by Nick Britton
Nick Britton
Is the very concept of equity income outdated? In a recent column for the Financial Times, Terry Smith argues that the best approach “is to invest for the highest total return you can achieve and sell whatever shares or units you need to provide cash”. I have heard some advisers make a similar argument.
Dividend cuts at many blue chip household names have given extra ammunition to the advocates of a ‘pure total return’ strategy. Certainly, the approach of relying on company dividends offers no guarantees, any more than any other form of investing – though investment companies have revenue reserves to cushion blows such as COVID-19.
But relying on achieving a certain level of total return has its very obvious problems too, especially for those looking to fund their retirement. Even if those returns are achieved, on average, over a long period, an unlucky sequence of returns could spell trouble for a retiree. Hence the enduring popularity of income-producing investment companies, which allow investors to ‘outsource’ the job of smoothing income over time to the fund manager and board, in the same way as they choose to outsource the stock selection.
The good news is that the investment company investor now has a wider range of income options than ever before. This month in Spotlight, we have asked analysts to look beyond the obvious income sectors (UK Equity Income, Global and Global Equity Income) and name their top picks for attractive, reliable income streams – Asian equities and infrastructure feature strongly. Meanwhile, David Prosser chews over that Terry Smith column and asks whether investment companies could still have a role for investors who choose to follow Smith’s advice.
Normally, at this time of year, I’d be wearing out shoe leather in a training tour of the UK, renewing my intimate acquaintance with railway stations and hotel restaurants. Corona put a stop to all that, but we have been working on bringing you an alternative that will be online, but live. This will supplement our existing (on-demand) online training in Learning Zone.
So in July we are running a series of four webinars, Investment trusts explained, which will aim to do just that. Perhaps you, or a colleague, will be able to join us for the sessions. While the webinars are designed for those with little or no prior knowledge of investment companies, we will be covering some new material – including the impact of COVID-19 on investment companies – so there should be something for you even if you’ve attended our sessions before.
Finally, I would draw your attention to the last article in Spotlight, which looks at what investment companies and their portfolio holdings have been doing to support front line workers and small businesses during the COVID-19 pandemic. It’s a heartening read.
I hope that as lockdown eases, you’re able to take advantage of the extra freedom that brings while staying safe. As ever, do get in touch with any questions or comments.
Nick Britton, Head of Intermediary Communications, AIC
9-21 July - Investment trusts explained A series of four 45-minute webinars presented by Nick Britton that will explain all you need to know about investment trusts.