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Capital appreciation type assets are “necessary” in income portfolios now

Capital appreciation type assets are “necessary” in income portfolios now

Despite the recent rise in bond yields, income investors are still going to need to own assets whose primary function is capital appreciation, according to Nathan Sweeney, deputy chief investment officer for multi-asset at Marlborough. 

Income investors have, for much of the past decade, been plagued by a combination of low bond yields, and poor performance in capital return terms from equities, which have historically paid a dividend.

Sweeney said: “Bonds are back as central banks raise rates to tackle inflation. However, income on offer has been structurally trending lower, and this trend is likely to remain in place. Falling inflation and risk of recession do not scream higher yields for longer.

"Capital appreciation-type assets in multi-asset income portfolios are necessary in this low-yield world. Still, it's also prudent as it reduces risk and provides the potential for higher returns to facilitate clients' income requirements.”

Darius McDermott, advises the VT Chelsea multi-manager fund range. The income fund of this range is the top performer in its sector in the five years to mid June. 

He says: “With people living longer in retirement, and with real yields still negative across most asset classes, there is now a need to have capital appreciation-type assets in multi-asset income portfolios.

"It is also a good idea to have some dividend growth in a fund to help fund future income requirements. We have a nice mixture of dividends and dividend growth in our monthly income fund, but we do also have a small amount of growth assets that do not yield today to fund future income.”

david.thorpe@ft.com