Should you use shares for income?

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A low-interest rate investment environment is driving some to suggest even conservative income-seeking investors should move their investments into equities but some advisers are unconvinced.

Monday, July 8th 2013, 7:42AM 1 Comment

by Susan Edmunds

Pengana’s Rhett Kessler has been one of the most vocal, saying fund managers with a focus on absolute returns, and the ability to cash out of investments when necessary, could provide good income and preservation of capital via equities.

But Andrew Kelleher, of ASB Securities, said advisers needed to be very careful that they did not inadvertently introduce too much risk when they were seeking income.

“You can challenge the boundaries of asset allocation models and maximise within those risk limits your exposure to listed property and equity income products but I still believe fundamentally the income part of a portfolio should be from fixed-income products.”

Murray Weatherston, of Financial Focus, said he was interested in the notion of using equities for income, particularly because the yield curve is so flat – investors cannot boost their income simply by investing for a longer term.

“But it’s all very well getting 6% or 8% dividend yield if the general market goes down 10% and wipes  all that out. Should we be suggesting to clients that they increase their risk exposure by putting more equity into their portfolio to generate more income?”

He said many investors did not have the capital to do what they wanted to do.

JB Were’s Hamesh Sharma said interest rates were likely to rise soon so it did not make sense to lock in long terms on fixed interest products.

He said the best way forward was probably at most a mix of shorter-duration bonds and quality dividend-paying stock.

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