UK-based investors looking to generate attractive incomes will need to broaden their horizons in 2017, with the outlook for domestic investments limited, according to Kames Capital’s Vincent McEntegart.
McEntegart, manager of the Kames Diversified Monthly Income Fund, said the prospects for UK–focused income-seekers were constrained by political and monetary headwinds, with better opportunities elsewhere.
“It is clear to us that investors seeking income need to look beyond UK assets in 2017, with the opportunities to capture a decent level of income from traditional UK assets limited,” McEntegart said.
“The Bank of England will most likely keep interest rates low as the Government prepares to exit the European Union, and in this environment, interest rates on our bank accounts will remain very low.”
McEntegart said there may be some upward movement on both bond and dividend yields if inflation continues to climb, but he concluded that, apart from dividend-yielding stocks in the UK (many of which have already seen share prices outstrip the wider market), the opportunities are limited.
Instead of looking at the UK, McEntegart said there are better prospects in areas such as the US and Asia.
“The areas where we see potentially better opportunities ahead are the US, emerging markets and Asia (including Japan). In these jurisdictions, economically-sensitive assets such as banks and those sectors that stand to benefit from infrastructure spend are where attractive yields and total return opportunities can be found.”
McEntegart, whose Diversified Monthly Income Fund targets a yield of 5% per annum, added that opportunities for income from these areas are to be found across a range of asset classes, not just equities and bonds.
“Diversification is key both in terms of asset selection and geographical reach, and there are opportunities from assets such as property companies and alternative assets, alongside equities and bonds,” he said.