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“With yields
around a
couple of per
cent, why
pay a third of
your profit
to an active
manager?”
“Using smart beta, blended with
index building blocks, also helps
you address the fee issue,” he
added. “Fees are important because
people are living longer and so
need to sustain their pension pot
over a longer time horizon. But
the building blocks do have to be
actively managed to receive the
sustainable income over time.”
Onuekwusi says just sticking
to one asset class, such as UK
equity income, will not provide a
diversified income stream. This is
because if there is a specific issue
on the horizon with the potential
to affect that asset, such as the EU
referendum vote in June or the
bulging fiscal deficit in the UK,
your performance will be affected.
“There are plenty of other asset
classes such as emerging market
debt, property and infrastructure,
that allow you to spread your risk
more globally,” he continued. “As
such, using a multi asset approach
is the next stage in the evolution
of income investing.”
PERFORMANCE OF SECTOR VS INDEX OVER 20YRS
350%
IA UK Equity Income (308.48%)
300%
FTSE 100 (219.70%)
250%
200%
150%
100%
50%
0%
May 16
May 14
May 12
May 10
May 08
May 06
May 04
May 02
May 00
May 98
-50%
May 96
“Asia is one market which
is not only a high dividend
region, but also looks attractive
from a valuation standpoint,”
he explained. The tracker he
recommends to gain access to
this theme is BlackRock Pacific
ex Japan.
Laird argues: “In my view, the
current low interest rates make
it more important than ever for
investors to minimise charges.
With yields around a couple of per
cent, why pay a third of your profit
to an active manager?”
When it comes to picking
passive products, LGIM’s multi
asset fund manager Justin
Onuekwusi warns investors
against “blindly chasing”
high yielding companies and
recommends instead that they
give proper thought to genuine
active asset allocation.
“If you go down the index route,
we tend to favour smarter beta
income strategies that use some
form of active screen, in order to
filter out those companies that are
high yielding simply because they
are effectively about to go bust,” he
explained.
As a result, Onuekwusi says
that if you are going to manage
a sustainable income portfolio
of index products on an ongoing
basis, you have to do it in an
active way. This is because at
times you will have to decrease
your exposure to certain regions
and sectors when the income
opportunities look more stretched.
Source: FE Analytics
9