While inflation may push the yield on government bonds higher, the effect will be temporary and won’t hurt the shares in traditional income sectors, according to the guests on the latest FTAdviser podcast.
David Lewis, a fund manager within the Merlin multi-manager team at Jupiter, said higher bond yields were a sign that the economic recovery was taking place, which is good news for the shares of more cyclical companies, and companies that pay dividends.
He said: "I also think the amount of movement higher in bond yields will be quite limited."
His fellow guest on the podcast was James Harries, who runs the Troy Global Income fund.
Harries has long positioned his fund for a scenario of low inflation and low bond yields, and says he expects this to continue.
Harries said: “The longer term factors that have kept bond yields low are still present in the economy, so I think yields won’t actually go much higher, inflation won’t go much higher for a long period.
"There will be some high inflation in the short term, but not longer term, and with economic growth coming through, that's a good place for equities.”
Harries and Lewis also discussed the growth of alternative sources of income, such as music rights and airplane leasing, and what role they might play.
To listen to the full podcast click play on the player above. FTAdviser's podcasts are also available on Apple Podcasts, Spotify, Stitcher and Acast.
david.thorpe@ft.com
