Income Investing

Where can investors find the best sources of income?

Income has always been a crucial part of institutional investors’ portfolios, but finding it has never been more challenging than in the current lower-for-longer world where yield is scarce. For trustees, income is available in a number of forms, from liquid income yielding equities through to the more illiquid markets of high yield bonds and real assets such as infrastructure, property and alternative forms of credit. But knowing where to start is difficult and deciding which route to take requires thorough due diligence, which is not always possible for smaller schemes with constrained governance budgets. In the UK, a number of big companies have slashed dividends in recent months (see feature on p4) meaning it has become necessary to implement a wider, global search for corporates that pay dividends but also exhibit capital value stability. For real assets, scale and liquidity are barriers to entry. Plans are underway to pool assets among Local Government Pension Schemes in England and Wales, a move that is expected to address the scale issue by collectively enabling participating schemes to be bigger players in these markets. But what about the private sector defined benefit schemes? What options do they have? In the defined contribution (DC) space, income will play an increasingly important role as large numbers of scheme members stay invested throughout retirement and depend on income to fund their lifestyles. But this is easier said than done in an area where daily pricing continues to loom large and asset managers are still working on suitable products to meet this need. In markets where everyone is searching for yield, there is always the danger of bubbles forming as well as a lack of liquidity – demonstrated by the actions of certain UK property funds in recent months – so investors need to be aware of the risks before pursuing these strategies. This panel discussion sees a group of asset managers and consultants discuss income investing, from the importance of income in portfolios and the barriers to accessing income-yielding asset classes through to its role in DC and how it might be affected by a move in interest rates.

Roundtable

Where can investors find the best sources of income?

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Roundtable articles

Equity income: taking a global perspective

Mind the gap! How the overlooked middle ground could help solve the cash flow challenge

In search of income – the lessons pension funds can learn from insurers

UK dividends: what goes up, must come down