John Moore, senior investment manager at Brewin Dolphin, says there is little option but to buy some income bearing assets that have little growth, such as infrastructure funds, and to add assets that are growing faster, but pay little in the way of income, such as technology stocks, to generate some capital growth.
Mr Oliver says one of the areas he has looked at for “lower risk” income is investment trusts.
Unlike open ended funds, investment trusts are not required to pay out all of the income they generate in a year. This means many trusts have built up reserves, which can be used to fund dividend payments in tough years, making the income relatively immune from market downturns.
Craig Baker, investment manager for the £3bn Alliance Trust, which is a multi-manager fund, believes it has become much harder to construct an income portfolio as a result of the pandemic.
He says the only solution is to find equity fund managers who can identify the companies with balance sheets strong enough to withstand, and business models immune from, the disruption wrought by the present pandemic.
Rob Burdett, multi-manager fund manager at BMO is also keen on investment trusts for income. His approach is to buy investment trusts in niche areas such as renewable energy, which derive the bulk of their revenues from government contracts.
He adds that during the height of the market turbulence in March, those trusts fell from trading at a substantial premium to a substantial discount, making the income yield more valuable.
Cameron Falconer, analyst in the multi-manager team at Aviva Investors says there is a requirement for investors to be more “pragmatic” when it comes to bonds, and to not expect lower risk bonds to provide an attractive income in the years ahead.
He says that some high yield and emerging market bonds need to be included in portfolios in order to generate income.
High yield bonds are those which have a credit rating below, BBB, and so are at the higher risk end of the spectrum.
David Hambidge, director of multi-manager funds at Premier Miton says: “There are still many interesting income producing assets to choose from, including equities where we expect dividends to recover strongly next year.
"The UK stock market looks particularly interesting given its underperformance this year and while we don’t expect dividends to surpass 2019’s record high for several years, we believe UK equities offer a good combination of income and recovery potential on a twelve month view.
Elsewhere, we took advantage of the acute weakness in corporate bonds and other areas of credit to lock in some very attractive yields, while we have exposure to a few listed commercial property opportunities, including supermarket leasing and care homes, both of which provide high and growing dividends.”
