Maintaining investments in a low-income environment

INTEREST rates are at all-time lows and economic stimulus via the use of quantitative easing has led to exceptionally low gilt and quality bond yields, making life for savers and investors seeking an income particularly difficult.

INTEREST rates are at all-time lows and economic stimulus via the use of quantitative easing has led to exceptionally low gilt and quality bond yields, making life for savers and investors seeking an income particularly difficult.

With gross redemption yields (the value of both income payments plus capital loss/gain if a bond is held to maturity) at historic lows, maintaining income streams from them in the current environment often comes at a price.

This means either capital erosion as they approach redemption or that your income return and total return are way below your long-term needs.

Similarly searching for income can mean taking more risk than an investor is ordinarily comfortable taking, by investing greater proportions of a portfolio in either equities or in lower quality but higher yielding bonds.

In our opinion the search for income from equities as an alternative has led to the valuations of traditionally high-yielding defensive stocks becoming quite stretched and share prices starting to look vulnerable. In recent weeks the share prices of many companies in this area have already started to decline and slip back.

Alternatively though, investors can request defined withdrawals from their portfolio and implement a total return approach to their mandate and targeted returns. This allows the manager to invest in alternative assets as a source of both growth and income whilst maintaining a portfolio within the client’s ideal risk parameters. Investments such as convertible bonds, range accrual notes and zero coupon bonds may yield little or no specific income, but are often available with gross redemption yields that will fulfil investors’ total return requirements.

Other sources of income that may not normally be on investors’ radars also exist, such as infrastructure funds, which often produce sensible income streams that are inflation linked.

Using a total return approach for your return target also opens up a greater universe of stocks and companies to invest in, ones which perhaps do not yield much in the way of dividends but have much greater growth potential and more importantly are at sensible valuations.

This approach also provides the possibility of greater tax efficiency, utilising an investor’s capital gains tax allowances as opposed to paying income tax on natural income.

Vertem Asset Management can help you create such portfolios. We are a local investment manager with national recognition and frequent industry media coverage.

Our full investment process is conducted within our Newcastle office, from analysis and research to portfolio construction and decision making, all of which is implemented by the managers you meet. Despite growing fast, we remain relatively small versus our peers, meaning our investment process is nimble and something which allows us to invest in ideas that may be too illiquid for larger firms.

We currently manage a variety of account types, such as ISAs, SIPPs, general investment accounts, charity accounts and trusts and have an exceptional track record of performance versus client benchmarks, typically delivered with lower volatility.

Call Vertem today for free a consultation, or a review of your investments and strategy.

Typically we work with the clients of financial advisers, however if you do not have one we can still help and would be delighted to assist you with your investments.

For most clients we would recommend a financial adviser and believe you are likely to benefit from working with a good one. If you do want one we can help you find the right one for you, locally.

Visit www.vertem.co.uk, email johnd@vertem.co.uk or call 0191 640 8060.

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