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As a result, the landscape for a yield-orientated investor could scarcely be tougher. But opportunities remain if investors are willing to broaden their horizon beyond purely UK mega-cap equity. And, in an environment where UK interest rates stand at 0.5 per cent and government bonds appear fully priced, an income-paying equity fund becomes even more valuable.

From an income prospective, this year has been defined by a significant proportion of companies reducing, or cutting completely, the level of dividend paid. While some of this was by necessity, a trend was set by companies capable of paying their dividend but cutting it to preserve liquidity as banks demanded ever-increasing fees for future refinancing. In addition, with the major UK banks not paying a dividend and HSBC reducing its payment, the historically yield-paying banks have withdrawn a large share of the aggregate market yield.

These trends have resulted in the headline market yield being potentially over-optimistic and a greater concentration of 'market yield' being in a few large companies. Indeed, companies such as AstraZeneca and Vodafone account for a large proportion of the market yield. These companies offer financial stability and sustainable dividends, but the concentration of yield in such a small group of companies means finding attractively priced yield opportunities and building a diversified portfolio becomes more difficult. To overcome this, investors should expand the income search into other often-overlooked areas, such as UK mid and small-cap companies, selective overseas equities and corporate debt.

There are many attractive premium yield opportunities outside the FTSE 100 produced by companies with strong franchises and balance sheets. These companies offer an attractive combination of income and growth, and provide the opportunity to diversify sector exposure.

The inclusion of selected international stocks also increases the opportunity set. Not only does expanding the investment frontiers mean expanding the scope for income, but it also makes for better-diversified portfolios. It also provides exposure to economies arguably better placed for economic growth than the UK.

Currently, segments of the corporate debt markets - particularly Tier 1 debt - appear to have been overlooked by income investors. Some of the underlying companies have seen dramatic rises in their equity, while the related corporate bonds seem to have been ignored in the flight to quality by bond fund managers. As such, income investors can enhance returns with high coupons while gaining equity-like exposure from the discount to nominal value at which these bonds trade.

By design, income funds focus on dividend-paying ability that, in turn, requires companies with cash-backed earnings offering survival characteristics in an uncertain market. Investing in a broadly constructed income fund provides enhanced income benefits against cash while allowing investors to participate in the capital recovery offered by equities.

Alan Clifford is manager of the Lazard UK Income fund