Search for income: Overview

This article is part of
Searching for income - October 2013

Returns are so low from the banks that it seems pointless, unless one is very cautious, to leave everything tied up in cash savings, not least because the banks have appeared so unreliable.

But the alternatives have their own problems. UK equity income, the go-to fund type for investors looking for income, had its own earthquake recently with the announcement that Neil Woodford, the doyen of equity income managers, is to leave Invesco Perpetual to set up his own business.

This has had a divisive effect on the other managers. Do they want the departing funds that some anticipate to come from Invesco, or do they want to stay below the radar and not get too big?

It is very uncertain what will happen to investors’ funds in the next few months, and many will observe what happens to performance, and how the inheritor of the Invesco Perpetual High Income and Income funds Mark Barnett will perform.

Still there are plenty of alternatives, and Adrian Lowcock of Hargreaves Lansdown has suggested Artemis Income and Rathbone Income – the former of which is monitoring the fund’s capacity.

However, there are other options aside from UK equity income. Companies from emerging markets are starting to deliver dividends on a more reliable basis, as the economies grow. Moreover they are delivering dividends based on growth rates rather than a targeted dividend policy that companies have in the UK. As economies grow, so do the companies mature, and the payout of dividends increases.

High-yield bonds have also become more respectable as more blue-chip companies have had their debt downgraded in the recent past. In addition, more companies have issued debt as loans from banks have become less available. An interesting anomaly shows that high-yield bonds correlate much more to stocks than they do with conventional corporate bonds, so if the latter are having a hard time, then high-yielding debt may be a good option.

And in the search for income it is important not to forget that investment trusts, now rising up the list of interesting assets, also issue dividends and have some advantages over traditional shares.

Overall, the universe of income-yielding assets is varied and investors trying to achieve this have much to choose from.

Melanie Tringham is features editor of Financial Adviser