Despite the great unknowns created by the pandemic and the unconventional monetary policy of the past decade, it is the more traditional risks around interest rates and inflation that are a threat to income portfolios in the near-term, according to the guests on the latest FTAdviser podcast.
Andy Marsh, who jointly runs the Artemis Income fund, said: “One of the biggest trends of the last decade has been the rise of globalisation, which has been deflationary, but I think we might now be approaching an inflection point where inflation starts to hurt returns for the first time in a decade.”
Darius McDermott, investment adviser to the VT Chelsea fund of funds range, said: “Inflation has popped up, it is now part of the investment cycle again, but when inflation pops up, then the habit is for interest rates to rise.
"The risk is that central banks put rates up too quickly, so central bank risk is back. There is a disconnect between GDP which looks like its booming, the rate cycle which looks like it’s late starting, and asset prices, which most people think are expensive, so those are the risks now.”
Vincent McEntegart, who runs the Aegon Diversified Monthly Income fund, said: “At the beginning of 2000 the UK gilt yield was 5 per cent, now its 0.75 per cent or so.
"The base rate then, what you got for just staying in cash, was almost 6 per cent. Now we look at low risk and low yields, and everyone is waiting for them to rise. Over the past decade we have had to think differently about risk and how we achieve our investment objective and income objective.”
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
