With a base rate cut rumoured to be on the horizon, senior figures at a number of wealth management firms have said dividends are an investors’ best friend in a zero-rate world, arguing the importance of speed in snapping up such opportunities.
The Bank of England hinted at a potential change to the base rate this month, after announcing the rate would be kept at 0.5 per cent in July, marking the 84th consecutive month of no change.
FTAdviser asked a number of wealth managers about their strategies for ensuring clients get reliable returns when the base rate is edging on zero.
Andrew Wilson, Towry’s head of investment, said every basis point counts in this kind of environment, adding his team are “sweating the assets” a bit more.
“It is about trying to make a virtue out of volatility and one of the things we are doing is being quicker to grab opportunities and recycle the profits to other parts of the portfolio.”
No one has got the perfect track record, but if you’ve got the scars then you are less likely to make behavioural errors. Andrew WilsonHe also said it is important to take advantage of the structure and nature of markets, leaning on the emotional ‘herding’ of investors, as opposed to a traditional beta strategy.
Mr Wilson admitted for cautious investors it can very difficult to get a reliable return without taking on risk of some sort, pointing to the traditionally less-risky bonds, which he said now have limited upside and potentially huge downsides.
He branded it an “horrendous” year for active managers, and suggested it was now even more important to rely on experience, adding the “chase” of the latest star manager was not something he believed in.
“No one has got the perfect track record, but if you’ve got the scars then you are less likely to make behavioural errors,” he said, adding it was important to have lots of market neutral or long-short equity strategies in client portfolios.
He named managers like Nick Train at Lindsell Train, Tim Russell at Sanditon Asset Management, Nigel Ridge at BlackRock, Jeremy Lang at Ardevora Asset Management, and - on the absolute return side - Andy Corker at BNY Mellon.
Peter Lowman, chief investment officer at Investment Quorum, said given the outcome of the EU referendum, it was very likely the BoE will cut interest rates over the coming months.
However, it is still possible for investors to generate a yield of around 3.5 to 4 per cent each year if they accept a higher risk profile, enabling them to tap into equities with strong balance sheets, cash flow and an increased dividend policy.
Mr Lowman said portfolios should be investing in well-managed equity funds, UK commercial property investment trusts and specialist absolute return funds, pointing to the F&C Commercial Property trust and the Aviva Multi-Strategy Target Income fund.
He also name-checked Nick Train, along with Terry Smith, Neil Woodford, Sebastian Lyon, Hugh Yarrow, Mark Martin and George Godber as stock pickers who deliver good risk adjusted returns, which are “incredibly important” in this current investment environment.
Laith Khalaf, senior analyst at Hargreaves Lansdown, backed companies with global brands and resilient earnings streams, which he said has proved to be a successful strategy in the face of low economic growth.
Equity income funds were also a good idea, he said: “In a world of low interest rates, dividends are an investor’s best friend, so equity income funds are worthy of consideration.”
All the prices has gone up because there is too much liquidity in the system that is struggling to find a home. Gareth LewisTilney Bestinvest’s chief investment officer Gareth Lewis said all assets have become highly correlated, which is the biggest single risk because there are very few places where assets can be safely allocated without being linked to other parts of the market in some way.
One of the reasons Tilney turned to gold in October was because it was an unloved un-owned asset compared with virtually everything else, he said.
“All the prices have gone up, because there is too much liquidity in the system that is struggling to find a home,” he added.
Patrick Connolly, certified financial planner at Chase de Vere, said the answer to any financial planning question is rarely a particular investment fund, sector or asset class.
But he said the funds with the potential to produce good long-term returns would include the likes of Fundsmith Equity, Threadneedle UK Equity Income, BlackRock European Dynamic and Jupiter Strategic Bond.
katherine.denham@ft.com
