Product providers are satisfying investors demand for income by offering such yields, but are doing so within a skewed and broken model, he added.
“How can it be possible in a world where interest rates are zero and bond yields are 2%? If they have found a way to do this then they should be an alchemist not a fund manager,” Smith said.
Companies which pay bumper dividends are doing so because they are unable to return real value by reinvesting in the business itself and such companies are unlikely to provide growth.
“Investing for income is not what we are about. We are invested for total return. There is an industry out there that will supply to investors and income funds have for a long time out sold other funds.
“Investors’ desire for income is now rabid and they have people telling them you can get 4% to 5% equity income, but you cannot. If you are getting that then you are getting some of your equity back as well,” he concluded.