Risk and taxation
For Joe Roxborough, chartered financial planner at Ascot Lloyd, a good income-generating multi-asset fund isn't necessarily one that only focuses on income at any cost.
He says there are two reasons why he is averse to doing so: taxation - given the government has reduced the tax-free allowance on dividend income from £5,000 a year to £2,000, and diversification.
Mr Roxborough says: "By focusing solely on a nice income, you are limiting your investment options and reducing diversification within the portfolio as a whole.
"In addition, you are perhaps not paying due attention to the inherent risk of the investment itself.
"There may be a very good reason a fund is producing double-digit returns when no-one else is, and that might not be due to clever management. Berkshire Hathaway, by contrast, the investment conglomerate of the most famous investor of all time, Warren Buffett, has never paid a dividend."
Not the be-all and end-all
While multi-asset portfolios have the ability to invest far and wide to generate income, chasing yield via various strategies and stratagems is not always the answer to the investor's desire for a regular payout.
The more esoteric the income stream, the higher the risk of the overall portfolio, and managers and advisers alike are not keen to run their clients' portfolios up the risk curve just to get that extra bit of yield.
Mr Szechenyi explains: "We prefer sustainable sources of income which are derived from higher quality, cash-generative companies, where the cash can be reallocated into the business – a progressive dividend stream should therefore take care of itself."
"In short", says Mr Roxborough, "I would check the tax situation and not put 'natural' income production as the number one factor in portfolio construction.
"Instead, think about safe withdrawal rates from the portfolio, factoring in for inflation and costs, as well as having a cash buffer for particularly poor years. This takes a bit more effort but you will be rewarded with a more diverse portfolio and, in many cases, a lower tax bill."
Ultimately, as Mr Crewe has expressed, traditional approaches to income generation, such as cash or government bonds, are no longer "viable solutions for income-seeking investors", especially when combined with annual drawdowns from the fund.
Therefore, while maximising the income of a portfolio is a "legitimate goal", he warns this must always be done with "a close eye on associated risk".
simoney.kyriakou@ft.com
