The composition of the market means UK equities will always be a material part of an income portfolio, but valuations are not as cheap as they were, according to guests on the latest edition of the FT Adviser podcast.
Gathered in the studio to discuss the topic of creating an income portfolio in uncertain times were Nick Stanhope, senior portfolio manager at Morningstar; Hillary Blandy, who runs the Jupiter Monthly Income Bond fund; and Stuart Rhodes, head of the income team and manager of the M&G Global Dividend fund.
Stanhope, who runs the income portfolios at Morningstar, said: “We do have a meaningful exposure to UK assets.
“Valuations are not where they were, but it is one of the most attractive areas of the market for an income investor.
“The key is to focus on the companies that, while listed in the UK, generate their revenues overseas.”
Rhodes said he tends not to think about portfolio construction in his global fund on the basis of geography, but rather on sectors and company specific factors.
Valuations are not where they were, but it is one of the most attractive areas of the market for an income investor
He said: “The notion that UK companies trade at a discount to global peers in the same sector is not, well I won’t say it’s a myth, but it’s not as significant as it is made out to be.
“Valuations are not as attractive as they were, and I don’t see any reason to have an overweight to UK equities in my portfolio.”
Speaking from a fixed income perspective, Blandy said the spreads on UK high yield bonds have been materially wider compared with US high yield bonds.
Adding that an investor content to compound those returns in recent years has been able to generate good returns.
To hear more about the construction of income portfolios in the current climate, click the link above.
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