Fund manager Chris White has revealed four nuggets of wisdom for investors seeking an attractive income in a 'polarised' market.
White is in charge of Premier Income Fund (GB0003884508) and Premier Monthly Income Fund (GB0003884946), where he focuses on long-term capital growth mainly through UK-listed equities.
A polarised market suggests there are nuggets of value among the raft of equities with high valuations.
Thanks to global growth expectations of 3.9% in 2018, driven by Asia and emerging markets, White believes investors should avoid paying a high premium for growth stocks.
He is also sceptical of bonds and ‘bond proxy’ stocks.
‘Bond proxy’ stocks generally enjoy slow yet steady growth with strong cash flow and high dividend yields, making them appealing to retail investors.
These might include utility firms such British Gas-owner Centrica (CNA), SSE (SSE) and mobile network giant Vodafone (VOD) or consumer staples stocks like Reckitt Benckiser (RB.) and Unilever (ULVR).
‘With inflation rising, real returns are falling and bonds look expensive. If quantitative easing starts to unwind, bond proxies will continue to perform poorly,’ comments White.
Political risk is another factor that could impact equities, particularly if Labour performs well in local elections in May and if the coalition between the Conservatives and DUP falls apart.
Among the most vulnerable equities to political risk are utility companies. The UK government has set its sights on the sector, encouraging consumers to switch providers and threatening to impose price caps.
One of the biggest sufferers is Centrica, which lost 823,000 UK customers in its third quarter and warned on profits late last year.
White advocates seeking out ‘value’ oriented stocks - despite being out of fashion for ten years - as these are seen as undervalued by the market.
The Premier Income Fund has delivered 8.2% annualised total returns over the last five years (illustrated below), beating its benchmarks.
Premier Monthly Income Fund has a similar performance, offering 8% in annualised total returns over the same period.
