Two discretionary managed income portfolios will help advisers meet the “increasing need for a sustainable income” among investors, Morningstar Investment Management’s co-head of investment consulting and portfolio management has said.
Announcing the launch of Morningstar Investment Management Europe’s moderately cautious income portfolio and moderate income portfolio, Dan Kemp said: “Using bespoke capital market assumptions and an optimisation approach specifically designed for income investing, we have created income portfolios that aim to meet investors’ increasing need for a sustainable income.”
He claimed that because they used the same capital market assumptions and optimisation process for both growth and income portfolios, traditional models “do not consider the ability of the portfolio to deliver a sustainable income and can lead to investors overpaying for high-yielding assets”.
The portfolios, which fall under the Morningstar OBSR managed portfolios service, will be actively managed with a focus on regular, reliable income for the UK market.
The moderate income portfolio will use assets including UK equity, UK gilts and corporate bonds, global emerging market debt, high-yield bonds, UK property and cash.
In a 16-page Ibbotson Associates research paper, Efficient Income Investing, published in June 2012, Morningstar Investment Management head of retirement research David Blanchett and Morningstar Investment Management Europe chief investment officer Hal Ratner warned that meeting demand for income was “no easy task”.
The report said: “Demographic trends and volatile markets have increased demand for income-oriented investments.
“People in or nearing retirement seek funds and other investments that will produce enough current income to help support their needs.
“Additionally, many investors remain comparatively risk-averse, given their recent experience of the 2008 credit crisis.”
But the added that “the type of product mix best suited to these investors is not well defined, since generating consistent income from a portfolio is no easy task”.
Adviser view
Andrew Reeves, director of Northamptonshire-based The Investment Coach, said: “What clients are really after is net returns overall - they are not too worried whether it is labelled income or growth.
“In the current conditions, an income portfolio is not a bad place to be.”
