Friday Highlight  

Where to source income in future

Over the past 10 years the annualised volatility of returns was 14.9 per cent - compared to 15.5 per cent for the MSCI Emerging Markets index.

The total return was on average 2.6 per cent higher each year too, so you were getting higher returns with slightly less risk.

Another appealing trait of emerging market companies is that, with a comparatively low dividend pay-out ratio of 44 per cent for the MSCI Emerging Markets index – versus the 80 per cent offered by the UK’s FTSE 100 index – they also offer significant scope to ramp up their pay-out ratios.

With any such increase comes added investor interest from income seekers everywhere, which can also drive a pop in share prices.

All this means that a focus on income-producing investments may be a way to lower the risk in your portfolio, while potentially enhancing return.

Even though the yield on emerging market equities might not be earth shattering right now, the risk and return profile that is on offer from holding higher-yielding stocks in a sector with significant potential for capital appreciation should surely be a strong candidate for every income investor’s portfolio.

CJ Cowan is an assistant portfolio manager at Quilter Investors