Diversifying portfolios for yield
There are pockets of good yield to be found globally in fixed income funds, if investors are willing to take more risk and move into select corporate bonds, high yield or emerging markets.
But as Mr Iggo points out, it is also worth looking at equities to combine with bonds for yield-hungry investors.
Mr Iggo says: "A simple but tried-and-tested way of diversification is putting together bonds and equities.
"Over time there is a negative correlation between the performance of risk-free assets and corporate risk, which means that, when needed, bonds go up when equities go down.
"Equities and inflation-linked bonds provide real returns and putting them together has created returns close to that of a pure equity index but with significantly lower levels of volatility."
Of course, while volatility is low - as it is currently - income cannot be "created out of nothing", says Mr Iggo, so equity dividends perhaps may have a larger part to play in driving more risky, but potentially higher, yield for investors.
To this end, it will come as no surprise to advisers that platform providers Willis Owen and FundsNetwork recently reported significant inflows into equity income funds.
One name stood out above the rest: Neil Woodford’s CF Equity Income fund, launched three years ago. Since then it has comfortably outperformed the rest of the market.
Some 86 per cent of the fund’s portfolio is currently made up of London-listed companies, the bulk of which operate in sectors known to be more sensitive to economic activity.
“I think the market has become too cautious about the rise in inflation and about broad economic activity in the UK,” says Mr Woodford. “We’re at record levels of employment in the UK. Job vacancies are at a record level and the credit environment has begun to normalise.
“The banks are now broadly repaired in the UK. They will continue to rebuild capital but now they are lending to the economy, which is the first time really since the financial crisis that credit has flowed to the economy at an acceptable price. And that’s an important new and positive dynamic for the UK economy.”
In the fourth-quarter of 2016, UK dividend payouts increased by a record £5.2bn, pushing the total amount of cash awarded to shareholders up 6.6 per cent to nearly £85bn.
These generous rises, which have continued into 2017, further cement the UK’s reputation as a hotspot for income investors.
Exchange rate movements flatter corporate profits
However, some in the industry are concerned that this euphoria over UK dividends is built on rocky foundations.
Jason Hollands, managing director of business development and communications at Tilney, argues that the UK’s status as the highest-yielding developed equity market in the world requires closer examination.
