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The macro noise may have been deafening at times but all in all it has not been a bad first half of the year for investors, despite the volatility of equity markets again being uncomfortably high.

Once again there has been a disconnect between economic activity and stockmarket performance, with many higher-growth emerging markets seeing their equity markets decline in value while many struggling Western economies, including Europe, enjoying rising share prices.

This was highlighted in the UK as the stockmarket has made modest progress against a contracting economy.

There are two reasons why we have witnessed this disconnect between the value of shares and the economy. First, company balance sheets are generally in good shape. Second, valuations remain attractive, with history suggesting that, in the UK at least, longer-term investors will be rewarded for their bravery.

Having said that, is the decision to invest in equities at the current time really such a brave one? Indeed, with shares in the UK yielding more than twice the gilt market, it would seem an eminently sensible one and entirely logical for those investors requiring income.

However, the reality is that we live in an era where the industry focus seems to revolve around the volatility of capital values. This may be appropriate for some investors but certainly not in my view for those requiring regular income. For this group of investors, of which there is about to be an explosion due to demographic changes, the reliability of a long-term income stream that has at least a chance of keeping up with inflation is surely far more important.

It may be true that a number of UK-listed companies cut their dividends following the collapse of Lehman Brothers in 2008 but we know that this course of action is the exception rather than the rule and that the income stream from UK equities has, on the whole, remained extremely reliable.

However, the same can hardly be said of cash or UK Government bonds, with gilt yields having been in decline for more than 20 years and hitting a record low last month.

Meanwhile, the dividend from cash is one of the most unreliable and volatile of all asset classes and has been sitting at an all-time low for well over three years and is unlikely to move higher for a considerable time to come.

In spite of my pro-equity stance and particularly for those requiring income, I am not suggesting that investors allocate all their capital to this asset class.

However, there is still a school of thought that investors should sell equities and buy a fixed income once in retirement. This may have been good advice a decade or so ago but is now nothing short of a scandal.

David Hambidge is investment director of pooled funds at Premier Asset Management



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