Follow The Telegraph’s tips to boost returns from your diversified investment portfolio.
Don’t rely on a single asset class or region to deliver you income. UK equity income funds are a popular route but check out The Telegraph’s tips below to maximise returns through a diversified portfolio.
It is no secret that if you are looking for capital growth, it is best to head to an emerging economy. But these countries are increasingly a great bet for income too.
While some emerging-market equities can be risky, plumping for a stock that pays a dividend can reduce this risk.
Algy Smith-Maxwell, who runs the Jupiter Merlin Income fund, said that in order to pay a dividend a company had to have a good balance sheet, and by paying a dividend it suggested a high standard of corporate governance and a respect for shareholders.
Companies in emerging markets also carry the added bonus of being able to grow their dividend, thus giving you a buffer against the eroding effect of inflation.
Mick Gilligan of Killik & Co liked Veritas Global Equity Income, M & G Global Dividend and Lazard Global Equity Income. Among investment trusts, he tipped Law Debenture Trust.
For more specialist regional funds, he backed First State Asian Equity Plus or Prusik Asian Equity Income in the Asian income area, and for those looking for exposure to American dividend-paying companies he tipped the SPDR S & P Dividend Aristocrat exchange-traded fund.
Funds that own infrastructure, such as schools and hospitals, can offer a stable, long-term income. Income seekers are hot on the infrastructure story – meaning most funds are trading at a premium. It is not a risk-free investment, but it is one that can provide a steady inflation-busting income.
Alan Brierley of Canaccord tipped the HICL Infrastructure fund.
Investment trusts HICL Infrastructure and John Laing Infrastructure are the two “lowest-risk” funds, as almost all of their assets are no longer in the construction stage, meaning they are taking no development risk.
HICL Infrastructure has increased in value by 12pc over the past year and is trading at a 9pc premium.
Stephen Peters of Charles Stanley liked funds from 3i and INPP, although he admitted that they were expensive at present.
Profit from property
The residential property market may be stagnant but commercial property funds can still provide investors with a yield of up to 5pc. Commercial property is not without its pitfalls, as tens of thousands of investors learnt in 2007 and 2008 when values started to fall. Popular funds managed by the likes of New Star and Aviva were forced to impose exit restrictions because of liquidity problems.
But fund managers have learnt their lesson and now include “liquidity buffers” in funds, such as a cash reserve or house builder stocks that can be traded more easily than bricks and mortar.
“The yields available on most property funds at the moment range from around 2.5pc to 4pc after charges, and anything above 3pc in my eyes isn’t bad in the current environment,” said Darius McDermott of Chelsea Financial Services. “Investors could consider the relatively new Schroder Global Property Income Maximiser fund, which, like Schroders’ other income maximiser funds, has a yield target of 7pc.”
Fixed interest has outsold every other type of asset for the past 10 months. In fact, so much money has been poured into the sector that even corporate bond managers are warning investors off their own funds. There has been talk of liquidity problems in corporate bond funds, and yields are beginning to look less attractive. But there is some value to be had in strategic bond funds, which do not restrict themselves to just corporate debt.
Multi-manager Gary Potter of Thames River said: “The better value lies in the top end of the high-yield market and bottom end of the corporate debt area. You are at least getting a better yield for being there and corporates generally are in rude health. Corporate and high yield obviously carry more risk, but in our view, for the long-term investor, equities look better value, although you must be able to accept the volatility that comes with it.”
Mr Potter favoured Kames Capital Global High Yield fund, Henderson Strategic Bond and the Pimco Global Diversified Income fund.