quorum. “We have always said that we would want to deliver 4% income, but in the current climate that is becoming increasingly difficult.”
“We can still take income from the value of the capital. But that leads to a discussion over whether clients are willing to lose that capital, and the less capital you have the less income it will generate.
“Clients are used to having more – once you are used to something it is very difficult to watch it being taken away. But generally people are accepting, and rather than seeing their capital deplete they prefer to take a lower level of income.”
So, once you have brought your client round to the notion that times have changed and income streams are no longer the raging torrents they once were (perhaps ‘intermittent trickle’ would be more apt), how do you go about finding it?
“All things being equal, yield is a measure of risk, and the higher the yield the higher the risk might be,” advised Andrew Summers, head of fund research at Investec Wealth & Investment. “What you do not want to be doing is hunting for the highest yield – it is much more important to make sure that yield is sustainable.”
“Equity income managers who say that they would rather buy stocks that are second-quartile in yield terms than as high as possible are doing it because they want sustainable income in a situation where they are not going so flat-out that there is no more gas in the tank, so to speak. You want to be able to grow the income and sustain it with a progressive dividend policy, rather than just spewing out 6%.”
Scott Baikie, senior portfolio manager at Thomas Miller Investment, added: “It is important to take a total return view and not be blinded by high-yielding assets. There are still relatively opportunities out there, but some of them are quite unconventional.”
Baikie owns some commercial property and infrastructure vehicles, including Londonmetric Property, HICL Infrastructure and CATCo Reinsurance Opportunities, which are currently trading at a premium but Baikie sees as “inflation-proofed to a degree and have reasonable yield”.
