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Spirit of the Blitz

IFA conference and roadshow season looks to be upon us once again – at any rate, I have managed to pick up a couple of chairing gigs – and I have just returned from this year’s Sifa Conference in sunny Daventry, where I was playing ring-master to a panel session on the search for global income.

Since the after-dinner speaker the night before had proved to be ’a senior policy adviser’ from a spoof European regulator – although obviously the line between reality and satire in that field has become pretty blurred – I felt obliged to promise at the start I was a real journalist. It is possible some of the audience were not convinced.

What is less in doubt is this is not a vintage period for the UK’s income-seekers and, by extension, their financial advisers. Most bank accounts appear to have forgotten interest rates are allowed to begin with a number other than zero, gilts would currently be few people’s first-choice investment and inflation seems to be ticking up on almost a monthly basis.

Anyone hoping to generate an income that will not be eaten away by this increasingly voracious beast must now look beyond the traditional, so-called lower-risk income sources and think a bit more creatively – and, as out of character as it may seem, a number of investment houses do look to be stepping up to the plate with products designed to meet this genuine need.

The last couple of years have seen the emergence of new breeds of income-generating investment, including strategic and absolute return bond portfolios, equity-based options that look beyond the UK – whether it be globally, regionally or even sectorally – and multi-asset portfolios that take in all those areas plus ones where most advisers venture more rarely still, such as real estate investment trusts, convertibles and even non-agency mortgages.

However, as income generation becomes a more complex and exotic process, so the risks increase for what have traditionally been a more cautious group of investors. As a result, advisers will need to ensure they not only under-stand the risks of this new wave of income investments themselves but can also articulate them fully to clients.

A theme of the two events I chaired in the last week – and I suspect of the roadshow I am chairing in the week to come – has been the presenters acknowledging the tough investment environment and then offering reasons why their particular fund is so well-placed to deal with it. Of course, that is a hugely simplistic and borderline rude generalisation but it is no less true – nor the fund managers’ arguments less valid – for that.

The presentation I mentioned last week, where Stewart Cowley of Old Mutual Asset Managers just stopped short of including in his slides a picture of the Four Horsemen of the Apocalypse, rounded off with a number of practical investment conclusions.

Strategically, he advised us to embrace commodity currencies as a hedge against risk, to favour deficit reducers over deficit creators and to seek out companies that are “at pinch points” in the supply chain. In portfolio terms, that means buying the South African rand and the Australian and Canadian – but very much not the US – dollar, avoiding government bonds while creating a negative dur-ation and buying companies with low gearing and unique product placements.

Back at the Sifa Conference, Newton global higher income manager James Harries balanced positive points such as the dynamic potential of the developing world and the way global monetary policy is supporting asset prices with question marks as to the longer-term effects of that policy and some less than sparkling demographics in the developed world. All of which led, he said, to a portfolio targ-eting well-financed companies in well-financed-countries.

In the bond corner, meanwhile, John Stopford of Investec Asset Management noted no single fixed income sector is the right place to be all the time before arguing the wide opportunity set on offer within the asset class creates more potential to boost returns, diversify risk and position a portfolio to make the best of different investment environments. “Make the best of” may be a phrase we hear more than a few times this year.

Julian Marr is editorial director of Marketing-hub.co.uk and Thoughtleadershiplive.com

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